4 P's Approach to Mutual Fund Selection
When it comes to choosing a Mutual Fund, investors are faced with an enormous task of picking a set of schemes that suit their needs from a large universe of funds in India.
At this stage, which comes after assessing their risk profile & evaluating their financial goals, investors are subjected to a lot of noise & often get mired amid investment tips and recommendation based on short term events.
A lot of this is a distraction & is irrelevant when it comes to choosing a mutual fund for achieving important long term goals like retirement planning, building a corpus for children or simply creating wealth.
Overcoming Myopia :
When it comes to analyzing a mutual fund track record, even a 3 to 5 year performance may not be long enough & can be misleading at times, as several market themes play out over a much longer period.
This was the time of the great bull run in the markets as the equity markets rallied for over 5 consecutive calendar years.
These were euphoric times & the toppers of the mutual fund performance chart during the period might not have been the winners in the subsequent period & vice versa.
An analysis of 19 equity oriented mutual funds (ones that are currently classified as Large Cap, Flexi Cap & Multi Cap schemes which were in existence then) shows that the top 3 performing funds during the bull run of 2003 to 2007 ended with a ranking of 14, 12 & 11 respectively during the subsequent 5 years. The message is simple – Winners keep changing.
The two calendar years of 2018 & 2019 were favorable for Large caps in contrast of Mid & Small caps. During this period, a fund with a relatively higher weight to large caps within a category would likely have outperformed, but may not have continued to do well in subsequent periods.
The key message from these data points is that a particular trend in the market or a market cycle could persist for 3 to 5 years or even longer, effectively rendering us myopic while we choose a mutual fund.
Another example would that be of growth style of investing outperforming value style, a trend that prevailed over almost entire last decade.
So how do we go about when it comes to choosing among mutual funds? One may argue that instead of just looking at returns, analyzing risk-adjusted returns would help. However, it is difficult to overcome the problem of short to medium term trends overstating the potential of a particular fund, even with risk-adjusted returns as most research agencies consider just preceding 3 to 5 year time periods.
The solution to overcoming this myopia is to look for really long-term mutual fund performance over the last two decades.
The relevance of 20 or 25 years of track record :
To begin with, one must remember that a strong track record over say, 25 years, means a particular fund has successfully sailed through good & bad times, multiple market cycles, geo political events & crisis periods like the Dot Com Event, the Global Financial Crisis & the recent Covid induced volatility.
A successful long term track record is also a testimony of the 4 P's - investment team’s robust Processes, risk management Policies, a stable set of People & a sound investment Philosophy at the core. It is these 4 P's that enable a fund manager through tough times in reducing the possibility of emotional decision making.
It is important to note that these 4 P's are common for a fund house & not just a particular scheme. Hence, experience matters & it would be advisable to choose a scheme managed by a fund house with long term track record. When your financial goals are long term in nature, select mutual funds based on long term track record. Here long term would signify 20 or 25 years.
Choose not only the scheme, but fund house as well :
A better approach as a first step in scheme selection is to consider the fund house. Investing is a life long journey requiring you commit your hard earned money & placing your trust on a capable partner. This is where the 4 Ps – Processes, Policies, People & Philosophy can guide you to make effective decisions when it comes to mutual fund investments.
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Sunday, December 26, 2021
Friday, December 17, 2021
FIRE (Financial Independence/Retire Early) Movement & Planning
The FIRE (Financial Independence/Retire Early) movement has got quite famous for the last couple of years in India. Every investor I meet these days wants to achieve FIRE asap. I would like to discuss some important points related to FIRE movement & types of FIRE today with you all.
What is FIRE Movement? : FIRE or Financial Independence Retire Early is all about creating enough wealth for yourself as early as possible, so that you are financially independent and free from worries of money. Once you achieve FIRE, your wealth is enough to generate an inflation-adjusted income for you which lasts your lifetime.
Let take an Example : Imagine a 30 yr old person with the monthly expenses of ₹ 75,000 per month (or 9 lacs a year) who has ₹ 18 lacs of current corpus & is ready to now aggressively invest ₹ 80,000 per month for the next 15 yrs & will increase the SIP by 8% each year. The investments growth will happen at 12% & the inflation assumed is 7% (pre-retirement) & 6% post-retirement along with post-retirement returns of 7%.
How will his corpus grow & where will it at age 45 (in 15 yrs time) : He will achieve FIRE at the age of 45 with a Corpus of ₹ 7.2 Crores. At that time his expenses would be around ₹ 22.8 Lacs approx & his corpus will be around 32X (32 times his expenses).
Do you actually stop working when you achieve FIRE? : Actually NO
It’s your choice if you want to work after FIRE or not. You can stop working if you wish, but if you still want to work, you can & any money you earn will be a cherry on the top and will only add up to your FIRE goal.
Top 3 reasons why people want to achieve FIRE?
1.It’s getting tougher & tougher to be employed till 60 these days & hence people don’t want to depend on the fact that they will keep earning for a very long time.
2. Once you achieve FIRE, life is less stressful & you get power in you to live life on your terms. People want to create a situation where they don’t have to dance to the tune of their managers & employers.
3. People also want to get out of stressful & demanding jobs by the time they hit a mid-life crisis & that means moving to a job that is more enjoyable, even if it pays very little. This is possible only when you have already created enough wealth
But, FIRE is tough!! Is it very easy to achieve FIRE? : NO, is the answer
1. Forget FIRE, even normal retirement at 60 is not possible for many people in India. We can clearly see that a big number of investors will have a bad retirement because they are not living their financial lives in the right way & are not on the path to creating sufficient wealth.
2. FIRE in that sense will only be achieved by a small minority.
a. Most of the people who achieve FIRE do that not because of fantastic returns, but very aggressive saving & deploying that money in meaningful investments.
b. If you keep your expenses in check & keep it on the lower side, it simply means that it becomes easier for you to achieve FIRE because FIRE is not just about wealth, but both wealth & your expenses
c. Most of the people who achieve FIRE are those who earn quite well. If you earn ₹ 1 Lacs a month & your expenses are ₹ 50 k per month, You are earning 2 times of expenses every month. That helps a lot
d. Most of the people who are not able to control their lifestyle & keep upgrading their life find it tough to achieve FIRE despite having good wealth as the goal post keeps shifting.
In simple words, if you want to know how does a person who achieves FIRE looks like, its like this :
1. The person has a very good income
2. The person saved a very big portion of that income (often more than 60-70%)
3. The person is not extravagant and mostly lives a frugal and simple life (but not compromising on fun and desires)
4. The person makes sensible investment choices (often earning at least more than inflation)
5. The person has mostly created liquid assets and not blocked his money, because you need to generate cash flow at the end
5. The person is quite confident of managing the money post FIRE & earning decent returns (he won’t keep all money in FD)
What is COAST FIRE? : There is one more concept called Coast FIRE, which is something many of you may have already achieved.
A person is said to have achieved Coast FIRE when he/she has enough corpus already which will grow to FIRE corpus in the future without the need for any new investments. This simply means reaching a point, where you just have to earn money equivalent to your monthly requirements and wait for 5-10-15 yrs to achieve the actual FIRE.
