Mutual Funds Archives -

Is Mutual Fund As Risk-Free As You Think?

Fri, 24 Jun 2022 08:39:49 +0000

The Buyt Desk

Mutual Fund has been around as an investment option for a long time but was not as popular as it is today. Today, this investment product is well accepted as traditional investment products among investors, such as fixed deposits, gold, silver, etc. Thanks to mutual fund managers who carefully invest money in different equities and ensure you get a good return.

To make SIP mutual funds less risky, the mutual fund managers invest your money in various funds across asset classes, depending on the fund you have chosen. This is how they mitigate the risk of loss. Therefore, even when certain assets do not perform, your portfolio will be the least impacted. However, there are risks involved that you must be aware of to make an informed decision about investing in mutual funds.

Risk Involve With SIP Mutual Fund And SWP

The two major concerns of mutual fund investors are:

Will this investment fetch me a risk-free return?
Is the asset management company reliable?

As far as the credibility of the asset management company is concerned, the Securities Exchange Bureau Of India and other regulatory bodies are there to protect your rights. And the for the first concern, there are certain risks, such as:

Equity Or Stock Market Risk – The money you put into equities via a mutual fund is being invested eventually in public traded firms, thus, the risk that the stock market has is obviously there in the mutual fund as well.

Interest Rate Risk – A debt fund has a risk of interest rate. Bonds and stocks are exchanged in a similar manner, and their prices vary. Further, the bond movement and the economy’s interest rate are interlinked and work in inverse. That means as the economy’s interest rate rises, the bond values decrease as they both offer the same interest rate.

Things to Consider When Evaluating Mutual Fund To Avoid Risk

Mutual Funds come with certain risks. To avoid them, you must keep a few points in your mind.

Return – A fund managed by professionals has good back support. Such fund claims to give a minimum return of 12%. It is way higher than the interest rate offered by other financial products.

Factors Of Uncertainty – There are mutual funds present, giving you the option of regular investment of a fixed amount every month (SIP). In case you fail to deposit money in that account for a month or two, it would not affect your account functioning, unlike the recurring deposit or FDs, where missed payment means account closure. Consider that option.

Flexibility Of Surrender – Suppose you need a fund for buying a home or sending your child abroad for further education. If you borrow a loan from the bank, it will charge a whopping interest of up to 12% depending on your banking history. On the other hand, if you have a mutual fund bond that has given you significant gain, surrender the fund to get the needed corpus.

Conclusion – Mutual Funds are exposed to risk as various external factors control it. However, it also gives a return that no other investment products offer. But to reduce loss risk, diversifying investment portfolio is the mantra.

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Mutual Funds Or Fixed Deposits: What Is Better?

Wed, 20 Apr 2022 15:05:18 +0000

TheBuytDesk

The Fixed Deposit (FD) is a popular and preferred investment option among investors. Reasons – there is no risk, earn interest, save tax. Therefore, when a traditional investor is given the mutual funds option, they get into a dilemma, whether to invest in mutual funds or not?

So, here is a quick comparison between mutual funds and fixed deposits, which is better and why. The reason is that both investments are different on investment track, although common among investors.

What Is A Fixed Deposit?

In the fixed deposit, you invest a lump sum amount for a fixed tenure that ensues interest, which is pre-decided. In FD, the returns remain unaffected by the market fluctuation. Though you don’t earn enticing interest, you don’t lose anything either.

What Is Mutual Fund?

The mutual fund, on the other hand, is a financial instrument having a portfolio of bonds, equities, stocks and market-linked securities and instruments. In the mutual fund, multiple investors invest in a fund, and they all have a common aim, earning a good return on investment and growing their savings. After maturity, investors get their share of profit after the deduction of expenses incurred by them. The two investment options, mutual funds and FD have different qualities, and thus the benefits they offer also differ.

Mutual Funds or Fixed Deposit: What should you choose!

To help you understand both the avenues of investment let’s look at them piece by piece and understand their features.

What do you get when you invest in Mutual Fund?

