Monday, October 16, 2017

Financial Goal Based Investing

When we take our family on a holiday, we make several plans – for travel, stay, sightseeing, equipment, food, and other expenses.   Many of these decisions however depend on a crucial factor – our travel destination.  If we travel to Ladakh we will carry woolens and trekking equipment; if we went to Goa we will pack sun screens and swimming costumes.   Our travel plan is defined by the destination.  Similarly, our investments have to be defined by our financial goals.
We may have a long list of things we like our savings to achieve.  Educating our children, getting them married, planning for a comfortable retired life, owning a home, re‐doing our existing homes, funding our holidays, and so on.  These large ticket items that cannot be met with our regular income require us to set money aside.  But saving alone may not be enough ‐ we need to plan about how to invest those savings, so that we are able to meet the goal we have in mind.  Such an approach is called financial goal‐ based investing, and is a useful way to plan and provide for several critical large expenses that we have to incur.
Consider for example, the education of the children.  We may begin to set aside some money for them when they are young.  But choosing an investment plan requires an understanding of three things.  First, we define the goal in terms of amount of money and time.  Assume that we like to save for the child to pursue a professional course, after 16 years.  We know that it costs, say, Rs.1 lakh a year today.  We need to consider the effect of inflation on this goal. Assume we estimate an inflation of 6%.  That is the minimum rate of return our investment must make, so that the amount grows at least to cover the effect of inflation.  Second, we need to understand how much we can save per year for this goal.  This depends on our income and expense patterns and our seriousness about this goal. Third, we have to choose an investment option that generates enough return to meet the goal.
We either increase the savings or we choose a higher return yielding investment, and balance the two.   Too high savings may be impractical; too high an investment return may be risky.  We therefore have to consider the time on hand.  Longer the time we have, greater is our ability to choose higher return and higher risk investments. If the return on our investment is high, the same goal can be met with lower amount of saving, freeing money for other goals.   A slow train will be less expensive, but take us time to reach.  A flight will reach us to the same place faster but costs more.  We have to make the same choice with our investments, based on the time we have.
Mutual funds aims to fund our financial goals by offering a range of products that help us earn income or achieve growth over a long period of time.   Goals give our investments a purpose and make it easier to choose our investment vehicles.

Thursday, October 12, 2017

Pros and Cons of Lump Sum and SIP mode

Here’s a solution.

Usually a first time Mutual fund investor is confused with regards to his investment in a fund through the two alternatives available to him i.e.SIP and Lump sum while investing for a long term horizon. Let us understand how these two alternatives work.
SIP: This mode of investment has gained a lot of popularity since last few years because of the various pros it has, neglecting the minor cons.  SIP stands for Systematic investment plan which means that an investor will be investing a fixed amount regularly on a monthly investment basis in a particular fund on specific date available, decided by him/ her on a prior note.
The Pros of investing through SIP are discussed below:
  • Minimum amount:SIP can be started through a minimum amount of Rs 500.
  • ECS:An Electronic Clearing Service process is followed for amount deduction directly through investor’s bank account.
  • Rupee cost averaging: It is an approach in which you invest a fixed amount of money at regular intervals. This in turn ensures that you buy more shares of an investment when prices are low and less when they are high.
  • Risk Diversification: It can diversify risk through regular monthly investment as you will be participating in all the market cycles (Market highs and lows).
The Cons of investing through SIP are as follows:
  • Averaged returns-If you strongly believe (and have some data points) that the market will go up in near future, investing lump sum would be better than SIP, since SIP will average your cost.
  • Less control- In a way SIP is a rigid product. You are investing a fixed amount in a fixed Mutual Fund scheme. If you want to change the scheme or the amount, you need to stop the first SIP and start a fresh one.
  • Funds Sufficiency – If an investor does not maintain adequate balance in the bank on the day of debit of SIP, then the investment will not happen that month OR the SIP might even get cancelled if this repeats for 3 consecutive months depending on the AMC norms.
LUMP SUM: Lump sum or one-time investment requires investors to invest in the fund at one shot. The number of units that can be bought from lump sum amount on the first day of investment is higher than SIP depending on the amount of investment. This method of investing is usually preferred by aggressive/experienced investors and high net worth individuals.
The Pros of investing through Lumpsummode of investment:
  • Investing in Big amounts:This is a good option for investing extra cash on hand instead of keeping it idle.
  • NFO’s: New fund offer by a fund is a way of lump sum investment in which an investor invests a bulk amount to deploy his idle capital by investing at NAV of Rs. 10
  • Long term outlook:Lump sum investment is well suited for financial goals like a child’s education & marriage, Retirement planning etc. which go over 10-12 years into the future.

The Cons of investing through Lumpsum mode of investment:
  • Irregular Investment: Lump sum investment is well suited for financial goals like a child’s education & marriage or others which go over 10-12 years into the future.

  • Short term: If the requirement of funds is in the near future, then a lump sum investment may not be the best option as the real returns are derived only over the longer term.

