Though mutual funds have seen a dip in the net asset value (NAVs) in the last one week due to turmoil in the market, experts said investors should not panic and take a short-term view. With Indian economy expected to grow at 9%, MFs are capable of giving handsome return in medium to long term (three to five years), they added.
Almost all categories of funds have given good return in three to five years period (see chart). On an average, the diversified funds have given a compounded annual return of 48% till Thursday.
In last one week, till Thursday, diversified MFs average NAV has dipped by 15.18%. As sensex gained more than 1,100 points on Friday, it has offset a substantial portion of loss, CEO of a MF said.
During last five years, there were couple of occasions when the sensex fell by over 1000 points. Critics said party is over and investors should exit. But, those who remained invested reaped the benefit.
What happened on Monday and Tuesday , the CEO said, should be taken as an aberration and will be corrected in due course. This kind of situation should be taken as an opportunity to invest. Any investment at lower level will improve the return, he argued.
In three to five years, he said, fund would be able to give more than 20% per annum return. He cautioned that the high return of 49% in the last five years may not be replicated in the next five years as most of the hidden value of the stocks have already been realized. Therefore, he said that if India grows at 9%, there will be companies which will grow at around 25%. So, investors can still manage to earn an annualized return of around 25% to 30% in the medium to long term.
Showing posts with label mutual fund. Show all posts
Showing posts with label mutual fund. Show all posts
Monday, February 25, 2008
Sunday, February 3, 2008
Tips to investment from experts
Investment is an art. And not everybody has this skill. However, those who do not possess this skill, still need to make investments. The more you maximise the return by effectively utilising the money earned or saved by you, the better.
For those who do not possess this 'investment skill', there is a great route available -- mutual fund schemes. This is a different animal. A simple one, with lots of variety, it comes in all shapes and sizes to suit every investor's requirements.
In this article, without going into the basics of mutual funds, let me try and address some questions that investors have asked me at various points of time.
How long should I stay invested?
A typical quandary for most of the investors.
This is not just true of mutual funds, but in any other investment that involves a lot of volatility. Let me stick to mutual funds, though.
The longer you stay invested, the better. I would suggest a minimum tenure of 5 years for you to have a decent, steady return on your investment.
Well, it also matters what type of scheme you choose and when you invest. Even in mutual funds, the timing is important.
Just to cite an example, if you would have invested in a technology fund in 1998, you would have got yourself into a mess. But, if you would have invested in the same technology fund somewhere around 2002-03, you would have been better off.
The choice of right fund and right timing, therefore, is of essence.
Should I invest in growth or dividend option?
Some investors have this confusion as to which is best suited for their investment profile. Such confusion arises only because every investor worth her/his salt wants to maximise the return, ensure that the option is rightly chosen, and is also tax efficient.
If you plan to invest in an equity fund in the current scenario then capital gains in your hand is not taxable if you stay invested for more than a year. In the normal course, mutual fund investment should always be for the long term -- I would say, for 3-5 years. Therefore, you should look at investing in the growth option.
If your investment is into a debt product, you should invest in the dividend option. The dividend paid to the investor is tax free while the capital gain is taxable at 30 per cent for the short term and 20 per cent for the long term (plus surcharge and cess as applicable).
In case a dividend is paid to you, the scheme has to pay a dividend distribution tax of 12.5 per cent (plus surcharge and cess as applicable). In simple words, go for the growth option if you are investing in an equity scheme and dividend option for debt schemes.
The caveat still remains that it shall depend on the investor's tax bracket and income levels.
NFO or the existing fund?
The new fund offers (NFOs) are favourite for many investors. I cannot fathom why.
Given a situation where there is an NFO with the same objective of an existing fund, it is better to get exposed to the existing fund. As they say, `a known devil is better than an unknown angel'.
However, if there is a new theme that is being launched, it makes a lot of sense to invest in such a new theme.
Having said that, in case there is a fund launched by a fund house which is not known for its equity investment performance, and after some time another established fund house launches the same theme, it is advisable to take an exposure in the scheme of the established fund house instead of the existing one.
Therefore, such decisions are situational and there is no set formula for the same. Still, it is all a game of asset allocation.
NAV of Rs 10 or Rs 175?
Frankly, such a dilemma is unnecessary.
The net asset value, NAV, of a mutual fund scheme has no say in the returns that you receive. If the return of a fund is 40 per cent then the NAV of your fund should not matter. Be its NAV Rs 10 or Rs 200.
