Mutual Fund in Detail - 4

This is in continuation to mutual fund myths which we had seen in the last series

Market is at peak, how to time it?

When you have decided to invest, no need to wait for the market to come down, you can invest monthly thru Systematic Investment Plan. In this option monthly you will pay regularly on a day for buying your units, as you buy every month you will get the benefit of Rupee averaging and reduction in risk considerably. In the long run, say in a year or so you will have some good returns even the market returns are flat. When the market goes up your portfolio will multiply in the equal amount. So have long investment horizon and invest regularly, market will reach its new peak on its own.

How much is needed to invest?

You can invest as low as few hundred’s in some of the micro SIP’s available. So the purpose of mutual fund is to make you invest continuously over a period of time. So over the period of years you would have generated few thousands in your corpus without much fuss.

Should I invest with fund with lower NAV’s?

This simply comes down to a subconscious movement towards what seems to be cheaper. But the fact is that what matters is the percentage return on invested funds. For example, given a similar performance level of 10% appreciation, a Rs. 10 NAV will rise to Rs. 11 whereas a fund with a NAV of Rs. 200 will rise to Rs. 220. The reality is, due to an already demonstrated performance, the chance of the Rs. 200 scheme posting the 10% appreciation is higher than the one that has just started its journey. So instead of concentrating on a “low” NAV and more number of units, it is worthwhile to consider other factors like the performance track record, fund management and volatility that determine the portfolio return.

Demat Account

Demat account is not compulsory for investing in mutual funds, it is an option were people can have consolidated portfolio of all the mutual fund units and shares in a single place. You can very much buy the mutual funds from the intermediaries like your financial advisor, mutual fund distributor or even buy online from the fund you have chosen.

In this series tried to bust some of the common mutual fund myths that may be stop you from investing in mutual funds, so choose the best and invest continuously to reap the benefits of money compounding in long term.

Mutual Fund in Detail - 3

                            

In this mutual fund series you have seen the types of mutual funds available in the market and the returns it generates. Now we can see the myths surrounding the mutual fund investments. It is normal that when we go to a new place we tend to be very cautious as everything is new and try to avoid us being in unwanted circumstances. Just like clouds will not turn into rain all the time, all the myths may not be true or all are just fear and the rumors spread from one to the other.

 Investment is a big word and I can’t afford 

Investment is just as simple as putting your money into an avenue which will increase your value. Most of you would have heard that Mukesh Ambani of Reliance Industries have invested close to 4G 70,000 crore which will increase the footprint of reliance in telecom space. When you compare investments with this scale it is utter rubbish. Reliance would have funded partly from their existing cash reserves and most of the money would have come from debt rising from various investors across the world. They may be able to generate income in the immediate future for the risk they are taking at present. You don’t have a brand value and it is difficult to raise money when you are in need for your vacation, for buying home, for your retirement, for your child education and for all the unexpected reasons.  All loans will be given only when you have collateral so it will cease if you fail to pay.

So investment for you means allocating part of your income in correct avenue so that your money value increases.

No idea on Mutual fund, should I go for it?

Now if the first hiccup of allocating funds in the name of investment is decided then you need to cross the next huddle of finding the correct avenue for investment. You have seen the different types of mutual funds based on the risk taking ability in the previous topic in this series itself. In some of the cases you may be tempted to go for mutual funds and after getting details from your financial advisor you will get a fear of losing your money in the last minute.

Mutual funds are for the one who doesn’t have knowledge on share market, fund manager for that particular fund will have the headache to get the right stocks and show better performance every month. As you have somebody to choose the best options you can invest blindfolded if you have chosen the right scheme.

Do they invest only in Equities?

Many believe that MF is directly linked to share market, as we have seen earlier there are some funds which operate only in debt market. Purely depending on the risk taking ability you can choose the investment scheme and option. Enjoy the power of compounding in the long run.

Mutual Fund in Detail - 2

Risk in Mutual Fund

Risk is there in all instruments which involve money, Mutual fund is no exception. Risk can be minimized if you chosen a best mutual fund and stick to it with for a considerable duration say more than 2 to 3 years. Adventure can always bring in the thrill only when taken with proper risk protection, or else it can take your breath away.