This discussion above is just for basic knowledge. I would love to know what you feel about FIRE & what are your thoughts about it?
c. Most of the people who achieve FIRE are those who earn quite well. If you earn ₹ 1 Lacs a month & your expenses are ₹ 50 k per month, You are earning 2 times of expenses every month. That helps a lot
d. Most of the people who are not able to control their lifestyle & keep upgrading their life find it tough to achieve FIRE despite having good wealth as the goal post keeps shifting.
In simple words, if you want to know how does a person who achieves FIRE looks like, its like this :
1. The person has a very good income
2. The person saved a very big portion of that income (often more than 60-70%)
3. The person is not extravagant and mostly lives a frugal and simple life (but not compromising on fun and desires)
4. The person makes sensible investment choices (often earning at least more than inflation)
5. The person has mostly created liquid assets and not blocked his money, because you need to generate cash flow at the end
5. The person is quite confident of managing the money post FIRE & earning decent returns (he won’t keep all money in FD)
What is COAST FIRE? : There is one more concept called Coast FIRE, which is something many of you may have already achieved.
A person is said to have achieved Coast FIRE when he/she has enough corpus already which will grow to FIRE corpus in the future without the need for any new investments. This simply means reaching a point, where you just have to earn money equivalent to your monthly requirements and wait for 5-10-15 yrs to achieve the actual FIRE.
This discussion above is just for basic knowledge. I would love to know what you feel about FIRE & what are your thoughts about it?
#stock market, #personalfinance #financialmarkets #investments #mutualfunds
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Sunday, December 5, 2021
EPFO subscribers are entitled to free benefits worth ₹ 7 Lakhs
EPFO subscribers are entitled to free benefits worth ₹ 7 lakhs.
All EPFO members are automatically enrolled for the EDLI Insurance Scheme which provides an assured life insurance cover of up to ₹ 7 lakh to legal heirs or nominees in the event of death of policy holder
All members of the Employee Provident Fund Organisation (EPFO) are also entitled to a free life insurance cover worth ₹ 7 lakh under the retirement fund body’s Employees’ Deposit Linked Insurance Scheme (EDLI).
The EDLI-EPFO comes with the benefit of an assured life insurance benefit of ₹ 7 lakh at no cost or premium paid by the members.
The nominee or legal heir of EPFO active member gets upto ₹ 7 lakh insurance cover in case of demise of the account holder during active service.
EPFO account holders are automatically enrolled for EDLI insurance under Employees’ Provident Fund (EPF) & Miscellaneous Provisions Act, 1976. There is no premium or other formalities involved to avail the facility. There is no exclusion & the insurance cover is decided by the salary drawn by the beneficiary during the last 12 months prior to demise. It is to be noted that employer pays 12% out of which 8.33% is diverted to Pension Fund. An employer also pays 0.5% of pay in EDLI Scheme.
The EPFO body time & again tweets about the facility & its features to make subscribers aware of the salient features of the scheme.
Few things to know about EPFO-EDLI Scheme :
1. Maximum Assured Benefit : The maximum death benefit upto ₹ 7 lakh to the nominee or legal heir in case of death of the EPFO member during service. The maximum sum assured earlier was ₹ 6 lakh which was increased to ₹ 7 lakh subsequently from April 2021.
2. Minimum Assured Benefit : The minimum assured benefit for legal heir or nominees of an EPF subscriber is ₹ 2.5 lakh under the ELDI 1976. Sum assured is based on salary during the 12 months prior to the death.
3. How is sum Assured Calculated : The claim amount under this scheme is 30 times the average monthly salary in the past 12 months subject to a maximum of ₹ 7 lakh. The average monthly salary is calculated as the Basic + Dearness Allowance of the employee. A bonus of ₹ 2.5 Lakhs is also applicable under this scheme The employer can opt-out of the scheme in case he takes a higher paying life insurance scheme for employees under Section 17 (2A). There are no exceptions to the insurance coverage provided by EDLI. It protects the insured person round the clock
4. Free for Employees : This life insurance benefit being given to the EPFO member is free of cost for the PF/EPF account holders. Their employer will pay 0.50 per cent of the monthly wages up to the ceiling of ₹ 15,000.
5. Auto-Enrolment : There is auto-enrolment provision for PF or EPF account holders. They become eligible for EDLI scheme benefit once they become an EPFO member or subscriber.
6. Direct bank Transfer : The EDLI scheme benefit will be directly credited to the bank account of the nominee or legal heir of the EPF or PF account holder. Note that an EPFO member is only covered by the EDLI scheme as long as he/she is an active member of the EPF. His/her family/heirs/nominees cannot claim it after he/she leaves service with an EPF registered company. There is no minimum service period for availing EDLI benefits. The employer has to make the contribution for EDLI & no fee can be deducted from the employee’s salary.
#stock market, #personalfinance #financialnews #financialmarkets
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All EPFO members are automatically enrolled for the EDLI Insurance Scheme which provides an assured life insurance cover of up to ₹ 7 lakh to legal heirs or nominees in the event of death of policy holder
All members of the Employee Provident Fund Organisation (EPFO) are also entitled to a free life insurance cover worth ₹ 7 lakh under the retirement fund body’s Employees’ Deposit Linked Insurance Scheme (EDLI).
The EDLI-EPFO comes with the benefit of an assured life insurance benefit of ₹ 7 lakh at no cost or premium paid by the members.
The nominee or legal heir of EPFO active member gets upto ₹ 7 lakh insurance cover in case of demise of the account holder during active service.
EPFO account holders are automatically enrolled for EDLI insurance under Employees’ Provident Fund (EPF) & Miscellaneous Provisions Act, 1976. There is no premium or other formalities involved to avail the facility. There is no exclusion & the insurance cover is decided by the salary drawn by the beneficiary during the last 12 months prior to demise. It is to be noted that employer pays 12% out of which 8.33% is diverted to Pension Fund. An employer also pays 0.5% of pay in EDLI Scheme.
The EPFO body time & again tweets about the facility & its features to make subscribers aware of the salient features of the scheme.
Few things to know about EPFO-EDLI Scheme :
1. Maximum Assured Benefit : The maximum death benefit upto ₹ 7 lakh to the nominee or legal heir in case of death of the EPFO member during service. The maximum sum assured earlier was ₹ 6 lakh which was increased to ₹ 7 lakh subsequently from April 2021.
2. Minimum Assured Benefit : The minimum assured benefit for legal heir or nominees of an EPF subscriber is ₹ 2.5 lakh under the ELDI 1976. Sum assured is based on salary during the 12 months prior to the death.
3. How is sum Assured Calculated : The claim amount under this scheme is 30 times the average monthly salary in the past 12 months subject to a maximum of ₹ 7 lakh. The average monthly salary is calculated as the Basic + Dearness Allowance of the employee. A bonus of ₹ 2.5 Lakhs is also applicable under this scheme The employer can opt-out of the scheme in case he takes a higher paying life insurance scheme for employees under Section 17 (2A). There are no exceptions to the insurance coverage provided by EDLI. It protects the insured person round the clock
4. Free for Employees : This life insurance benefit being given to the EPFO member is free of cost for the PF/EPF account holders. Their employer will pay 0.50 per cent of the monthly wages up to the ceiling of ₹ 15,000.