By that I mean that an investor A who has invested at an NAV of Rs 10 will get a return of Rs 4 per unit and the other investor B could get a return of Rs 80 per unit. But the catch is in the number of units that the investor gets. Investor A will get 1,000 units (on an investment of Rs 10,000) and investor B will get only 50 units.
Thus, the return would be Rs 4,000 for both the investors. It is as simple as this.
Should I invest in an ULIP or a mutual fund scheme?
Unit linked insurance policy, ULIP, and mutual fund schemes are different set of investments. First and foremost, your objective should be clear. Do you want an insurance cover or do you want to earn money on your investment?
My view is that you cannot mix both. With the same outflow, it would be better to take a term policy (lower premium, higher cover) and have an SIP in a good mutual fund scheme for the period of your insurance (normally 15-18 years).
You would probably make much better return in this combination than investing in an ULIP.
How do I time the market?
Even the well-known stock market legends cannot accurately time the market.
The philosophy goes 'buy low sell high'. While it is great as a philosophy, in practice it is not possible to consistently do it. That is why, for those who are risk-averse, there is this excellent facility called the systematic investment plan, SIP, and the systematic transfer plan, STP. Also, rupee cost averaging will work very well for you if you invest consistently.
Currently, there are funds that offer weekly transfer plan under STP. I am waiting for the day when mutual funds will offer daily STP that could play wonders for rupee cost averaging.
Sunday, January 20, 2008
SIP - A Smart way to investment
What's a mutual fund SIP?Rachna C November 09, 2005 09:45 IST
What type of a mutual fund is a SIP?"
I was taken aback by this question before I realised?the person posing it thought?a SIP was a type of mutual fund.
Unfortunately, many new?investors seem to be under this misconception.
A Systematic Investment Plan is not a type of mutual fund. It is a method of investing in a mutual fund.
Here's to coming to terms with it.
How you can invest in a mutual fund
There are two ways in which you can invest in a mutual fund.
1. A one-time outright payment
If you invest directly in the fund, you just hand over the cheque and you get your fund units depending on the value of the units on that particular day.
Let's say you want to invest Rs 10,000. All you have to do is approach the fund and buy units worth Rs 10,000. There will be two factors determining how many units you get.
Entry load
This is the fee you pay on the amount you invest. Let's say the entry load is 2%. Two percent on Rs 10,000* would Rs 200. Now, you have just Rs 9,800 to invest.
NAV
The Net Asset Value is the price of a unit of a fund. Let's say that the NAV on the day you invest is Rs 30.
So you will get 326.67 units (Rs 9800 / 30).
2. Periodic investments
This is referred to as a SIP.
That means that, every month, you commit to investing, say,?Rs 1,000 in your fund. At the end of?a year, you would have invested Rs 12,000 in your fund.
Let's say?the NAV on the day you invest in the first month is Rs 20; you will get 50 units.
The next month, the NAV is Rs 25. You will get 40 units.
The following month, the NAV is Rs 18. You will get 55.56 units.
So, after three months, you would have 145.56 units. On an average, you would have paid around Rs 21 per unit. This is because, when the NAV is high, you get fewer units per Rs 1,000. When the NAV falls, you get more units per Rs 1,000.
Here are some FAQs on the SIP
1. Is there a load?
An exit load is a fee you pay the fund when you sell the units, just like the entry load is a fee you pay when you buy the units.
Initially, funds never charged an entry load on SIPs. Now, however,?a number of them do.
You will also have the check if there is an exit load. Generally, though, there is none. Also, if there is an entry load,?an exit load will not be charged.
An exit load may be charged if you stop the SIP mid-way. Let's say you have a one-year SIP but discontinue after five months, then an exit load will?be levied. These conditions?will wary between mutual funds. ?
2. What is the minimum investment?
If you do a one time investment,?the minimum amount that you?have to invest is Rs 5,000.
If you invest via an SIP, the amount drops. Each fund?has their own minimum amount. Some may keep it at least Rs 500 per month, others may keep it as Rs 1,000.
3. How often does one have to invest?
It would depend on the fund.
Some insist?the SIP must be done every month. Others?give you the?option of investing once in three months or once in six months.
They also give fixed dates. So you will get the option of various dates and you will have to choose one. Let's say you are presented with these dates: 1, 10, 20 or 30. You can pick any one date.
If you pick the 10th of the month, then on that day,?the amount you have decided to invest in the fund has to be?credited to your mutual fund.
