What is Bharat Bond ETF And is it a good Investment option

What is Bharat Bond ETF? And Is it a Good Investment Option?

Understanding Bharat Bond ETF as an Investment option in India: On Dec 4, 2019, Finance Minister Nirmala Sitharaman announced the formation of India’s first Bond Exchange-Traded Fund (ETF). This first corporate bond ETF of the country was named ‘Bharat Bond ETF’. This news came nearly two years after the then FM Arun Jaitley announced a plan to launch a bond ETF in his 2018 -19 budget speech.

The FM Nirmala Sitharaman announced that this move was in order to deepen Indian bond markets and at the same time provide additional money for Public sector units. Today, we try and decode what these funds newly introduced in the Indian markets really are.

Finance Minister Nirmala Sitharaman announced the formation of India’s first Bond Exchange-Traded Fund (ETF)What are Bond ETFs?

Before we look into what a Bond ETF is it is actually better to look into bonds and ETF’s separately so as to understand them better.

A Bond is a financial instrument used by a company to raise funds from the stock market. Here, the investors are paid interest in exchange for the amount lent to the company. It is safe to say that bonds are a means of raising debt. Here the periodical interest is paid to the investor and the principal amount is repaid on maturity. A bond does not give any ownership right to the investor but there exists a risk of default on the loan. 

An Exchange Traded Fund(ETF) is a fund that is actively traded on the stock market. If you have noticed mutual funds, on the other hand, do not trade in the stock market. An investor who wishes to invest in a mutual fund does so based on a previous day’s calculated Net Asset Value(NAV) price. In the case of these mutual funds the demand and supply forces of the stock market do not influence the fund price directly and neither can they be bought and sold through the stock market.

An ETF removes this inconvenience faced by the fund. This is because ETFs are the answer for funds that hold different types of securities to be traded on the stock exchange.  This is made possible in ETFs through an arbitrage mechanism to keep the prices on the stock exchange close to the funds’ NAV.

In Bond ETFs, a fund is created that invests only in bonds and at the same time, it is made available to investors through the stock market. Bharat Bond ETF does the same while investing only in public sector bonds. 

How does Bharat Bond ETF work?

Bharat Bond ETF offers a portfolio to its investors which only includes public sector bonds that have a ‘AAA’ credit rating. Bharat Bond ETF offers investors two products. A BBETF maturing in 3 years and another maturing in 10 years. The main aims of the ETF are realized due to their ability to be accessed by small retail investors. The Bharat Bond ETF allows a minimum investment amount of Rs.1000.

An investor who would otherwise choose to invest in bonds directly would require investments of significantly higher amounts. The ETFs allow a maximum investment Rs. 200,000. The ETF functions as a growth model. Here the returns that are earned on the investments in the fund are reinvested. This adds to the benefits of compounding.

How does Bharat Bond ETF work

Why are the benefits of BBETF?

Investing in the newly introduced Bharat Bond ETF offers the following benefits:

— Reduced Investment size

Generally, when an investor would want to invest in the bond market he would be required to make a significantly higher investment. A retail investor would find this amount to be too much to be invested in one company alone.

Tuhin Kanta Pandey, the secretary of Dept. of Investment and Public Asset Mgmt.) highlighted that prior to Bharat Bond ETF retail investors would have no means of accessing bond markets as bond issuances would be done through private placements. The amounts required to be raised here was Rs 10 lakhs. 

What BBETF does is it provides investors with the option to invest with a minimum sum of Rs. 1000.

— Benefits of diversification

BBETF offers its investors the benefits of diversification. The investors receive these benefits as the ETF invests in multiple bonds. This protects the investors if a few of the investments fail as the investments that perform well set off the losses.

— Liquidity

As the Bharat Bond ETF trades in the stock market, it offers its investors liquidity as they can be bought and sold accordingly. 

— Taxation Benefits

Investments in Bonds that are held for more than 3 years receive an indexation benefit. The Bharat Bond ETF also offers the benefits of indexation. Through indexation, the tax imposed on the investors will be adjusted to the amount of inflation.

— Portfolio Quality 

BBETF invests only in funds that are graded as ‘AAA’ securities. ‘AAA’ is the highest rating issued to a bond by a credit rating agency. These ratings are issued based on the issuer’s ability to meet its financial requirements and at the same time have a low risk of default. 

— Projected Returns

Following were the projected Yield offered by the two Bharat Bond ETFs

  1. BHARAT Bond ETF April 2023 – 6.7%
  2. BHARAT Bond ETF April 2030 – 7.6%

The post-tax yield after the indexation benefits are considered to stand at 6.3% and 7% for the 3 years and 10-year bonds respectively. These returns are estimates and not guaranteed. They will vary depending on the market conditions and interest rates.

Who manages the BBETF?

Who manages the BBETF(Image: Nitin Jain, CEO- Edelweiss Global Investment Advisors, Radhika Gupta, CEO-Edelweiss Mutual Fund and Hemant Daga, CEO-Global Asset Management at the BHARAT Bond ETF launch)

Edelweiss was selected as the Bharat Bond ETF in its first tranche. Bharat Bond ETF has been dubbed as the world’s cheapest fund. This was because BBETF runs at almost zero cost at a 0.0005% charge per annum on the investments. This means that an investment of Rs 200,000 would have a charge of Rs. 1 per year. 

Where does the BBETF invest in?

Each of the 2 BBETF products follows separate independently created indexes. The index is constructed with the help of the NSE. These indexes involve only ‘AAA’ rated stocks of public companies. The indexes are rebalanced on a quarterly basis. The maximum exposure given to a bond in the index is 15%.

Is the BBETF without any risk?

The Bharat Bond ETF is not free from risks. They include the innate risks that come with bonds.

The interest offered by a bond will remain constant until maturity. The price of a particular bond reacts on the basis of interest offered by other bond securities. 

Say a year after bond ‘A’ is issued the other newly issued bonds in the marked start offering higher interest rates. This will lead to investors selling bonds ‘A’ as they would look for the higher returns from other bonds. This creates a situation where there is reduced demand for bond ‘A’ hence reducing its price.

How can I invest in BBETF?

Bharat Bond ETF is available to investors through two routes

— New Fund Offering (NFO)

An investor has the option of investing in a BBETF at the New Fund Offering. This is made available to investors twice in a year as BBETF is launched every 6 months.

— Fund of Funds (FOF)

Investors are also given the option of investing in the ETF through a FOF. This will be available to the investors throughout its tenure. The FOF also offers the investors to opt for SIP. Investors are not required to have a DEMAT account to invest via the FOF. The investor simply can do so through https://bharatbond.in/.

It should be noted that choosing the FOF route results in the increased cost charged. The added expenses of the FOF bring the cost of investment to 0.0515%.

Is there a lock-in period?

Bharat Bond ETF’s do not have a lock-in period. But they do however have an Exit load in the case of a FOF. An exit load of 0.10% is charged if an investment is withdrawn with 30 days. There is no exit load charged if the investment is withdrawn past the 30-day mark.

Bharat Bond ETF as an investment option?

Bharat Bond ETF was welcomed in the Indian markets with 1.7 times subscription. After raising Rs. 12,400 crore in its initial investment the ETF is now preparing for its second tranche. Edelweiss announced that the second tranche will take place in July for the two series maturing in 2025 and 2031.

The covid19 environment has disrupted the investment behavior of investors. Investors are now more risk-averse and look for the safety of their investments. This environment has made fixed schemes like the Bharat Bond ETF more attractive to investors. This can be owed to the mix of tax benefits, low cost, returns, liquidity, and security offered by the Bharat Bond ETF.

June 25, 2020 Market, Mutual Funds, News No comments yet
10 Biggest AMCs in India - Asset Management Companies List cover

10 Biggest AMCs in India – Asset Management Companies List 2020!

List of the Biggest AMCs in India 2020: An Asset Management Company (AMC) manages a pool of funds collected from investors. Investors prefer to invest their money with AMC due to the level of diversification, the skill of the investment manager offered, along with other professional services. AMC’s attract investors who either do not possess much knowledge of the markets and would benefit from an investment manager or those who would rather allocate their precious time elsewhere.

A small retail investor will be able to invest in a very few stocks with the limited savings he has. By doing so he exposes himself to the additional risk if the shares of the company he invested in make a loss. In products offered by the AMC’s the huge pool of funds collected from investors is invested in a huge number of stocks protecting its investors from the losses of focused investment. AMCs designs various products to suit the needs of different investors. They create portfolios that suit the different risk appetites, tenure, tax benefits, etc. that the investors look for.

In this post, we’re going to look into the biggest AMCs in India for 2020. We’ll also cover the Asset Under Management (AUM) size, the total number of funds, and more important pieces of information related to these AMCs. Let’s get started.

10 Biggest AMCs in India 2020

The following are the top Indian AMCs with the largest Assets Under Management (AUM) as of March 2020.

1. SBI Mutual Fund

SBI mutual fund Biggest AMCs in India

AUM (In crore)Number of Funds
373498.27150

The SBI mutual fund was founded in 1987. At its inception, the MF was fully owned by State Bank of India (SBI) a public sector bank. In 2004 SBI disinvested 37% stake from its mutual funds which was taken up by global leaders Societe Generale Asset Management. In 2011 the stake held by Societe General was taken up by Amundi as part of a global movement to merge its asset management business with Crédit Agricole. SBI Mutual Fund is currently a joint venture between SBI and Amundi of France.

2. HDFC Asset Management Company 

HDFC Asset Management Company 

AUM (In Crores)Number of Funds
369782.8122

The Housing Development Finance Corporation Bank provides mutual fund services through its subsidiary HDFC Asset Management Company Limited. One of the leading AMCs in India, HDFC formed this Mutual fund company with Standard Life Investments and holds approx. 57.4% of its shares.

3. ICICI Prudential Asset Management Company

ICICI Prudential Asset Management Company

AUM (in crores) Number of Funds
350634.37242

ICICI Prudential Mutual Fund was established in 1993 with 2 locations and 6 employees at the inception of the joint venture in 1998, to a current strength of more than 1000 employees with around 120 locations. Due to its substantial growth, it currently boasts more than 4 million investors. The AMC is a joint venture between ICICI Bank in India and Prudential Plc, one of the largest players in the financial services sectors in the UK.

4. Birla Sun Life Mutual Fund (BSLMF)

Birla Sun Life Mutual Fund (BSLMF)

AUM (in crores)Number of Funds
247521.68165

The Birla Sun Life Mutual fund was established in 1994 as a joint venture between Aditya Birla Capital Limited and Sun Life Financial Inc ( Canadian insurance provider founded in 1865)

5. Nippon India Asset Management Company 

Nippon India Asset Management Company 

AUM (in crores)Number of Funds
204857.79211

Nippon India AMC, earlier known as Reliance Asset Management Limited was founded by the late Dhirubhai Ambani and is one of the most popular AMCs in India. It was later run in a joint partnership with Nippon Life Insurance from Japan. In 2019 Nippon Life Insurance went on to own a 75% stake in the mutual fund allowing Anil Ambani owned Reliance to exit the Mutual fund industry.  After this, it came to be known as Nippon India Asset Management Company

6. Kotak Mahindra Asset Management Company 

Kotak Mahindra Asset Management Company 

AUM (in crores)Number of Funds
186081.33100

Kotak Mahindra Asset Management Company (KMAMC) started operation in 1998. The Kotak Mahindra AMC is one of the few wholly-owned subsidiaries among the top AMCs. It is a subsidiary of Kotak Mahindra Bank Limited (KMBL) and boasts an investor base of above 1.7 million investors.

Also read: 7 Best Mutual Fund Apps for Direct Investment

7. UTI Mutual Fund 

UTI Mutual Fund 

AUM (in crores)Number of Funds
151512.5182

UTI Asset Management is India’s oldest and largest mutual fund management company. The mutual fund industry in India originally began in 1963 with the Unit Trust of India (UTI). For a period it was the only source of mutual fund investment for Indian citizens in the 90s. UTI Mutual Fund is a Government of India and the Reserve Bank of India initiative.

8. Axis Asset Management Company

Axis Asset Management Company

AUM (in crores)Number of Funds
138401.6258

Axis Asset Management Company was launched in the year 2009. It is a joint venture between Axis Bank and Schroder Singapore Holdings Private Limited.

9. Franklin Templeton

Franklin Templeton

AUM (in crores)Number of Funds
116222.9582

 The American establishment was set up as Templeton Asset Management India Pvt. Limited in India in the year 1996. Over 2 decades of consistent growth made Franklin Templeton as one of the largest foreign fund houses in India. 2020 however was seen as the worst year for Templeton Asset Management India as they ended up winding six of their debt mutual fund schemes in India. This has led to the company currently facing multiple litigations across the country.

10. IDFC Asset Management Company

IDFC Asset Management Company

AUM (in crores)Number of Funds
103893.1659

 IDFC Asset Management Company is one of the leading AMCs in India since its inception in 2000. It formes a part of Infrastructure Development Finance Company Limited a finance company based in India

June 19, 2020 Mutual Funds, News No comments yet

11 Key Difference Between Stock and Mutual Fund Investing!

Key Difference Between Stock and Mutual Fund Investing: Hello Investors! When it comes to equity investing, a lot of beginners are confused about whether they should directly invest in stocks or take the mutual funds route. In this post, we are going to discuss the fundamental difference between stock and mutual fund investing.

However, before we start talking about the differences, let’s first exactly define what stock and mutual fund investing is.

What is stock and mutual fund investing?

Stock market investing means investing directly in the stocks of the company. Here, you are purchasing the companies listed on the stock exchange with an expectation to earn profits when the price of that stock goes up.

On the other hand, a mutual fund is a collective investment that pools together the money of a large number of investors to purchase a number of securities like stocks, FDs, bonds, etc. A professional fund manager manages this fund. When you purchase a share in the mutual fund, you have a small stake in all investments included in that fund. Hence, by owning a mutual fund, the investor participates in gains or losses of the fund’s portfolio.

11 key difference between stock and mutual fund investing

Here are the critical differences between stock and mutual fund investing based on eleven crucial factors–

1. Cost of investing  

While investing in mutual funds, you have to pay different charges like an expense ratio, load fee (entry load, exit load), etc. For the top mutual funds, the expense ratio can be as high as 2.5-3%.

On the other hand, if you invest in the stock market, you have to open your brokerage account (which includes opening account charges), and you have to pay some annual maintenance charges too. Further, there also different costs while transacting in stocks like brokerage, STT, stamp duty, etc.

Nevertheless, if you compare the charges involved in stock and mutual fund investing, you can find that the costs while investing in stocks are still lower. This is because managing a mutual fund consists of a lot of expenses like management fee, the salary of the managers/employees, administration charges, operational charges, etc. However, for investing in stocks- the most significant burden is only the brokerage.

Also read: How to Invest in Share Market? A Beginner’s Guide

2. Volatility in investment

Direct investing in stocks has more volatility when compared to mutual fund investing. This is because when you invest in shares- you generally purchase 10-15 stocks.

On the other hand, the mutual fund consists of a diversified portfolio with investment in different securities like stocks, bonds, fixed deposits, etc. Even the equity-based mutual funds invest in at least 50-100 stocks. Due to the broad diversification, the volatility in the mutual funds is a lot less compared to that of shares.

3. Return potential

Stock market investing has a very high return potential. Most of the successful investors in the world and India like Warren Buffett, RK Damani, Rakesh Jhunjhunwala, etc. have built their wealth by investing directly in the stock market.

However, this is only one side of the story.

The complete fact is that the majority of people lose money in the stock market. Although the return potential is high while investing in stocks, however, the risk is also higher.

On the other hand, most of the good ranked mutual funds have given decent consistent returns to their shareholders. Although the returns are not as high as what many successful investors can make from stocks, however, this return is enough to build a massive wealth for an average person for a secured future.

Why You Need to Know The Rule of 15*15*15 cover

4. Tax saving

If you invest in ELSS (Equity linked saving scheme) under mutual funds, you can enjoy a tax deduction up to Rs 1.5 lakhs in a year under the section 80c of the income tax act.

Another benefit of investing in the mutual fund is that you do not have to pay tax if the fund sells any stock from its portfolio as long as you are holding the fund.

On the other hand, when you sell stock while investing directly in the stock market, you have to pay a tax, no matter what’s the scenario. There are no tax benefits while investing in the stock market. You have to pay a tax of 15% on short-term capital gains and a tax of 10% (above a profit of Rs 1 lakh) on the long-term capital gains.

Also read: Mutual Fund Taxation – How Mutual Fund Returns Are Taxed in India?