5. Auto-Enrolment : There is auto-enrolment provision for PF or EPF account holders. They become eligible for EDLI scheme benefit once they become an EPFO member or subscriber.
6. Direct bank Transfer : The EDLI scheme benefit will be directly credited to the bank account of the nominee or legal heir of the EPF or PF account holder. Note that an EPFO member is only covered by the EDLI scheme as long as he/she is an active member of the EPF. His/her family/heirs/nominees cannot claim it after he/she leaves service with an EPF registered company. There is no minimum service period for availing EDLI benefits. The employer has to make the contribution for EDLI & no fee can be deducted from the employee’s salary.
#stock market, #personalfinance #financialnews #financialmarkets
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Tuesday, October 26, 2021
Seven Annuity Options you can consider before opting for a Retirement Plan
Seven Annuity Options you can consider before opting for a Retirement Plan
The value of pension depends on the annuity option that you choose. So, one needs to carefully go through the plans and choose the one that suits his/her requirement the most.
While there are multiple annuity plans are available in India, mostly companies in India provide seven different annuity options to customers. The value of pension depends on the annuity option that you choose. So, one needs to carefully go through the plans and choose the one that suits his/her requirement the most.
Here under explained seven annuity plans mostly offered in retirement plans.
1. Annuity with return of premium on Death :
In this option, the annuitant gets a fixed annuity payouts throughout his/her life. On his/her death, the initial amount paid to purchase the annuity is returned to the annuitant’s nominee.
Experts say this plan is suitable for individuals who have dependents & those who want to leave something behind for their loved ones. Worth mentioning here is that an annuitant has to pay a higher premium to buy this option compared to other annuity options.
2. Joint life Annuity :
This is the most popular annuity option opted by investors. Under this option, an annuitant & his/her wife get pension throughout their life. Under this option, an annuity is paid till at least one of the life assured is alive.
This plan ensures that you receive a regular income throughout your life & on death, your spouse will receive an annuity throughout his/her life. Also, joint-life annuity comes with a return of purchase price option, which is again a very relevant feature as on the death of both the annuitants, the nominee gets the purchase price.
3. Increasing pay Annuity :
This annuity option is designed to help retirees beat inflation. As we all know the cost of living increases every year due to the general price rise in the economy or inflation. So every year retirees an increased amount to maintain their standards of living. In this annuity option, the payout increases at a fixed rate annually at a predefined rate, say 5%.
By buying this annuity option, retirees can remain assured that they will be able to maintain their lifestyle even during their golden years.
4. Level Annuity :
This plan pays a fixed amount for life. This is not indexed with inflation & is not designed to take care of the inflation aspect. This is the most simplest form of annuity offered by insurers. This plan is suitable for a person who has invested a sufficiently large corpus in his annuity plan & believes that it will be enough to maintain his lifestyle & bear all their expense despite any increase in prices.
5. Annuity for Life :
Under this option, pension is paid monthly, quarterly or yearly, depending on the option chosen by the annuitant throughout his life. The annuity proceeds stop only on the death of the annuitant.
As average life expectancy in India is increasing one needs to be prepared for long-retired life. Under this annuity option the risk of long retired life is secured financially by the insurer. This annuity option is suitable for every individual irrespective of occupation, age or gender since it tends to give higher returns.
6. Annuity payable for Guaranteed time :
In this plan, pension or the annuity is paid for a defined period regardless of whether the individual dies during the specified term. Annuity stops either on the annuitant's death or once the annuity term ends. If you are worried about the risk of losing out on your investment due to an early death then you can go for this option.
7. Annuity with return of Premium on Survival :
This option offers both life & survival benefit to the annuitant. Here, the annuitant gets back the purchase price of the annuity once he completes a predetermined age. This option ensures the investor receives guaranteed payouts throughout life. After completion of a predetermined age, say 80 years, the annuitant gets back his invested amount through the return of purchase price feature with annuity continuing subsequently. The survival benefit of this annuity option can help the investor manage any unexpected medical expenses arising due to old age.
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Tuesday, October 5, 2021
Mutual Fund Calculator : SIP's that can help you get ₹ 1 lakh pension Per Month
Mutual Fund Calculator : SIP's that can help you get ₹ 1 lakh pension Per Month
Mutual Funds investment can be used for post-retirement income as well. According to tax & investment experts, Mutual Fund SIP (Systematic Investment Plan) enables an investor to grow money for one’s post-retirement financial needs. However, if an investor uses this money wisely, it will help the investor continue earning post-retirement.
They say that like SIP, one needs to invest the mutual fund maturity amount in SWP (Systematic Withdrawal Plan) to continue earning on monthly basis.
On how to plan one’s monthly income post-retirement, “One needs to first ensure how much monthly income one would require to continue meeting one’s financial goals.
After that, there is need to assess how much amount one would need for SWP after retirement. Once, these two goals are finalised then comes how much monthly SIP will be needed to meet that post-retirement monthly income goal.”
Money required for SWP to earn ₹ 1 lakh monthly income for next 25 years, “One would need ₹ 1.35 crore amount for SWP to get ₹ 1 lakh monthly income post-retirement for next 25 years. Assuming 8% return on one’s money in SWP, the investor will continue to earn ₹ 1 lakh per month for next 25 years.”
However, that sometimes people want to retire little earlier and in that case one needs post-retirement income for longer period. If a person wants to retire at 55 years of age, then it would need ₹ 1 lakh monthly income for next 30 years. In that case, one’s SWP amount will go up to ₹ 1.43 crore.
On how to get ₹ 1 lakh income for next 30 years post-retirement, “Without assuming inflation post-retirement, an investor can start an SIP of ₹ 2,100 per month & increase the amount of SIP by 15% year after year. Assuming CAGR of 12% on investment, you will be able to accumulate around ₹ 1.43 crore.
If you invest the Corpus in SWP at 8% per annum, you will be able to withdraw ₹ 1 lakh per month for next 30 years.”
Mutual Fund schemes in which one can think of investing today are ICICI Prudential Focused Equity Fund, ABSL Equity Advantage Fund, Axis Midcap Fund, Nippon Small Cap Fund & ICICI Prudential Global Advantage Fund.
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Saturday, August 7, 2021
Mutual Fund Transferability – Gifting & Transferring of Mutual Funds
Mutual Fund Transferability – Gifting & Transferring of Mutual Funds
Many people intend to gift Mutual Fund units to their closed ones as a token of love or even bequeath it to their loved ones after demise. However, there are certain complexities involved in this transfer process.
What are the benefits of Mutual Funds?
Investing in Mutual Funds is considered one of the best investment decisions for an ordinary investor looking to book capital gains in future. Also, since they have a long-term horizon of 5-15 years with guaranteed financial security, mutual fund transferability is a necessary process. We shall explore the feasibility & technicalities associated with gifting or transferring mutual funds to another owner.
Transfer or Transmission :
Units of a Mutual Fund are transferred to a surviving member in case of an untimely demise of the first holder, it is known as ‘transmission’ of Mutual Funds. On the other hand, a ‘transfer’ is said to happen when all the unit holders are alive.