4. How must the payment be made?
You can opt for the Electronic Clearance Service from your bank; this means the mutual fund will, as per your instructions, debit a certain amount from your account every month.
Let's say you have a SIP of Rs 1,000 every month and you have chosen to invest in it on the 10th of every month. Under this option, you can instruct your mutual fund to directly debit your?bank account of Rs 1,000 on the due date.
If you don't have the required money in your account, then for that month, no units will be allocated to you. But, if this continues periodically, the mutual fund will discontinue the SIP. You need to check with each mutual fund what their parameters are.
Alternately, you can?give cheques to your mutual fund. In this case, they may ask for five Post Dated Cheques upfront with your first investment.
Since these cheques are?dated ahead of time, they cannot be processed till the date indicated.
5. Must I state for how long I want the SIP?
Yes. You will have to state whether you want it for a year or two years, etc. If, during the course of this period, you realise you cannot continue with the SIP, all you have to do is inform the fund 15 days prior to the payout.
The SIP?will be discontinued. You can continue to keep your money with the fund and withdraw it when you want.?
6. Do all funds offer SIP?
No. Liquid funds, cash funds and floating rate debt funds do not offer an SIP. These are funds that invest in very short-term fixed-return investments. Floating rate debt funds invest in fixed return investments where the interest rate moves in tandem with interest rates in the economy (just like a floating rate home loan).
All types of equity funds (funds that invest in the shares of companies), debt funds (funds that invest in fixed-return investments) and balanced funds (funds that invest in both) offer a SIP.
7. Tax implications
Let's say you have invested in the SIP option of a diversified equity fund.
If you sell the units after a year of buying, you pay no capital gains tax. If you sell if before a year, you pay capital gains tax of 10%.
Let's say you invest through?a SIP for 12 months: January to December 2005. Now, in February 2006, you want to sell some units.
Will you be charged capital gains tax?
The system of first-in, first-out applies here. So, the amount you invest in January 2005 and the units you bought with that money, will be regarded as the units you sell in February 2006.
For tax purposes, the units that you sell first will be considered as the first units bought.
8. How will an SIP help?
When you buy the units of a fund, you may do so when the NAV is really high. For instance, let's say you bought the units of a fund when the bull run was at its peak, leading to a high NAV. ?
If the market dips after that, the value of your investments falls and you may have to wait for a long while to make a return on your investment. But, if you invest via a SIP, you do not commit the error of buying units when the market is at its peak. Since you are buying?small amounts continuously, your investment will average out over a period of time.
You will end up buying some units at a high cost and some units a lower price. Over time, your chances of making a profit are much higher when compared to an one-time investment.
What type of a mutual fund is a SIP?"
I was taken aback by this question before I realised?the person posing it thought?a SIP was a type of mutual fund.
Unfortunately, many new?investors seem to be under this misconception.
A Systematic Investment Plan is not a type of mutual fund. It is a method of investing in a mutual fund.
Here's to coming to terms with it.
How you can invest in a mutual fund
There are two ways in which you can invest in a mutual fund.
1. A one-time outright payment
If you invest directly in the fund, you just hand over the cheque and you get your fund units depending on the value of the units on that particular day.
Let's say you want to invest Rs 10,000. All you have to do is approach the fund and buy units worth Rs 10,000. There will be two factors determining how many units you get.
Entry load
This is the fee you pay on the amount you invest. Let's say the entry load is 2%. Two percent on Rs 10,000* would Rs 200. Now, you have just Rs 9,800 to invest.
NAV
The Net Asset Value is the price of a unit of a fund. Let's say that the NAV on the day you invest is Rs 30.
So you will get 326.67 units (Rs 9800 / 30).
2. Periodic investments
This is referred to as a SIP.
That means that, every month, you commit to investing, say,?Rs 1,000 in your fund. At the end of?a year, you would have invested Rs 12,000 in your fund.
Let's say?the NAV on the day you invest in the first month is Rs 20; you will get 50 units.
The next month, the NAV is Rs 25. You will get 40 units.
The following month, the NAV is Rs 18. You will get 55.56 units.
So, after three months, you would have 145.56 units. On an average, you would have paid around Rs 21 per unit. This is because, when the NAV is high, you get fewer units per Rs 1,000. When the NAV falls, you get more units per Rs 1,000.
Here are some FAQs on the SIP
1. Is there a load?
An exit load is a fee you pay the fund when you sell the units, just like the entry load is a fee you pay when you buy the units.