5. Monitoring

Investing in the stock market requires frequent monitoring. This is because the stock market investing is a personal thing. Here, no one is going to do this for you and hence you have to monitor your stocks yourself. Moreover, due to the high volatility of the share market, the frequency of the monitoring should be higher. At least every quarter or half-yearly.

On the other hand, for the mutual fund -there are fund managers who take care of the investments and make the buy/sell decision on your behalf. That’s why, when you invest in mutual funds, you do not need to monitor your fund much frequently. Anyways, you should watch your funds at least every year so that you can confirm that your fund’s performance is in line with your goals.

Also read: How to Monitor Your Stock Portfolio?

6. SIP Investment   

Mutual funds investment provides you with an option of a systematic investment plan.

A Systematic Investment Plan refers to periodic investment. For example, the investor can invest a fixed amount, say Rs 1,000 or 5,000, every month (or every quarter or six months) to purchase some units of the fund. SIP helps in investing automation and it brings discipline to the investment strategy.

On the other hand, there’s no option of SIP available in stock market investing.

7. Asset class restriction

While investing in the stock market, the only asset where you can spend is stocks of the company.

On the other hand, the mutual fund gives you an opportunity to invest in a diversified portfolio. Here, you can invest in a variety of asset classes. For example- debt mutual funds, equity-based mutual funds, gold funds, hybrid funds, etc.

8. The time required for investing

The total time needed for directly investing in stock is a lot more compared to that of a mutual fund. This is because a fund manager manages a mutual fund.

However, for direct investment in the stock market, you have to do your research. Here, you have to find the best possible stock for investing yourself, and that requires a lot of studies, time, and efforts.

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

9  Ease of investment

For investing in the stock market, you have to open your brokerage account with the help of a stockbroker. Here, you need to start your Demat and trading account which can take as long as a week to open.

On the other hand, you can start by investing in a mutual fund within 10 minutes. You do not require any brokerage account to start investing in mutual funds. There are a number of free platforms (like Groww or FundsIndia) available on the Internet where you can register within a few minutes and start investing in mutual funds.

10. Time Horizon of investment

Generally, the investment time horizon in mutual funds for long-term like 5 to 7 years. Here, you are not trading funds, but investing for the long-run to make money by capital appreciation or regular income through dividend funds.

On the contrary, if you invest in stocks- it can be a long-term or short term. You can even keep the stock for a week and get good returns.

11. Control on investment

If you are investing directly in the stock market, you will have a lot of power and control. Here, you can make critical decisions like- when to buy, when to sell, what to buy, what to sell, etc.

On the other hand, while investing in the mutual fund, you do not have much control over your investments. It’s your fund manager who makes the decisions like which securities to buy, when to buy, when to sell etc. The highest control that you have is to find and invest in a good mutual fund. However, once you have spent your money, everything will be taken care of by the fund manager.

Further, mutual fund performance depends on the efficiency of the fund manager. If the fund manager is efficient, you can get high returns. Otherwise, if the fund manager is not that good, you might get fewer returns. In addition, there is always a possibility that the fund manager may quit or join some other fund house.

Overall, here you have to be dependent on the fund manager. However, while investing in the stock market, there is no dependency on anyone, and you can make your own decision to buy/sell whichever stock you want.

Check out the upcoming course on mutual fund investing here.

Conclusion

No investment is risk-free. There will always be some risk when you invest in the market or even if you invest in the safest fund. Nevertheless, investing in a mutual fund is comparatively less risky than the stock market. However, the returns are also slightly low in mutual funds compared to the stock market.

If you are a novice and new to the stock market, it would be salutary if you start investing with mutual funds.

For investing directly in the stock market, you will require a good knowledge or at least a strong passion for learning. However, if you have limited time, limited money, and not enough passion to invest your money on your own- then you should invest in the mutual funds.

That’s all for this post. I hope it was helpful. #HappyInvesting.

April 29, 2020 Investment Basics, Mutual Funds 7 comments
Why You Need to Know The Rule of 15*15*15 cover

Rule of 15*15*15 – What You Need to Know!

When the newbies enter the world of investing, one of the biggest questions that they may face is ‘how much’ and ‘how long’ should they invest? Enter the rule of 15*15*15.

In this post, we are going to discuss what is the rule of 15*15*15 (and the rule of 15*15*30) and how it can help you to make your investment decisions.

The rule of 15*15*15

The rule of 15*15*15 says that if you invest Rs 15,000 per month in an investment option which gives a return of 15% (CAGR), for a consistent period of 15 years, you will build a final corpus of Rs 1,00,00,000 (One crore).

Here,

  • SIP Amount = Rs 15k per month
  • CAGR =15%
  • Time horizon =15 Yrs
  • Final corpus = Rs 1 Cr

rule of 15*15*15 sip calculator

(Source: SIP Calculator)

Interestingly, your total invested amount is equal to just Rs 27 lakhs. However, over the time period of 15 years, you will build a total wealth of Rs 1 Crore.

Quick Note: In the scenarios discussed above, 15% is considered as the average compounded annual growth rate (CAGR) over the years. However, you must understand that it is just an average as no market can give consistent 15% returns. In the bull market, the returns can be as high as 30–40%. On the other hand, in the bear market, the performance can be as low as -10% to 5%. Here, the 15% is taken as the average of the returns over the 15 or 30 years.

Rule of 15*15*30

The rule of 15*15*15 gets even better when we double the ‘time horizon’ keeping all the other factors the same.

Here, you invest Rs 15,000 per month in an investment option which gives a return of 15% (CAGR), for a consistent period of 30 years.

Can you guess the final corpus build in this case?

The final corpus built after 30 years will be Rs 10,00,00,000 (Rs 10 Crores). And yes, that’s right — not a typo error…

Here,

  • SIP Amount = Rs 15k per month
  • CAGR = 15%
  • Time horizon = 30 years
  • Final Corpus = Rs 10 Crores

the rule of 15*15*30 sip calculator

(Source: SIP Calculator)

Here your total invested amount is just Rs 54 lakhs. However, as the power of compounding is working in your favor, you will accumulate a final corpus of Rs 10 crores. Only by doubling the time horizon, you can get ten times the amount compared to the rule of 15*15*15.

And that’s why the power of compounding is considered the most substantial factor for wealth creation. Here’s a quote regarding the same by one of the greatest scientist of all time, Albert Einstein:

“Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.” -Albert Einstein

Warren Buffett Wealth Creation

The name ‘Warren Buffett’ needs no introduction, especially for the people involved in the world of investing. His wealth creation story is an interesting topic to discuss in this post.

Fascinatingly, unlike the young tech billionaires of this century like Mark Zuckerberg, Evan Spiegel, Bobby Murphy, John Collison, etc. Warren Buffett did not build his wealth by creating a super-tech company like FB, Snapchat, Google, etc.

Warren Buffett built most of his wealth over time through their investments (and acquisitions) by his company Berkshire Hathaway. You may get surprised to know the fact that the World’s third richest person become a billionaire only in his 50’s.

warren buffett net worth growth over time

The biggest factor why Warren Buffett was able to build such a huge wealth was his amazing returns for a consistently longer period. His company, Berkshire Hathaway, gave an average yield of around 21.7% per year for over five decades. This return for such an extended time period is way-way better than what we discussed above. The power of compounding played an important role in Warren Buffett’s wealth creation story.

Resources:

Closing Thoughts

The time period is a significant factor when you are investing.

In this post, you can notice how by doubling the time horizon from 15 to 30 years; you can get ten times bigger final corpus. And that’s why it is recommended to start investing as soon as possible.

To end this post, here’s an amazing quote by Mr. Buffett: “Someone is sitting in the shade today because someone planted a tree a long time ago.” -Warren Buffett

April 26, 2020 Invest Intelligently, Investment Basics, Mutual Funds 1 comment
Sqrrl App Review Direct Mutual Fund Investment App

Sqrrl App Review – Direct Mutual Fund Investment App

Sqrrl App Review: Sqrrl, a fintech startup founded in 2016, offers the facility to make investments in direct mutual funds, start a SIP, save tax or simply reach your goals through your investments. If you are looking for a simple, beginner-friendly and modern technology-based app to start investing, then you should definitely check out this app.

In this article, we will review the Sqrrl app to look into some of its unique features and find out how this app stands out among all other direct mutual fund investment apps.

What is Sqrrl?

Sqrrl is a modern technology platform that helps its users to start investing in direct mutual fund schemes by opening an instant online account. As the users invest in direct mutual funds there is no distributor commission involved with this app.

With the simplified investing approach, this app aims to help young Indians save and invest their earnings without making things complicated. The basic ideology behind Sqrrl is to empower users to save small chunks of their salary, even if you are not able to put away a large portion.

Along with saving & investing, Sqrrl also provides the facility to save money on income tax by choosing the right tax-saving funds. Overall, this app aims to help the millennials to prosper financially.

Sqrrl app is available on both Android and iOS.

Key Features of Sqrrl App

One of the prominent features that differentiate the Sqrrl app from all of its competitors is an easy and hassle-free setup. As a matter of fact, the users can open an account and start investing within minutes using this app.

Now, here are a few top features and benefits that you can enjoy by using Sqrrl App:

  1. Fast Paperless A/c Setup: Users can open their instant accounts electronically by entering their bank and PAN details at no cost.
  2. Multilingual App: Unlike most other direct mutual fund investment apps, this app offers services in nine languages including Hindi, Gujarati, Telugu and more.
  3. Zero-commission: As users will be investing in direct funds, there’s no need to pay distribution commissions.
  4. High returns and minimum lock-in: Users can invest in high performing funds with easy and no minimum commitment period.
  5. Hand-picked mutual funds by experts: Sqrrl offers the best hand-picked funds curated by a team of avid financial experts and managers with a combined experience of over 90 years.

Moreover, in addition to direct investment opportunities, Sqrrl also helps its users in tracking and managing their investment portfolios within the same app.

Sqrrl App – A few other things that you should know

Sqrrl App Review Android

 — Is Sqrrl Safe to invest?

Sqrrl fintech is registered as a financial advisor with SEBI (Securities and exchange board in India) and as a distributor with AMFI (Association of Mutual Funds in India). They are a registered, compliant and eligible fintech startup to provide their services.

Moreover, the money invested by the users using Sqrrl app is entirely safe as it never touches the Sqrrl Bank account and is directly invested with the largest AMCs regulated by SEBI. Besides, the details of each transaction are always made known to users at every step of the process, by confirming and corresponding recorded statements by the underlying mutual fund.

— What is the minimum investment amount?

Sqrrl App offers different services and the minimum required investment amounts vary from products to products. However, their most popular product, Sqrrl Away, allows the users to start investing with an amount as low as Rs. 100.

Further, if you are planning to start a SIP with Sqrrl app, you can begin investing with an amount of Rs. 500. For the tax-saving and goal-based investing products, the minimum amount to get started in Rs. 1,000.

— How is the customer Care/Support offered by Sqrrl?

Sqrrl offers one of the best support to their customers. In fact, this might be the reason why their app is rated 4.4 out of 5 stars on google play store and have got over +100,000  happy users as of March 2020.

Besides, if the users need any kind of support, they can reach the Sqrrl team over phone at +91-7840877775 or via dropping an email at support@sqrrl.in

Conclusion

Sqrrl is an easy and simple to use app focused on the millennials to make their investment journey hassle-free. This app allows its users to make investments with as little savings they got by investing in direct mutual funds, tax savings funds or with goal-based investments. In addition to simple investment options, Sqrrl also helps its users in tracking and managing their portfolio within the app.

Further, as users will be investing in direct mutual funds using this app, they can save a significant amount compared to regular mutual fund investments and enjoy higher returns.

Overall, we’ll definitely recommend you check out this app. Here’s a direct link to download the app on the play store. In addition, if you’ve got any questions regarding the Sqrrl app, feel free to ask in the comment box below. We’ll be eager to help. Take care and happy Investing.

April 17, 2020 Mutual Funds No comments yet
7 Best Mutual Fund Apps for Direct Investment cover

7 Best Mutual Fund Apps for Direct Investment

Top Rated Mutual Fund Apps for Direct Investment: As we all know that investing in mutual funds is one of the best ways to grow our money in the long term. And thanks to some of the best mutual fund apps in India, tracking, managing and investing in different mutual fund schemes is a lot faster and easier these days. Moreover, you can perform all these activities in just one app.

Whether you are interested to invest in regular funds or direct mutual funds, there are multiple mobile apps for these mutual fund investments in the google play store providing the advantage of buying and selling on the tip of your fingers. Further, if you plan to invest in direct funds through these apps, they can also help you to save an extra commission of 1% to 1.5% which is a huge advantage. 

What are Direct Mutual funds?

Direct vs Regular Mutual Funds Plans: With effect from the very beginning of the year 2013, the SEBI had made it compulsory for all Mutual Fund houses of having two versions of each scheme i.e. Direct plan & Regular (or Indirect plan).

In a Direct plan, you can invest directly in a scheme of a Mutual Fund AMC at a low cost. The direct plans are cheaper than the regular plans because you will be saving costs in terms of paying commission to intermediaries. Looking at both the plans, the difference in returns seems to be as low as 0.25% which can go up to 1%.

In the long-term, these differences result in significant amounts. So, this clearly evident that you should always go for investing in the Direct plans of Mutual Funds. (Have a look at what AMFI says about Direct Plan here)

7 Best mutual fund apps for direct investment:

From hundreds of mutual fund investment apps listed on the play store, we have hand-picked seven of the best mutual fund apps for direct investment. Here is the list of the most competent mutual fund apps for Indian investors:

1. myCAMS Mutual Fund App

myCAMS Mutual-Fund App logo

 

myCAMS is a single gateway to invest in multiple Mutual Funds schemes. The app facilitates faster, easier and smarter ways to transact in the direct funds.

There are various features of myCAMS which include mobile PIN & Pattern login, one view of your MF portfolio, open new folios, purchase, redeem, switch, set up SIP and more. It also helps in scheduling the transaction option which allows investors to set up future Mutual Fund transactions.

Rating on Google Play store: 4.4 out of 5 with a total of 43,253 ratings.

Here is the direct link to the app on play store.

2. KFinKart- Investor Mutual Funds

KFinKart Investor Mutual-Funds app logo

The core objective of this app is to simplify the journey of the customer in mutual funds. It is a one-touch login app that empowers you to invest across a host of mutual funds and provides a new way of investing your money. It also emphasizes on a single view of your investments, manage profile, make decisions and transact instantly without needing multiple apps offered by different fund houses.

This app peculiarity is to make the most of your time and money by linking and tracking your family folios across AMCs, invest in NFOs, transact or reinvest, start or stop SIPs, etc.

Rating on Google Play store: 4.1 out of 5 with a total of 17,918 ratings.

Here is the direct link to the app on play store.

3. Zerodha Coin

Zerodha Coin mutual-fund app logo

As per my opinion, Zerodha coin is one of the best apps to invest in direct mutual funds. They offer investment services in over 3,000 commission-free direct mutual funds across 34 fund houses. This can help in saving up to 1-1.5% more per annum compared to regular mutual funds. With over 1,50,000 investors who have invested over 2500 crores and collectively saved 30+ crores in commissions, Zerodha Coin has already built a big brand and customer base.

Key features of the app include:

  1. Search, filter, and buy from over 3,000 commission-free direct mutual funds across 34 AMC’s.
  2. A single capital gain statement, P&L visualizations, and Annualized (XIRR) and absolute returns.
  3. Mutual funds are held in Demat form, and thus easier to pledge as collateral for loan against securities. 

Rating on Google Play store: 3.9 out of 5 with a total of 2,830 ratings.

Here is the direct link to the app on play store.

Note: You can open your account with Zerodha to invest in direct mutual funds and stocks using this quick link.

4. ETMONEY Mutual Fund App

ET Money mobile app logo

ETMONEY was founded by a group of passionate Entrepreneurs, IITians and Designers with deep expertise in technology, mobile & financial services. Associated with a big brand of Economic times, this Mutual Fund app is a one-stop destination for all things investment which helps to track & manage expenses using expense manager, Invest in Mutual Funds through SIP or Lumpsum, Save tax with SIPs in ELSS mutual funds, etc.

Rating on Google Play store: 4.6 out of 5 with a total of 82,199 ratings.

Here is the direct link to the app on play store.