Real estate is an asset, but it can bring in woes of EMI if we don’t have enough money and in the form of vacant land it can lead to the problem of encroachment. Gold brings in good luck, but we need to have safety lockers to protect that and if kept in bank we need to pay some amount. So there is a risk involved in all these assets. When it comes to mutual fund, invest as per your needs, invest as per your risk taking ability and review periodically to protect from complete erosion, here is the list of mutual fund that have generated more than 15% in the last 15 years,

Mutual fund	Last 5 years return	Since Inception	Year of Inception
UTI MNC fund	28.63	20.79	1999
UTI Equity Fund - Gr *	18.97	19.9	1999
HDFC Prudence Fund - Gr. *	17.52	22.4	1999
Tata Balanced Fund - Plan A - Gr *	21.66	19.88	1999
SBI Pharma Fund - Rgular Plan	34.24	23.25	1999

If you invested just 1000 per month in Tata balanced fund from January, 1999 till now you would have paid 1, 97,000 and the corpus you would have amazed is 12,27,521. The amount has grown more than 12 times in 16 years. Think of any other instrument which you can amaze this much in these many years which is liquid during its investment period.

Choosing a mutual fund?

Here comes the difficult part in choosing mutual fund, if you had the knowledge to choose from more than 44 fund houses then you are really great in investing. If you are completely new to mutual fund investments, follow the simple steps when you approach a financial planner or brokerage houses while choosing the mutual fund,

     1)      Plan for how much you want to invest in advance

     2)      Choose the mutual fund depending on the number of years you will not be in need of the money

     3)      Break down the amount you invest according to the goals, say money for child education, for         retirement, for buying home, for buying car etc

     4)      Ask the number of years the fund has been in the market and returns since inception

     5)      Ask the risk category it falls in, as of now High, Medium and low is available as proposed by SEBI

Finally once invested, monitor at least once in 3 months about the performance.

To make the most of your money, I recommend sticking with mutual funds that don't charge a commission when you buy or sell.  – Suze Orman

Your Money – Enjoy the power of money compounding without charges while buying and selling

Mutual Fund in Detail -1

                 

                                                                 [Image source : sandyyadav.files]

  

    Usually people use to say that when someone buys a product the neighbor’s in that surroundings will naturally buy the same one, the growth of television in many homes can be attributed to that, gradually consumerism has started which resulted in growth of many such products. Bikes, Phones, mobile phones, computer, Refrigerator, Washing machines, real estate etc all have developed because of the growth in consumerism which has been ditched upon the common people.

    Everything has developed, consumer goods companies, real estate owners, sellers of these consumer goods, bank’s too as they had started offering EMI schemes, housing finance companies, the only thing which had deteriorated among the so called consumers or common people in the last 20 years is the habit of savings and the only thing which had mostly never attracted is INVESTING.

    We always go by the review in google nowadays and sometime occasionally by our friend’s words, how many of us have really benefitted from discussing on the topic of investing and investing in equities in particular. Even if we had discussed, we will forgot the next day on this as month end EMI will become a monster to think about investing. Mutual fund is one such example was people were not thought about the power of money compounding and about becoming rich.

     

What is Equity?

    Equities are the biggest wealth creator, more than a real estate, gold or any other way we have known, but the sad part is most of the Indian’s aren’t aware of it or doesn’t want to know about it. There is always thinking that when the returns are high the risk will also be high, absolutely perfect, have you ever thought of how to minimize the risk to get that return.

Buying a share is risk as you may end up on the losing side, but thru mutual funds the risk is minimized to a great extent, Mutual fund not only invest in equities but also in government bonds, treasury bills, corporate deposits etc.

On a simple note, earlier people will get money from the banks or village’s biggie to start his own business; modern day business man had found a new way to earn and give it back to the society in the name of stocks, shares, equities you can call it in any name. The only challenge is many had found a way to cheat the investors or people while doing share trading which had forced many to go away from the stock market.

The best way for a nomad investor is to go with mutual funds and take equity way to make a huge corpus under his kitty.

