Let's assume that Mr. Gupta has purchased Mutual Fund units worth Rs. 10,000 at an NAV of Rs. 10 per unit on February 1. The Entry Load on the Mutual Fund was 2%. On September 15, he sold all the units at an NAV of Rs 20. The exit load was 0.5%.
His growth/ returns is calculated as under:
1. Calculation of Applicable NAV and No. of units purchased:
(a) Amount of Investment = Rs. 10,000
(b) Market NAV = Rs. 10
(c) Entry Load = 2% = Rs. 0.20
(d) Applicable NAV (Purchase Price) = (b) + (c) = Rs. 10.20
(e) Actual Units Purchased = (a) / (d) = 980.392 units
2. Calculation of NAV at the time of Sale
(a) NAV at the time of Sale = Rs 20
(b) Exit Load = 0.5% or Rs.0.10
(c) Applicable NAV = (a) – (b) = Rs. 19.90
3. Returns/Growth on Mutual Funds
(a) Applicable NAV at the time of Redemption = Rs. 19.90
(b) Applicable NAV at the time of Purchase = Rs. 10.20
(c) Growth/ Returns on Investment = {(a) – (b)/(b) * 100} = 95.30%
Friday, November 14, 2008
How to choose the right mutual fund?
How to choose the right Mutual Fund scheme
Once you are comfortable with the basics, the next step is to understand your investment choices, and draw up your investment plan relevant to your requirements. Choosing your investment mix depends on factors such as your risk appetite, time horizon of your investment, your investment objectives, age, etc.
What should be kept in mind before investing in Mutual Funds ?
Mutual Fund investment decisions require consistent effort on the part of the investor. Before investing in Mutual Funds, the following steps must be given due weightage to decide on the right type of scheme:
1. Identifying the Investment Objective
2. Selecting the right Scheme Category
3. Selecting the right Mutual Fund
4. Evaluating the Portfolio
A) Identifying the Investment Objective
Your financial goals will vary, based on your age, lifestyle, financial independence, family commitments, level of income and expenses, among many other factors. Therefore, the first step is to assess you needs. Begin by asking yourself these simple questions:
Why do I want to invest?
The probable answers could be:
"I need a regular income"
"I need to buy a house/finance a wedding"
"I need to educate my children," or
A combination of all the above
How much risk am I willing to take?
The risk-taking capacity of individuals vary depending on various factors. Based on their risk bearing capacity, investors can be classified as:
Very conservative
Conservative
Moderate
Aggressive
Very Aggressive
To ascertain your risk appetite, try out our Risk Thermometer.
What are my cash flow requirements?
For example, you may require:
A regular Cash Flow
A lumpsum after a fixed period of time for some specific need in the future
Or, you may have no need for cash, but you may want to create fixed assets for the future
B) Selecting the scheme category
The next step is to select a scheme category that matches your investment objectives:
For Capital Appreciation go for equity sectoral funds, equity diversified funds or balanced funds.
For Regular Income and Stability you should opt for income funds/MIPs
For Short-Term Parking of Funds go for liquid funds, floating rate funds, short-term funds.
For Growth and Tax Savings go for Equity-Linked Savings Schemes.
C) Selecting the right Mutual fund
Once you have a clear strategy in mind, you now have to choose which Mutual fund and scheme you want to invest in. The offer document of the scheme tells you its objectives and provides supplementary details like the track record of other schemes managed by the same Fund Manager. Some important factors to evaluate before choosing a particular Mutual Fund are:
The track record of performance over that last few years in relation to the appropriate yardstick and similar funds in the same category.
How well the Mutual Fund is organized to provide efficient, prompt and personalized service.
The degree of transparency as reflected in frequency and quality of their communications.
D) Evaluation of portfolio
Evaluation of equity fund involve analysis of risk and return, volatility, expense ratio, fund manager's style of investment, portfolio diversification, fund manager's experience. Good equity fund should provide consistent returns over a period of time. Also expense ratio should be within the prescribed limits. These days fund house charge around 2.50% as management fees.
Evaluation of bond funds involve it's assets allocation analysis, return's consistency, it's rating profile, maturity profile, and its performance over a period of time. The bond fund with ideal mix of corporate debt and gilt fund should be selected.
