Category Archives: Mutual Fund

02 Dec

10 General Myths regarding Mutual Fund Investments

Below is a list of 10 common myths about mutual fund investments:

Investment in mutual fund (MF) is always dangerous: No, it is not. The mutual fund is not essentially all about equity or stocks. Mutual funds also deal into debt instruments like Certificate of Deposits (CDs), Bonds, Govt. Securities (G-Sec.), Non-convertible Debentures (NCDs) etc. This means that a mutual fund scheme can also have all or some of these debt instruments in its portfolio. Various debt instruments have different maturity periods. MF schemes which are having debt papers of very little duration are slightest risky. Such schemes are known liquid MF schemes. These schemes can be as secure and as liquid as your savings bank a/c. Also cautiously selected debt MF schemes can be as secure as fixed deposits all along with better tax-adjusted return.
Investment in MF requires demat a/c: No, it does not. Although equity MF scheme does spend into stocks of companies, but you require not to have a deemed a/c to hold units of such MF schemes. All you require is to be KYC compliant (i.e. having PAN and valid address proof) and have an active bank account. That’s it.
Investment in MF requires timing the marketplace: No, you require not timing the market if you are investing for long term through Systematic Investment Plans (SIP) i.e. investing a small amount at regular intervals for a number of years. If you do that then, your savings will reap the advantage of rupee cost averaging i.e. buying more units when price is low and buying lesser units when price is high by investing similar amount every time.
Higher unit value (NAV) means an expensive purchase: No, it does not. Permit me provide you an instance. Presume you asked me, the rate of inflation in last 2 financial years (FY) and I told you that in FY 2013-14 cost inflation index (CII) stood at 939, and in next two FYs CII values were at 1024 and 1081. Does it mean anything to you? No. It would have helped you instead if I had told you that in last two FYs rates of inflation were 5.57% (FY 2015-16) and 9.05% (FY 2014-15). So what matters is percentage of relative change and not the value itself as the base values in cases of both inflation (at 100) and mutual fund NAV (at 10) are assumed for ease of considerate and measurement. So look at yearly growth rate of a scheme’s NAV rather than NAV itself. If it’s constantly thrashing its standard goes back then it’s worth taking into consideration.
Having many schemes in portfolio means diversification: Keep in mind one basic advantage of a mutual fund scheme – the diversification that it offers. Say, I am investing in a straight line in stocks of companies and with the money that I contain, I buy two stocks. On the contrary, you are investing in MF. In that case, with the same money that I have, you bought some units of MF scheme and that MF scheme’s portfolio may consist of many stocks, say, 30 stocks. So your investment portfolio is much more diversified than mine. Now, while a single MF scheme offers me sufficient diversification, investing more into alike type of schemes will not make a great deal sense. But I can certainly buy a few other types of schemes to get exposure into dissimilar types of investment styles.
Returns from all MF investments are taxed in the same way: If in portfolio of a MF scheme, percentage of contact into equity type of instruments is extra than or equal to 65% – such schemes are then known as equity schemes. Similarly if percentage of exposure into debt type of instruments is more than or equal to 65% – such schemes are then known as debt schemes. Equity schemes and debt schemes are taxed differently. Taxing also depends on how long you hold the investment before you sell. If equity schemes are sold after holding for more than a year – then NO tax is to be paid. If debt schemes are held for more than three years then on indexed gain 20% tax is to be paid. If investments are held for shorter term then short term capital gain tax is to be salaried.
Redeeming from MF investment is an unwieldy procedure: No it is not. Investments can be redeemed anytime online or offline (signing on a transaction slip) provided it is not within the lock-in period (like in cases of ELSS or close ended scheme). Redemption sum will be credited to your registered bank account within a predetermined time period.
MF investment is mandatorily for long term: No, not essentially. There are other debt schemes (arbitrage fund, accrual fund, income fund) which can be held for short to medium term.
MF investment cannot be used for regular periodical income: No, it can certainly be used. Like you can provide systematically, you can also withdraw also from a scheme methodically i.e. withdrawing a fixed amount at a usual interval for a specified period or till the money lasts whichever is earlier. This is known as Systematic Withdrawal Plan (SWP). This is actually caring for retired people or for anyone who requirements regular income.
MF is full of strange abbreviations: Agree to some extent. But we should look into every abbreviation and recognize it fully – what it stands for. There are too many – NFO, NAV, SIP, STP, SWP, MIP, FMP, ELSS etc.