Our view on assets

                                                               

[Image source : cashcowcouple.com, rel="nofollow"]

A little difference between self sufficient and being rich can be bridged with the help of a financial planner. Real estate and Gold has been the known stable asset to many in India. I can say even the urban people still believe in getting a flat as a life time goal. There are more things to do than getting a flat. If you see, all the rich people have grown by investing in booming Indian economy either thru business or by investing, whereas the middle class had further divided into lower, middle and upper middle class because of the job they are in currently. The only common thing among all are buying gold as asset or owning a home.

How did we look at assets?

According to the latest estimates India has more than 20000 tonne’s of gold in the household of normal families. We normally use gold only for hedging and it lies in the bank lockers or personal home lockers. The stable view on Gold can never be turned away but once urbanization started, everybody started moving to cities and along with that came the categorization of cities as Tier 1, Tier II etc. Slowly the view on gold has shifted to owning a new home in these cities. In many houses they had hedged gold for buying home and the reason being it is lying idle in lockers.

Who is to blame for our view shift from gold to owning a home? None of us would have thought of this asset view shift among people. All the earnings of life time have been poured in to buying a home in our last generation and the current trend is to own a flat in order to save tax.  Saving tax is ok, but losing your happiness of being debt free, monthly credit card dues, stressed financial life are the extra bouquet of benefits which you will be getting along with this of buying a home if not planned meticulously.

Asset diversification is very essential for becoming self sufficient, rich and hedging against any unknown situation.

There are other assets which give you revenues and appreciate over time like mutual funds, stock market investments, secondary market bonds, alternate investments etc.

Let us look at the other available asset up for purchase apart from Gold and Real estate,

Stocks or shares

Owning a stock or shares can make you rich only if you have hold to it for a longer period of time. Infosys shares were issued for Rs95 and currently it is trading around 2000. It has issued dividends year on year, issued bonus at times, split the shares. If you have invested 9500 in Infosys for 100 shares, now you will own more than 12800 shares and the total worth is more than 3 crores. Can you believe it?

It is not Ripley’s Believe it or not show, this is the power of equity, but only a handful understands all this and stays invested to reap the benefits.

  Mutual Funds

Mutual funds are for the one who fear stock markets but wants to get on par returns, at times this investment avenue have beaten all the returns if you have picked the right fund. Invest monthly thru Systematic Investment Plan for long term say for your retirement, for your child education and for any goals which is more than 3-5 years.

Bonds

Bonds typically gives you fixed returns and with zero risk that too if the bond is issued by Government. Public sector companies, banks, and private companies also raise money thru bond with a fixed maturity and interest will be typically on par with the central bank interest rates. It can be bought in primary market and also in secondary market for long term investments as some are taxes free which will be useful for the people who fall in higher tax bracket.

Corporate deposits

As per the regulations of SEBI, private companies also accept fixed deposits with fixed returns. It can be for fixed tenure say 1, 3 or 5 years and interest rates will be typically higher than bank deposits. Anybody can invest knowing the rating for the company provided by external rating agency as earlier companies use to get deposits and wind the company.

Arts, precious objects

Arts can also be fetch you higher return but this market is at very nascent stage and exists only among the high net worth individual who knows the worth of certain Arts. Precious object includes diamonds, gems and certain stones attract higher returns if you hold on for a higher period.

Asset Diversification

Why should we go for asset diversification when gold is considered as hedge during trouble times and home to live in which everyone needs. This looks perfect, but considering inflation and then the real returns of all available assets it is very much essential. Real returns will show you the actual difference among all the asset classes. All the assets or financial products would have given you negative returns at times, but the growth after that slump should be higher than the loss to make you richer. Diversification will definitely minimize the loss and make you to overcome inflation and sustain any loss of one of the products. A perfect financial advice is to have a right mix of equity, debt and cash at any point of time in life. Product mix moves towards debt if you are moving toward your retirement age.

Financial planning helps in prudent mix of these assets over a period of time.

Essentials of a sound financial life

Sound financial life doesn’t mean to show off in your community with your wealth, it is risk protected well planned financial life which will increase your status in the long run for sure. A proper insurance and planned investment will take your life to next level, but insurance is made as a tax saving avenue (which is untrue) and investment is made without knowing its actual returns.