Once you are comfortable with the basics, the next step is to understand your investment choices, and draw up your investment plan relevant to your requirements. Choosing your investment mix depends on factors such as your risk appetite, time horizon of your investment, your investment objectives, age, etc.
What should be kept in mind before investing in Mutual Funds ?
Mutual Fund investment decisions require consistent effort on the part of the investor. Before investing in Mutual Funds, the following steps must be given due weightage to decide on the right type of scheme:
1. Identifying the Investment Objective
2. Selecting the right Scheme Category
3. Selecting the right Mutual Fund
4. Evaluating the Portfolio
A) Identifying the Investment Objective
Your financial goals will vary, based on your age, lifestyle, financial independence, family commitments, level of income and expenses, among many other factors. Therefore, the first step is to assess you needs. Begin by asking yourself these simple questions:
Why do I want to invest?
The probable answers could be:
"I need a regular income"
"I need to buy a house/finance a wedding"
"I need to educate my children," or
A combination of all the above
How much risk am I willing to take?
The risk-taking capacity of individuals vary depending on various factors. Based on their risk bearing capacity, investors can be classified as:
Very conservative
Conservative
Moderate
Aggressive
Very Aggressive
To ascertain your risk appetite, try out our Risk Thermometer.
What are my cash flow requirements?
For example, you may require:
A regular Cash Flow
A lumpsum after a fixed period of time for some specific need in the future
Or, you may have no need for cash, but you may want to create fixed assets for the future
B) Selecting the scheme category
The next step is to select a scheme category that matches your investment objectives:
For Capital Appreciation go for equity sectoral funds, equity diversified funds or balanced funds.
For Regular Income and Stability you should opt for income funds/MIPs
For Short-Term Parking of Funds go for liquid funds, floating rate funds, short-term funds.
For Growth and Tax Savings go for Equity-Linked Savings Schemes.
C) Selecting the right Mutual fund
Once you have a clear strategy in mind, you now have to choose which Mutual fund and scheme you want to invest in. The offer document of the scheme tells you its objectives and provides supplementary details like the track record of other schemes managed by the same Fund Manager. Some important factors to evaluate before choosing a particular Mutual Fund are:
The track record of performance over that last few years in relation to the appropriate yardstick and similar funds in the same category.
How well the Mutual Fund is organized to provide efficient, prompt and personalized service.
The degree of transparency as reflected in frequency and quality of their communications.
D) Evaluation of portfolio
Evaluation of equity fund involve analysis of risk and return, volatility, expense ratio, fund manager's style of investment, portfolio diversification, fund manager's experience. Good equity fund should provide consistent returns over a period of time. Also expense ratio should be within the prescribed limits. These days fund house charge around 2.50% as management fees.
Evaluation of bond funds involve it's assets allocation analysis, return's consistency, it's rating profile, maturity profile, and its performance over a period of time. The bond fund with ideal mix of corporate debt and gilt fund should be selected.
Types of funds
There are a wide variety of Mutual Fund schemes that cater to your needs, whatever your age, financial position, risk tolerance and return expectation. Whether as the foundation of your investment program or as a supplement, Mutual Fund schemes can help you meet your financial goals. The different types of Mutual Funds are as follows:
Diversified Equity Mutual Fund Scheme
A mutual fund scheme that achieves the benefits of diversification by investing in the stocks of companies across a large number of sectors. As a result, it minimizes the risk of exposure to a single company or sector.
Sectoral Equity Mutual Fund Scheme
A mutual fund scheme which focuses on investments in the equity of companies across a limited number of sectors -- usually one to three.
Index Funds
These funds invest in the stocks of companies, which comprise major indices such as the BSE Sensex or the S&P CNX Nifty in the same weightage as the respective indice.
Equity Linked Tax Saving Schemes (ELSS)
Mutual Fund schemes investing predominantly in equity, and offering tax deduction to investors under section 80 C of the Income Tax Act. Currently rebate u/s 80C can be availed up to a maximum investment of Rs 1,00,000. A lock-in of 3 years is mandatory.
Monthly Income Plan Scheme
A mutual fund scheme which aims at providing regular income (not necessarily monthly, don't get misled by the name) to the unitholder, usually by way of dividend, with investments predominantly in debt securities (upto 95%) of corporates and the government, to ensure regularity of returns, and having a smaller component of equity investments (5% to 15%)to ensure higher return.