5. Groww- Mutual Funds App

Groww Mutual-Funds App logo

Groww app is one of the fastest-growing apps in the Indian mutual fund industry. And the credit goes to its clean user-interface. This app helps in investing in mutual funds free of cost and is pretty simple to use with minimum paperwork and no hassles. All mutual funds information are available in just one investment app. Similar to the apps listed above in this article, Groww app also allows everyone to invest in direct mutual funds with zero commission and offers an additional saving up to 1.5%+ compared to regular plans.

Key features include:

  1. Simple design, built with beginners and experts in mind
  2. Dashboard to track all your investments, annualized returns, and total returns
  3. Top mutual funds list for different categories with the latest finance news and insights

Rating on Google Play store: 4.6 out of 5 with a total of 24,189 ratings.

Here is the direct link to the app on play store.

6. PayTM Money Mutual Funds App

PayTM Money Mutual-Funds App logoPaytm Money, offered by the Paytm group, is turning out to be one of the most trusted platforms in India which provide ​up to 1% ​higher returns by investing in Direct Plans of Mutual Fund Schemes with no commissions or any charges on buying and selling of direct mutual fund plans.

It offers many features to the customer which includes fully Transparent Tracking, Data Privacy & Protection, Switch from Regular to Direct Plans, Track, Manage & Automate SIP Investments, etc.

Rating on Google Play store: 4.3 out of 5 with a total of 29,447 ratings.

Here is the direct link to the app on play store.

7. KTrack mobile app by Karvy

KTrack mutual-fund mobile app logo

The primary objective of KTrack mobile app by Karvy is to manage the investments of its customer in mutual funds. This app offers new ways of investing your money. With just one-touch login that powers you to invest across thousands of mutual funds. It provides a single view of your manage profile, investments, make decisions and transact instantly without needing multiple apps.

The app has Enriched UI and many features like One-touch login or Log In through Facebook/Google account, Enriched Navigation, provides Portfolio Dashboard, helps in tracking of your transaction, NAV Tracker, etc.

Rating on Google Play store: 4.1 out of 5 with a total of 17,918 ratings.

Here is the direct link to the app on play store.

Bonus: Additional Mutual Fund Apps

List of a few other Mutual Fund Apps for Direct Investment:

A few fast-growing startup apps trying to simplify mutual fund investment worth checking out:

  • Scripbox: 4.3/5 with a total of 2,938 ratings (Playstore)
  • Kuvera: 4.5/5 with a total of 1,580 ratings (Playstore)
  • Sqrrl: 4.3/5 with a total of 1,502 ratings (Playstore)
  • Goalwise: 4.6/5 with a total of 431 ratings (Playstore)

Also read: 7 Best Stock Market Apps that Makes Stock Research 10x Easier.

That’s all for this post. Let us know which one is your favorite mutual fund apps in the comment section below. Happy Investing!

March 25, 2020 Mutual Funds 18 comments
How to Buy Mutual Funds Online in India

How to Buy Mutual Funds Online in India?

In this article, we are going to discuss different ways by which you can buy mutual funds online in India. However, before we begin, let us consider a few crucial topics concerning buying online mutual funds in India.

Things to need to know before you buy mutual funds

There is a large number of people in India who invest in mutual funds without exactly knowing how it works or how to pick the right mutual funds that can give them winning returns. However, we do not want our readers to take the same path. Therefore, before you purchase your first mutual fund online in India, here are a few important articles that you should read:

  1. What is a mutual fund? And what are its different types?
  2. Common Mutual fund terminologies
  3. Lump-sum vs SIP investment and the route you want to choose.
  4. How to pick the right mutual funds?
  5. Mistakes while investing in mutual funds

Direct vs. Regular Mutual Funds

Any mutual fund that you might be planning to invest offers two plans — either direct plan or regular plan.

Since Jan 2013, mutual funds have started offering direct plans for all their existing funds. The difference between a direct plan and a regular plan is that you can save a lot of money while choosing a direct plan investment route as there are no intermediates involved here.

In direct plans, You do not need to make your investment through distributors, and hence it can save you a lot of intermediate expenses. Therefore, you’ll be getting a higher return on your portfolio despite the same fund. The difference in returns from direct plans compared to regular plans can be as high as 1–1.5%. This can be a substantial amount if you’re planning to invest for a long time to build a considerable corpus.

Anyways, as investing in regular plans is comparatively more accessible, that’s why people go for it. Nonetheless, in the last few years, there has been a rise in a lot of trusted websites and mobile apps to make direct mutual fund investment fast and easy. We’ll look more into these later in this article.

Overall, you can select anyone — either direct or regular plan, depending on your preference. However, we’ll highly recommend you to choose the direct investment route while investing in mutual funds online in India.

Know Your Client (KYC)

As per the regulations by SEBI, you’ll need to complete your KYC before you invest in mutual funds in India. This is because KYC helps in verifying the buyers and eliminating the duplication across intermediaries. It also makes online investing easier and efficient.

But if you’ve not done your KYC, do not worry, thinking it will involve a lot of documentation and labor. In the era of fast internet, you do not need to move even an inch from your sofa to complete the KYC. All can be done online, and that too within minutes.

Now, if you have already invested in any fund earlier, either offline or online, your KYC might be already done. Therefore, you do not need to re-complete your KYC. Here, simply check your KYC status online.

For already registered users, they can check their KYC status online using their PAN card with any of the following KYC registration agency

How to get your KYC?

In order to get your KYC done, you’ll require following documents: PAN CARD, Proof of Identity (Aadhar card, Driving License, Voter Id, etc.), Address Proof and Passport size photographs

You’ll need to submit copies of all the self-attested documents while submitting them for verification. Therefore, if you do not have these documents right now, first get them.

Now, almost all mutual fund distributors and broker websites provide a link to complete your Know-Your-Client (KYC) online. You can visit the AMC website, upload your documents, and complete your KYC.

For example, if you are interested in investing in SBI mutual funds, you can visit their website. On their website, you can find the link to complete the KYC verification process.

Else, if you are planning to invest through any popular mutual fund apps, you can upload your documents inside the app, and they will help you get your KYC verification done.

How to buy mutual funds online in India?

Now that you have understood the basics of regular vs. direct funds, e-KYC, etc., let’s dive into the main topic of this article — how to buy mutual funds online in India.

Here are a few ways how you can invest online in mutual funds:

1) AMC Website

The fastest way to buy mutual funds is through AMC websites as you’ll buying directly from the AMC and eliminating all the intermediaries. Mutual funds are managed by the AMC’s, i.e., Asset Management Companies. You can buy all the funds offered by these fund houses from their websites.

Now, to buy a mutual fund from the AMC website, first, visit the site and download the application form. Here, you’ve to fill your details and submit along with the photocopy of PAN, KYC letter and initial cheque.

The first time when you invest in any mutual fund through AMC, you’ve to go to the AMC’s office to submit documents and make your investment. Anyways, once it is done, you can make all your future investments online. You will be assigned the PIN and folio number. Hence, you can perform the subsequent transactions ‘online’ using your net banking. Also, a lot of these AMC’s may send their Agents to your house/address to collect the application form, cheque, and other docs, which can save your time.

Anyways, if you are planning to invest in various funds offered by different AMCs, you have to perform the same procedure for all the mutual fund companies. However, this may not be very convenient.

For example, if you are planning to invest in five mutual funds, you have to visit their AMC websites one-by-one to register. Although the KYC verification procedure will not be repeated, still tracking and monitoring all the funds will also be a little difficult if you have invested through multiple AMC websites.

Tata Mutual Funds How to Buy Mutual Funds Online in India

Note: A few of the popular mutual funds companies in India are: Aditya Birla Sun Life Mutual Fund, DSP BlackRock Mutual Fund, HDFC Mutual Fund, HSBC Mutual Fund, ICICI Prudential Mutual Fund, IDFC Mutual Fund, IIFL Mutual Fund, Kotak Mutual Fund, L&T Mutual Fund, Mahindra Mutual Fund, PPFAS Mutual Fund, SBI Mutual Fund, Shriram Mutual Fund, TATA Mutual Fund and Union Mutual Fund.

2) Broker Platforms

If you have already opened a demat account with any of the big brokers in India, you can buy mutual funds online using your brokerage account. Most of the major brokers in India, like ICICI direct, HDFC securities, Kotak securities, Zerodha, etc. have the facility to buy mutual funds from their portal.

Now, buying funds using broker platforms is a simple way to purchase mutual funds online in India. All you need to do is to log in to your account, select the scheme you want to invest, and complete the payment. The mutual fund units will be credited directly to your existing demat account.

Also read: Compare Online Brokers in India | Best Stockbrokers List

HDFC securities How to Buy Mutual Funds Online in India

3) Independent Websites/Apps

You can also buy mutual funds online in India through independent websites or apps. A lot of Indian websites like Funds India, Groww, etc. provides the facility to their clients to invest directly in mutual funds at no commission.

A few of the popular apps for direct mutual fund investments are:

Also read: 7 Best Mutual Fund Apps for Direct Investment

Another benefit of using these apps and websites to buy mutual funds online in India is the fast account opening process and hassle-free investing. In fact, you can open your account within minutes using these platforms if you have the digital copy of all the required documents available on your phone.

Further, on these independent platforms, monitoring your funds and transacting is also very simple. These websites have a tie-up with most of the major banks in India to facilitate fast fund transfer at the time of investing.

Groww How to Buy Mutual Funds Online in India

Summary

A majority of people do not invest in mutual funds because they’re afraid of documentation work and believe that investing in mutual funds requires a lot of work. However, as discussed in this article, there are multiple ways through which you can invest in mutual funds online in India.

If we conclude the article, investing in mutual funds through the AMC website will be cheaper and includes no extra cost. However, the biggest concern with this approach to remember all the PINs and passwords at different AMC websites.

On the other hand, investing in mutual funds online in India through the independent websites/apps offers the clients a ‘single login portal’ for the consolidated view of the holdings.

Finally, purchasing mutual funds from the brokers through a demat account is a more relaxed approach compared to the above two. Here, the customers can also get added benefits like access to the research reports to make a better decision. However, they have to pay extra costs like demat account maintenance charges. Besides, not all mutual funds are available/partnered on the broker website. Therefore, for purchasing some funds, you have to visit the AMC website.

If you’re a beginner, we’ll recommend buying mutual funds online in India using independent apps like Groww, myCams, etc. And once you’re comfortable with the buying process, choose the route of investing through AMC websites.

Parting tips for investing in mutual funds

Before we end this article, here are a few of the final tips for beginners to invest their money in mutual funds:

  • Always go with the direct mutual fund plans. It will save you a lot of costs in the long run.
  • Start investing through SIPs instead of lump-sum. It will help you to avoid the risk of timing the market by averaging out.
  • Finally, diversify and add multiple funds with time. Do not spend all your money on a single mutual fund, no matter how appealing it may look.

Quick Note: If you are new to investing and want to learn how to invest in mutual funds from scratch, check out this amazing online course: Investing in Mutual Funds- A Beginner’s course. Enroll in the course now to start your journey in the requisite world of investing today.

That’s all for this post. I hope it is useful for you. Let us know if you have any queries regarding buying mutual funds online in India by simply commenting below. Happy investing.

February 29, 2020 Mutual Funds 2 comments
A Complete Guide to Tax Saving Mutual Funds - ELSS

An Essential Guide to Tax Saving Mutual Funds – ELSS

An Essential Guide to Tax Saving Mutual Funds – ELSS: Whenever you research how to save taxes in India, you can easily find the experts mentioning to invest in tax saving mutual funds or ELSS. However, for beginners, getting started with ELSS investment might be a little confusing.

In this post, we are going to cover everything regarding tax saving mutual funds. By the end of this post, you’ll be able to clearly understand why exactly is an ELSS and how it works.

So, if you are a newbie and find it challenging to get started with tax saving mutual funds in India, then please read this article until the very end. It will definitely help you to demystify the majority of the questions that you might have regarding ELSS. Let’s get started.

1. What is Equity linked saving schemes (ELSS)?

An ELSS (Equity Linked Savings Scheme) Mutual Fund is a variety of Equity Mutual Fund which allows individuals and HUFs to avail Income Tax deduction from their Total Income for an Assessment Year subject to a maximum limit of Rs.1.5 lakhs u/s 80C of the Income Tax Act, 1961.

ELSS mutual fund is an Equity oriented fund which is having a lock-in period of 3 years. The said duration is counted from the respective allotment date of the unit(s).

Like any other type of Equity Mutual Fund, ELSS comes with both growth and dividend options as well.

Investment in an ELSS scheme can either be made in a lump-sum or through a Systematic Investment Plan (SIP). Investments made in a Financial Year (Previous Year) up to ₹1.5 lakhs can be claimed for tax deduction under the said Act.

Till the Financial Year 2017-18, no tax on income from Long-term capital has been charged from an Assessee on redemption of the unit(s) of an ELSS. As per the Budget (Finance Act) 2018, Long-term capital gain over ₹1 lakh is to be taxed @ 10% by the Government of India.

2. Types of ELSS

ELSS comes in two varieties. The first category is the dividend scheme and the second type is the growth scheme.

In the case of former, when the mutual fund announces a dividend, the unitholders earn income in the form of a dividend on the units held by them. Such dividends can either be withdrawn or reinvested by the unitholders.

Another part of ELSS with dividend feature is that the dividend earned is eligible for tax benefits. Moreover, the dividend earned by the unitholder is not subjected to any lock-in period, i.e. it can be withdrawn any time.

A similar provision is not applicable to the growth schemes.

3. What are the features of Tax Saving Mutual Funds?

Gaurav Munjal

Image source: Richvikwealth.in

  1. In order to avail the benefit of the tax deduction, an Assessee can make an investment in an ELSS Mutual Fund for as low as Rs. 500. There is no upper limit of investing in ELSS, unlike PPF and NSC, but as said earlier one would only get tax deduction u/s 80C to the maximum of Rs. 1.5 lakh.
  2. Investment in an ELSS scheme is, of course, meant for a long duration as it comes with a lock-in-period of 3 years.
  3. Irrespective of the short lock-in period of ELSS funds, the later have time and again yielded substantially higher returns in comparison to NSC, PPF, ULIP, etc.
  4. ELSS is an equity oriented mutual fund wherein the underlying portfolio majorly consists of equity investments in publically listed companies having strong business models. Being equity oriented mutual fund, it is subjected to market risks.
  5. Tax saving mutual funds or ELSS are mostly open-ended.
  6. Like any other mutual fund, an investor of ELSS can also make another person as his/her nominee.
  7. Like most of the equity funds, many ELSS funds also come with entry and exit loads.
  8. Many investors prefer investing in ELSS funds through the SIP route. It ensures rupee cost averaging that significantly cuts volatility in the stock market.

4. What are the benefits of investing in an ELSS?

ELSS locking period

Image source: Cleartax.in

Here are a few of the distinguishing benefits of investing in ELSS:

  1. As discussed earlier, a taxpayer can enjoy the benefit of deduction from his/her taxable income (for a maximum of Rs.1.5 lakh).
  2. We all know that Mutual Fund investments are subject to market risks i.e. systematic risks. Market risks can’t be eliminated but the fund manager invests the funds of investors in diversified equities which eliminate the unsystematic risks.
  3. An investor may opt for not withdrawing the investment at all after the end of the 3 years lock-in-period. Holding on the units will result in the growth of the investment and will subsequently yield handsome inflation risk-adjusted return for the investor.
  4. As said earlier, the investor can withdraw any dividend earned as no restriction is there on its withdrawal during the lock-in-period. The restriction of withdrawal is there only in respect of the investment.
  5. ELSS, being an open-ended mutual fund, allows anyone to invest in the same at any time during the year.
  6. One can find popular tax saving avenues like ULIP, NPS, and PPF which offer lock-in period ranging from 6 to 15 years. But, investing in ELSS will reduce the lock-in-period significantly to 3 years only.
  7. In case an investor of ELSS is not having knowledge of the market, he/she can be rest assured that his/her funds will be managed by a qualified fund manager.
  8. It is not necessary that one has to invest in ELSS for only availing tax benefits. ELSS can also be considered as a long-term wealth generation tool. As the lock-in-period is 3 years, one can even think of investing in ELSS for meeting any future financial goal.

5. How is the Capital Gain from an ELSS Fund taxed?

If an investor sells his/her units of an equity mutual fund after a year, tax on long-term capital gains (LTCG) will be applicable.

Up to 31st March 2018 tax charged on the long-term capital gain was nil. But, as per the Union Budget 2018, tax on LTCG of stocks and equity funds were re-introduced. If the long-term capital gain exceeds Rs.1 lakh from the redemption of an equity fund, then tax @10% will be charged on such LTCG.

