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.