A mutual fund is a professionally managed product. The experts in the field with performance analysis of various industries create a suitable portfolio for investors.
Mutual funds invest in equity, gold and in fixed income options.
The thumb rule of investment is a diversified portfolio. Mutual funds are a pool of companies from diverse industries and sectors. Diversification reduces the loss risk.
Over time, i.e. in long term investment, the mutual fund provides a higher return as they invest in different baskets of securities.
Mutual funds are considered a low cost. If taken into account the overall cost, such as brokerage, fees and custodial charges, its cost is less than stocks.
It is registered under SEBI and monitored by it regularly.
In mutual funds, you can find products matching your requirements. You can invest and withdraw the amount from a mutual fund based on your needs

What do you get when you invest in Fixed Deposit Investment

With the fixed deposit, you have the assurance of receiving the stated interest rate. The Bank and Post Office publishes the rate of interest they are offering on their website. According to their requirement, customers pick the product and invest money. It can be a recurring or lump sum.
The fixed deposit comes in different tenures. Banks offer FD for various periods of time, however, it is always the customer who decides for what period they want to keep the money in FD.
You can liquidate FD at any time but it comes with a cost. FDs come with a time-bound maturity and may charge you a penalty if you withdraw it prematurely. Some of them also have locked tenure.
It is a dependable instrument. One can take a loan against FD easily. One can take a loan of up to 90% of the deposited amount.
As far as the return is concerned FD will score low in front of mutual funds. The rate of interest in FD is low when compared to the return that mutual funds offer in a long term investment.

Both investments have their own advantages and disadvantages. The only thing that an investor should consider while choosing his/her investment is what is their goal, how much time they want to achieve it and how much risk can he/she take If he/she has a longer time horizon then they can choose an investment like a mutual fund but if he/she is risk-averse and prefers a fixed return then a bank FD is more viable.

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4 Must-Know Categories of Mutual Funds

Sat, 29 Jan 2022 12:42:47 +0000

The Buyt Desk

Mutual funds have gained tremendous popularity in the past few years. If you have been considering investing through mutual funds then that means you are getting ready to embark on your wealth creation journey. Mutual Funds have given good returns to investors compared to any other kind of investment. Before investing in a mutual fund, you must know what are asset-based mutual fund products so that you choose the one that perfectly fits your investment plan. The right product will help you achieve your investment goal.

The asset management companies offer diverse types of mutual funds and have broadly categorized them into different types based on structure, asset class, speciality, investment and risk to make it easier for investors. We will focus on the classification of asset-based mutual funds. The underlying asset of the mutual fund decides the category of the fund and the name of the fund tells you the category. Broadly there are 4 categories based on asset- equity funds, debt funds, money market funds and hybrid funds. All the four follow a specific way of investment and this differentiates one from the other. Every Investor should choose the fund according to his/her risk-taking capacity. The overall portfolio’s diversification will also be a key reason behind the choice of fund.

Let us understand all 4 categories in a detailed way-

Equity Funds – In this fund, asset management companies invest the corpus in stocks or company shares. These funds are considered high risk. However, it assures higher returns. These funds include fast-moving consumers, banking and infrastructure.

Suggestion to Investors- If you pick an equity-oriented mutual fund you should always have an investment horizon for the long term. They have generated higher returns over a longer period of time.

Money Market Funds – In this fund, the asset management company invests the corpus in liquid instruments such as commercial papers, certificates of deposit, dated securities and treasury bills. This fund is one of the best investment options for investors who look forward to having moderate returns but in a short period. This product comes with risks like reinvestment risk and interest risk. That is why this is a preferred investment for the shorter tenure of not more than 3- 12 months.

Suggestion to Investors- The Money market funds disburse regular dividends. They are known for giving returns in a short period of time so opt for a short term plan. Investors with low-risk appetites can use this type of fund for parking their surplus money for a short period.

Debt Funds – This investment product is the safest among all mutual fund products. Debt funds invest in fixed coupon-bearing instruments, such as government bonds, securities, debentures, etc. They are low-risk low return funds and are ideal for investors with low-risk appetites. They do come with credit risk.

Suggestion to Investors- Debt Funds come with a fixed interest rate and a maturity date so is a good option for passive investors looking for regular income.

Balanced or Hybrid Funds – This fund invests corpus in the mixed-asset class. Hybrid funds have exposure to both equity and debt. The proportion of equity remains higher than the debt in this fund. The standard is 60:40, however, it varies in the same proportion. Based on the ratio, the risk and return of this investment product also vary.