Again, in the said budget it said that if investors sell their equity mutual funds within a year, they will be required to pay short-term capital gains tax @15% on their returns. The provision regarding short-term capital gain (STCG) tax was there in the Finance Act 2017 as well.

ELSS funds as said earlier, are having a lock-in period for 3 years. So, the gain on an ELSS fund by default comes under the long-term capital gain tax.

taxes ELSS

Image source: Tflguide.com

Also read:

6. How to choose the right ELSS fund?

Following key points should be considered by someone who is looking to invest in an ELSS fund:

Looking into the past performance: Past performance does not guarantee future performance of a mutual fund scheme. Looking at historical returns is the initial step of evaluating a scheme. It helps in evaluating the performance of the fund managers over the years.

Age of an ELSS Fund: An ELSS Fund has been in the market for 5 years or more is generally considered ideal for new investors. This is because they generally represent reputed AMCs and have good track records.

Risk of ELSS: Different ELSS schemes come with different risks. An investor should select a specific ELSS Fund based on his/her risk appetite.

Looking at the Expense Ratio: The Expense Ratio refers to the percentage of the fund which an asset management company charges from the unitholders. This is the charge for meeting the cost of operations of the fund.

Assets Under Management (AUM): This is the amount of money which is being managed by a mutual fund scheme. Various types of ELSS Funds have different ideal sizes for AUM.

Checking the Rating of ELSS Fund: Ratings of the ELSS Funds published in a reputed online platform helps a prospective investor to know which fund is the best.

Gaurav Munjal

Source: Mymoneysage.in

7. The last few words on ELSS Mutual Funds

With the rise in the equity market over the years, the investors have gained interest in ELSS mutual funds as an income tax saving instrument. ELSS is a category of equity mutual fund that is created by the government to encourage people at large to participate in the equity market of India.

As ELSS funds come with the benefit of the tax deduction, middle-aged people feel interested to invest in the major part of their savings in the Indian equity market.

There is no doubt in saying that investing in an ELSS scheme is certainly not risk-free. Even though the NAV graph of an ELSS scheme is not free from frequent ups and downs, the growth of the fund never falls below other tax saving alternatives like PPF and ULIP.

But, owing to a fact of scope for higher returns at a minimum lock-in period, Equity Linked Saving Schemes have emerged as the most demanding tax saving option today.

February 23, 2020 Mutual Funds 1 comment
6 Common Mistakes to Avoid While Investing Through SIPs cover 2

6 Common Mistakes to Avoid While Investing Through SIPs

6 Common Mistakes to Avoid While Investing Through SIPs: Since the past few years, people are increasingly showing their inclination towards mutual fund investments. However, just an attraction is not enough to invest correctly in mutual funds. They also need to know how to invest effectively and moreover, what mistakes to avoid.

While investing in mutual funds, people can either opt for lump sum or via SIP mode. For example, if you plan to invest a huge amount of money, say Rs 10 lakh in mutual funds all in one go, this is a lump-sum investment. On the other hand, if you choose to make your investments in chunks, say Rs 20,000 per month for the next 10 years, then this is considered a systematic investment plan (SIP).

In general, the SIP mode can be a little more convenient way to invest in the Indian equity market. It facilitates the people in building long term wealth without putting a lot of pressure on making huge investments all at once. Anyways, if SIPs can make your life more comfortable, it can also add trouble if you don’t use it in the right manner.

Here are some common mistakes which the majority of investors do while investing in the Mutual Funds through SIPs.

6 Common Mistakes to Avoid While Investing Through SIPs

1. Choosing an incompetent SIP amount

While investing in a Mutual Fund via SIP mode, you should know the right amount to invest in order to reach your goals/needs.

In general, most people start with a small amount for their SIPs. This may be because they do not have much money to invest at that time or any other reason. However, subsequently with time, one should not forget to increase the size of their investments. On the other hand, there are also a few investors who start investing in SIPs with big amounts without performing a proper analysis of the funds. Moreover, they also don’t monitor their investments and thereby later suffer losses.

While investing in mutual funds through SIPs, you need to find the right size to invest that you can maintain on a regular basis. Furthermore, you need to monitor your portfolio closely in order to make decisions regarding whether to increase, decrease or stop your investments in the underlying schemes.

2. Investing for short-term

Mutual Fund investing is generally meant for generating wealth in the long run. One common mistake that majority of investors make is to redeem their investments in the short term in case their portfolios are unable to earn profits.

A lot of people start their SIPs with an objective to make money in a small time period. However, the fact is that when you opt for a small tenure, you are exposing yourself to a higher risk of market volatility. It is highly unlikely that you will get higher returns in a shorter tenure. Remember, SIP investing works on rupee cost averaging approach and helps in creating wealth in the long run.

3. Picking the Wrong fund

Before you start investing, you need to ensure that you have opted for the correct fund based on your financial aspirations, risk appetite, and liquidity requirements.

If you invest in the wrong fund, your SIP investments might not fetch the expected returns. Furthermore, before finalizing your scheme, you need to check some of the key parameters like its historical performance, underlying portfolio, expense ratio, fund manager credentials etc.

You may have a look at this blog on our website to gain a basic understanding regarding how to pick a right mutual fund.

4. Abruptly stopping SIP investments

Mutual Fund is associated with long term investment and it would be highly profitable if you hold your units for a longer period of time. However, on most occasions, the investors tend to lose their patience when they find their portfolio bleeding in the short run. A similar situation was witnessed by the Indian economy last year (2018) when most investors found their Equity Mutual Fund portfolio running at a substantial loss.

It is understandable that people may start to panic seeing their portfolio in red. However, the risk of market fluctuations drives the majority of the investors to shy away from further investments and this is where they make a mistake.

Also read:

5. Completely forgetting the SIPs after commencing

Ironically, you can find many investors who start their SIP and later forgets it completely. A lot many people have this misconception that long-term wealth creation means it doesn’t require monitoring at all.

However, even the soundest mutual fund which is managed the best fund manager requires monitoring. You need to monitor your mutual fund performances every 6 months or at least a year.

6. Waiting for the perfect time to start

“Time in the market is better than timing the market.”

When it comes to timing the market vs time in the market, it is said time and again that don’t try to timing the market. You will never find the right time to enter. Here, time in the market is more important as the longer you stay in the market, the better will become your investment return.

Nonetheless, it has been seen that many investors keep waiting for the perfect time to start their SIPs.

The best feature of investing in Mutual Funds through SIPs is that it averages out your costs of investing. And that’s why there isn’t any proper time for you to start your SIP. The earlier you can enter, the higher is your chance to build huge wealth and to enjoy the benefit of compounding.

Conclusion

Mutual Fund investing through SIPs can help you reach your financial milestones if you invest in the right way. However, investing via SIP requires focus and discipline.

In this post, we tried to cover a few common mistakes to avoid while investing through SIPs. As discussed earlier, while investing in SIPs, always think long-term. Here, you can’t afford to abrupt your SIPs even if the market starts showing a bearish trend in the short duration. The longer is your investment horizon, the higher will be your scope to build wealth from the market.

That’s all for this post. We wish you all the best in your SIP investing journey. Happy Investing.

February 21, 2020 Mutual Funds 2 comments
Portfolio rebalancing cover

What is Portfolio Rebalancing? And Why is it important?

For the investing world, the term ‘Portfolio’ means a basket of securities. There is a popular saying that- ‘Do not put all your eggs in a single basket’. A similar strategy is applicable for your investments too. While investing in the financial market, it is always recommended to spread your investments across diversified securities to reduce risk. And this collection of diversified financial instruments is termed as a portfolio.

While creating a portfolio one should always aim to build a balanced one. A balanced portfolio can reduce portfolio risk and also offers stability. Let us understand it better with the help of an example.

Suppose Arjun, a 25-year-old salaried guy, has a current net worth of Rs 5 lakhs. Out of his entire worth, he has invested Rs 4.5 lakhs is stocks and has kept the remaining money as cash in hand. Here, although Arjun’s portfolio consists of two different assets (i.e. cash in hand and stocks), however, do you think his portfolio can be called balanced?

What, if the market witnesses a bearish trend for the next two years? In such a scenario, Arjun’s portfolio might look almost all reddened as he has invested 90% of his entire net worth in the stock market.

However, let’s consider another scenario where Arjun has diversified his assets smartly in different securities and his portfolio looks something like this:

— Investment in stocks = Rs 2 lakh
— Investment in debt funds = Rs 2 lakh
— Cash in hand = Rs. 1 lakh

The above portfolio looks a little balanced as Arjun has allocated his investments better this time. In this case, even if the stock market fails to perform well for quite some time, the loss on stocks (if any) will be mostly absorbed by the returns from the debt funds. Therefore, despite the things do not work out as well as planned, Arjun will either lose only a minor portion of his corpus or won’t lose anything at all.

Overall, a balanced portfolio helps the individuals to spread their investments across high-risk instruments to low-risk securities. In the simple example discussed earlier, Arjun has constructed a balanced portfolio by investing smartly in stocks (high-risk securities), debt funds (low-risk instruments) and cash in hand (lowest risk of all).

What is portfolio rebalancing?

So far we have just talked about portfolio balancing or a balanced portfolio.

However, as assets appreciate/depreciate with time, this allocation may change in the future and even a balanced portfolio may not remain balanced over time. In Arjun’s case, suppose his portfolio looks like this after 5 years since he originally invested:

— Stocks = Rs. 3.8 lakhs
— Debt funds = Rs. 2.2 lakh
— Cash in hand = Rs. 1 lakh

Here you can notice that Arjun’s assets have gone up by Rs. 2,00,000 in 5 years. This majorly happened because his investments in stocks have performed well and given him amazing returns.

However, his current portfolio is different from his original desired asset allocation. Initially, his portfolio consisted of 40% in stocks, 40% in bonds and the rest 20% in cash. However, his current allocation consists of 54.28% in stocks, 31.4% in bonds and remaining in cash. Obviously, if Arjun wants to restore his original allocation, he will have to sell a few of his stocks and increase the investments in bonds so that both get adjusted back to 40% each. This activity is called portfolio rebalancing.

Portfolio rebalancing involves periodically buying and selling assets for the purpose of keeping the portfolio aligned to the predetermined strategy or risk level. In other words, during portfolio rebalancing, you’re selling off those securities which you do not require anymore and reinvesting the proceeds to buy the instruments you need. Another key point to note here is that in portfolio rebalancing, you are not adding any fresh money to your existing portfolio. You are simply adjusting the allocation in your portfolio.

Why does your portfolio need rebalancing?

Here are a few of the biggest reasons why you need to rebalance your portfolio at regular intervals.

1. If you don’t rebalance your portfolio periodically, it may get riskier with time.

You should rebalance your portfolio at regular intervals to maintain the desired risk level, especially in case of big changes in the market. Furthermore, it is a known fact that as you grow older, your risk appetite decreases. Therefore, in that case, you should develop a habit of constantly shifting your assets from equity to debts to add stability to your portfolio against the risk of loss.

2. It helps is keeping your portfolio in line with your goals/needs

Along with maintaining your existing corpus, improving returns is also necessary to grow your wealth. Equities or Equity based Mutual Funds are mostly used for beating the benchmark indices and earning sufficient inflation-adjusted returns. However, if you find any of your stocks are constantly underperforming for a considerable amount of time, you should consider replacing them with some other securities. A disciplined portfolio rebalancing will ensure that your portfolio is aligned with your financial plan.

3. Portfolio rebalancing helps in planning your taxes.

Equities and Equity based Mutual Funds attract 10% long term capital gains tax if such capital gain exceeds Rs.1 lakh.

If you a small investor, you can consider redeeming your equities in a financial year and invest the proceeds elsewhere. This will not only help in booking profits but will also help you in spreading your tax liability uniformly across the years. Similarly, you can also plan to redeem your investments in such a way that you can carry-forward your previously-occurred capital gain losses or to set off against capital gains to save further taxes in future.

Incurred Costs while rebalancing your portfolio

Portfolio rebalancing is not free as it costs money for buying and selling the assets. Here are a few common costs that you have to incur for rebalancing your portfolio:

1. Whenever you buy or sell any financial instrument, you have to incur a few unavoidable expenses in the form of brokerage, STT, commission, stamp duty etc. Although you can reduce the incurred costs by using discount brokers or investing in direct mutual funds, however, you cannot avoid them completely.

2. You may have to pay some unnecessary taxes: When you rebalance your portfolio, you get involved in selling a few of your investments. This might result in capital gains which attract tax liability on the same. Further, if you rebalance your portfolio too fast and sell your assets, you have to pay Short-term capital gain taxes (which is almost always higher than the long-term capital gain taxes).

3. You may have to pay some penal charges:  If you redeem a few investments before a specified time period (or locking period), you may have to pay some penal charges. For example, if you withdraw your money from your ongoing Fixed Deposit Account, your Banker may impose a nominal penalty. Similarly, if you redeem your Equity Mutual Fund units within a year, you may have to pay an exit load.

Also read:

Closing thoughts

If you want to get into physical shape, the balanced diet is a must. Similarly, if you are willing to generate long term wealth through your investments, creating a balanced portfolio is essential. However, your portfolio will remain balanced for long-term only if you keep rebalancing the same at adequate intervals of time.

To be honest, no one can tell what must be the exact time to rebalance your portfolio. Nevertheless, it is recommended that you should keep checking the allocation of your assets in your portfolio at least every year or two. This will ensure that your investments are in line with your goals/needs.

That’s all for this post. I hope it was useful for you. Happy Investing!

February 1, 2020 Investment Basics, Mutual Funds 2 comments
10 Common mistakes while investing in mutual funds cover 2

10 Common Mistakes While Investing in Mutual Funds

Mutual Fund investment is the talk of the town. These days, many people who earlier used to invest in the traditional saving schemes like PPF and FD are showing more interest in investing in Mutual Fund.

Ideally, if you don’t have a good knowledge of analyzing the security market, instead of directly investing in stocks, buying through Mutual Funds is a lot safer and more convenient. For the middle-class Indians, Mutual Fund investing is a wonderful way of fulfilling their desired goals. You can even start investing with as low as Rs 500 per month.

Irrespective of these advantages, there are many people- especially novice investors, who make a plethora of mistakes investing in Mutual Funds. In this post, we are going to discuss ten of the most common mistakes while investing in mutual funds.

10 Common mistakes while investing in mutual funds

Here are some of the general mistakes which you should avoid while investing in Mutual Funds:

1. Not defining any goal

You should clearly define your financial goals before you jump into Mutual Funds. One requires specifying his/her short and long term goals before deciding over the investment portfolio. If you are planning to go for a tour abroad after a year from now, investing in a Debt Fund seems more appropriate. On the other hand, if you wish to retire after 30 years from today, you should set up your SIPs in an Equity Fund to have a large corpus in hand during your retirement.

2. Not researching the fund properly before investing

Investing in the financial market makes no sense if you haven’t done proper research. Before investing in a Mutual Fund scheme, you need to know its fund type, exit load, historical returns, asset size, expense ratio, etc. You need to have a clear idea about your own risk-return profile before you invest your savings in some scheme. This article can provide you with the necessary guidance regarding making the selection of the right Mutual Fund.

3.  Reacting to short term market fluctuations

There are many investors who get scared when the market witnesses a bearish trend. You need to understand that Mutual Fund investing is basically meant for generating long term wealth. So, you should not react to any sharp correction in the market or short term volatility. Moreover, you should refrain from blindly following the stock market analysts and business channels on television. If you don’t keep yourself away from the noise, your chances of making larger returns from Mutual Funds will decrease.

4. Not having a long-term mindset

People generally invest in the Equity Funds to make huge money. Equity Funds can only generate long term wealth if you stay invested for a substantially long period of time. Many people sell their funds losing their enthusiasm and patience after suffering from short term losses. This doesn’t make any sense if you are aiming for quick money from an Equity Fund scheme.

mutual fund memes

5. Waiting for the perfect time to start investing

I have recently talked to some friends, to whom I had explained about Mutual Fund investing a year back. I was taken aback knowing that he is yet to start investing. He still couldn’t commence investing because he has been looking for the perfect time to invest. I must tell you that when it comes to investing, you should never think of timing the market. Timing the market is important only when you look to trade, and not invest. The market goes through several ups and down in order to reach to point B from point A over a significant period of time.

6. Not having an emergency fund

Many investors invest their entire savings in the Mutual Funds at one go. Therefore, it goes without saying that they don’t have sufficient money for meeting emergencies like medical expenses. So, for paying such expenses, they have no option but redeeming their units and end up paying exit load. Exit load is one type of charge which is levied by a Mutual Fund company if you redeem any units within a specific period of time from the date of investment.