Starting a SIP for a Minor :
If you are looking at mutual funds to create a fund for your child, then it’s better that you start when they are a minor. You can buy MF units in your child’s name & choose the SIP scheme. The payments will be made into the account until your child reaches majority. The minor, i.e. your child, would be the first & the sole holder of the account & no joint holders are permitted under this scheme. You will act as a guardian until your kid reaches 18 years of age.
The AMC will send across a document before the date on which your child attains maturity. The document will act as a de facto application for changing the account for ‘minor’ to ‘major’ status. The guardian will not be allowed to operate the account anymore. Some other documentation like KYC, etc. will also be required for the process to be complete. Your child will then be able to reap the benefits of the MF investments you have made on their behalf.
SWP for Senior Citizens :
Our parents have looked after us all their lives. If you wish to do something beautiful for them, then look no further than investing in MF schemes with a monthly interest payment facility. Along with Rupee Cost Averaging, the SWP schemes also provide you with tax benefits as the prime investors.
Plus, it will give a fixed sum to your parents to help them meet their needs. So, instead of waiting for a transfer or transmission of your MF units, why not invest in a SIP/SWP scheme for your children or your parents which will be more effective in the long run?
Many people intend to gift Mutual Fund units to their closed ones as a token of love or even bequeath it to their loved ones after demise. However, there are certain complexities involved in this transfer process.
What are the benefits of Mutual Funds?
Investing in Mutual Funds is considered one of the best investment decisions for an ordinary investor looking to book capital gains in future. Also, since they have a long-term horizon of 5-15 years with guaranteed financial security, mutual fund transferability is a necessary process. We shall explore the feasibility & technicalities associated with gifting or transferring mutual funds to another owner.
Transfer or Transmission :
Units of a Mutual Fund are transferred to a surviving member in case of an untimely demise of the first holder, it is known as ‘transmission’ of Mutual Funds. On the other hand, a ‘transfer’ is said to happen when all the unit holders are alive.
a) Transfer of mutual funds is a grey area since as per the SEBI regulations, 1996, transfer of Mutual Fund units is allowed. However, the fund houses don’t let all the unit holders to transfer their units, en masse. The argument presented by them is that since these Mutual Fund units could be quickly sold & liquidated, there is ‘no point’ transferring funds.
b) Transfer of mutual fund units from one holder to another is quite rare. So the concept of gifting mutual fund units also is a hypothetical one &is practically not possible.
In fact, ‘third party’ payments are not accepted by mutual funds. In no way can one use his/her spouse’s money to invest in their name or vice versa. This might seem devious, but this is the only process one needs to follow in case one wishes to transfer mutual fund units. So if you want units to be in a relative’s name, then you need to transfer money first to the receiver’s account. You will then be able to use that amount to invest in the fund by their name.
The only scenario in which mutual fund units can be transferred to another is in case of the demise of the unit holder. This is usually in favour of a joint holder or a legal nominee to whom the transmission of a mutual fund unit takes place.
What are the legal documents needed?
In case of a nominee staking a claim to investment, the fund house asks for a set of legal documents.
b) Transfer of mutual fund units from one holder to another is quite rare. So the concept of gifting mutual fund units also is a hypothetical one &is practically not possible.
In fact, ‘third party’ payments are not accepted by mutual funds. In no way can one use his/her spouse’s money to invest in their name or vice versa. This might seem devious, but this is the only process one needs to follow in case one wishes to transfer mutual fund units. So if you want units to be in a relative’s name, then you need to transfer money first to the receiver’s account. You will then be able to use that amount to invest in the fund by their name.
The only scenario in which mutual fund units can be transferred to another is in case of the demise of the unit holder. This is usually in favour of a joint holder or a legal nominee to whom the transmission of a mutual fund unit takes place.
What are the legal documents needed?
In case of a nominee staking a claim to investment, the fund house asks for a set of legal documents.
- Death Certificate of the Deceased.
- Letter from Co-Holder/Nominee.
- KYC of the Nominee.
- Mandate to register the nominee's bank account.
- Indemnity bond if the amount exceeds 1 Lakhs.
Starting a SIP for a Minor :
If you are looking at mutual funds to create a fund for your child, then it’s better that you start when they are a minor. You can buy MF units in your child’s name & choose the SIP scheme. The payments will be made into the account until your child reaches majority. The minor, i.e. your child, would be the first & the sole holder of the account & no joint holders are permitted under this scheme. You will act as a guardian until your kid reaches 18 years of age.
The AMC will send across a document before the date on which your child attains maturity. The document will act as a de facto application for changing the account for ‘minor’ to ‘major’ status. The guardian will not be allowed to operate the account anymore. Some other documentation like KYC, etc. will also be required for the process to be complete. Your child will then be able to reap the benefits of the MF investments you have made on their behalf.
SWP for Senior Citizens :
Our parents have looked after us all their lives. If you wish to do something beautiful for them, then look no further than investing in MF schemes with a monthly interest payment facility. Along with Rupee Cost Averaging, the SWP schemes also provide you with tax benefits as the prime investors.
Plus, it will give a fixed sum to your parents to help them meet their needs. So, instead of waiting for a transfer or transmission of your MF units, why not invest in a SIP/SWP scheme for your children or your parents which will be more effective in the long run?
Thursday, August 5, 2021
Nine things you need to know before investing in Index Mutual Funds, ETFs
Nine things you need to know before investing in Index Mutual Funds, ETFs
While investing in passive funds, investors' decisions should not be driven by just expense ratio of the fund.
Key Highlights :
Looking at the investors' interest fund houses are lining up new ultra-low-cost index fund offerings. A few weeks back, Navi Mutual Fund created a buzz with its first offering—a Nifty50 index fund, which has an expense ratio of only 0.06%.
Index funds simply try to mirror the performance of their underlying index by holding the same stocks in the same proportion in which the index holds.
Despite this, index most funds fail to match the performance of the index they track.
Passive funds also have some drawbacks & advantages as well which investors should know before investing.
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While investing in passive funds, investors' decisions should not be driven by just expense ratio of the fund.
Key Highlights :
- Passive funds are not always safer
- Passive funds also underperform the index
- Tracking error & tracking difference in passive funds are not the same
Looking at the investors' interest fund houses are lining up new ultra-low-cost index fund offerings. A few weeks back, Navi Mutual Fund created a buzz with its first offering—a Nifty50 index fund, which has an expense ratio of only 0.06%.
Index funds simply try to mirror the performance of their underlying index by holding the same stocks in the same proportion in which the index holds.
Despite this, index most funds fail to match the performance of the index they track.
Passive funds also have some drawbacks & advantages as well which investors should know before investing.
Here are nine things investors should know about Index Funds & ETFs.
1. Passive funds are not always safer
Many investors are of the opinion that index funds or ETFs are safer than actively managed funds. Worth mentioning here is that both active funds and passive funds invest in equities, which by nature are volatile. So if the market falls index funds will also fall in line with the index. However, as index funds track a particular index, the quantum of fall may be lesser than active funds in general. But both active and passive funds carry market risk and can fall if overall markets fall. But the only difference in case of index funds is that their risk profile is consistent with the underlying index.
