Thursday, January 11, 2018


Indian stock markets have been pretty volatile. The uncertainty is such that markets can take a plunge in one day and rise up again on the very next day. Investors who have invested in mutual funds through the SIP route have been successful in negating the uncertainties caused due to stock market fluctuations to a large extent.
Systematic Investment Plan (SIP) and Systematic Transfer Plan (STP) are two different routes of investing in mutual fund in discipline and systematic manner. SIP as well STP is possible in all kind of open ended schemes whether equity, non-equity or balance MF schemes. Equity is more volatile in nature and hence, more and more people invest in equity scheme through SIP or STP route.
Systematic Investment Plans
Under this method, one invests a fixed amount in a mutual fund scheme regularly on a particular date of every month. Benefit of investing through SIP is that one does not have to time the market. There are consistent deposits which lead to investing in the high as well as low market that help you make the best out of the overall opportunities that were not easy to predict in advance. The investors are required to submit onetime request for regular investment in the particular scheme of mutual fund.
A number of advantages one has while investing through the SIP. The essential benefit is having a dedicated and focused approach towards investment. Though there is a tremendous enthusiasm when people enter into the investment markets but fail to make regular investments. However, this plan reduces the burden later on as there is a predefined condition of investing a specific amount every month. So, one achieves an investment discipline. Also, one enjoys investment convenience. Another big advantage is rupee cost averaging. Because you get more units when market is down and lesser units when market is up, it helps to overcome risk of volatility and helps you generating better returns in long term.
So, the SIP system works where you have money in your bank account, and every month a fixed sum is transferred from your bank to the mutual funds.
Systematic Transfer Plans 
Systematic transfer plans (STPs) are suitable for investors who have a lump sum amount to invest, but want to proceed with the SIP way. STP has features and benefits similar to a Systematic Investment Plan. Only difference is that unlike SIP where the fixed amount is debited form investor’s bank account on a predetermined date to be invested in a scheme of a mutual fund, here investor parks a lump-sum amount in a less volatile scheme like liquid or money market mutual fund and gives a standing instruction to the fund house to transfer a fixed amount on a predetermined date in another scheme of the same fund house.
So, the STP system involves investing a whole sum of money in mutual funds, mostly a liquid fund and selling some units of the same to further investing in equity mutual funds.
A frequent question asked by investors who wish to invest through SIP is the time frame of investment. Your financial goals and priorities should be considered before deciding on the time frame of your SIP. Equity has potential to deliver higher returns in long term hence it makes sense investing in Equity Mutual Fund schemes for five years and more. Also, real benefit of rupee cost averaging can be observed only in long term. A SIP offers the double benefit of negating the market volatility and combating the unpredictability in rupee value while gaining optimum benefits from the equity markets. A SIP guarantees a disciplined investment irrespective of the market swings and helps you to reap from the benefits of compounding.

Tuesday, January 2, 2018

Why you should invest in multiple funds to mitigate portfolio risk?

Many investors, especially those new to mutual funds, tend to invest their entire surplus in just one mutual fund scheme. This concentrates their investment risk with just one fund management team. Having funds of different market capitalisations and investing styles would provide adequate diversification across assets, sectors and stocks.
Moreover, investing in a single fund might not generate optimal returns as funds that deliver outstanding returns in the long term may deliver lower or negative returns in the short term, and vice versa.
Mutual funds are a great tool for diversification, many investors think that once they put their money into a mutual fund their work is over, but for a fact this is not the case, their work just starts as even in mutual funds sufficient diversification is required. For example You may invest in 4 different mutual funds, but it does no good if they all have similar holdings, that is a portfolio which is highly correlated with each other. In this case, you are not actually diversifying because if something affects the securities in one fund, it will also affect the other fund. In this case, you will be holding the same amount of risk which a single fund would have to your portfolio, which in proper diversification can be reduced.
If you want to truly diversify your portfolio, then you need to invest in mutual funds that are not correlated to each other in performance. You can do this by considering which asset holdings your current fund has and based on that try to spread your money so that no asset with similar features are repeated in your next fund.
You should always remember that the diversification towards any investment should be done in exactly the way it demands in a said particular situation. Doing too much of diversification will also not serve any great purpose because the stocks present in different-different schemes will be more or less similar. However, the performance of schemes varies as it depends on the call taken by respective fund managers holding their particular schemes.
Hence, it is advisable to take adviser’s help before taking any step of doing investments in mutual funds.