7. Inadequate investment amount

In the case of Mutual Fund investing, you should increase your SIPs in accordance with the growth in your income. Many investors don’t understand the importance of this. Therefore, their SIPs remain the same over time and fail to generate their desired wealth in the long run. Moreover, the inflation rate goes up with time. So, this is also a reason that one should step up his/her SIPs with time to achieve the desired corpus.

8. The dilemma of dividend funds

You will find many people opting for Dividend based Mutual Funds. This is to be noted that the dividends from a Mutual Fund are paid to the investors out of that fund’s AUM. This results in decreasing the NAV of the units of such Mutual Fund. Mutual Funds work best only if you stay invested for a significant term and let the power of compounding play its role. So, if you invest in a growth plan instead of a dividend plan, the amount which you are not going to receive as the dividend is reinvested in the market. This results in creating more wealth in the future as compared to the earlier plan.

9. Not diversifying your mutual fund portfolio enough

When an investor invests in too many schemes of a particular type, he/she thinks that diversification is achieved. You should understand that each Mutual Fund scheme is a portfolio of diversified securities in itself. Therefore, investing in multiple schemes of a specific nature results in nothing but portfolio overlapping at a higher expense ratio. Instead of opting for it, investing in 2 or 3 schemes to the maximum helps in achieving the benefit of diversification.

10. Not monitoring your fund’s performances periodically

Among the investors who invest in the market regularly, only a few them track their investments periodically. If you review the performance of your portfolio timely, it would keep you aligned with your financial goals. Lack of periodic evaluation of funds results in keeping your portfolio filled with junk investments which keep pulling your mean portfolio returns down.

Also read:

Closing thoughts

AMFI came out with the campaign “Mutual Funds Sahi Hai” two years back. This four words campaign means that Mutual Funds are good in all respects. The main objective of this campaign was to create awareness among the Indians regarding Mutual Funds and bring more investors in the stock market.

However, it doesn’t mean that you can invest in any Mutual Fund scheme blindly. You must have heard this famous dialogue, “Mutual fund investments are subject to market risks. Please read all scheme related documents carefully before investing.” Mutual Fund investments don’t guarantee a fixed return. You need to go through all relevant documents and analyze the key aspects of a scheme, before investing in the same.

In this post, we tried to cover some major mistakes that plenty of investors make while investing in Mutual Funds. If you prevent yourself from committing these mistakes, we hope that you would become a better investor in the long run. Happy Investing!

January 16, 2020 Invest Intelligently, Mutual Funds 3 comments
mutual fund taxation

Mutual Fund Taxation – How Mutual Fund Returns Are Taxed in India?

An overview of Mutual Fund Taxation in India: Hello Investors. Today, we are going to discuss mutual fund taxation. By the end of this article, you’ll understand how mutual fund returns are taxed in India.

If you invest in the stock market, you might already know that the taxation on the capital gains through stocks depends on two factors- the type of investment and the holding period. This means that the rate of taxation in ‘delivery’ is different than that of ‘Intraday’. Moreover, the holding period also plays an important role while deciding taxation. Long-term capital gain taxes are lower than short-term capital gains. (Also read: What are the capital gain taxes on share in India?)

Similar to stock market investing, mutual fund taxation also depends on the type of fund and the holding period of your investments.

In order to clearly understand the mutual fund taxation in India, first, you’ll need to learn the common types of mutual funds. And then, you will need to understand how short-term and long-term investments are defined based on the holding period of mutual funds.

Overall, it’s going to be a long post. However, taxation is a very important topic which no one should ignore. Besides, I guarantee it that this post will be worth reading. So, without wasting any further time, let’s get started.

1. Types of mutual funds

Although there are dozens of types of mutual funds in India, however, here is a broad classification based on the asset type and fund characteristics:

A. Equity Funds: These are the funds that invest in equities (shares of a company) which can be actively or passively managed. These funds allow investors to buy stock in bulk with more ease than they could purchase individual securities. Equity funds have different key goals like capital appreciation, regular income, tax-saving etc.

B. Debt Funds: These are funds that invest in debt instruments (fixed return investments like bonds, government securities, etc). Debt funds have low risks compared to equity funds. However, the expected returns while investing in debt funds are also lower.

C. Balanced Fund: A fund that invests in both equity (shares) and debt instruments (bonds, government securities etc) is known as a balanced fund.

D. SIP: A Systematic Investment Plan refers to periodic investment in a mutual fund. For example, the investor can invest a fixed amount (say Rs 1,000 or 5,000) every month, or every quarter or six months to purchase some units of the fund. SIP helps in investing automation and it brings discipline to the investment strategy.

E. ELSS: It stands for Equity Linked Saving Schemes. ELSS is a diversified equity mutual funds with a tax benefit under Section 80C of the Income Tax Act (the maximum tax exemption limit is Rs 1.5 Lakhs per annum). However, to avail of the tax benefit, your money must be locked up for at least three years.

Read more here: 23 Must-Know Mutual fund Terms for Investors

2. The short-term and long-term investments in mutual funds

Now, let us understand what is a short-term investment and long-term investment based on the holding period of the funds.

In the case of equity-based mutual funds and balanced funds, if the holding period is less than 12 months, then it is considered a short-term investment. Further, if the holding period is more than 12 months, then it is called a long-term investment. (Holding period is the difference between your purchase date and selling date).

For the debt-based mutual funds, an investment with holding period fewer than 36 months (3 Years) is regarded as a short-term investment. On the other hand, a holding period greater than 36 months for debt-funds are considered as a long-term investment.

Here’s a quick summary of the short-term and long-term investment classification on mutual funds based on their holding period.

FundsShort-termLong-term
Equity Funds< 12 months>= 12 months
Balanced Funds< 12 months>= 12 months
Debt Funds< 36 months>= 36 months

3.  Mutual fund Taxation based on fund-type

As mentioned earlier, mutual fund taxation depends on the type of fund and the holding period. Here is the rate of taxation on different mutual funds in India-

1. Equity-based Mutual funds

Long-term capital gain(LTCG) tax on equity-based schemes is tax-free up to a profit of Rs 1 lakh. However, for the profits above Rs 1 lakh, you have to pay a tax at a rate of 10% on the additional capital gains.

For short-term equity-based mutual funds (where the holding period is less than 12 months), you have to pay a flat tax of 15% on the profits.

Clearly, a long-term (holding period greater than 12 months) is a better choice as there is no tax up to a capital gain of Rs 1 lakh. For an average Indian investor, Rs 1 lakh profit is a big amount.

For example, if you invest Rs 5 lakh in mutual funds and get a decent return of 20% in a year, then you’ll make a profit of Rs 1 lakh. This profit will be tax-free. You do not have to pay any tax on the long-term capital gains up to Rs 1 lakh.

In the second case, let’s assume that your profit is Rs 1,10,000 in long-term. Here, you have to pay a tax of 10% on the profit greater than Rs 1 lakh (i.e. Rs 1,10,000- 1,00,000 = Rs 10,000). In short, you have to pay a 10% LTCG Tax on Rs ten thousand.

2. Debt-based mutual funds

For the debt mutual funds, the long-term capital gain tax is equal to 20% after indexation.

Note: Indexation is a method of reducing the capital gains by factoring the rise in inflation between the years the fund was bought and the year when they are sold. The longer the holding period, the higher are the benefits of indexation. Overall, indexation helps you to save tax on gains from debt mutual funds and enhance your earnings. Read more about indexation here.

For the short term capital gains (STCG) on debt funds (where the holding period is less than 36 months), the profit will be added to your income and is subject to taxation as per your income slab. Therefore, if you’re in the highest income-tax slab, you have to pay a tax up to 30%.

3. Tax Saving Equity Funds

Equity Linked Saving Schemes (ELSS) is used for tax saving along with capital appreciation. It is an efficient tax-saving instrument under section 80C of the Income-tax Act of 1961. You can claim a tax deduction of up to Rs 1.5 lakh and save taxes up to Rs 45k by investing in ELSS. However, there is a lock-in period of 3 years for these funds.

After 3 years, the LTCG tax will be applied similar to equity funds. Therefore, the capital gain up to Rs 1 lakh is tax-free. But, profits above Rs 1 lakh is taxable at a rate of 10%.

4. Balanced (Hybrid) Funds

Balanced funds are treated similarly to the equity-based mutual funds and hence they have the same mutual fund taxation structure. This is because the balance funds are equity-based hybrid funds that invest at least 65% of its assets in equities. This allocation percentage can differ depending on the goal of the fund.

The long-term capital gain tax on the balanced mutual fund is tax-free up to a gain of Rs 1 lakh. The profits above Rs 1 lakh is taxed at a rate of 10%. The short-term capital gain tax on the balanced funds is equal to 15% of the profits.

5. Systematic Investment Plans (SIPs)

You can start a SIP with either an equity fund, debt fund, or balanced fund. The gains made from SIPs are taxed as per the type of mutual fund and holding period.

Here, each SIP is treated as a fresh investment and they are taxed separately. For example, if you are investing monthly Rs 5,000 in equity funds, then all the monthly investments will be considered as a separate investment. This simplifies the holding period.

Assume that you bought your first equity-based SIP in January 2017 and consequently SIPs in the upcoming months. Then by the end of Jan 2018, only the first investment will be considered as long-investment. The other investment is for a period of fewer than 12 months and hence, you have to pay an STCG Tax of rest SIPs if you redeemed all of them in Jan 2018.

In short, each SIP is considered a separate investment, and their holding period are calculated accordingly to define the taxation.

3. Conclusion

Here is a quick summary of the mutual fund taxation in India.

Fund TypeShort-term PeriodLong Term AfterShort-term Gains Taxed AtLong-term Gains Taxed At
Equity oriented schemesUp to 12 monthsMore than 12 months15%10%*
Balanced/Hybrid FundsUp to 12 monthsMore than 12 months15%10%*
Debt FundsUp to 36 monthsMore than 36 monthsIncome Tax Slab Rate of Investor20% after indexation

* Long-term capital gain(LTCG) tax on equity-based schemes is tax-free up to a profit of Rs 1 lakh. However, for the profits above Rs 1 lakh, you have to pay a tax at a rate of 10% on the additional capital gains.

The secret to save taxes and build wealth is still the same- Invest for the long term. In most of the equity-based funds, you can enjoy a tax-exemption for a profit up to Rs 1 lakhs when you invest for the long term. Further, while investing in the debt-funds for the long-term, you can enjoy the benefits of indexation to save taxes. Overall, if you want to save more taxes – Invest longer.

I hope this post is useful to you. Feel free to comment below if you’ve any doubts. I’ll be happy to help. #HappyInvesting

January 14, 2020 Investment Basics, Mutual Funds 3 comments
1o best Mutual Fund books of all time

10 Best Mutual Fund Books Of All Time!

10 Best Mutual Fund Books Of All Time: Hello readers! Anyone not living under a rock most definitely has overheard a lot about Mutual Funds. All thanks to the frequent advertisements which pop up in between our television programs “Mutual Funds Sahi hai” with a quick disclaimer for two seconds. The most interesting fact is that with the advent of technology, they have even started appearing on social media platforms as sponsored posts.

In this era where financial awareness is growing in leaps and bounds, almost everybody is jumping into the bandwagon of investing in mutual funds to grow their money over time. Gone are the days when people used to park their money in savings accounts and would avoid the avenue of investment in the stock market.

What are Mutual Funds?

A mutual fund is nothing but a type of financial instrument consisting of a pool of funds accumulated from various investors to infuse in securities like equities, money market, bonds, and other financial assets. Mutual Funds are run by qualified fund managers who distribute the fund’s assets and strive to harvest capital gains on investments by the investors. A mutual fund’s portfolio is designed and maintained to match up to the aims of the investment as stated in the prospectus.

However, it is quite important for any individual or a firm to have an in-depth judgment about the global financial markets and its structure before investing in Mutual Funds. Risk is a part and parcel of  Mutual Funds because they are absolutely dependent on market conditions. Thus, everyone should be extra careful while staking their hard-earned money in it. Most of us are clumsy & lack sound knowledge when it comes to the assessment of risk before investing in the Mutual Funds. One needs to take a stern decision on the basis of their goals, time horizon & risk-bearing ability.

Well, does all these sound like a big deal? Undoubtedly, it is but don’t worry! We are here to enlighten you and fathom into the world of investments.

The first and foremost step in which you should partake in this regard is to concentrate on increasing your knowledge bank about the fundamentals of investing in Mutual Funds. As books are considered to be the best tool to enhance knowledge, we have compiled a list of 10 best mutual fund books in the forthcoming sections to help you in your investment journey.  Stay glued!

10 Best Mutual Fund Books Of All Time

1. Common Sense of Mutual Funds 

common sense on mutual funds

Author: John C. Bogle

Common Sense On Mutual Funds is considered to be a trustworthy and an ideal book for both the beginners and seasoned investors who are keen on digging deeper about Mutual Funds. The author who wrote the book was the creator of the world’s first index fund. It has received the highest of laurels in the investment community and continues to be a bestseller.

Key Highlights of the book:

  1. This book determines the mechanism of mutual fund investments in the swirling market conditions and provides a timeless piece of advice in reference to knitting a greatly diversified investment portfolio.
  2. The book has extensive explanations about the elemental structure of investments that are applicable to different market cycles.
  3. The common sense of mutual funds book discusses the regulatory and structural alterations across the global mutual fund’s industry in a lucid manner.
  4. The author has put the Index Funds under the limelight and has also highlighted the significance of adopting a long term strategy.
  5. The writing style is simple with a effective display of common sense and transparency.

2. Mutual Fund For Dummies

mutual fund for dummies by eric tyson

Author: Eric Tyson

Mutual Fund For Dummies helps any novice investors to scout through the various implications of Mutual Fund investment. The book was released in the year 1998 and is seen as a timeless asset for planning and implementing a successful investment strategy.

Key Highlights of the book:

  1. This book guides through regarding the identification of the efficiently managed funds to match your financial goals.
  2. It discusses the latest investment techniques that heighten your chances of success and prevents you from drowning into vicious investment traps along with illustrations about Sample Fund Portfolios.
  3. Mutual fund for dummies book also provides informative cues to maintain and assemble an investment portfolio while analyzing a fund’s performance at the same time.
  4. It grooms the readers and push up their confidence to strategically invest in the Mutual Funds and consequently earn sustainable long-term profits.
  5. The book has elaborated chapters based on Exchange-Traded Securities and Tax Laws impacting the fund investments.

3. Bogle on Mutual Funds

bogle on mutual funds

Author: John C. Bogle

Bogle on Mutual Funds is another magnum opus that has redefined our outlook towards finance and investments. This masterpiece is brilliantly crafted to make an addition to the existing concepts about investing in Mutual Funds.

Key Highlights of the book:

  1. This book has chapters that are completely dedicated to Passively Managed Funds and how they can reap higher returns.
  2. It points out the difference between different spectrums like stocks, bonds, money market, and balanced funds. Drawbacks regarding placing weighted bets on individual securities, sectors and the economy are also highlighted.
  3. As you dig deeper, the book evaluates the correlation between risks and returns on investments across mutual funds.
  4. The book has portions covering how low cost has a more reliable investment structure and techniques for choosing among the four fundamental types of fund funds.
  5. It also highlights the possible reasons for below-average performances of different funds and the common mistakes committed by investors. The author provides well-structured guidance on the importance of perseverance and persistence in the course of the creation of wealth ie. Via Mutual Funds.
  6. In addition, Bogle on Mutual Funds book also includes parameters for pinpointing misleading advertisements and to look for the hidden truth.

4. The Mutual Funds Book

the mutual funds book by alon northcott

Author: Alan Northcott

The author of the book has punched in some unique concepts with a major concentration on investment advice and Mutual Fund theorems.

Key Highlights of the book:

  1. The book has a detailed explanation of the pros and cons of investing in Mutual Funds and how to generate profits through investments based on the  “Minimal Risk And Maximized Returns” idea.
  2. In this book, you can read the comparison and evaluation of the risk associated with mutual funds investment against other types of financial investments along with avenues to compare various funds on an after-tax basis.
  3. Alan Northcott has also covered approaches to figure out the perfect time to sell any security and to liquidate the money invested in funds in his book.
  4. There are separate sections on easy strategies for allocating the assets across various classes of stocks such as small-cap, micro-cap, mid-cap, and large-cap companies.
  5. The book also explains disclosure of the important definitions like ratings, net asset value, share classes, plans and etc associated with the investing procedure along with the inclusion of a background of the economic history of mutual funds including their scandals.