  • Risk: The risk associated with the lump sum investment is comparatively higher than SIP as one can end up investing when the markets are quoting at high levels, buying lesser no. of units than compared to market at lows. 
          Click Here to invest.

Thursday, September 21, 2017

Right Timing for Investing in Mutual Fund

If you are an investor, and thinking to invest in equity market only because the market is down, I would suggest it’s a wrong choose. Whereas, taking out the investment from the selloff market can be considered as the wrong thought.
One needs to understand that Mutual fund is a financial tool where investors can invest for  long term perspective to have a wealth gain. If you follow financial discipline, then there is no one to stop you to make handsome profits.
But the frequent question arises by people is, what can be the best time to invest in Mutual funds? The answer is, “Invest when you have money, rather than when market is down.”
Also the main consent of people is when to sell or redeem the units. The selling or redemption part should not be done on the down market situation or the good market situation. It’s like whenever you need money sell the units.
There should be future objectives behind every investment. It is very difficult to know whether the market situation indicate to buy or sell. As market is unpredictable in nature. If you have planned to invest in Mutual fund for more than 5 years than you should start investing in systematic investment plan (SIP) scheme.
SIP is the schemes were investor can invest a fixed amount on monthly bases. This can even help investor to generate saving habit. SIP allows buying units on a given date of each month. SIP is generally preferred for equity funds.
SIP’s are always beneficial for the investor just because when the market is up, scheme makes money and if the market is down you make even more. After investing in such a long term scheme, one can make around 12-15% return annually.
Continue investing with the set future objective and when the time is nearer to goal, take out all your investment from equity fund and invest all in debt fund.
Some people have lump sum of amount to invest but they waste time in just thinking whether to invest today or afterwards. They think the stock price will collapse. But the fact is, one who waits will wait.
So it’s the right time to dive into SIP scheme. Click Here to invest.

Thursday, September 14, 2017

Compounding: Eighth Wonder of the World!!!

Saving money regularly and investing them into relatively safer financial instruments yielding moderate returns can work wonders over long period of time. Also Napoleon Hill the author of Think and Grow Rich says, “Make your money work so hard for you that you do not have to work for it.”

The power of compounding is such that it helps you to reach your financial goals. Compound growth refers to earning returns on your returns or similarly, earning interest on interest.

The power of compounding is very beneficial to long term investors.

Mutual Funds were made to make investing easy, so investors do not have to be burdened with picking the individual Stocks. When it comes to Compounding, do not trust your intuition, you have no idea how powerful it is.

Wealth cannot be created overnight it needs to be nurtured with care. Compounding teaches that we do not have to invest huge but regular savings can increase your wealth. As it is rightly said, “Little Drops of Water Make the Mighty Ocean.”

One can make regular savings by investing in SIP as it is very convenient mode of investment and it supports the power of compounding very well.

Click HERE for more details.

Wednesday, August 23, 2017

Wednesday, July 26, 2017

Growth v/s Value equity mutual funds.

Equity Mutual funds are normally classified into different types of category. However it can be simply divided in 2 types i.e. Growth and Value. The characteristic of both Growth and value equity fund differs from each other. So it is important to understand their characteristic in order to build an investment strategy which will suit the investment objective of an individual.
Below is the detailed description of Growth and Value equity mutual fund which may help an investor to build a strong portfolio.

Growth Fund – It includes stocks of the companies which are expected to grow at a faster rate as compared to the overall market. Growth funds offer higher potential capital appreciation but usually at above-average risk. High risk-reward makes this fund an ideal investment tool for those not retiring any time soon. It is advisable that an individual should have a high risk appetite and should hold their investment for 5-7 years in order to gain good return from their investment.  Growth fund invests their corpus in both large and mid-cap fund.

Value Fund – It includes stocks of those companies which are fundamentally undervalued. Those who have a low risk appetite may invest their corpus in value fund as the risk exposure is quite less when compared to growth equity funds. Also it provides higher dividends and capital appreciation to its investor.

Thursday, June 29, 2017

Impact of GST on Mutual Fund Investment


Goods and Service Tax (GST), India’s biggest tax reform is going to soon turn into reality from July 1. Goods & Services Tax (GST) is an indirect tax throughout India to replace taxes levied by the central and state governments.

Under the GST regime, Asset Management Companies (AMCs) will have to pay service tax of 18 per cent on the investment management fees they earn. Until now, the rate was 15 per cent. Management fees are part of the total expense ratio charged annually by AMCs. These include marketing and selling expenses, fees paid towards registrar and transfer agents, trustees, auditors, etc. Typically, equity funds charge management fees of 1-1.5 per cent of the assets under management, while debt funds charge between 0.05 per cent and 0.5 per cent.

The impact will not be that big, but it surely will change something for the mutual fund investors. The increase in service tax from 15 per cent to 18 per cent would make mutual funds a bit expensive. The higher expense ratio will lead to lower returns in mutual fund schemes. There will always be some or the other change in the markets and policies, investors do not need to keep changing their portfolio. Equity mutual funds are a long-term investment. Policy changes will happen but investors should stick to their schemes. However, most of your funds will be able to capture these changes in the market.