Thursday, December 21, 2017


Investing in mutual funds has an inherent risk assumed upon the ownership. However, performance of the mutual funds can be quantified with the mathematical calculation of the historical returns. The correlation of the potential risk and the potential returns constantly put forth the opportunities to invest in mutual funds and drive maximum potential returns with minimum underlying risk.
First, classify the mutual fund to determine if it fits within your scope. For example, if you are seeking a mutual fund that provides steady income, a mid-cap value fund will leave you very disappointed. You can find all the basic facts about a mutual fund and have access to tools that further help you evaluate the fund. In your categorization of the mutual fund, also identify a few peers, or comparable funds from other fund companies, to compare your chosen fund.
Next, review the historical performance data and compare your chosen mutual fund with a few of its peers. Look at the risk-return trade-off for each fund and determine whether it meets your risk tolerance. if a fund assumes a greater risk than average. Ideally, select a fund that assumes low risk but still produces good returns. The balance between the two depends, again, on your risk tolerance and investment objectives.
Quality of stocks in the portfolio is reflected in its ability to drive superior returns on capital invested for a specific period of time. It is wise to check the industry leadership position of the mutual fund. Quality of the stocks in the portfolio would reflect in returns hence in the performance. Qualitative statistics and historical performance of mutual funds would help evaluating the performance.
Track record and competence of the fund manager – Your fund manager is an important person who makes investment decisions and stock selection in the portfolio. Understand your fund manager’s competence according to his/her fund management knowledge and ability. Your fund manager’s past performance would be a good parameter to track his/her record and could turn to be of a great value for your investment
Finally, take a look into the fund’s expenses and fee structure. Active mutual funds that have heavy trading or are very actively managed have higher annual expenses. Factor in these costs as they directly affect your performance. While a fund that charges higher management fees is not necessarily better or worse because of the fees, still be cognizant of reasonable fees for the type of fund you choose. Again, comparing the fund with its peers can reveal whether the fees are reasonable.

Friday, December 8, 2017

Planning to invest in mutual funds? The earlier the better!

One of the most important factors to consider while drawing a financial plan is fixing the time period, especially if you are a beginner. The thumb rule is, the earlier you start, the greater the chance of achieving your financial goals.
Everyone has some goals and responsibility in life, some want to buy a new car and some are planning to retire rich so that they can enjoy their post-retirement life. We all have many dreams, but are we really investing that much time and money on building the corpus to achieve these goals. It is time tested that if one starts investing early, the percentage of building the corpus for one’s desired future financial goals is higher as compared to those who start very late in their life.
Investing according to financial goals.
Identify and priorities goals:
The first step in goal based investing is identifying and prioritising goals by segregating them into needs and wants – needs are essentials and hence get precedence over wants, which are desires and aspirations. Once decided, align your needs/wants to the time horizon.​
Holding Duration
As a young investor one should know the holding duration of any MF categories (for e.g., liquid funds, debt funds, equity funds, hybrid funds, etc.) while investing their money in mutual funds against any financial goal.
Explore the systematic method of investing in mutual funds
​​Investors can also benefit from the systematic plans offered by the mutual funds. For instance, a systematic-investment plan (SIP) is used for wealth accumulation. A systematic-transfer plan (STP) helps in transferring wealth from one asset to another, in safeguarding the portfolio against volatility, and in adapting to the changing risk appetite with age and increase in responsibilities. Lastly, a systematic-withdrawal plan (SWP) is useful in deriving a regular income from the created wealth created.​​​​
Power of Compounding
Young investors have an advantage in investing since the longer you stay in the market, the less risky your investment becomes and the more corpus you can generate over a period of time. This happens because of the compounding effect and the rupee cost averaging benefit you get over a long term.
Once you are done with prioritizing your financial goals of life, quantify them, that how much amount you may need to achieve those goals and based on that choose mutual fund schemes. So give wings to your dreams and start investing in something each month to achieve your goals without any burden of heavy debt on your shoulder.