28 Nov

Why Spend in Mutual Funds in India?

What are mutual funds?
A mutual fund is a professionally manage pond of money that is invested in a mix of stocks, bonds and other asset classes. Buying into a mutual fund give us a very easy means of investing in a broad range of stocks and other asset classes with not only least amount of investments, but also with least risk. In simple words, this is the wealth invested by many unlike people into different types of assets to reduce risk and maximize returns.
A mutual fund is managed by a person called a fund manager who typically is very senior and has more than 15 years experience in the stock market. The fund manager moves our money, buying and selling stocks as the market moves up and down. This is done vigorously every single day.
The fund manager more often than not has a team of expert’s research stocks and market movements and advising on which shares to acquire and which ones to sell. Nowhere else can we wait for such active organization of our wealth for such low fees which makes investing in mutual funds all the more attractive? The aspire of the fund manager is to add to our money.
Assessment between different types of investments:
The major forms of savings in a classic Indian family are Gold, Government Bonds, Bank Deposits, Equities and Property.
We think there is no clarification necessary for Gold, Bank Deposits (which covers both fixed and recurring deposits) and Property. The only term that would most likely be new to most people would be Bonds. These are Government securities and are typically a very safe form of investment.
Equities are the share market in common, but cover both stocks and mutual funds. Usually speaking when we track the returns on Equities we use the Sensex or the index of the share market. To make this simpler, we can consider that return on a mutual fund will almost always be greater than the Equities provided we choose our mutual funds wisely.
The merely asset class that comes anyplace near is Gold, but that is an asset with no any essential values and determined by the Indian wish of the yellow metal.
Property is the main surprise and this research was done over 7 different cities – Mumbai, Delhi, Bangalore, Kolkata, Hyderabad, Pune and Chennai.
Mutual funds are a long term game. You need to consider them only if you’re investing possibility is minimum 3 to 5 years. Equities have strong essential fundamentals; true, they let for some speculation in the small term; but such activity eventually helps find out better long-term pricing/valuation.
SIP or Systematic Investment Plan uses the power of compounding smartly in conjunction with the value of the market to make available to us to make exceptional returns on our investments SIP works wonderfully because the standard is as follows:
• You make a decision to invest a fixed amount every month, say Rs. 5,000
• When the market is high (in layman terms doing well), your 5,000 is allocated less worth in the fund
• When the market is low (in layman terms doing bad), your same 5,000 is allocated more worth in the fund

23 Nov

Difference between ULIP and Mutual Fund

Finheal
Mutual Fund
Tags: financial instruments, investment policies, mutual fund, ULIP
no comments

A ULIP or Unit Linked Insurance Plan is an insurance plan which carries an additional advantage of giving you market-linked returns. The premium compensated on a ULIP is separated into two portions; one that is owed towards risk cover and the other that is invested in a variety of types of funds like debt, equity, cash marketplace, financial instruments, etc. This part of the ULIP is alike to a mutual fund with there being dissimilarity in the charges levied and the tax rebates. Like a mutual fund, where fund managers spend your money in different sectors, still in ULIP’s, there are funded managers who invest your capital in diverse sectors and instruments.

A lot of citizens get turned off when faced with the view of investing in ULIP’s as they believe that Mutual Funds provide them better returns in the short and medium term. While this can be right, it is also true that ULIP’s can hold their own in the long-run over mutual funds.

1) Firstly, ULIP’s provide insurance cover which means that on the occasion of death of the Life Assured; the nominee are free to fund value of the Sum Assured, whichever is higher. This ensures peace of mind for the person as he knows that his family is covered and secure.

2) Secondly, switching between funds is permitted in a Unit Linked Insurance Plan which can be a decent advantage in falling markets. With this facility, you can maximize your fund allotment even when markets are not doing well.

3) Third, investing in Insurance products offers you tax rebates under section 80C, which is not accessible extensively in mutual funds.

4) Fourth, because of the charges connected with in the early hour’s withdrawals in a Unit Linked Insurance Plan, an individual is incentivized to wait invested for the long term which is bound to give better returns as compared to the short term gambles that he may or else obtain in the stock market.

5) Lastly, the returns that you take delivery of from a ULIP are tax-free.