5. Morningstar Guide to Mutual Funds

morning star guide to mutual funds

Author: Christine Benz

The Morningstar Guide to Mutual Funds by Christine Benz helps to emerge out of the dense mist with a well-defined volume of productive information. It’s a no-nonsense guidebook that should be found in every investor’s cupboard.

Key Highlights of the book:

  1. The book covers the importance of bond funds, index funds, and exchange-traded funds in a portfolio.
  2. You can find a clear explanation of crucial terms like expense ratios, fund charges and loads which are neglected in general.
  3. The author has covered the estimation of a fund’s risks and how to invest in active funds, and improve the odds of your success? Alongside this, the book also explains an analysis of the quality of a fund’s manager, and consecutive steps to be undertaken regarding any alteration.
  4. A few of the crucial sections on this book cover the pros and cons of concentrated and diversified funds, red alerts against chasing high returns in a sector and assessment of quarterly and annual reviews for keeping the portfolio on the right track.
  5. Christine Benz also explains the strategy of investing in underperforming sectors and riding on their waves during a revival.
  6. Finally, there’s also a section on the importance of rebalancing the portfolio periodically and creating an articulate temperament for standing strong during volatility.

6. The Mutual Fund Industry Handbook

the mutual fund industry by Lee Gremillion

Author: Lee Gremillion

The Mutual Fund Industry Handbook by Lee Gremillion has a noticeable and systematic series of data and knowledge. Such volumes of information will assist anyone with a keen interest in this industry. The book was originally published in 2005.

Key Highlights of the book:

  1. This book covers the interpretation of various functions executed in the day-to-day operations of the Mutual Fund industry including front-office functions, back-office functions, buying and selling process, settlement, custody, accounting, and reporting.
  2. A few of the clears pivotal concepts explained in the book are regulatory protection, liquidity, diversification & professional management.
  3. The author also describes the roles being played by transfer agents, distributors, custodial banks, investment advisors, fund managers, and several other external service providers.

Also read: 7 Best Value Investing Books That You Cannot Afford to Miss.

7. Mutual Funds for Wealth Building

mutual funds for wealth building

Author: John Mcquilkin

The book is solely for beginners and amateurs who have newly become aware of the financial markets. Mutual funds for wealth building by John Mcquilkin presents an exhaustive analysis regarding investing in mutual funds right from scratch.

Key Highlights of the book:

  1. The book covers the definition and introduction of Mutual Fund, benefits and Limitations of Mutual Funds, different types of funds along with hidden costs of a Mutual Fund.
  2. The author also covers detailed investing strategies for Mutual Fund to discover how to create wealth with Mutual Funds to upgrade the standard of living and fulfill goals.
  3. The best part is an explanation in layman’s language with an utmost easy format.

8. Beating the Street

beating the street by peter lynch

Author: Peter Lynch

First of all, let me give you an introduction to Peter Lynch, the author of this book if you already do not know him already.

Peter Lynch is an American Investor and a former fund manager.  He was the manager of the Magellan fund at Fidelity Investments between 1977 and 1990. During this period, Lynch averaged a 29.2% annual return on the investments. This return was consistently double than the market index and during this period of 13 years, the asset under the management which was originally $18 million in 1977 increased to $14 billion. He is one of the rare fund managers who gave a fairly good return to their investors for thirteen long years in a row.

The exclusivity of the “BEATING THE STREET” is that it imparts teachings to develop a winning investment strategy and provides advice regarding the agglomeration of a rewarding investment portfolio.

Key Highlights of the book:

  1. In this book, Peter Lynch explains the “Invest In What You Know” strategy for both the big and small investors.
  2. He covers lucrative suggestions about architecting a profitable investment portfolio, based on your own experience,  insights and do-it-yourself research. He also covers the operative methods of fund managers belonging to large fund houses.
  3. The author reasons why a bear cycle is a fantastic opportunity to haul up stocks at a rock bottom price left behind by panic-stricken investors and advantages of markets in faster-growing economies (EG: INDIA).
  4. Peter Lynch explains why over a long-time period, a portfolio of well-chosen equity mutual funds will always surpass the returns of a portfolio consisting of bonds and money market funds.
  5. Besides, Peter Lynch’s “20 Golden Rules” are a part of this book as well.

9. Ladder to Wealth Creation

ladder to wealth creation by vivek k negi

Author: Vivek K Negi

Financial freedom is the penultimate agenda for everyone during a lifetime. The aim cannot be achieved only by saving one’s money. The idle funds lying in the bank account must be put to use for compounding wealth. It’s a procedure of strategic planning and investment from a tender age. Hence, this book comes to our rescue and explains all the minute catches and tricks.

Key Highlights of the book:

  1. The book explains what are Systematic Investments Plans (SIPs) and how initiating SIPs from a young age generates huge corpus in the long run via the method of compound interest.
  2. The author covers the advantages of investing in meager amounts at regular intervals over a long period of time in different asset classes.

Also read: 3 Amazing Books to Read for a Successful Investing Mindset.

10. How to make a fortune through Mutual Funds: Hunt with the hounds

how to make a fortune through mutual funds ashu dutt

Author: Ashu Dutt

If you are keenly looking forward to investing in mutual funds and your foremost objective is to yield high returns, this book is a must-have for you! How to make a fortune through mutual funds by Ashu Dutt breaks some acclaimed myths surrounding the concept of Mutual Funds and has been written by one of Asia’s leading investment managers.

Key Highlights of the book:

  1. The language of the book is clean and can be effortlessly grasped by the beginners.
  2. The book covers the achievement of extraordinary returns from Mutual Funds by investing in the actively managed funds.
  3. Author Ashu Dutt does explain how mutual Funds singles out the elements of emotions in due course of the investment and advocates the strategy of investing at points of maximum pessimism and exiting during euphoria.
  4. The book has separate sections on Open-Ended versus Close Ended Funds, Investing in Cycles, Trends, and Rallies etc.
  5. In the book, you can find a detailed analysis of different funds like Active Equity Funds, Index Funds, ETFs, Income Funds, Gilt Funds, Commodity Funds, and Real Estate Funds.
  6. The author has also included the topic of how to pick the correct funds during various market cycles along with how to time your entries and exits in Mutual Funds. Overall, he has shared his hushed secrets of profitability.

Summary

It is quite important for any individual or a firm to have an in-depth judgment about the global financial markets and its structure before investing in Mutual Funds. The first and foremost step in which you should partake in this regard is to concentrate on increasing your knowledge bank about the fundamentals of investing in Mutual Funds.

As Books are considered to be the best tools to enhance knowledge, in this article, we covered the 10 Best Mutual Fund books of all time. In case we missed any best mutual fund books that you believe should be covered in this list, feel free to comment below. Also mention which one is your favorite mutual fund book. Cheers!

October 25, 2019 Books, Mutual Funds No comments yet
tax saving ELSS Equity linked saving scheme

Should you invest in multiple Equity Linked Saving Schemes (ELSS)?

Equity Linked Saving Schemes or ELSS Fund is a variety of Equity Mutual Fund where the majority of the corpus is invested in equities and equity-oriented instruments. It is a tax saving Mutual Fund where your investments are locked in for 3 years.

ELSS are multi-cap equity funds which invest at least 4/5th of their assets in equities. Such stocks could be small-caps, large-caps, or mid-caps. ELSS funds can invest in the companies of any sizes. Apart from investing in the stocks of private companies, these funds also invest in the Government undertakings to a significant extent.

Note: If you are new to ELSS, you can read our previously published article here.

ELSS: A tax saving instrument

Previously people used to find FD, NPS, PPF, and ULIP as effective tax saving schemes. Nowadays, the taxpayers are feeling more interested in investing their savings in ELSS funds for availing tax benefit.

ELSS is not only having the lowest lock-in period but it also yields higher returns than the other conventional tax-saving instruments. If you are going to redeem your ELSS investments after 3 years, your capital gain will be taxed @ 10% if it crosses Rs 1 lakh.

As per section 80C of the Income Tax Act, 1961, you can get the benefit of tax deduction in a financial year up to Rs 1.5 lakhs. ELSS or Equity Linked Saving Scheme is a prescribed instrument under the said section. So, you can easily save your tax liability up to Rs 46, 800 (Tax plus Cess on such Tax).

Investing in ELSS for generating long-term wealth

If you are looking to create long-term wealth but willing to accept the risk, let me tell you that equities or equity-oriented funds are the best for you. Equities can fetch you substantial returns if you are willing to stay invested for the long term.

You can choose any form of Mutual Fund i.e. a small-cap fund, large-cap fund or a mid-cap fund. But, neither of the funds can provide you with tax benefits which ELSS can give. Moreover, if the markets seem to be bearish or moving sideways in the short run, you might feel like redeeming your units immediately.

If you have invested in ELSS, you can’t withdraw your investments before the expiry of three years. In that way, investing in ELSS ensures that you stay invested for a long-term irrespective of short-term volatility. So, if you are interested in staying invested for a considerably long period of time, ELSS is definitely an ideal investment option for you.

Should you go for only one ELSS or multiple?

In an ELSS fund, the underlying portfolio consists of around 70 to 100 stocks. Around 5,000 stocks are listed in the Indian markets. Out of such stocks, the top 250 of them contributes towards 90% of the total market capitalization. So, if you are investing in 6 ELSS funds, it means you are indirectly investing in around 600 stocks. This implies that you will end up investing in the stock market as a whole. Therefore, you are virtually removing all possibilities to beat the stock market.

Investing in excessive ELSS funds means you are indirectly looking to form a market portfolio. So, if you are looking to earn what a market index earns, you can opt for such a portfolio. It is highly probable that you won’t earn more than what the market earns but you are also not going to earn less than the same.

There is another limitation of investing in too many ELSS funds. Investing in an excessive number of ELSS will lead to portfolio overlapping. It means that you will be investing in the same stocks through multiple schemes. This would unnecessarily increase your expense ratio instead of yielding the benefit of diversification.

Well, if you are simply looking to invest in the market portfolio, you should consider investing in an Index Mutual Fund or an Index ETF. Through the passive funds, you will be investing in the market indices at a lower cost.

Let us discuss how the situation might look like if your portfolio consists of a single ELSS. If you own only one ELSS fund, it indicates that you have not diversified your investments at all. It seems to be a risky portfolio as you will be exposing it to the risk of underperformance of the Fund Manager. It is of no doubt that you have a higher chance of beating the market if the underlying assets of your scheme consist of top-performing stocks. But, if the market witnesses a downfall, your portfolio will crash down at a higher rate.

An ideal number of ELSS funds for your portfolio

Now, if you ask how many ELSS funds you should have in your portfolio, the ideal number could be either two or three. An ELSS fund is a multi-cap equity fund. Therefore, if you have chosen two to three ELSS funds in your portfolio, you can certainly form a strong portfolio in all possible ways.

Through a single ELSS fund, it is not possible for you to cover a substantial number of top equities. The likeliness increases if you add one or two more ELSS funds in your armory. If your investments can be spread across a good number of profitable stocks, you are going to make significant returns in the days to come. Although your portfolio expenses in the form of equity ratio will go up, the returns are high enough to cover the same comfortably.

We have discussed earlier that too many funds would lead to portfolio overlapping. But, you would not experience the same if you create your portfolio with two to three funds. Investment in a limited number of schemes is not going to capture the major portion of market capitalization. Therefore, you are not forming a portfolio which can replicate the market. So, whatever you will be earning will supposedly beat the market.

Also read:

Closing thoughts

No assurance can be given whether a portfolio consisting of two to three ELSS funds can alone serve all your wealth generation and tax-saving requirements. Forming a portfolio for an individual is dependent on several factors. If you are an investor with a high-risk appetite you can team up a small-cap equity fund with a ULIP. On the other hand, if you are highly risk-averse, you can go for a debt fund with a PPF.

Through this article, we have tried to give you a general idea regarding the number of ELSS funds which should be there in your portfolio. If you are seeking an investment option which combines wealth creation and tax saving, ELSS is your answer. Otherwise, if you have any specific requirements with respect to profitability, liquidity, and tax benefit, you are free to create your own portfolio accordingly.

August 14, 2019 Mutual Funds, Personal Finance No comments yet
Open-Ended Vs Closed-Ended Funds Which One to Prefer cover

Open-Ended Vs Closed-Ended Funds: Which One to Prefer?

A few days ago, I was having a discussion on Mutual Funds with a friend of mine. During the conversation, he asked me to state the key parameters which one needs to consider for investing in a Mutual Fund scheme. Another time, a person in my connection lists on LinkedIn texted me and asked when he should invest in an Equity Mutual Fund. He further wanted to know whether he should invest a lump sum or opt for investing through SIPs. Again yesterday, an old friend of mine called me up in the evening and asked in which fund he should be investing given his risk-return profile.

Well, being a Mutual Fund enthusiast and having an experience in Mutual Fund investing of over two years, I frequently come across many such queries on Mutual Funds from my acquaintances. But, there is one thing which has really surprised me is that till date, no one has ever asked me anything regarding Open-ended and Close-ended Mutual Funds.

I think this is something one needs to know if he/she is a fresher in Mutual Fund Investing. Therefore today, I have decided to talk about Open-ended vs Close-ended funds.

Open-ended vs closed-ended funds

On the basis of the structure, a Mutual Fund can be either termed as an Open-ended Mutual Fund or a Close-ended Mutual Fund. Let us first discuss Open-ended funds.

— Open-ended Funds

Open-ended funds can issue any number of units from the market. These work in a similar manner like some collective investment scheme where you can purchase units directly from the Mutual Fund Company instead of an existing unitholder.

Unlike a Close-ended fund, the units in an Open-ended scheme can be purchased or sold even after the NFO (New Fund Offering) period ends. These funds offer units to you on an everyday basis. Further, you can also redeem your units to the Mutual Fund Company any day.

The units of an Open-ended fund are issued at a price which is termed as the Net Asset Value (NAV). The NAV of a scheme is nothing but the market valuation of the assets minus liabilities of the scheme. If the scheme performs well, its NAV goes up and vice versa. So, having a constant look at the NAV of a fund helps an investor to evaluate its performance.

— Closed-Ended Funds

In a Close-ended fund, a fixed number of units are issued at the NAV to the investors in its New Fund Offering (NFO). After that, no fresh units are offered to investors. Therefore, you cannot invest in the units of a Closed-ended fund after its NFO period ends. Furthermore, you cannot redeem your units to the Mutual Fund Company after the NFO period lapses.

In order to provide liquidity to the existing investors, the existing units of a Close-ended scheme are listed on a recognized stock exchange subsequent to the NFO. Any further transactions with respect to those units are taken place in the stock market.

The transactions of the units of a Close-ended fund in the stock exchange are taken place at a price determined by the interaction between demand and supply in the market. Therefore, in a stock exchange, you would get a unit of a close-ended scheme at a price which could be at a premium over or a discount below its NAV.

Difference between open-ended vs closed-ended funds

So far we have understood the basics of Open-ended and Close-ended funds. Let us have a look at the major differences between them.

1. Open Ended schemes are more liquid in nature. You can redeem your units of an Open-ended fund anytime. Closed Ended schemes come with a fixed lock-in period. If you want to redeem your portfolio to the Mutual Fund Company at the NAV, you have to do it within a specified period of time. Otherwise, you have to dispose of it through the stock exchange at the market determined price.

2. Unlike a Close-ended scheme, an Open-ended fund is not traded on any recognized stock exchange: The price of a unit in an Open-ended scheme is majorly influenced by the prices of its underlying securities. On the other hand, the price of a unit in a Closed-ended scheme is more impacted by the market forces as compared to its benchmarks. So, it is easier to evaluate the performance of an Open-ended scheme as compared to a Close-ended fund.

3. Closed-ended funds offer trade opportunity at real-time market prices: As the units in a Closed-ended fund are traded on a stock exchange like shares, this gives you an opportunity trade on them based on real-time market prices. You can apply share trading strategies like limit orders, margin trading, etc.

4. Less-pressure for Closed-ended fund Managers: The Fund Managers in an Open-ended scheme is having no option but to strictly follow the objective of the scheme. Further, they have to face the redemption pressure of the unitholders off and on. The AUM (Assets under Management) for the Fund Managers to handle in a Close-ended scheme stays majorly fixed from the beginning. Therefore, they can manage the same at their own discretion and are not required to face any external pressure or adhere to stringent compliances.

5. The track records of a Closed-ended fund are not available, unlike an Open-ended fund: It is not possible for you to see the performance of a Close-ended fund over different economic cycles. But, in case of an Open-ended fund, you can always take an informed investment decision.