Let us take Khan and Shaan from the age of 20,

Khan has just finished his college and got placed in a reputed corporate company with a handsome salary. After a year he has approached IFA (Independent Financial Advisor) to plan for his financial future. He has a dream of buying a home, a car, short vacations and he may startup his own company or want a huge corpus for his retirement. IFA has provided a plan to take ‘Term Insurance’ considering his age and a separate ‘Health Insurance’ plan to protect from Medical spending if it happens any, advised him to allocate around 70% in equity mutual  funds by investing monthly(SIP) as all his plans are after 3 years. As he comes in tax bracket, he has been advised to partly invest in Tax saver mutual funds. After 4 years he had partly used his invested money in buying home and his salary is now good enough to pay the EMI and enjoy the life.

Shaan also finished college with Khan and got placed in the same company, but he is not ready to pay for the advice of IFA and went on with his own plan of insurance and investments. He had bought expensive insurance plan which will not create corpus in the long run and invested in shares and mutual funds without knowing his risk appetite, during volatility he had lost most of his money. After same 4 years he is not left with any corpus and ended up buying a flat. Now 50% of his salary going into home loan EMI. Though he has wishes to buy a car, to plan for vacation, enjoy spending, he is squeezed out to even think about it.

Essentials:

The needs for sound financial life are,

1)      Term Insurance to protect our family

2)      Health Insurance to protect our wealth from getting eroded because of treatment

3)      Saving a % in a monthly salary

4)      Investments in Equities

5)      Gold for hedging

Insurance and investment can be started with even 15Rs per day; only thing is gettin correct advice from the right person. Even if you have insurance policies, cross check if it covers and protects you, if you lost money by investing in shares or mutual funds, no worries, you can learn about your risk appetite and earn more than you have lost.

You can’t enjoy the food how good it may be, if you don’t have appetite for it. You can save for a lifetime, but it may not useful or you would have lost your age for enjoying certain things. Similarly serve the life with risk protection insurance and right investments to enjoy each and every moment to the core.

Bill Gates once said “If you are born poor it is not your mistake, but if you die poor it’s your mistake”, you may not have great ideas like him to become rich, invest properly and earnestly to lead a good financial life. Buffet became one of the richest people just by investing with focused principles.

Need for Equities

                                      

                                                                      [Imagesource : eurobankequities.gr]

“Necessity is the mother of invention” but in money terms “Equity is the mother of wealth creation”. Truly nothing can beat the way equities had delivered over the years.

Many would have heard that our parents had grown financially by creating Recurring Deposits. Just as they say that Change is inevitable, those RD’s too had to be changed. The falling interest rates which were once around 15 had consistently dropped below 9. So RD’s were a yesteryear icon for many Indian’s like RD Burman and the evergreen star has always been Equities.

The FD, RD, KVC, corporate FD’s were all safer but the returns are taxable based on the tax slab of the person, which makes them unattractive. Further even without tax the return of around 9% is lesser considering inflation around 6 to 8% for the last 5 years are so. Therefore after the maturity you will be richer by a mere 2 or 3 %.Even over the long term say around 15 years or more the return from these deposits will not be sufficient for retirement or for child education etc.

Gold does not lose its shine any time but considering the history of returns it has delivered; it is around 8 to 9%, which is lesser than the best performing mutual funds or stocks in the market and with the fear of theft. Real estate is a physical asset, but there is higher transaction cost and fear of intrusion is always there.

Equities had always delivered consistently more than all the asset classes and over the long term this is the best bet. Returns had delivered more than 13% in the broader index.

Enjoy the current Bull Run and stay invested to reach pinnacles, who doesn’t wishes to see their money growing, it’s Your Money…Keep growing

Rich gets Richer, it isn’t that way!

                                                    

We would have heard this saying, probably a thousand times that “Rich gets richer & poor becoming poorer”, but I wonder how many have tried to change this saying or thought!. India recorded 2^nd highest rise in HNI’s in the last couple of years, no need to envy all those, even you can be a millionaire with proper investing.