Income schemes
Debt oriented schemes investing in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments.
Floating-Rate Debt Fund
A fund comprising of bonds for which the interest rate is adjusted periodically according to a predetermined formula, usually linked to an index.
Gilt Funds - These funds invest exclusively in government securities.
Balanced Funds
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. They generally invest 40-60% in equity and debt instruments.
Fund of Funds
A Fund of Funds (FoF) is a mutual fund scheme that invests in other mutual fund schemes. Just as fund invests in stocks or bonds on your behalf, a FoF invests in other mutual fund schemes.
Diversified Equity Mutual Fund Scheme
A mutual fund scheme that achieves the benefits of diversification by investing in the stocks of companies across a large number of sectors. As a result, it minimizes the risk of exposure to a single company or sector.
Sectoral Equity Mutual Fund Scheme
A mutual fund scheme which focuses on investments in the equity of companies across a limited number of sectors -- usually one to three.
Index Funds
These funds invest in the stocks of companies, which comprise major indices such as the BSE Sensex or the S&P CNX Nifty in the same weightage as the respective indice.
Equity Linked Tax Saving Schemes (ELSS)
Mutual Fund schemes investing predominantly in equity, and offering tax deduction to investors under section 80 C of the Income Tax Act. Currently rebate u/s 80C can be availed up to a maximum investment of Rs 1,00,000. A lock-in of 3 years is mandatory.
Monthly Income Plan Scheme
A mutual fund scheme which aims at providing regular income (not necessarily monthly, don't get misled by the name) to the unitholder, usually by way of dividend, with investments predominantly in debt securities (upto 95%) of corporates and the government, to ensure regularity of returns, and having a smaller component of equity investments (5% to 15%)to ensure higher return.
Income schemes
Debt oriented schemes investing in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments.
Floating-Rate Debt Fund
A fund comprising of bonds for which the interest rate is adjusted periodically according to a predetermined formula, usually linked to an index.
Gilt Funds - These funds invest exclusively in government securities.
Balanced Funds
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. They generally invest 40-60% in equity and debt instruments.
Fund of Funds
A Fund of Funds (FoF) is a mutual fund scheme that invests in other mutual fund schemes. Just as fund invests in stocks or bonds on your behalf, a FoF invests in other mutual fund schemes.
Why choose mutual funds?
Investing in Mutual Funds offers several benefits:
Professional expertise: Fund managers are professionals who track the market on an on-going basis. With their mix of professional qualification and market knowledge, they are better placed than the average investor to understand the markets
Diversification: Since a Mutual Fund scheme invests in number of stocks and/or debentures, the associated risks are greatly reduced.
Relatively less expensive: When compared to direct investments in the capital market, Mutual Funds cost less. This is due to savings in brokerage costs, demat costs, depository costs etc.
Liquidity: Investments in Mutual Funds are completely liquid and can be redeemed at their Net Assets Value-related price on any working day.
Transparency: You will always have access to up-to-date information on the value of your investment in addition to the complete portfolio of investments, the proportion allocated to different assets and the fund manager's investment strategy.
Flexibility: Through features such as Systematic Investment Plans, Systematic Withdrawal Plans and Dividend Investment Plans, you can systematically invest or withdraw funds according to your needs and convenience.
SEBI regulated market: All Mutual Funds are registered with SEBI and function within the provisions and regulations that protect the interests of investors. AMFI is the supervisory body of the Mutual Funds industry.
Professional expertise: Fund managers are professionals who track the market on an on-going basis. With their mix of professional qualification and market knowledge, they are better placed than the average investor to understand the markets
Diversification: Since a Mutual Fund scheme invests in number of stocks and/or debentures, the associated risks are greatly reduced.
Relatively less expensive: When compared to direct investments in the capital market, Mutual Funds cost less. This is due to savings in brokerage costs, demat costs, depository costs etc.
Liquidity: Investments in Mutual Funds are completely liquid and can be redeemed at their Net Assets Value-related price on any working day.
Transparency: You will always have access to up-to-date information on the value of your investment in addition to the complete portfolio of investments, the proportion allocated to different assets and the fund manager's investment strategy.
Flexibility: Through features such as Systematic Investment Plans, Systematic Withdrawal Plans and Dividend Investment Plans, you can systematically invest or withdraw funds according to your needs and convenience.