6. In a Close-ended fund, you have to invest a lump sum in a scheme during the time of their NFO issue: It is of no doubt in saying that it is a risky approach in making investments. Whereas, an Open-ended fund allows you to set up a Systematic Investment Plan (SIP) in a scheme of your choice.

Also read:

Closing thoughts

 In an Open-ended fund, many investors look to redeem their portfolio to book quick profits when the NAV goes up by 5 to 10% in the short run. This hurts the long-term investors significantly who stay invested with an aim to achieve higher returns in the long run. In this regard, a Closed-ended fund seems to be a better option. This is because its lock-in period prevents early redemption by the investors and if they redeem in the stock market, the AUM of the scheme still remains unaffected.

Again, if you have a little or no knowledge of the market and looking to earn a return of 15 to 20% annually, an Open-ended fund is ideal for you. In these funds, the NAVs are updated daily and they offer a higher scope of liquidating as compared to the Close-ended ones.

Moreover, Close-ended funds don’t offer any SIP mode for investing. You can only invest in a lump sum mode either in the NFO or in the secondary market. So, you can choose to invest in a Close-ended fund if you want to trade in a Mutual Fund scheme like any share in the stock market. But, if you are a regular income earner who likes to invest on a regular basis, an Open-ended Mutual Fund is always better for you.

It is not so easy to conclude whether opting for an Open-ended fund is better than investing in a Closed-ended scheme. The performance of any Mutual Fund scheme, whether it is Open-ended or Closed-ended, depends on the fund category it belongs and the effectiveness with which the Fund Managers handle its assets. In addition to that, what matters more is the purpose for which you want to invest in a Mutual Fund.

May 16, 2019 Mutual Funds 3 comments
10 Reasons Why You Should Start a SIP cover

10 Reasons Why You Should Start a SIP

Last Friday, I met my old college friend- Priyanshu. While discussing various stuff, he told me that he has decided not to invest in ‘Fixed Deposits’ anymore. Well, there is no doubt in saying that he has made a good decision. We all know that FD is no longer a strong investment option for creating our desired wealth for the future.

During our conversation, Priyanshu suddenly got eager to know more about investing in Mutual Funds. I told him that Mutual Funds have of late become the talk of the town. I explained to him the benefits of investing in the same. Anyways, he also asked me whether he should invest in Recurring Deposits instead of Mutual Funds. As we went further in our discussion, I realized that he used to think one can invest in Mutual Funds only in a lump sum mode like FDs. But, the fact is that you can even invest in a Mutual Fund through SIPs.

Later, I told him that as he is doing a day job and earning a regular income, he should start investing in the Mutual Funds via SIP mode. Investing through SIPs works in a similar manner like Recurring Deposits (RDs). One key difference between the two is that you get units while investing in Mutual Funds. Another major difference is that through SIP investing you can earn relatively higher returns than RDs. Further, the rate of returns in SIP Mutual Funds is not fixed as in the case of RDs.

In the SIP or Systematic Investment Plan, a fixed sum of money is automatically invested in your chosen Mutual Fund on a specified date of each month. When you set up SIPs, your Bank Account is debited and your desired sum gets invested in your chosen Mutual Fund scheme.

Why You Should Start a SIP?

If you are a beginner in Mutual Fund investing, you might have this doubt why you should opt for investing through the SIP mode. Here are the ten best reasons why you should start a SIP.

1. Automate your investments: You can set up SIPs to activate investments in the Mutual Fund from your Bank Account on a particular date. This results in developing a habit of investing in the Stock Market and helps you create a large corpus in the long run.

2. Developing an investment habit towards your goal: SIP investing builds a regular investing habit for an individual. So, if you have any financial goal, your well planned SIPs can make it more feasible to achieve.

3. Variety of investment plans: SIPs help you invest in Mutual Funds with your desired amount for a chosen term. Moreover, you have a variety of schemes to choose from according to your financial needs like Equity based mutual funds, debt mutual funds, balanced funds, etc.

4. Flexibility in investments: Using a Step-up SIP, you can gradually increase your SIP amount with the increase in your earnings. In Mutual Fund investing, you can choose to stick to your regular SIP amount. But, if you wish, you can also choose to increase or decrease (up to the minimum investment amount) your SIP amount with the help of a Flexi-SIP.

5. Affordable investments: When you invest in the Mutual Funds through SIPs, you can create a huge capital over a long period of time. SIP investing doesn’t require you to invest a large sum of money in every installment. So, your household expenses are not at all hampered due to SIP investing. You can start investing in SIP with an amount as low as Rs 500 per month.

6. Rupee cost averaging: Investing in the Mutual Funds through SIPs fetch you more units when the market moves down and fewer units when it goes up. Therefore, this averages out the overall costs of your investments over time.

7. You do not need to time the market: You don’t need to know whether the Stock Market has hit rock bottom or it has reached its peak. You can invest in the Mutual Funds any time through SIP as its rupee cost averaging feature nullifies the market volatility.

8. Long-term investment: Mutual Funds are typically meant for creating wealth in the long run. Investing through SIP let you invest in the market with small amounts over a long period of time. The higher is the investment horizon, the greater is the scope to earn larger returns.

9. Power of compounding: The returns on your SIP investments are also reinvested in the market. Therefore, you not only earn returns on what you invest but also on your reinvested returns. The longer you stay invested in the market, the greater is your scope of enjoying the power of compounding.

10. Diversification: You get the opportunity to enjoy the benefit of diversification while investing in SIPs. You can easily allocate your investment across diverse asset classes and industries. Diversifying your investment results in reducing your security-specific risks and increases your chances of earning larger returns.

Quick Note: Long term capital gains on an Equity Mutual Fund are tax-free if such gains don’t exceed Rs 1 lakh in a Financial Year. This goes to show that Equity Fund investing via SIPs is a wonderful way to accumulate a huge investment in the long run. Further, Investing in ELSS up to Rs 1.5 lakh in a Financial Year is allowed as a deduction against Gross Total Income for the same period. Setting up SIPs in an ELSS can help you gain tax benefits with ease.

Also read:

Conclusion

Mutual Funds have become extremely popular in recent years among the middle-class Indians because of AMFI’s “Mutual Funds Sahi Hai” campaign. SIP investing is a great way to invest in Mutual Funds for building huge wealth in the future.

People who don’t invest in Mutual Funds are either lacking in knowledge or simply scared to invest in the same. However, the Mutual Fund industry in India is highly regulated by SEBI, which reduces the chances of occurring malpractices to nil.

In this article, we have tried to highlight the major advantages of investing in Mutual Funds via SIP route. Again, you can start investing with as low as Rs 500 per month in a SIP. Mutual Funds can help you fulfill all your financial needs if you invest in it in a systematic manner.

May 5, 2019 Mutual Funds 2 comments
ETF EXCHANGE TRADED FUNDS

What is ETF (Exchange Traded Fund)? And How to Invest in them?

Exchange Traded Fund or ETF is getting a lot of attention among the investing population lately because of the ease and flexibility it offers to the investors. It is a basket of securities like mutual funds but can be bought and sold through a brokerage firm on a stock exchange.

In this post, we are going to discuss what exactly is an Exchange Traded Fund and how to invest in them. But before we start discussing ETFs, let’s brush up the basics of mutual funds as they are somewhere related.

Mutual Funds

Mutual Fund is a financial product where a Mutual Fund company pools funds from its investors and in return, allot them units. The amount collected is invested in a portfolio of securities which are traded in the markets. Mutual Fund schemes are low-cost investment options which help you to plan your personal finance effectively. You can start investing in mutual funds with an amount as low as Rs 500 per month via SIPs. Through Mutual Funds, you can invest your savings across diverse asset classes, industries, and economies.

In Mutual Fund investing, you can either choose to be an ‘Active’ investor or opt for ‘Passive’ investing style. The Mutual Fund schemes where the underlying assets are frequently churned to outperform their benchmarks are known as active funds. Passively managed funds are those which replicate the portfolios of their benchmark indices.

ETFs are the best representatives of passively managed funds. Let’s have a discussion on ETF basics.

Exchange Traded Funds

An ETF or Exchange Traded Fund is a variety of Mutual Fund which tracks any particular index, be it an index of stock, commodity or any other security. ETF invests in a portfolio of assets of a specific nature. For example, you can invest in a Gold ETF or Bond ETF or Currency ETF.

ETFs trade in the stock exchanges and therefore can be bought and sold during market hours like any instruments listed in a stock exchange. The price at which an ETF is usually traded is close to its Net Asset Value (NAV). In order to invest in an ETF, you need to have your own Share Trading Account and Demat account.

You can earn income from your ETF investments in two ways. Firstly, you can earn in the form of dividends. The second one is that you can trade your ETF units like shares and generate income in the form of capital gains.

Some people have this doubt in their minds whether ETF is the same as Index Funds or not. Well, what is the reality then? Let’s dig deep into it.

ETF vs Index Funds

An Index Fund is also a variety of Mutual Fund like ETF. The portfolio of an Index Fund is built in such a manner that its components look similar to that of a specific stock market index. An index fund aims in replicating the performance of a particular benchmark index.

On the other hand, an ETF is a special form of Mutual Fund consisting of similar securities, falling under any specific market index. An ETF is the only type of Mutual Fund which is traded like shares in a stock exchange. Its composition is similar to any index like Sensex or Nifty.

So, both ETF and Index Fund look quite similar except the fact that the ETF is traded in the stock market.

Is this the only difference between the said two investment options? The answer is a big no. Let’s have a look at some more key differences between the two:

  1. You can invest in an Index Fund only during a specified time in a day. But, you would be happy to know that you can trade in the ETFs throughout the day.
  2. The price of any ETF keeps fluctuating throughout the trading hours. On the other hand, the price of an Index Fund is fixed only at the end of the trading day.
  3. The basis for the pricing of an ETF is the demand and supply of the same in the market. Whereas, the pricing of an Index Fund depends on its NAV.
  4. To invest in an ETF, you will have to incur expenses in the form of brokerage. But, for investing in an Index Fund, there is no such transaction charge applicable.
  5. The expense ratio of an ETF is comparatively lower than that of an Index Fund.
  6. If you want to invest in an ETF in the Indian market, the minimum investment required is Rs.10,000. Whereas, you can invest in an Index Fund by paying a minimum lump sum of Rs.5,000. Moreover, you can choose to invest in the Index Funds with a minimum amount of Rs.500, if you choose the SIP (Systematic Investment Plan) route. Please note that investing in an ETF via SIP is not applicable.

Why you should invest in an ETF?

The next question that can come to your mind is why you should invest in an ETF? I can state a couple of reasons in favor of this.

Investing in an ETF is certainly convenient. Buying and selling an ETF unit can be done by having a look at the market price available on the trading platform. The exchanges where the ETFs are listed are well regulated by the concerned authorities. This has resulted in increasing transparency in the trading of ETFs.

Furthermore, you can choose to invest in ETFs as the expense ratio is much lower than any other Mutual Fund. Again, if you are unable to figure out which stocks to invest in, you can invest in a sector-specific ETF instead with a small corpus. 

performance of ETF in India

(Updated till 2nd May 2019 | Source: Moneycontrol)

How to invest in ETF in India?

In order to invest in an ETF you need to ensure the following two things:

  1. You are mandatorily required to open a Share Trading Account with any Stock Broker/ Sub-broker.
  2. You must also possess a Demat Account in your name for the purpose of holding the ETF units which you are going to buy.

Now, to apply for the above two things, you have to submit the following documents for complying with the KYC (Know Your Customer) norms:

  1. A copy of your Passport, Driving License, or PAN Card as your identity proof.
  2. A copy of your Passport or any Utility bill as a proof of your address.
  3. A copy of your Bank Account statement for the last 6 months.

After you have got access to your online trading platform, you can carry out any ETF transaction. You can invest in ETFs via any of the following two modes:

  1. You can place your order in the market through the online trading terminal provided to you. Trading in ETFs is no different than carrying out transactions with respect to stocks listed in the stock market.
  2. The second option is that you can place your order by calling your Broker over the phone and let them know about your trade requirements. 

Also read:

Closing thoughts

If you are willing to take part directly in the stock market but unable to figure out which security to pick, you can start investing with ETFs. In case you are an existing investor in the market and looking to try something different, you can look to include ETFs in your portfolio.

In India, people are still predominantly interested in investing in traditional saving schemes like PPF, FD, and NSC. Stock Market investing is yet to get popular among the Indians at a significant level. Not even ten percent of the income earners in our nation are having their Stock Trading Accounts. Therefore, there is no doubt in saying that the number of participants in ETFs in our economy is still pretty less.

AMFI has been working hard in the last few years to popularize the concept of Mutual Fund investing in our country. So, as the Indian Mutual Fund industry grows, it is expected that more and more investors will show an inclination towards ETFs.

May 2, 2019 Investment Basics, Mutual Funds No comments yet
What are STP and SWP in Mutual Funds_ A Beginner's Guide cover

What are STP and SWP in Mutual Funds? A Beginner’s Guide!

Systematic transfer plan (STP) and Systematic withdrawal plan (SWP)

In India, the Mutual Fund industry has started growing off late due to the immense efforts by Association of Mutual Funds in India (AMFI). Previously people used to be more interested in parking their money in Fixed Deposits and Recurring Deposits. Today, many Indians are looking to invest in Mutual Funds for gaining higher returns, ensuring larger security, and enjoying more liquidity.

Unfortunately, the percentage of Indian population investing in the Mutual Funds would not even cross the one-fifth of the total number of income earning Indians. At present, as high as 80% of the Indian income earners are either unaware of Mutual Funds or they have a plethora of misconceptions regarding the same.

One of the myths that many Indians have is that SIP is a feature of the Mutual Fund. The fact is that SIP is a mode of investing in Mutual Funds. You can invest in Mutual Funds either via lump sum mode or through SIPs. Let us have a basic understanding of SIP.

1. Systematic Investment Plan (SIP)

SIP means ‘Systematic Investment Plan’. You can invest a fixed sum of money at specified intervals of time, over a time period in a systematic manner. You can choose to make SIP investments yearly, half-yearly, monthly, weekly, or even daily.

SIPs are similar to Recurring Deposits. You are required to invest your money on a predetermined date and the Mutual Fund Company will provide you units based on that day’s NAV.

If you are looking to invest in the Mutual Funds via SIPs, you do not need to time the market. The major benefit that SIPs provide you is ‘rupee cost averaging.’ Therefore, your investments are not subjected to the risk of market fluctuations as SIP investing averages out the cost of your investments.

Now, there are two crucial concepts associated with SIP. The first one is the Systematic Withdrawal Plan or SWP.

2. Systematic withdrawal plan (SWP)

SWPs allow you in withdrawing a specific amount of money at regular intervals of time. SWP plans are more suited for retired people who are looking for a regular income to meet their expenses, preferably on a monthly basis.

After investing a lump sum amount in a Mutual Fund, the fixed amount and frequency of withdrawal are to be set by you. Not only SWPs help in providing you with periodic income but also protects you from the ups and downs of the stock market.

SWPs work in the manner opposite to SIPs. In case of SIPs, your money is invested in the Mutual Funds from your Bank Account. While, in case of SWPs, your Mutual Funds units are redeemed and gets deposited in your Bank Account.

Let us consider an example to understand how SWPs work in reality. Suppose Mr. Akash is having 10,000 units of a Mutual Fund on 1st January. He wishes to withdraw Rs 5,000 per month through SWP for the next three months. Therefore he sets up an SWP to give effect to it.

The units from your Mutual Fund holdings will be redeemed automatically to provide you with a regular income of Rs 5000 per month. The table shared below explains the process.

Date Opening Units NAV Units redeemed Closing units
1st Jan 10000 20 250 (5000/20) 9750
1st Feb 9750 16 312.50 (5000/16) 9437.50
1st March 9437.50 15 333.33 (5000/15) 9104.17

Now let us discuss the second key concept i.e. Systematic Transfer Plan (STP) 

3. Systematic Transfer Plan (STP)

STPs allows you to transfer your money from an Equity Mutual Fund scheme to a Debt scheme. The opposite can also take place. STP acts as protection against market volatility. STP is an automated way of transferring your money from one Mutual Fund scheme to another.

Whenever you feel that the investment made by you in an Equity Fund is being exposed to a higher risk, you can transfer your units to a Debt scheme periodically. Therefore, you can set up STPs which transfers your funds from your Equity scheme to a Debt Fund. When the market settles itself, you can again transfer the money from that Debt Fund to an Equity scheme.