In Financial literacy none of us can literally get through pass mark. Right from school education we were advised to get good grades and get a secured job, but no part of education taught us how to earn money, after all the primary purpose of education is to get a sound analytical and thinking ability. But none of us are interested in understanding the simple concept of savings and investments through the knowledge we get through education.

Save part of your income and spend the left over, but are we following this concept which has been followed in our country. We are forced to buy whatever we want or we are lured into this act of impulse which we never regret. Credit cards has made life easy in many ways by getting things we want so easily at the touch on a phone or a click over the mouse, but it depletes our savings account as we need to pay for the things purchased from our savings account.

Easy money and easy attitude had made many of our investment decisions wrong. The only thing which we still follow is following the investment advice of our fathers and fore fathers i.e. investing in insurance which is completely wrong in modern economic situation or exhausting our taxable savings income.

Money compounding is a simple formula, we all knew the Einstein’s 3^rd law by heart, “For every action, there is an equal and opposite reaction”, this law applies to money compounding. For every penny you invest, it compounds and grows over a period of time.

In Einstein word’s, “Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”

Rain drops makes a mighty ocean, power of compounding is as simple as that, you can dream of becoming a crorepati, but if you aren’t thinking or planning to invest in equities, it will be a dream forever.

Start small and earn big. Discuss about the investment avenues available with your peers and those who know should impart the knowledge of making money to others.

Mutual fund is simple and easy tool to make money; it is highly regulated by AMFI and SEBI.

Rule of 72

The Most exciting feature of financial market is doubling or tripling your money and the reason for many of us getting fooled in no time is because of this trap. We are very much excited when someone says double your money in no time, but here after say 

“Hey stop, you can’t or it won’t get doubled by the Rule of 72”

Rule of 72 s nothing but the time required to double your money based on the available interest rates. It was derived by Luca Pacioli (translated in English), “In wanting to know of any capital, at a given yearly percentage, in how many years it will double adding the interest to the capital, keep as a rule [the number] 72 in mind, which you will always divide by the interest, and what results, in that many years it will be doubled. Example: When the interest is 6 percent per year, I say that one divides 72 by 6; 12 results, and in 12 years the capital will be doubled.”

Going by the inflation rate in the past years we need effective financial instrument to beat it and give superior returns. Bank deposit rates and inflation rates were more or less same in the last five years, therefore the money invested in bank deposit will make you purchase the same product in the next year and it will not be sufficient for the other lifestyle expenses.

Another feature that can be determined is Money’s buying power in the future, Thus at 6% inflation using the rule of 70, it should take approximately 70/6 = 12 years for the value of a unit of currency to halve.

If your bank deposit returns and inflation rate are same, based on this rule your money will double in 12 years and the value of the same money will also be halved in the same time.  Thus we need effective investment avenues to enjoy superior returns, Mutual funds are the best schemes regulated by SEBI and AMFI. Enjoy the returns based on your risk taking ability. Returns will always beat bank deposit rates if you had consulted your proper financialadvisor before investing.

Double your money in a proper way and enjoy a happy, stress free financial life.

Rule of 72 Calculator:

<strong><a title=" Rule of 72 Calculator " href=" http://www.moneychimp.com/features/rule72.htm" target="_blank"> Rule of 72 Calculator </a></strong>

Online will registration

                                       

Will plays an important when there is a dispute arises due to the sudden death of owners to settle the property amicably as mentioned in the will. Now and then we had numerous property disputes among the sons and daughters of great business men. It can be written to provide a clear picture of who gets what among the beneficiaries. If the person dies without writing the succession plan in will all the family members will get equal distribution of wealth. Will ensures that his beneficiary gets the exact amount during their absence.

Who can write Will

Anybody who wishes to distribute his wealth among his children and loved ones may write a will. All movable as well as immovable assets including Real Estate, Fixed Deposits, Money in Bank Account(s) Securities, Bonds, proceeds of Insurance Policies, Retirement benefits, Art, precious metals (Gold, Silver etc.), Brands, Goodwill, digital assets (photographs, sketches, blogs, websites, email accounts such as gmail, yahoo etc. and with social websites such as Facebook, Twitter etc.) and Intellectual Property Rights etc. including what they are and the method and manner of their storage, can be covered under the Will.