SEBI regulated market: All Mutual Funds are registered with SEBI and function within the provisions and regulations that protect the interests of investors. AMFI is the supervisory body of the Mutual Funds industry.
What are mutual funds?
We have been discussing about mutual funds for long time.
But its time to get strong with fundamentals of mutualfund ,
for better understanding.
Mutual Funds are among the hottest favourites with all types of investors. Investing in mutual funds ranks among one of the preferred ways of creating wealth over the long term. In fact, mutual funds represent the hands-off approach to entering the equity market. There are a wide variety of mutual funds that are viable investment avenues to meet a wide variety of financial goals. This section explains the various aspects of Mutual Funds.
But its time to get strong with fundamentals of mutualfund ,
for better understanding.
Mutual Funds are among the hottest favourites with all types of investors. Investing in mutual funds ranks among one of the preferred ways of creating wealth over the long term. In fact, mutual funds represent the hands-off approach to entering the equity market. There are a wide variety of mutual funds that are viable investment avenues to meet a wide variety of financial goals. This section explains the various aspects of Mutual Funds.
MF NAVs end with negative returns
Equity diversified NAVs continued to remain under pressure and ended lower with negative advance:decline ratio of 4:213 as markets closed deep in the red amid extreme choppiness. Both the benchmark indices --Sensex and Nifty -- slipped below their psychological 9,500 and 2,800 mark respectively. All the sectoral indices closed in the red with realty, banking, metal, capital goods, oil and gas, and power seeing heavy selling pressure.
The Sensex was down 303 points or 3.08% at 9536.33, and the Nifty down 90.20 points or 3.07% at 2848.45.
Among the equity diversified funds, the top gainers were Tata Growing Economies Infrastructure Fund - Plan A (G)
up 2.14%, Franklin Asian Equity Fund (G) up 0.69% and Escorts Growth Plan (G) up 0.39%. The top losers were JM Small & Mid-Cap Fund - Regular Plan (G) down 3.76%, LIC MF Equity Fund (G) down 3.51% and SBI Infrastructure Fund - Series I (G) down .49%.
Among the tax saving funds, the top losers were JM Equity Tax Saver Fund - Series I (G) down 4.05%, JM Tax Gain Fund (G) down 3.38% and Sundaram BNP Paribas Tax Saver (OE) (G) down 3.23%.
Among the sector funds, the top losers were Lotus India Banking Fund - Retail Plan (G) up 3.58%, JM Basic Fund (G) up 3.48% and Sundaram BNP Paribas Select Thematic Energy Opportunities Funds (G) up 3.44%.
Among the balanced funds, the only gainer was Escorts Opportunities Fund (G) up 0.41%. The top losers were Sundaram BNP Paribas Balanced Fund (G) down 2.52%, ING Balanced Portfolio (G) down 2.31% and ICICI Pru Child Care Plan - Gift Plan down 2.14%.
The Sensex was down 303 points or 3.08% at 9536.33, and the Nifty down 90.20 points or 3.07% at 2848.45.
Among the equity diversified funds, the top gainers were Tata Growing Economies Infrastructure Fund - Plan A (G)
up 2.14%, Franklin Asian Equity Fund (G) up 0.69% and Escorts Growth Plan (G) up 0.39%. The top losers were JM Small & Mid-Cap Fund - Regular Plan (G) down 3.76%, LIC MF Equity Fund (G) down 3.51% and SBI Infrastructure Fund - Series I (G) down .49%.
Among the tax saving funds, the top losers were JM Equity Tax Saver Fund - Series I (G) down 4.05%, JM Tax Gain Fund (G) down 3.38% and Sundaram BNP Paribas Tax Saver (OE) (G) down 3.23%.
Among the sector funds, the top losers were Lotus India Banking Fund - Retail Plan (G) up 3.58%, JM Basic Fund (G) up 3.48% and Sundaram BNP Paribas Select Thematic Energy Opportunities Funds (G) up 3.44%.
Among the balanced funds, the only gainer was Escorts Opportunities Fund (G) up 0.41%. The top losers were Sundaram BNP Paribas Balanced Fund (G) down 2.52%, ING Balanced Portfolio (G) down 2.31% and ICICI Pru Child Care Plan - Gift Plan down 2.14%.
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