Initially, funds never charged an entry load on SIPs. Now, however,?a number of them do.
You will also have the check if there is an exit load. Generally, though, there is none. Also, if there is an entry load,?an exit load will not be charged.
An exit load may be charged if you stop the SIP mid-way. Let's say you have a one-year SIP but discontinue after five months, then an exit load will?be levied. These conditions?will wary between mutual funds. ?
2. What is the minimum investment?
If you do a one time investment,?the minimum amount that you?have to invest is Rs 5,000.
If you invest via an SIP, the amount drops. Each fund?has their own minimum amount. Some may keep it at least Rs 500 per month, others may keep it as Rs 1,000.
3. How often does one have to invest?
It would depend on the fund.
Some insist?the SIP must be done every month. Others?give you the?option of investing once in three months or once in six months.
They also give fixed dates. So you will get the option of various dates and you will have to choose one. Let's say you are presented with these dates: 1, 10, 20 or 30. You can pick any one date.
If you pick the 10th of the month, then on that day,?the amount you have decided to invest in the fund has to be?credited to your mutual fund.
4. How must the payment be made?
You can opt for the Electronic Clearance Service from your bank; this means the mutual fund will, as per your instructions, debit a certain amount from your account every month.
Let's say you have a SIP of Rs 1,000 every month and you have chosen to invest in it on the 10th of every month. Under this option, you can instruct your mutual fund to directly debit your?bank account of Rs 1,000 on the due date.
If you don't have the required money in your account, then for that month, no units will be allocated to you. But, if this continues periodically, the mutual fund will discontinue the SIP. You need to check with each mutual fund what their parameters are.
Alternately, you can?give cheques to your mutual fund. In this case, they may ask for five Post Dated Cheques upfront with your first investment.
Since these cheques are?dated ahead of time, they cannot be processed till the date indicated.
5. Must I state for how long I want the SIP?
Yes. You will have to state whether you want it for a year or two years, etc. If, during the course of this period, you realise you cannot continue with the SIP, all you have to do is inform the fund 15 days prior to the payout.
The SIP?will be discontinued. You can continue to keep your money with the fund and withdraw it when you want.?
6. Do all funds offer SIP?
No. Liquid funds, cash funds and floating rate debt funds do not offer an SIP. These are funds that invest in very short-term fixed-return investments. Floating rate debt funds invest in fixed return investments where the interest rate moves in tandem with interest rates in the economy (just like a floating rate home loan).
All types of equity funds (funds that invest in the shares of companies), debt funds (funds that invest in fixed-return investments) and balanced funds (funds that invest in both) offer a SIP.
7. Tax implications
Let's say you have invested in the SIP option of a diversified equity fund.
If you sell the units after a year of buying, you pay no capital gains tax. If you sell if before a year, you pay capital gains tax of 10%.
Let's say you invest through?a SIP for 12 months: January to December 2005. Now, in February 2006, you want to sell some units.
Will you be charged capital gains tax?
The system of first-in, first-out applies here. So, the amount you invest in January 2005 and the units you bought with that money, will be regarded as the units you sell in February 2006.
For tax purposes, the units that you sell first will be considered as the first units bought.
8. How will an SIP help?
When you buy the units of a fund, you may do so when the NAV is really high. For instance, let's say you bought the units of a fund when the bull run was at its peak, leading to a high NAV. ?
If the market dips after that, the value of your investments falls and you may have to wait for a long while to make a return on your investment. But, if you invest via a SIP, you do not commit the error of buying units when the market is at its peak. Since you are buying?small amounts continuously, your investment will average out over a period of time.
You will end up buying some units at a high cost and some units a lower price. Over time, your chances of making a profit are much higher when compared to an one-time investment.
Monday, January 14, 2008
Personalized Financial Advisory Services
Welcome to Kathir Capital
Kathir capital aims at providing you the best of financial advisory at FREE of cost.
Services offered:
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EXISTING BEST NEW FUND OFFER:
Reliance Natural Resources Fund
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Closing On: Jan 31 2008
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9894827929
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INDEPENDENT FINANCIAL ADVISERS.
EXISTING BEST NEW FUND OFFER:
Reliance Natural Resources Fund
Unit Price : Rs:10/- During NFO
Closing On: Jan 31 2008
For more information contact:
Kathirvel Murugan R
9894827929
we will rush you with application form.
Proof required:
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