2. Passive funds also underperform the index
Although index funds try to mirror the performance of an underlying index, in most cases they underperform their benchmark. Returns of a passive fund are usually slightly lesser than the index it tracks, for multiple reasons. “The index itself is a theoretical concept and replicating it comes at a cost.” Worth mentioning here is that a fund's NAV is arrived at after deducting expenses. So more the expense ratio of a passive fund, the more will be underperformance. The cash position held by the fund also contributes to the gap in performance. Also, inflows & outflows in the fund lead to divergences in performance. This apart, tracking difference may also arise during rebalancing.
3. A passive fund can also outperform its Index
Sometimes, passive funds outperform their underlying index due to several reasons. Index funds having higher cash positions tend to outperform their index in case of market corrections. But if your fund is consistently outperforming its index—showing positive tracking difference then it is a matter of concern as it implies the fund manager is either struggling to mirror the changes in index or may even be taking unwarranted risk on the index portfolio. Experts say in a normal scenario, index funds are expected to show a nominal negative tracking error.
4. Tracking error & tracking difference are not the same
Most investors believe that tracking error & tracking difference of an index fund are the same. Typically investors use these two words interchangeably but these two are not the same. While tracking difference indicates the difference in return between an index fund & its benchmark index, tracking error signifies the volatility in the performance of the index fund relative to its index. tracking error is calculated by annualising the standard deviation of the tracking difference of an index fund. Tracking error captures the consistency in the fund’s tracking difference over a period of time. A high tracking error shows that the fund returns relative to its index keep varying widely & it is not a good sign.
5. Lowest expense ratio does not guarantee better returns
Typically investors tend to invest in the index fund that has the lowest expense ratio. But that does not guarantee better performance or lower tracking error. “Many other factors can still create a divergence between the fund & its index.” Funds with high expense ratios can also track the index better & funds with low expense ratio may clock high tracking differences. Obsessing over lowest cost index funds will be no different than yearning for highest return active funds. It traps you in the same endless pursuit. Just pick a fund with a reasonably low cost & stick with it for your investing time horizon, the publication mentioned.
6. There are additional costs in ETF other than expense ratio
Expense ratios of ETFs are even lower than index funds. But that does not mean that investors are better of buying ETFs. Unlike index funds, ETFs can be bought & sold on exchanges from other unitholders. So investors have to pay brokerage along with taxes & depository charges hide buying & selling ETF units from the market. These expenses increase the overall cost of holding ETFs.
Also, barring a few, trading volumes of most ETFs are very poor. This lack of liquidity often creates wide divergences between the fund NAV & the price at which it can be bought or sold. What you save in expense ratio is more than nullified by this impact cost. This gap is over & above the tracking difference common to both index funds & ETF's.
7. Watch out for creeping expenses
At present, expense ratio of passive funds are low as they aim to attract more investors. But there could be a surprise later when asset management companies achieve their target AUM. Passive funds are currently in their infancy & are inviting more assets by keeping costs very low. Recently, several index funds hiked their expense ratios. Tata Sensex Index Fund’s expense ratio increased 16 times from 0.05% to 0.8% in early April. HDFC Nifty & HDFC Sensex index funds now cost twice as much – from 0.1% to 0.2%. Similarly, UTI Nifty Index fund will charge a TER of 0.18% compared to 0.1% earlier. All these hikes were on direct plan variant, the regular plans already charge higher.
8. Bigger index doesn’t lead to greater diversification
Typically investors invest in passive funds that track a broader index such as Nifty 500 index to get the benefit of diversification. However, in real sense, this does not lead to greater diversification. Studies have shown that there is no incremental gain—in the form of lower risk—from diversifying beyond a point. In the same way, buying a broader index is not much different than buying a frontline index like Nifty50.
If you buy Nifty 100 index, theoretically, you do get 50 additional stocks but here the top 50 stocks enjoy a disproportionate allocation (84%) & the rest 50 stocks get lower allocation. So you don't get the desired benefit of diversification. The equal-weighted index will allow for more diversification in the true sense.
Similarly, if you are investing in a passive fund that tracks Nifty 500 index, large-cap stocks, account for a whopping 77% of the index, mid-cap stocks constitute 16%, while small-cap stocks make up the remaining 7%. Index funds based on broad market indices like Nifty 500 may not actually offer the diversification that investors are looking for as these indices are top-heavy.
9. Funds tracking beyond frontline indices don’t track well
Of late many fund houses have launched passive funds tracking small cap & multi cap indices. But tapping the broader market with an index fund or ETF can come at a steep cost, the publication mentioned. It may be noted that the tracking difference get bigger for broader index-based funds.
Over the past year, the gap remains up to 1% for bulk of the Nifty 50-based funds. It rises to 1.5% & beyond for the Next 50 index variants. The return differential increases to 2% for the Nifty 500 index & widens further for funds that are based on mid-cap & small-cap indices.
The main reason for this is the poor liquidity in the broader market. The low liquidity increases the impact cost, or the cost of executing a transaction.
1. Passive funds are not always safer
Many investors are of the opinion that index funds or ETFs are safer than actively managed funds. Worth mentioning here is that both active funds and passive funds invest in equities, which by nature are volatile. So if the market falls index funds will also fall in line with the index. However, as index funds track a particular index, the quantum of fall may be lesser than active funds in general. But both active and passive funds carry market risk and can fall if overall markets fall. But the only difference in case of index funds is that their risk profile is consistent with the underlying index.
2. Passive funds also underperform the index
Although index funds try to mirror the performance of an underlying index, in most cases they underperform their benchmark. Returns of a passive fund are usually slightly lesser than the index it tracks, for multiple reasons. “The index itself is a theoretical concept and replicating it comes at a cost.” Worth mentioning here is that a fund's NAV is arrived at after deducting expenses. So more the expense ratio of a passive fund, the more will be underperformance. The cash position held by the fund also contributes to the gap in performance. Also, inflows & outflows in the fund lead to divergences in performance. This apart, tracking difference may also arise during rebalancing.
3. A passive fund can also outperform its Index
Sometimes, passive funds outperform their underlying index due to several reasons. Index funds having higher cash positions tend to outperform their index in case of market corrections. But if your fund is consistently outperforming its index—showing positive tracking difference then it is a matter of concern as it implies the fund manager is either struggling to mirror the changes in index or may even be taking unwarranted risk on the index portfolio. Experts say in a normal scenario, index funds are expected to show a nominal negative tracking error.
4. Tracking error & tracking difference are not the same
Most investors believe that tracking error & tracking difference of an index fund are the same. Typically investors use these two words interchangeably but these two are not the same. While tracking difference indicates the difference in return between an index fund & its benchmark index, tracking error signifies the volatility in the performance of the index fund relative to its index. tracking error is calculated by annualising the standard deviation of the tracking difference of an index fund. Tracking error captures the consistency in the fund’s tracking difference over a period of time. A high tracking error shows that the fund returns relative to its index keep varying widely & it is not a good sign.
5. Lowest expense ratio does not guarantee better returns
Typically investors tend to invest in the index fund that has the lowest expense ratio. But that does not guarantee better performance or lower tracking error. “Many other factors can still create a divergence between the fund & its index.” Funds with high expense ratios can also track the index better & funds with low expense ratio may clock high tracking differences. Obsessing over lowest cost index funds will be no different than yearning for highest return active funds. It traps you in the same endless pursuit. Just pick a fund with a reasonably low cost & stick with it for your investing time horizon, the publication mentioned.