Suggestion to Investors- Hybrid or balanced funds are best suited for investors who are moderate risk-takers and are happy with comparatively low returns.

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Which Mode of Investment in Mutual Funds is Better – SIP or a Lump Sum Amount?

Sat, 08 May 2021 11:40:57 +0000

The Buyt Desk

In a Systematic Investment Plan (SIP), a fixed amount is auto-debited from your bank account to purchase units of a mutual fund periodically whether quarterly, monthly, or weekly. In the lump sum mode of investment, you invest a large amount of money in a mutual fund at one time. Before we discuss which of these two modes is better, one thing should be clear. Mutual funds have a risk associated with them. Whether a first-time investor or a seasoned investor, every decision related to mutual funds requires good knowledge of the market. It is best to follow the advice of a certified financial consultant. In the same manner, consider the following features of SIP and lump sum investment before you choose a specific mode.

A large lump sum amount should be invested in mutual funds when the market has an upward trend. However, you can start a SIP at any time and do not need to monitor the market closely. In a SIP, the cost of your investment is averaged out because money is being invested regularly irrespective of whether the market is at a high or a low.

You can start a SIP with a minimum investment of Rs.500. However, the lump sum mode requires a higher investment of at least Rs.5000. Thus, it is easy to begin a SIP because it requires a low amount of investment. Also, SIP offers ease of operation. In SIP, you just have to give one-time instruction to the bank to deduct a fixed amount on a specific date and invest in the mutual fund of your choice.

SIP helps develop a discipline of saving money from your income regularly. This is the first step in personal finance management. On the other hand, the lump sum mode of investment is useful only when you have a corpus available, for instance, when an arrear or a bonus has been credited to your account.

The lump-sum mode of investment, if the units are bought when the market is at a low tide and sold when the market is at a high, can generate returns higher than a SIP. Nonetheless, it comes down to what works best for you. Are you able to squeeze your monthly budget to spare extra money for a SIP? Are you ready to take a risk with a large amount of money while investing a lump sum amount? Diversification is a safety value when dealing with mutual funds. Even while choosing the mode of investment, you can use the same principle. You may open a SIP for a mutual fund and invest a lump sum amount, when available, in another mutual fund. As a result, over a period, you can reap the benefits of both modes of investment.

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Are ETF Better Than Mutual Funds?

Mon, 08 Feb 2021 13:01:45 +0000

The BuyT Desk

The ETFs, i.e. exchange-traded funds, are a sub-category of mutual funds. They have seen an increased level of interest among Indian investors in the last five years. The amount collected from the investors is invested in a portfolio of equity shares, bonds, or gold depending on the scheme’s purpose.

What are ETFs?

ETFs are generally passive funds and track indexes such as Nifty 50, Bank nifty or Sensex. When you buy an ETF, you purchase units of a portfolio that tracks the underlying Index’s yield and return. ETFs don’t outperform their corresponding index, but their performance is aligned with the underlying Index’s performance. Like mutual funds, ETFs also have different categories like equity, bonds, liquid or gold ETFs depending on the purpose of the scheme. Apart from equity ETFs, gold ETFs are available that invest in pure gold. Investors get capital gains according to the performance of gold. Bond ETFs provide an opportunity to invest in government and non-government bonds. For investors who want to invest in international companies such as Amazon, Apple, and Microsoft, ETFs are an option based on the International Index. A Demat account is necessary to invest in ETFs.

ETFs also feature that their value changes several times in a day as they are traded on the stock exchange. The value of ETFs varies in the real-time. Therefore, investors can take advantage of market fluctuations while buying or selling in ETFs. ETFs are no longer limited to only the cap based on Nifty and Sensex. There are also options for ETFs based on sectorial indices such as Nifty Bank, Nifty IT, Nifty Private Bank, Nifty PSU Bank etc.

