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.

Friday, November 17, 2017


Retirement and pension are synonymous to each other. Investors have started feeling that buying pension plan will only take them to a secure retirement. Retirement planning is the selection of products become easy.
Retirement planning has three steps – accumulation, preservation and distribution. In accumulation stage you invest in different investment products based on your risk profile and time horizon towards retirement. Preservation and distribution stages go parallel to each other and these stages come after getting retired. Pension plan works on the concept of preserving wealth accumulated and incur retirement expenses. Mutual funds are very tax efficient compared to pension plans and flexible investment instrument offered by mutual fund helps to plan retirement more efficiently.
In accumulation stage of retirement planning one just have to decide which mutual fund scheme they should select and the asset allocation that they want to go with and they can also make a combination of equity, debt, gold and real estate depending on their risk profile and time period. As retirement savings are generally of very long term nature so one can select among diversified equity funds which may include a combination of Large and Mid-cap funds, also in case of debt allocation they may also go for long term debt funds.
At the preservation and distribution stage one need to go for more of a conservative side following a defensive approach with investment in short term debt fund, fixed maturity plan etc. Herewith one should also look for regular income generation, so one can go for systematic withdrawal plan or dividend pay-out options offered by various fund houses.
Here are the top 4 mutual fund schemes for retirement planning.
  1. Franklin India Pension Plan
  2. UTI Retirement Benefit Pension
  3. TATA Retirement Saving Fund
  4. ICICI Pru Pension Plan

Tuesday, November 14, 2017


Mutual fund is a financial instrument which pools the money of different people and invests them in different financial securities like stocks, bonds etc. Mutual funds are managed by asset management companies (AMCs). AMCs appoint fund managers to manage different mutual fund schemes and ensure that the scheme investment objectives are met.

Here are 5 major benefits of investment in mutual fund.

·        Risk Diversification: The biggest advantage of investing in mutual funds versus stocks is risk diversification. Every stock is subject to three types of risk – company risk, sector risk and market risk. Company risk and sector risk are unsystematic risk, while market risk is known as systematic risk. Even if company performs well the stock price might still fall, when the market falls.

·        Smaller Capital -Investors will require a large capital outlay to build a diversified portfolio of stocks. Whereas mutual funds work on the basis of pooling of money, mutual fund investors can have the beneficial ownership of a diversified portfolio of stocks with small amount of capital.

·        Range of Product Offerings- Mutual fund are designed considering investors risk profiles and investment objectives. Apart from equity funds there are also balanced funds, debt funds, monthly investment funds, liquid funds etc.

·        Disciplined Investment- Share prices are highly volatile and can induce the investor to buy or sell in short time periods due to fear or greed.Many investors fail to build a substantial investment corpus because they are not able to invest in a disciplined way. Systematic investment plans helps investors to take emotions out of investmentand manage disciplined investment at regular intervals.

·       Investment Expertise- Many retail traders have lost their money because of poor trading knowledge and expertise. Mutual fund is managed by professionals who are experts in picking right stocks to manage risk profile of portfolio of an investor.

  Click Here to invest.

Monday, November 13, 2017


Equity Linked Saving Scheme is an open ended fund that have no restriction on number of shares issued and are diversified by allocating in different asset classes which reduces risk of the portfolio by mitigating losses offered through various mutual fund schemes.
Investors invest in Equity Linked Saving Scheme (ELSS) to save tax under section 80C of tax law. However one can use this ELSS to build their financial goals if invested for longer duration.
The primary objective of ELSS is to grow capital for long term and to save tax. The growth of capital can be achieved by the power of compounding which works only in longer duration when reinvestment is made at regular intervals.
However while investing in ELSS one can avail a maximum deduction of  Rs. 1.5 lakh assuming falling under maximum tax slab. These schemes have well past performance track record and least lock in period. The major aim should be of investing and creating wealth rather than saving tax.
Further, if Dividend payout scheme is chosen for investment  it will help earn tax free payout during a financial year before maturity of the scheme. ELSS also gives good liquidity since the lock in period is just for 3 years as compared to pension provident fund where the lock in period is 15 years.
 If investment is made in Systematic Investment Plan (SIP) in ELSS which provides disciplined invests and reign better control on tax saving investment and future wealth creations.
Top five ELSS schemes are:
  • Axis Long Term Equity Fund.
  • Birla Sun Life Tax Relief 96.
  • Franklin India Tax shield Fund.
  • ICICI Pru Long Term Equity Fund.
  • DSP Blackrock Tax Saver Fund.