6. There are additional costs in ETF other than expense ratio
Expense ratios of ETFs are even lower than index funds. But that does not mean that investors are better of buying ETFs. Unlike index funds, ETFs can be bought & sold on exchanges from other unitholders. So investors have to pay brokerage along with taxes & depository charges hide buying & selling ETF units from the market. These expenses increase the overall cost of holding ETFs.
Also, barring a few, trading volumes of most ETFs are very poor. This lack of liquidity often creates wide divergences between the fund NAV & the price at which it can be bought or sold. What you save in expense ratio is more than nullified by this impact cost. This gap is over & above the tracking difference common to both index funds & ETF's.
7. Watch out for creeping expenses
At present, expense ratio of passive funds are low as they aim to attract more investors. But there could be a surprise later when asset management companies achieve their target AUM. Passive funds are currently in their infancy & are inviting more assets by keeping costs very low. Recently, several index funds hiked their expense ratios. Tata Sensex Index Fund’s expense ratio increased 16 times from 0.05% to 0.8% in early April. HDFC Nifty & HDFC Sensex index funds now cost twice as much – from 0.1% to 0.2%. Similarly, UTI Nifty Index fund will charge a TER of 0.18% compared to 0.1% earlier. All these hikes were on direct plan variant, the regular plans already charge higher.
8. Bigger index doesn’t lead to greater diversification
Typically investors invest in passive funds that track a broader index such as Nifty 500 index to get the benefit of diversification. However, in real sense, this does not lead to greater diversification. Studies have shown that there is no incremental gain—in the form of lower risk—from diversifying beyond a point. In the same way, buying a broader index is not much different than buying a frontline index like Nifty50.
If you buy Nifty 100 index, theoretically, you do get 50 additional stocks but here the top 50 stocks enjoy a disproportionate allocation (84%) & the rest 50 stocks get lower allocation. So you don't get the desired benefit of diversification. The equal-weighted index will allow for more diversification in the true sense.
Similarly, if you are investing in a passive fund that tracks Nifty 500 index, large-cap stocks, account for a whopping 77% of the index, mid-cap stocks constitute 16%, while small-cap stocks make up the remaining 7%. Index funds based on broad market indices like Nifty 500 may not actually offer the diversification that investors are looking for as these indices are top-heavy.
9. Funds tracking beyond frontline indices don’t track well
Of late many fund houses have launched passive funds tracking small cap & multi cap indices. But tapping the broader market with an index fund or ETF can come at a steep cost, the publication mentioned. It may be noted that the tracking difference get bigger for broader index-based funds.
Over the past year, the gap remains up to 1% for bulk of the Nifty 50-based funds. It rises to 1.5% & beyond for the Next 50 index variants. The return differential increases to 2% for the Nifty 500 index & widens further for funds that are based on mid-cap & small-cap indices.
The main reason for this is the poor liquidity in the broader market. The low liquidity increases the impact cost, or the cost of executing a transaction.
Join my telegram channel for more updates : https://t.me/moneplan
Friday, July 9, 2021
NPS Update ! Know 5 BIG changes in National Pension System : All benefits, Relaxations details
The National Pension System (NPS) is a government offered retirement cum pension scheme.
→ The National Pension System (NPS) is a Government offered retirement cum pension scheme. By investing in NPS, the investors get the dual benefit of tax-saving & retirement planning.
→ Contribution towards an NPS account provides a benefit to individuals by way of a deduction under Section 80C. Not just it secures your retirement planning, but it also saves taxes of up to ₹ 1,50,000 a year.
→ The best part is both Private & Government employees can invest in this retirement planning scheme. In recent months there have been few changes by the Pension Fund Regulatory & Development Authority (PFRDA) in NPS. Let’s see what are these major changes.
→ The National Pension System (NPS) is a Government offered retirement cum pension scheme. By investing in NPS, the investors get the dual benefit of tax-saving & retirement planning.
→ Contribution towards an NPS account provides a benefit to individuals by way of a deduction under Section 80C. Not just it secures your retirement planning, but it also saves taxes of up to ₹ 1,50,000 a year.
→ The best part is both Private & Government employees can invest in this retirement planning scheme. In recent months there have been few changes by the Pension Fund Regulatory & Development Authority (PFRDA) in NPS. Let’s see what are these major changes.
1. Transaction in NPS via NACH Mandate :
PFRDA has enabled the National Automated Clearing House (NACH) mandate in NPS transaction in order to curb the existing challenges in fund transfer process. With the help of the NACH mandate, the complete transaction process will become digital for Point of Presence (PoP) & other NPS distributors. PFRDA introduced NACH mandate jointly by Trustee Bank & Central Record Keeping through National Automated Clearing House operated by National Payments Corporation of India.
2. Withdraw Entire Accumulated Pension Wealth :
Now on maturity, the PFRDA has allowed NPS subscribers to withdraw the entire accumulated pension wealth without purchasing annuity if the pension amount is less than ₹ 5 lakh. Currently, the person can withdraw up to 60% of the amount accumulated in the account, while the rest 40% is used to purchase an annuity plan
3. Relaxation in Timelines :
PFRDA has relaxed timelines for activities under NPS & NPS Lite- Swavalamban scheme amid the second wave of the COVID pandemic. Point of Presence (POPs) are advised to undertake NPS related activities within prescribed Turn Around Time (TAT) under the Pension Fund Regulatory & Development Authority (Point of Presence) Regulations, 2018 & guidelines issued there-under, in order to ensure timely & efficient service to subscribers, this the pension regulator mentioned.
4. Partial Withdrawal via self-declaration :
In order to ease the process of partial withdrawal & make it simple, online & paperless in the of the NPS subscribers, it was decided to allow them the partial withdrawal based on self-declaration & thereby doing away with the submission of supporting documents to substantiate the reason for partial withdrawal.
5. Deposit contributions under D Remit :
National Pension System (NPS) subscribers can deposit contributions into their accounts under D Remit (or direct remittance) using IMPS. The pension regulatory said, "PFRDA is pleased to announce the enablement of contribution by subscribers into D Remit by using Immediate Payment System (IMPS), the instant fund transfer facility provided by National Payment Corporation of India (NPCI).
PFRDA has enabled the National Automated Clearing House (NACH) mandate in NPS transaction in order to curb the existing challenges in fund transfer process. With the help of the NACH mandate, the complete transaction process will become digital for Point of Presence (PoP) & other NPS distributors. PFRDA introduced NACH mandate jointly by Trustee Bank & Central Record Keeping through National Automated Clearing House operated by National Payments Corporation of India.
2. Withdraw Entire Accumulated Pension Wealth :
Now on maturity, the PFRDA has allowed NPS subscribers to withdraw the entire accumulated pension wealth without purchasing annuity if the pension amount is less than ₹ 5 lakh. Currently, the person can withdraw up to 60% of the amount accumulated in the account, while the rest 40% is used to purchase an annuity plan
3. Relaxation in Timelines :
PFRDA has relaxed timelines for activities under NPS & NPS Lite- Swavalamban scheme amid the second wave of the COVID pandemic. Point of Presence (POPs) are advised to undertake NPS related activities within prescribed Turn Around Time (TAT) under the Pension Fund Regulatory & Development Authority (Point of Presence) Regulations, 2018 & guidelines issued there-under, in order to ensure timely & efficient service to subscribers, this the pension regulator mentioned.