Friday, June 23, 2017


SIP v/s Lump Sum

Is SIP a better investment option or making lump sum investment a better one? The importance of SIP has started increasing since Mutual Funds have entered Indian territory but some investors prefer lump sum investment. Here are few differences between SIP and Lump sum investment.

The full form of SIP is Systematic Investment Plan which means it is a method of investing that takes a certain amount of your cash and invests it periodically into mutual funds.lump sum investment is of the entire amount at one go.

Lump sum investment is done to make investment for as long as for a period of 12 months and above. Most of the times lump sum investment have very low chances of negative returns. SIP is done when you don’t have excess cash and wont to enjoy compounding power. As it is rightly said that every drop of water is important to make an ocean. Making investment via SIP may not seem attractive at first sight but it enables investors to get into the habit of savings.

One can start SIP with the amount as low as Rs.100/- per month whereas for lump sum investment one need cash in bulk. While making investment it is very important to make a note that tax saving should always be incidental to your investment plan which in turn should be guided by your financial goals. Equity Linked Saving Schemes (ELSS) are one of the most popular investment that provide tax saving and capital appreciation.

When making lump sum investment it is very important to time the market. The best time for a lump sum investment in a mutual fund is when the market or the NAV is close to its year’s low and when there’s scope for the fund to start
appreciating again soon. If you are planning for any long term goals that are expected to come only after 5-6 years then this is the right time to start investing in SIP of large cap diversified equity funds.

 Click HERE for more details.

Wednesday, June 21, 2017


When finally you have decided to invest in Mutual Fund the next question arises which mutual fund to choose from and will the chosen fund provide you the required return satisfying your goals.
Here are some ways to pick good mutual fund which will help to make correct decision.
  1. Buying No-Load Mutual Funds.
Mutual funds make their money by charging fees to the investor. It is important to gain an understanding of the different types of fees that you may face when purchasing an investment. Some funds charge a sales fee known as a load fee, which will either be charged upon the initial investment or upon the sale of the investment. There are some fund houses which do not have load charges and it increases the profit as one would not have to pay load charges.
  1. Being Careful to Expense Ratio.
Expense ratio is very important parameter to be looked at while selecting any mutual fund scheme. All fund management and distribution related expenses are borne by the scheme. This means high expense ratio will affect the fund’s returns.
  1. Evaluating Past Performance and Experience of Fund Managers.
Fund manager plays a very important role in the fund’s performance. Fund manager is the ultimate decision maker and his experience and view point matters a lot. Before investing one should evaluate fund manager’s past performance and track record. If you find that due to change in the fund manager there is considerable effect on the fund’s performance which does not suit your risk appetite then you may make a decision to exit.
  1. Size of Fund.
This parameter is different for debt and equity schemes. In equity the comfortable asset size is hundreds of crores, in debt it should be in thousands of crores as the investment value per investor is higher in debt funds. 90 % of total Assets Under Management (AUM) of the mutual fund industry are invested in debt funds, so your selected scheme assets should also have a considerable AUM. Less AUM in any scheme is very risky as you don’t know who the investors are and what quantum of investments they have in this particular scheme.
  1. Identifying Goals and Risk Tolerance.
Before investing an investor must first identify his or her goals and desires for the money being invested. Depending on his/her goals investor must the mutual fund which meets his particular goals be it short term or long term. In addition, investors must also consider the issue of risk tolerance- Is the investor risk adverse or risk tolerant. Depending on this he /she should opt for particular Mutual fund.
 Click HERE for more details.

Thursday, June 15, 2017

Equity Funds v/s Debt Funds

The first thing to understand is that mutual funds are investment vehicles, and that simply means that investors pool their money together and then the mutual fund invests that money on their behalf. The easiest way to understand this is to think that as an individual investor you would’ve gone to the stock market and bought a share, but now as a mutual fund investor you buy a mutual fund unit, and then the mutual fund pools together your money with money from other investors and then goes and buys shares on your behalf.

There are four main type of mutual funds based on what they invest in.
1. Equity Mutual Funds: These are mutual funds that invest in shares of other companies.
2. Debt Mutual Funds: Debt mutual funds are mutual funds that invest in debt instruments so they may buy debentures of a company or government and other such things.
3. Commodity Mutual Funds: These are mutual funds that own commodities like gold, and in reality, India only has gold based mutual funds.
4. Hybrid Mutual Funds: Hybrid mutual funds invest in a mix of the above three classes at the same time. So for example, they may invest 65% of their money in shares and 35% in debt.
The answer to which mutual fund you want to invest in depends on what you actually want to buy and your appetite for risk.
If you want to invest in shares and understand that investing in shares can sometimes mean that you even lose your capital then equity funds are for you.
If you want to be safe and protect your capital then you should only invest in debt mutual funds.
If you were interested in getting returns from gold then you should invest in a gold mutual fund. A hybrid fund is for someone who needs a balance.

Click HERE for more details.