Let us now understand how STPs work. You need to select a Mutual Fund from which your funds should be transferred to another scheme. You can set up STPs in a manner where a transfer can take place. It could be yearly, quarterly, monthly, weekly, or even daily.

STP means redeeming units of a scheme and investing the proceeds in the units of another scheme. Generally, STPs are allowed to an investor by a Mutual Fund company only within the schemes of the same company.

Through setting up STPs, you can keep earning your returns on a consistent basis. Moreover, your investments are also protected against adverse market circumstances. STPs also help you enjoy the benefit of ‘rupee cost averaging’ similar to SIPs.

STPs help you in rebalancing your portfolio. You can keep your funds moving from debts to equity when the Stock Market witnesses a bullish trend. Similarly, you can move your Equity investments away from the market and invest in Debt schemes when the market corrects itself.

Also read:

Systematic transfer plan (STP) and Systematic withdrawal plan (SWP)-min

(Image Credits: Edelweiss)

Taxation rules

Investing via SIPs is not going to fetch you any tax benefit unless you invest in an ELSS scheme. Under section 80C of the Income Tax Act, 1961, you can enjoy a tax deduction on your investments up to Rs 1.5 lakh. This tax benefit is available if you invest in any prescribed securities including ELSS.

SWPs result in the redemption of units of a Mutual Fund. Let us assume that you have invested in a Debt scheme and set up an STP to transfer money to an Equity Fund. Assuming 3 years have not been completed, any capital gain you make due to the redemption of units in Debt Fund will be taxable as per your tax slab. If you withdraw your investments after 3 years, capital gains are taxable @10% and 20%, with indexation and without indexation, respectively.

STPs also result in the transfer of units and therefore the capital gains are subjected to Income Tax. Suppose, you shift your investments from an Equity Fund to Debt scheme within 1 year, the capital gain tax is chargeable @15%. If 1 year exceeds, the tax is attracted @10%, provided capital gains in a Financial Year exceeds Rs 1 lakh.

Also read: Mutual Fund Taxation – How Mutual Fund Returns Are Taxed in India?

Closing Thoughts

If you lack both time and knowledge for Stock Market investing, you can invest your money in the Stock Market via Mutual Funds. For investing in Mutual Funds, you require making use of SIPs, STPs, and SWPs in any phase of your investment journey.

When you earn regular income in our life, investing in Mutual Funds via SIPs seems ideal. As per changing market circumstances, you can set up STPs to maximize your returns by minimizing your corpus loss. SWPs usually come in the picture when you stop earning income actively and looking for a passive source of regular income for the rest of your life.

Mutual Fund is a great investment option for growing your long term wealth. The systematic arrangement of your investments and withdrawals in the form of SIPs, STPs and SWPs help you live a financially disciplined life.

May 1, 2019 Investment Basics, Mutual Funds No comments yet
balanced mutual fund cover

Why You Should Invest in Balanced Mutual Fund?

The Balanced Mutual Fund is a type of Equity Mutual Fund which combines the feature of both equity and debt in a single instrument. It means that the money pooled from the unitholders are invested both in debt and equity instruments.

However, the equity element in the underlying portfolio of a Balanced Fund should consist of at least 65% of the entire assets under management. The rest portion of the portfolio can consist of debt instruments and cash in hand. In general, the exposure in equity can range from 65% to 85% and is dependent on the market condition and the fund manager’s investing philosophy.

Through a balanced mutual fund, the fund manager tries to achieve portfolio diversification within a single product. The main aim here is to increase portfolio returns by managing financial risks along with maintaining the stability of the fund.

Quick Note: You can read more about Debt Funds and Equity Funds on our website here:

Why You Should Invest in Balanced Mutual Fund?

Risk management:

A Balanced Fund comes with a mix debt-equity portfolio. As stated earlier, a substantial portion of the assets consists of equity instruments and the rest in debts. However, if the stock market returns declines, the loss on equity portfolio can be absorbed by the debts. For example, if the stock market witnessed a drop by 10%, considering your Balanced Fund is having only 65% equity exposure, your portfolio will only get reduced by 6.5%. Moreover, here the debt instruments might help you to constrain the market risks.

Asset allocation:

It takes a significant amount of corpus to create a well-diversified portfolio consisting of both equities and debts. Therefore, if you are looking to create a risk-adjusted portfolio by allocating your savings in both these assets individually, it may demand a huge amount of capital.

However, if you invest in the market through a Balanced Fund, not only your money gets spread across diverse stocks but you can also enjoy a sound equity-debt mix at a lower corpus. Taking positions in equity through Balanced Funds will not only help you grow your wealth but also reduce the fund volatility to a minimum.

balanced funds. market movements-min

(Image Credits: Sanasecurities)

Taxation:

Balanced Funds have a considerable amount of debt instruments in their underlying portfolio. But, they are taxed by the Indian Government as per equity instruments.

So, if you are redeeming your units within a year of investment, short term capital gain tax @ 15% is applicable. Otherwise, for the long-term capital gain, you are required to pay tax @ 10% if the gains exceed Rs 1 lakh. You can learn more regarding mutual fund taxation in India on our blog here. 

Switching Benefits:

Suppose you have a portfolio consisting of equity funds and debt schemes. Now, if you have to rebalance between debt and equity by mutual switching, this would cost you capital gains tax and probably exit load. However, if the fund Manager performs this activity, neither tax nor exit load is attracted on your account.

Overall, it looks relatively profitable to invest in debt and equity through a Balanced Fund than naturally creating a debt-equity mix by yourself.

Things to consider while picking a Balanced Mutual Fund

Your willingness to bear risk:

If you have a moderate risk profile, you can opt for a Balanced Fund. Balanced Fund is meant for providing equity allocation with stability support through debt securities. In case you are looking for a highly aggressive portfolio, you can consider investing in a small-cap or a mid-cap fund instead. On the other hand, if you are a high risk-averse investor, debt fund would be a more appropriate choice for you.

Performance of the fund: 

As a general rule, you should invest in a fund that has consistently beaten its peers and benchmarks over a significant period of time. Although, it may be possible that that fund performed well because it has taken comparatively more risks than its peers. However, you can’t ignore the fact that the fund’s splendid performance has occurred due to the effective asset allocation by its Fund Manager which should be considered as an advantage while investing in that fund.

The expense ratio of the fund:

The expense ratio of a Balanced Fund is the measure of the costs associated with carrying out the operation and management of the same. It is expressed as a percentage and in general, the expense ratio for an active fund can be between 1.5-2.5%. As a thumb rule, a lower expense ratio means more money in the bucket on the investors rather than the fund house. You should choose a particular scheme only after you have thoroughly compared its expense ratio with its peers.

Fund’s underlying portfolio:

As a prospective investor, you should have an overall idea of the stocks and bonds which constitute the portfolio of your fund.  The higher the quality of assets, the more is the probability of earning better returns on your investment. Therefore, always check the fund’s underlying portfolio before investing to understand a better picture.

Fund Manager’s history:

A fund which is managed by a series of Fund Managers over a considerable period of time should be less preferred compared to one which is managed for the long period by a single Fund Manager.

Further, you should also try to avoid a fund whose turnover ratio is on a higher side. Turnover ratio means the frequency of churning the underlying assets of the fund by the Fund Manager in a year. If the turnover ratio is too high, it means your cost of investing will be on a higher side too.

Here are a few other resources to read to get an in-depth knowledge of how to choose a Mutual Fund scheme:

Further, here is the list of a few best balanced mutual fund by Cleartax at the time of writing this article.best balanced mutual fund by groww

(Source: ClearTax)

Closing thoughts

You must have heard the famous dialogue “Mutual Fund investments are subject to market risks, please read all scheme related documents carefully before investing.” The said quote is not a joke but a serious disclaimer which needs to be strictly followed. Before you start off your investment journey, make sure that you have a basic understanding of the Financial Markets.

If you are a fresher in the field of equity investing, it is recommended to start your investing journey with Balanced Funds. Any person who is willing to invest in the equity market but at the same time seeking stability of his/her corpus should consider a Balanced Fund. For example, if you are a middle-aged person who is approaching retirement age, it is safer to opt for equity exposure through balanced Funds.

Investing in a Balanced Fund gives you the scope to enjoy the features of both debt and equity in one product. Moreover, here the job of fund allocation and timing of the market is in the safe hands i.e. Fund Manager of the Asset Management Company. Although, while investing in mutual funds, all you need to do is to simply stay invested and relax. However, here you also need to periodically monitor your portfolio and be active with your investments.

That’s all for this post. I hope you have understood the concept of the balanced mutual fund by now. Happy investing!

February 14, 2019 Mutual Funds No comments yet
What is XIRR in mutual funds and how to calculate it cover 2

What is XIRR in mutual funds and how to calculate it?

Last weekend, one of my friends, Monika, came to my house to meet me. She is an old friend and we met after a long time that day. She told me that she is currently working in an Indian FMCG company after having completed her MBA in HR last year. We discussed a lot about general stuff, our school days and the extent to which our lives have undergone changes over the last few years.

As our conversation gradually progressed, I came to know that she has recently started investing in the Mutual Funds. I remember that a year back, we discussed on a call regarding the importance of investing in Mutual Funds for creating wealth in the future. Ever since she got her job, I have been telling her to invest in the Mutual Funds which would ultimately help her to achieve her financial goals. And that’s why I felt really pleased to know that she has finally started taking her personal finance seriously.

Anyways, I was just taking a sip of coffee when all of a sudden, she fired a wonderful question at me. She asked me how could she correctly calculate how much returns she is making from her Mutual Fund investments. I must tell that most of us focus on the absolute returns that we are generating. Only a minority of the investing population emphasizes on the underlying mechanism to compute our returns in relative terms. And therefore, I found her question truly charming.

How to measure returns on your Mutual fund portfolio?

If you have invested your money in a variety of securities, it is logical to say that the computation of portfolio returns is indispensable for evaluating the performance of your investments. This is because once you know the performance of your portfolio, you can decide whether you want to invest more, continue investing, or redeem your investments.

There are primarily two ways of computing your portfolio returns.

The first one is ‘Simple Return’ or ‘Point to Point return’ method. In this method, you consider the starting value of your investment and the ending value. However, here you do not consider when you made such investments and when did you withdraw.

The other method is by calculating XIRR (extended internal rate of return) of your investment portfolio. It takes into consideration multiple investments and withdrawals occurred at different time intervals– between the first investment and the last redemption.

The former method can be easily applied only if you are investing in Mutual Funds on a lump sum basis. On the other hand, the XIRR method can be applied for lump sum investing and it is also extremely suitable if you have opted for Systematic Investment Plan (SIP).

Also read: SIP or Lump sum – Which one is better?

Simple Return or Point to Point return

Simple Return method gives the absolute return on your investment portfolio. This method only requires your initial Net Asset Value (NAV) and the present NAV. It can be calculated as:

Simple return

Now, sometimes it might be possible that your holding period may not be in a complete number (i.e. not perfectly a year). In that case, you can compute returns using this formula:

Annualized return

Further, instead of using the Simple Return method, one can also opt for the CAGR (Compound Annual Growth Rate) method. The latter works in a similar way and the result is the same too. The only difference is that, even if your investment time period is not perfect one year, it will still calculate your returns in a one step. The formula for CAGR is:

CAGR

Let us take an example to understand how the Simple Return Method works.

Imagine you have invested Rs. 1 lakh in a Mutual Fund scheme on February 23, 2017, when its NAV was Rs. 10. As of March 20, 2018, its NAV has spiked to Rs. 35.

In this case, Simple Return = {(35-10)/10} x 100 = 250%.

On the other hand, Simple Annualized Return = [{(1+2.5) ^ (365/390)}-1] x 100 = 323%

I hope the above example is clear to you. As we already discussed earlier that if you’re simply going to follow ‘buy and hold’ investing strategy, then the Simple Return method would work well for you.

I also explained the same to Monika that evening. However, later what I came to know was that she invests a portion of her salary in Mutual Funds via SIP route i.e. periodic investments. Moreover, she also said that she doesn’t necessarily invest at regular intervals every month. So naturally, she can not even use IRR method for calculating her returns here.

Also read; What is Internal Rate of Return (IRR)? And How Does it Works?

So as discussed previously, the XIRR method can be useful to calculate returns in her case. This is a method that you can use to compute returns on your investments when you are carrying out multiple transactions at diverse points of time.

Calculating returns using XIRR in Mutual Funds

While investing in mutual funds via SIP, you can make multiple investments at different points of time. Further, it might also happen that you redeem some of your units if you required some cash at any particular time. And that’s why I guess by now you would have understood that it is going to be a little tricky to calculate your returns when you are investing via SIPs.

In these cases, the XIRR approach is the most appropriate measurement of the returns that you make on your Mutual Fund investments. Now, let’s understand how you can make use of MS Excel to calculate XIRR

How to use MS Excel to calculate XIRR?

Microsoft Excel provides a financial function called XIRR which you can use to calculate your Mutual Fund portfolio’s rate of return. The expanded formula of XIRR formula in MS Excel is: “= XIRR (value, dates, guess)”

Let us now discuss the step by step process that you can follow to compute XIRR in Excel:

Step 1: Open MS Excel and enter the dates of your transactions in a single column.

Step 2: Go to the next column. Here you have to mention the figures of your cash flows (investments made, dividends received and redemption proceeds).

Date Transaction (Rs)
01/01/19 -5,000

Step 3: Go to the first column and mention the current date (just below the last date mentioned by you) and put the figure of your present value of Mutual Fund in the adjacent column corresponding to the date mentioned by you in the earlier step.

Date Transaction (Rs)
01/01/19 -6,000
04/02/19 -6,000
31/07/19 13,000
XIRR (%)  ?

Now you have to use the XIRR function [“= XIRR (value, dates, guess)”] in MS Excel to find the XIRR for your investments.

To perform the calculation, you have to first select the values which are the series of cash inflows and outflows. Then, you have to select the dates from the dates column. Finally, in the ‘guess’ parameter you may not select anything for it. If you keep it blank, MS Excel is going to use the default value which is 0.1 (10%).

Example to demonstrate the use of XIRR function in MS Excel:

Let us assume that you are going to make seven monthly SIPs of Rs 6000 each. The SIP dates start on 01/01/2019 and it ends on 01/07/2019. Let the date of redemption be 31/07/2019 and the maturity amount is ₹ 43000

You can write the data set on MS Excel in the following manner:

XIRR in excel

As you can see, in the table given above, your cash flows are taking place at different intervals. So, here, we have to use XIRR function for computing the rate of return as a net result of these receipts and payments.

Quick Note: Do not forget to put the ‘minus’ sign before the figures which represent an investment of money.

Now, in the first column i.e. B, please enter dates of transactions. After that, go to the adjacent column, i.e. C. Here, you have to enter the SIP figures of -6,000. Next, again, go to column B and put the redemption date. Against that date, put the redemption figure of 43,000 in Column C.

Next, go to the cell below where you have put 43,000. For calculating the required XIRR, type “=XIRR(C3:C10, B3:B10)” and press ‘Enter’ key on your keyboard. You will get XIRR as 7.84% which will be displayed as a result of this operation.

I used the same example on my laptop to explain the process of XIRR computation to Monika. By this time, she had understood how she can apply this technique in calculating the returns on her Mutual Fund investments. I hope this is also clear to you guys now.

So, what are you waiting for? Open MS Excel and try this function with hypothetical figures to calculate IRR. In case you are an active Mutual Fund investor, try calculating the XIRR of your current portfolio.

Closing Thoughts

In case, if you choose growth scheme Mutual Funds and plan your SIPs at regular intervals, you can definitely opt for the IRR (Internal Rate of Return) method to evaluate your returns. However, in reality, this might be a little difficult to execute. We don’t always follow the ‘buy and hold strategy’ in Mutual Fund investments. As our savings witness debits and credits off and on with regard to our mutual fund transactions, we have no other way but to apply XIRR in computing our returns on investments.

Furthermore, you can, of course, give importance to CAGR as this parameter is useful for you in making a selection of your Mutual Fund scheme. However, when it comes to evaluating your personal investment portfolio, it is XIRR which is always more helpful.

So, if you have a series of cash inflows and outflows occurred over time (which includes withdrawals, dividends, investments, and transfers), the best way of computing the rate of returns is by using XIRR. Through this article, we have tried to make you understand how XIRR works far better for computing returns of your Mutual Fund portfolio in comparison with IRR and CAGR.

Best wishes for your mutual fund investment journey. And happy investing!

January 23, 2019 Mutual Funds No comments yet
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