4. Partial Withdrawal via self-declaration :
In order to ease the process of partial withdrawal & make it simple, online & paperless in the of the NPS subscribers, it was decided to allow them the partial withdrawal based on self-declaration & thereby doing away with the submission of supporting documents to substantiate the reason for partial withdrawal.
5. Deposit contributions under D Remit :
National Pension System (NPS) subscribers can deposit contributions into their accounts under D Remit (or direct remittance) using IMPS. The pension regulatory said, "PFRDA is pleased to announce the enablement of contribution by subscribers into D Remit by using Immediate Payment System (IMPS), the instant fund transfer facility provided by National Payment Corporation of India (NPCI).
Join my telegram channel for more updates : https://t.me/moneplan
Sunday, June 27, 2021
Health Insurance Porting -Benefits & How to Port your Cover without losing Benefits.
Not happy with your health insurance policy? Here’s how you can port your cover without losing benefits.
→ If you are not satisfied with your existing health insurance policy or you believe that the benefits you get from your health plan are not worth the premium you pay, then you have an option to port it to a different insurer for a better plan. In this case, the no claim bonus on existing policy also gets ported.
→ Health insurance policies can be ported to a different insurer while continuing the accrued benefits of the existing policy. For example, if in your present health plan some treatments are not covered for the first two years & already one year has passed, then in the new policy offered by a different insurer the waiting period for the same treatment will be reduced by one year. Worth mentioning here that the same benefit will not be applicable to a senior citizen mediclaim policy.
→ It is easier to port the health insurance plan of a young person than a senior citizen. Companies often show reluctance to port senior citizen plans as the waiting period is either reduced or entirely waived off & the new insurance company's liability comes into effect earlier.
→ It may be noted that individuals having a chronic illness or who have already undergone a hospitalization may get limited options when it comes to health insurance portability.
Will the benefits continue?
→ Yes. Portability is allowed under all individual indemnity health insurance policies issued by general insurers and health insurers including family floater policies. Wherein, the continuity benefits are offered on time-bound exclusion to the extent of the previous sum insured.
What are the advantages of porting instead of purchasing a New Policy?
1. New Sum Insured : When it comes to portability, the sum insured & accrued bonus will be added, to determine the new sum insured. Furthermore, the existing no claim bonus will also be added to the new sum insured.
2. Continued Previous Benefits : All the benefits provided by the old policy will remain in force in the new policy.
3 Lower Policy Premiums : Due to the myriad of policies offered by many insurance players, if you are porting your policy, your new insurance provider would probably offer you existing benefits enjoyed in your old policy for even lower premiums. This will bring down the cost of insurance & help save more money.
4. Transparency : As the policyholder has the option of moving to a new service provider, they would have the option of porting their policy to an insurer that follows transparent practices, with no hidden conditions and clauses.
5. Customised Policy : Policyholders have the privilege of modifying their existing policy to suit their health requirements, such as opting for additional cover as per their current lifestyles & health stats, or changing their nominees.
6. Time-bound Exclusions Absent : Policyholders needn't worry about time-bound exclusions, when porting their policy.
7. Better Claim Settlements : If policyholders find the claim settlement process very slow & cumbersome with their previous insurer, they might enjoy better services with their new insurer, depending on the insurer's claim settlement ratio.
Will the Premium Change?
→ The premium on the new policy may vary depending on the underwriting process of the new insurance company for the particular product.
→ If you are not satisfied with your existing health insurance policy or you believe that the benefits you get from your health plan are not worth the premium you pay, then you have an option to port it to a different insurer for a better plan. In this case, the no claim bonus on existing policy also gets ported.
→ Health insurance policies can be ported to a different insurer while continuing the accrued benefits of the existing policy. For example, if in your present health plan some treatments are not covered for the first two years & already one year has passed, then in the new policy offered by a different insurer the waiting period for the same treatment will be reduced by one year. Worth mentioning here that the same benefit will not be applicable to a senior citizen mediclaim policy.
→ It is easier to port the health insurance plan of a young person than a senior citizen. Companies often show reluctance to port senior citizen plans as the waiting period is either reduced or entirely waived off & the new insurance company's liability comes into effect earlier.
→ It may be noted that individuals having a chronic illness or who have already undergone a hospitalization may get limited options when it comes to health insurance portability.
Will the benefits continue?
→ Yes. Portability is allowed under all individual indemnity health insurance policies issued by general insurers and health insurers including family floater policies. Wherein, the continuity benefits are offered on time-bound exclusion to the extent of the previous sum insured.
What are the advantages of porting instead of purchasing a New Policy?
1. New Sum Insured : When it comes to portability, the sum insured & accrued bonus will be added, to determine the new sum insured. Furthermore, the existing no claim bonus will also be added to the new sum insured.
2. Continued Previous Benefits : All the benefits provided by the old policy will remain in force in the new policy.
3 Lower Policy Premiums : Due to the myriad of policies offered by many insurance players, if you are porting your policy, your new insurance provider would probably offer you existing benefits enjoyed in your old policy for even lower premiums. This will bring down the cost of insurance & help save more money.
4. Transparency : As the policyholder has the option of moving to a new service provider, they would have the option of porting their policy to an insurer that follows transparent practices, with no hidden conditions and clauses.
5. Customised Policy : Policyholders have the privilege of modifying their existing policy to suit their health requirements, such as opting for additional cover as per their current lifestyles & health stats, or changing their nominees.
6. Time-bound Exclusions Absent : Policyholders needn't worry about time-bound exclusions, when porting their policy.
7. Better Claim Settlements : If policyholders find the claim settlement process very slow & cumbersome with their previous insurer, they might enjoy better services with their new insurer, depending on the insurer's claim settlement ratio.
Will the Premium Change?
→ The premium on the new policy may vary depending on the underwriting process of the new insurance company for the particular product.
→ "The premium is calculated based on the age, geography, health conditions & gender in some of the products. However, the premium may differ from insurer to insurer based on coverage, terms conditions, sub-limits / no sub limits, room capping & waiting periods.
Join my telegram channel for more updates : https://t.me/moneplan
Friday, June 25, 2021
10 Golden Investment Rules for First Time Earners
10 Golden Investment Rules for First Time Earners
Introduction : Congratulations on landing your first job. As the stepping stone to a long career — one that could see you rise to new heights & success — you also have dreams you wish to accomplish. A comfortable car, a new home, higher education, happy retirement & others. And while your investment goals may be as unique as the journey you take to reach them, here are ten golden investment rules to help you get where you want to be.
1. Create a Financial Plan : Build a financial strategy that includes your goals, investment timeframe & risk appetite. Knowing your risk profile is important when creating your financial strategy. Get to know your comfort level with risk & how much risk you need to take.to achieve your financial goals.
2. Start investing at the Earliest : When it comes to investments, the earlier you begin, the more benefits you stand to gain. Start investing now to allow the power of compounding to reap returns at a later stage. Investing in Equity & Equity-oriented mutual funds coupled with the power of compounding can help grow your investments into a substantial sum of money over time.