However, ULIP’s are badly sold as pure tax-free investment policies. Agents wrongly sell it to their gullible clients in tax season by saying that they can withdraw the amount after remaining invested for 3 years. This is a fallacy since in the first three years, the charges are maximum and yields minimum. In ULIP’s ,the overall charge arrangement comes down considerably over the long-term ,allowing better and better distribution of premium to your selected fund, thus assisting in wealth formation. Therefore, it’s significant that one stays invested in a ULIP for 10-15 years or even longer. The longer one stays invested in ULIP’s; the better would be the return on investment.

21 Nov

Systematic Investment Plan (SIP) V/S Equated Monthly Installment (EMI)

Finheal
Mutual Fund
Tags: EMI, investment, personal Loans, SIP, Systematic Investment
2 comments

A lot of investors think SIP as EMI’s. This creates an insight that SIP is amazing like an EMI (Equated Monthly Installment). This is wrong. To a certain extent not anything can be additional from the truth. Youth of now is more paying attention into the EMI, be it for a smart phone or a holiday or a fancy laptop. Whereas a SIP, is the finest form of investment.

EMI (Equated Monthly Installment) is expensive and at times striking consumption, and SIP is an investment.

Given below is the comparative analysis on SIP v/s EMI:

The Nature of the Scheme: SIP is the systematic investment of the investor’s funds in the form of stocks or equity funds for a fixed period of time. Although it gives late approval as the return to be pending after a precise span of point in time, it is a fast tool for capital formation.

In case of EMI, you pay interest to finance for business, a product you desire to own. In case of a SIP (Systematic Investment Plans) you make a periodic investment of your own money to create wealth or meet one or more of the financial objectives that may be significant to you.

EMI comes with a load in mind, whereas SIP doesn’t.: EMI (Equated Monthly Installment) is a set outflow of cash for a fixed period of time. Any default or delay leads to severe interest and default may lead to harassment and frantic calls from the financier and his recovery agents. This creates stress. Sometimes the expenses for a particular month increase and it becomes difficult to pay the EMI. This may cause sleepless nights. EMI can never be compromised at the cost of other expenses, no matter how important.

SIP (Systematic Investment Plans) is totally different. Even if you fail to notice a month or 2, your investment stay intact and the mutual fund company doesn’t not charge you even a single rupee. You can suitably stop your SIP any time and even add to or reduce the amount.

Investment Discipline: SIP helps to make and uphold the investment discipline. You may accomplish your wishes for significant financial objectives like owning a house or your child’s higher education. Though, an EMI doesn’t make any long term asset somewhat you are capable to have enough money a product you may like or require. Another thing is that the EMI can be devastating if used for personal loans or for abroad vacation which may be unreasonable particularly in times of financial bad luck like losing a job etc.

Hence, although EMI plays an important role when you can’t stay to pay money for hard to believe that you may need, in SIP you can purchase the similar product or maybe amazing improved but at a later date and in a more systematic manner.

20 Oct

Advantages of Investing in a Mutual Fund

If someone told you that there is an alternative asset that is managed by an expert, has an expert looking into it, and let you get started with even a small amount, would you be interested? Mutual funds can bid you such advantages, and much more.

Mentioned below are a few advantage linked with mutual funds:

No big investment required

Mutual funds permit you to create an investment, still if you have an awfully small amount to invest. This advantage makes it better-looking among investors.

Investing in a diversity of instruments

See ordering a plate at your favorite restaurant where you can eat a variety of diverse foods in one reasonably priced package! Mutual funds also work in an alike way.

Mutual Funds spend on a broad range of securities. This diversification reduces the risk by warning the result of a probable refuse in the worth of any one security. You attain this diversification through a Mutual Fund with far less wealth than you can do on your own.

Convenience

You can invest straight to the fund house or through your financial adviser. You get normal information on the worth of your savings and portfolio of the schemes.

Professional Management

Mutual fund investments are managed by knowledgeable and skilled professionals, who with the assist of an investment investigate them, analyzes the act & forecast of companies and selects appropriate investments to achieve the purpose of the system.

Easy access to your funds

In open-ended mutual funds, you can exchange all or elements of your unit any time you desire. Some scheme does have a lock-in period where a saver cannot return the units until the end of such a lock-in period. With close-ended schemes, you can sell your units on a stock exchange at the current market price or benefit of the capability of repurchase through Mutual Funds at NAV connected prices, which a number of close-ended and interval scheme bid you on maturity of the scheme or every so often, as the case may be.

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