                   

 [imagesource : ezeewill.com]

Will registration in India

Will registration has become easy in India with the introduction Ezee will services by NSDL along with Warmond trustees in Mumbai, India. Everything has been made easy and all the process can be completed in online. You can complete online registration by

   1)    Enrolling and completing a questionnaire

   2)    Review, submit and making payment

   3)    Legal Will in your hand

All these are done with a payment of 4000 only and any iteration to review will cost extra 250. When you approach a lawyer it will easily cost you a minimum of 20000. Try this https://www.ezeewill.com/ be secure about who gets your wealth. It is also offered by HDFC.

Demat Account

                                           [Image source : kotaksecurities.com]

In India Shares and securities are held electronically in Demat account instead of holding it in physical form. It can be opened with any investment broker for the purpose of transacting shares. You will not be allowed to trade in India without this Demat account.

Why Demat?

Any physical securities as held earlier may be lost if you are a wait and watch investor, Demat has made life easy for all the investors. You can control your account online with id and password. All transactions will be recorded in your account and any transaction will be automatically added or deleted in your account. In India went to this paperless trading from 1996 in NSE.

Benefits of Demat

·        Easy and convenient way to hold securities

·        Immediate transfer of securities

·        No stamp duty on transfer of securities

·        Safer than paper-shares (earlier risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc. are mostly eliminated)

·        Reduced paperwork for transfer of securities

·        Reduced transaction cost

·        No "odd lot" problem: even one share can be sold

·        Change in address recorded with a DP gets registered with all companies in which investor holds securities eliminating the need to correspond with each of them separately.

·        Transmission of securities is done by DP, eliminating the need for notifying companies.

·        Automatic credit into demat account for shares arising out of bonus/split, consolidation/merger, etc.

·        A single demat account can hold investments in both equity and debt instruments.

·        Traders can work from anywhere (e.g. even from home).

[source : Wikipedia]

Fees Involved in Demat opening

Account opening fees depend upon the brokers such as Axis Bank, SBI bank, Karvy consultants, Suhil finance etc. Some offer Demat account for free for the first year and from second year they start charging.

Apart from this account opening fees there are fees charged for transacting in our demat account, they are brokerage charges. Once you open you need to trade or else you will end up paying yearly fees as maintenance charges.

Disadvantages

If the shares are illiquid it is impossible to close your demat account as you are holding it. Even on Dormant account DP’s charge fees so everybody should make sure that they close the account after liquidating all the shares and mutual funds held in Demat form.

Have you checked your score

CIBIL

                                                 

                                                                             [Image source : flame.org.in]

Most of you would have heard about CIBIL only during your loan rejection. The reason may be a loan pending for a long time or the loan which is not properly closed. We can say that this is formed to protect the banks and loan processing companies to protect from defaulters. You will not entitled to get any loan once you are recorded as a defaulter and score goes less than 750. Credit score of 750 and above ensures that you are a good customer with good track record of paying everything on time.

CIBIL History

Credit Information Bureau India Limited was formed in 2000 in India. CIBIL collects and maintains records of an individual’s payments pertaining to loans and credit cards. These records are submitted to CIBIL by member banks and credit institutions, on a monthly basis. This information is then used to create Credit Information Reports (CIR) and credit scores which are provided to credit institutions in order to help evaluate and approve loan applications. CIBIL was created to play a critical role in India’s financial system, helping loan providers manage their business and helping consumers secure credit quicker and on better terms.

Objective of CIBIL

Credit Information report and CIBIL score plays an important during your loan approval. Loan eligibility basically means the applicants ability to take additional debt and repay additional outflows given their current commitments. Now based on credit score they are loan lenders are able to decide easily.

Standard of CIBIL

CIBIL is ISO 27001:2005 certified- the most recognized security standard in the world. CIBIL is one of the 1000 companies in the world, which have achieved ISO 27001 certification, and one of the first few in India. TransUnion International- a leading global credit bureau with presence in over 30 countries is the major shareholder in India with 55%.

How to get my score

                          

[Image source : bemoneyaware.com]

You can login to CIBIL https://www.cibil.com/ and get your credit score instantly over online. Maintain a score of 750+ to get any loan approvals.