Comparison with Mutual Funds

The ETFs are based on a single index, and fund managers cannot change that. Therefore, their performance is almost equal to its benchmark index. The expense ratio in ETFs is much lower than that of any active mutual fund. While investing in ETFs, an investor is not required to see its past performance under any mutual fund scheme. However, in a mutual fund, the fund manager tries to ensure that the actively managed mutual fund’s performance is better than the benchmark. Fund managers include shares to the portfolio as per their understanding and expertise. The fund manager also decides the ratio of different shares in the portfolio. Often, the top mutual funds in the large-cap category have outperformed index funds or ETFs in the long-term.

Another difference between ETFs and mutual funds is that the price of ETF keeps changing according to its supply and demand. Whereas, the NAV (Net Asset Value) of a mutual fund is fixed only once in a day, at market closing, based on the money that the mutual fund has invested in the stocks or bonds.

Income Tax Liability

Investors may have to pay tax on the capital gains from selling ETFs. Taxation on capital gains from equity and other capital assets is different. A short-term investment in equity ETFs is for a year. The short-term capital gain (STCG) tax of 15% applies when you sell the ETF after 1 year of investment, henceforth, long-term capital gains (LTCG) tax applies. The long-term capital gains (LTCG) tax does not apply on the capital gains up to Rs.1 lakhs, and above that amount, the LTCG tax of 10% applies. If you invest in a bond ETFs or gold ETFs, then a period of 3 years or less will be short-term, and more than three years will be long-term. Thus, the STCG depends on the income tax slab that can go up to 30 %, while the LTCG is 20 % with the benefit of indexation. Keep in mind, additional health and education cess of 4 % is applicable too.

Who should invest in ETFs?

ETFs are suitable for investors who have limited knowledge of capital markets and even mutual funds but want to invest in capital markets with less risk.
Other investors who have a good understanding of capital markets can judge which sector like banking or IT will perform better than the average capital market at a specific time. However, they do not understand which shares of banking or IT sector to select, in such a scenario, sectorial ETFs like Nifty bank or Nifty IT are advantageous.

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Five New Rules Will Be Applicable on Mutual Funds

Mon, 04 Jan 2021 10:40:09 +0000

By The BuyT Desk

The Securities Exchange Board of India (Sebi) has brought about new mutual fund (MF) rules. These changes aim to make MF more transparent for investors. So if you are planning to invest in mutual funds or are invested, you must know about the changes. Here are the five new rules of MF-

1.Multi cap equity fund’s portfolio allocation

A multi-cap mutual fund scheme must invest at least 75% in equities. The scheme also has to invest at least 25% each in large-, mid-, and small-cap stocks. Earlier the minimum equity allocation cap was at 65%. There as no allocation restriction and fund managers can invest across the market cap as per their own choice. But now they have to invest a minimum of 25% across the three categories. The mutual fund houses have time until 31 January 2020 to implement this.

2. NAV calculation

According to the old rules, the Net Asset Value(NAV) of the same day was considered for unit valued up to Rs 2lakh or less. It didn’t matter if the money reached the AMC or not as long as the order is placed within the cut off time. But now the investors will get the purchase NAV of the day when investor’s money reaches the AMC, irrespective of the investments’ size. The new NAV calculation will not apply to liquid and overnight funds.

3.New Riskometer tool

The risk-o-meter will have a new category of ‘very high’ risk. This will help investors to make an informed decision once they can identify the risk level. The earlier riskometer did not adequately assess the risk but divided the funds based on the scheme. But now the risk-o-meter will be evaluated monthly, and every AMC has to keep reviewing the portfolio disclosure. AMCs have to publish the risk levels on their website and AMFI’s website every month. Mutual Funds also have to post a history of riskometer changes every year. Further, AMC must inform the unitholders about any risk-o-meter shift of that particular scheme.

4.Dividend option renamed

From April 2021, mutual funds will have to rename dividend options as income distribution cum capital withdrawal.

5.Inter-scheme transfers (ISTs)

From 1 January 2021, investors are allowed an inter-scheme transfer(IST) in close-ended funds within three days of the allotment of the units. IST involve shifting of debt papers from one mutual fund scheme to another. Earlier ISTs was executed at market prices and that the transfer should conform with the recipient scheme’s investment objective.

Sebi also explained that no ISTs should be allowed if there is any negative market news or rumour about security in the mainstream media or an alert generated by the fund’s internal risk assessment in the previous four months.

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