3. Diversify : You may have heard the saying, "don't put all your eggs in one basket." This principle also applies to your investments. Diversification is essential when investing as it ensures that any underperformance by one asset class could be offset by a good performance from other assets in your investment portfolio. By investing across asset classes, such as equity, fixed income, gold & alternate investments, you can achieve good returns with a balanced approach to risk.
4. Stick to Asset Allocation : Starting from your first job, you may have goals to achieve. Every goal may have a specific timeline. Your short-term goals could be achieved within the next year, medium-term goals in the next five years and long-term goals beyond five. Hence, choose suitable asset classes depending on your financial goals. Consider your risk appetite, time horizon & financial objectives in deciding the right asset allocation mix for your portfolio.
5. Know your Taxes : Your salary may be subject to tax & hence, knowing where & how much of your income is taxed is important. Learn more about investments & products that offer you tax benefits & tax exemptions offered under various sections of The Income Tax Act, such as those for Equity-Linked Saving Scheme - ELSS funds, Life insurance premiums, etc.
6. Be Informed : Do not invest in any instrument or asset class you don't understand. It can be a good time to learn more about different kinds of investments, potential rewards & the potential risks when investing. Knowing how your investments make money or how losses could happen is essential. Being informed can help you make smart investment choices.
7. Explore Mutual Funds : A mutual fund is a financial tool that pools money from many investors to invest in different assets such as equity, debt or gold. Mutual funds are simple to understand, affordable & offer professional management all combined in one. But more importantly, it also gives you instant diversification & liquidity. You can also choose to invest regularly through a Systematic Investment Plan (SIP's) or a lump sum amount as per your convenience. SIP is a good option for investors looking to instill discipline into their investing habits. Getting the freedom to choose schemes of your choice depending on your financial needs & risk-bearing capacity is the most significant benefit that mutual funds can offer.
8. Think Long-Term : When investing, consider doing so for the long run. It can ensure you are not hassled about daily or weekly stock market volatility. Stick to your financial strategy despite market movement that can help you focus on your long-term goals & time horizon.
9. Invest Regularly : A good way to discipline your investment habits is to ensure you make regular investments. It can help you beat market volatility, especially if you use Mutual Fund SIP's or choose to invest in stocks systematically. As you contribute small portions of your money to your investment portfolio regularly, you will be able to create a corpus over time without taking the pain of investing a large sum at one go.
10. Review your Strategy Periodically : Since no one can control market fluctuations, political environments or the economy, change is a constant that you can expect. You can consult with a financial advisor to help you review your strategy regularly. Consider your financial advisor as your expert navigator on your investment journey. Through their expertise & financial knowledge, you will know where you stand financially & what you need to do to reach your goals successfully. Many brokers or financial distributors also offer their recommendations on investments, diversification, asset allocation, etc. online for both first time & experienced investors. They also generally track & review their recommended investments to take them to closure. Investors can also take benefit of this facility.
In Conclusion : Following the above ten fundamental investment rules can increase your chances of building wealth & meeting your goals successfully. Above all, motivate yourself to keep your eyes on the larger picture to make smart investment choices despite market ups & downs.
Introduction : Congratulations on landing your first job. As the stepping stone to a long career — one that could see you rise to new heights & success — you also have dreams you wish to accomplish. A comfortable car, a new home, higher education, happy retirement & others. And while your investment goals may be as unique as the journey you take to reach them, here are ten golden investment rules to help you get where you want to be.
1. Create a Financial Plan : Build a financial strategy that includes your goals, investment timeframe & risk appetite. Knowing your risk profile is important when creating your financial strategy. Get to know your comfort level with risk & how much risk you need to take.to achieve your financial goals.
2. Start investing at the Earliest : When it comes to investments, the earlier you begin, the more benefits you stand to gain. Start investing now to allow the power of compounding to reap returns at a later stage. Investing in Equity & Equity-oriented mutual funds coupled with the power of compounding can help grow your investments into a substantial sum of money over time.
3. Diversify : You may have heard the saying, "don't put all your eggs in one basket." This principle also applies to your investments. Diversification is essential when investing as it ensures that any underperformance by one asset class could be offset by a good performance from other assets in your investment portfolio. By investing across asset classes, such as equity, fixed income, gold & alternate investments, you can achieve good returns with a balanced approach to risk.
4. Stick to Asset Allocation : Starting from your first job, you may have goals to achieve. Every goal may have a specific timeline. Your short-term goals could be achieved within the next year, medium-term goals in the next five years and long-term goals beyond five. Hence, choose suitable asset classes depending on your financial goals. Consider your risk appetite, time horizon & financial objectives in deciding the right asset allocation mix for your portfolio.
5. Know your Taxes : Your salary may be subject to tax & hence, knowing where & how much of your income is taxed is important. Learn more about investments & products that offer you tax benefits & tax exemptions offered under various sections of The Income Tax Act, such as those for Equity-Linked Saving Scheme - ELSS funds, Life insurance premiums, etc.
6. Be Informed : Do not invest in any instrument or asset class you don't understand. It can be a good time to learn more about different kinds of investments, potential rewards & the potential risks when investing. Knowing how your investments make money or how losses could happen is essential. Being informed can help you make smart investment choices.
7. Explore Mutual Funds : A mutual fund is a financial tool that pools money from many investors to invest in different assets such as equity, debt or gold. Mutual funds are simple to understand, affordable & offer professional management all combined in one. But more importantly, it also gives you instant diversification & liquidity. You can also choose to invest regularly through a Systematic Investment Plan (SIP's) or a lump sum amount as per your convenience. SIP is a good option for investors looking to instill discipline into their investing habits. Getting the freedom to choose schemes of your choice depending on your financial needs & risk-bearing capacity is the most significant benefit that mutual funds can offer.
8. Think Long-Term : When investing, consider doing so for the long run. It can ensure you are not hassled about daily or weekly stock market volatility. Stick to your financial strategy despite market movement that can help you focus on your long-term goals & time horizon.
9. Invest Regularly : A good way to discipline your investment habits is to ensure you make regular investments. It can help you beat market volatility, especially if you use Mutual Fund SIP's or choose to invest in stocks systematically. As you contribute small portions of your money to your investment portfolio regularly, you will be able to create a corpus over time without taking the pain of investing a large sum at one go.
10. Review your Strategy Periodically : Since no one can control market fluctuations, political environments or the economy, change is a constant that you can expect. You can consult with a financial advisor to help you review your strategy regularly. Consider your financial advisor as your expert navigator on your investment journey. Through their expertise & financial knowledge, you will know where you stand financially & what you need to do to reach your goals successfully. Many brokers or financial distributors also offer their recommendations on investments, diversification, asset allocation, etc. online for both first time & experienced investors. They also generally track & review their recommended investments to take them to closure. Investors can also take benefit of this facility.
In Conclusion : Following the above ten fundamental investment rules can increase your chances of building wealth & meeting your goals successfully. Above all, motivate yourself to keep your eyes on the larger picture to make smart investment choices despite market ups & downs.
Join my telegram channel for more updates : https://t.me/moneplan
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