Tuesday, December 5, 2017


Liquid funds are open ended schemes that invest in debt and money market instruments with maximum maturity of up to 91 days only. Liquid funds can help us earn much higher rates than what the savings deposits offer without compromising too much on how quickly we can get our hands on the cash. Liquid fund have credit ratings which make them safe i.e. less risky for investors.
It is considered as the least risk category in mutual funds, as it does not invest in long term bonds and does not get affected by interest rates movements. The reason that this is considered as a safe bet is because it is generally related to the government sector which can be considered to have a consistent performance. These liquid funds also do not take a long time to mature and can be redeemed in liquid in a single day. People even park their money in a liquid scheme for as less as 2-3 days’ time.
Advantages of liquid funds:
  • No entry or exit loads applicable.
  • Easy redemption. Takes less than 24 hours.No lock-in period
  • Investment in short-term debt securities minimizes the interest rate risk.
  • Includes plans like daily, weekly and even monthly dividend plans.
The last one year return of these funds has been in the range of 7%-8% so one can expect such returns in future. Liquid funds come with different plans like growth plans, daily dividend plan, weekly dividend plans and monthly dividend plans. Growth plans don’t declare any dividend, and appreciation of fund is reflected in higher unit value. In liquid funds with dividend plan one get a tax relief on dividend payout.
Mutual funds are answer to your every investment requirement so one need to invest properly. Just know your priority well and only then park your funds wisely.

Thursday, November 23, 2017

Evaluation of mutual fund factsheet

When one wish to invest in mutual funds schemes; it is important to know as much as possible about the fund house, about the schemes, where your money will be invested etc. Most Asset Management Company (AMCs)  usually publish monthly reports (also called factsheets) that contain critical information related to the portfolios, at times a roundup on debt and equity markets from the fund manager and performance details of the schemes managed by the AMC. However, in many cases, factsheets are not up to the mark leaving much scope for improvement and even standardisation.
Here are the 4 key points of evaluating mutual fund factsheet:
  • Performance: The past performance is not the parameter to decide the future performance; however it gives you a rough idea about how that particular scheme may perform in the future. So the first is to illustrate if a scheme has been there for 3 or more years. Compare the funds return with its benchmark index and with the market return.
  • Asset allocation: The factsheet can hint certain insight into the fund management approach. Consider the top 10 stocks in the fund’s portfolio to determine the diversification. Fund should follow not more than 5% asset allocation in single stock ensuring its top 10 stocks are well diversified along with sectorial diversification. The asset allocation table tells you how the fund’s net assets are diversified across stocks, current assets/cash. An equity fund’s allocation to cash should be noted. Being in cash could work in the fund manager’s favour if the market crashes, but a higher cash allocation works against the fund during a rising market.
  • Expense ratio: Expense ratios are mandatory to be stated in the factsheet as they can significantly affect returns. It is the cost of running and managing a mutual fund scheme which is charged to the investor. A fund with a solid track record but a higher expense ratio (regulations cap this at 2.50% for equity and 2.25% for debt funds) may be better than one which charges less but gives poor returns.
  • Fund manager: It is mandatory to know who takes decision of managing your money. Understand the expertise of your fund manager and find out their track record which helps you worry less about your investments. Over the long-term, it is better to have your money managed by a group of fund managers, rather than a single fund manager.

Tuesday, November 21, 2017


Demat account facility is available for investing in mutual funds but there are questions in the minds of investors as to when these should be used. The demat option to investing might complicate the matter further for investors as it would bring in a new route for investing that might work demat option can be used for holding mutual fund units.
If there is already a demat account that is being held and used for the purpose of buying stocks then the costs for the maintenance are difficult. This is the reason why attention should be paid to the issue of the conditions under which already being incurred. In such a situation the investor just has to look at the extent of the transaction costs that would be incurred and then make the decision. Thus if there is a demat account already present then it would ensure that a part of the costs would not be additional and hence it would be prudent to use this.
The investor having investment in stocks as well as units benefits the investor to be able to buy and sell the units from the single account with much less efforts. The investor should be able to buy the units and get them credited to their demat account because if the investor does not have access to this it is tougher to operate. Another benefit is that units can be freely transferred to the accounts of nominees or legal heirs, except in case of tax-saving funds, which have a three-year lock-in. However, transactions through brokers involve approximately demat fee of Rs 300-500 on annual basis and a brokerage every time you transact. The brokerage could be more than 0.05 per cent per transaction.
Knowledge of the manner in which the investor would be able to transact and buy and sell the units is important for them to complete the investment process. But if there is a need for consolidation of the holdings for easy management then the demat route is the way to go.