ATM :: Why you should be careful of ‘free’ credit score reports

By Preeti Kulkarni, ET Bureau | May 14, 2018, 06.30 AM IST | Economic Times

ATM

Are you feeling tempted to access your credit report for free? Before you rush to share your personal details with a little-known third party in return for the free report, remember you can get it directly from the credit information companies (CIC). You are entitled to receive one report per year from each CIC— TransUnion CIBIL, Equifax, Experian and High Mark. However, third-party fintech portals such as Paisabazaar, Bankbazaar, Creditmantri, etc. offer customers access to more than one free credit report in a year, along with some other services.

Third-party benefits
“Some fintech firms help consumers understand their credit situation and guide them to improve their credit score. Others help compare and find the best credit card and loan offers based on one’s credit score,” says Manu Sehgal, Head, Business Development and Strategy, Equifax. These are the services that CICs do not offer. Also, as third-party portals do not have any restrictions on how many times you access the credit report, you can take corrective steps quickly, if needed, to improve your credit score.

“Even a small discrepancy in the records or a single day’s default in EMIs or credit card bills has an impact on your credit score. Easier access to credit report allows you to quickly initiate steps with CICs/banks to correct mistakes,” says Navin Chandani, Chief Business Development Officer, BankBazaar.

Approach with caution
Given the recent reports of data leaks and its misuse, should one part with personal information in exchange for free services? Third-parties typically seek PAN, identification, address, mobile number and email details. Also, you will have to give your consent before CICs can share your credit history with a third-party. “We can share credit reports with portals we have partnered with only if the customer consents to it,” says Harshala Chandorkar, COO, TransUnion CIBIL.

Once you give consent, you cannot hold the CIC responsible for any misuse of your information by a third party—so be careful whom you give consent. “If the customer is not diligent and gets lured into giving out his information—PAN, date of birth, mobile—required to get the credit score, he risks misuse of his credit history and other information in the report,” says Chandani.

Additionally, sharing personal details with third parties may invite spam calls and emails. “Read the terms and conditions when accessing the services of these portals and avail services of only the betterknown fintech portals,” says Sehgal.

Before you share your details, verify if the portal has a tie-up with a credit bureau. “The portal should mention the name of the bureau offering the credit report and it should also provide consumers the option to unsubscribe or delete their details from the platform,” says Radhika Binani, Chief Products Officer, Paisabazaar.

Source: https://bit.ly/2wNxfA7

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NTH :: Have a CIBIL score of 760? Bank of India offers home loans at cheaper rates to customers with good credit score

Bank of India will offer preferential pricing rates to borrowers with good credit scores for home loans of Rs 30 lakh and above, the state-run lender said.
By: PTI | New Delhi | Published: May 7, 2018 7:35 PM | Financial Express

NTH

Bank of India will offer preferential pricing rates to borrowers with good credit scores for home loans of Rs 30 lakh and above, the state-run lender said. Customers with CIBIL score of 760 and above will be offered loan at the minimum home loan interest rate or the marginal cost of lending rate (MCLR) for an year, the bank said in a statement. MCLR is the minimum interest rate of a bank below which it cannot lend. Those with a score of 759 and less, the rate of interest for loans of Rs 30 lakh and above will come at MCLR plus 0.10 basis points for a year.

One basis points is 100th of a percentage point. Bank of India said borrowers availing home loans of over Rs 30 lakh will be benefited from the reduced rate of interest. A consumer’s CIBIL score is a three-digit numeric summary of the credit information report (CIR) — summarising the past credit behaviour and repayment history — and ranges from 300 to 900.

The higher the score, the better are the chances of loan approval. Most banks check a consumer’s CIBIL score and report before approving a loan. “Consumers with a good credit discipline should be rewarded, as it helps propagate the importance and need to maintain a good financial history. Our preferential pricing model aims to reward high-scoring home-loan aspirants with competitive ROI, thereby helping them making their dream home a reality,” Bank of India said in a statement.

Credit information company TransUnion CIBIL’s Head of Direct to Consumers Interactive Hrushikesh Mehta said: “Bank of India’s CIBIL score-based incentive helps further highlight the need to monitor and build a positive credit profile through good credit habits.”

Source: https://bit.ly/2jES8Eg

ATM :: 7 home loan repayment options to choose from

By Sunil Dhawan | ET Online | Updated: May 05, 2018, 12.32 PM IST | Economic Times

ATM

Buying that dream home can be rather tedious process that involves a lot of research and running around.

First of all you will have to visit several builders across various locations around the city to zero in on a house you want to buy. After that comes the time to finance the purchase of your house, for which you will most probably borrow a portion of the total cost from a lender like a bank or a home finance company.

However, scouting for a home loan is generally not a well thought-out process and most of us will typically consider the home loan interest rate, processing fees, and the documentary trail that will get us the required financing with minimum effort. There is one more important factor you should consider while taking a home loan and that is the type of loan. There are different options that come with various repayment options.

Other than the plain vanilla home loan scheme, here are a few other repayment options you can consider.

I. Home loan with delayed start of EMI payments
Banks like the State Bank of India (SBI) offer this option to its home loan borrowers where the payment of equated monthly instalments (EMIs) begins at a later date. SBI’s Flexipay home loan comes with an option to go for a moratorium period (time during the loan term when the borrower is not required to make any repayment) of anywhere between 36 months and 60 months during which the borrower need not pay any EMI but only the pre-EMI interest is to be paid. Once the moratorium period ends, the EMI begins and will be increased during the subsequent years at a pre- agreed rate.

Compared to a normal home loan, in this loan one can also get a higher loan amount of up to 20 percent. This kind of loan is available only to salaried and working professionals aged between 21 years and 45 years.

Watch outs: Although initially the burden is lower, servicing an increasing EMI in the later years, especially during middle age or nearing retirement, requires a highly secure job along with decent annual increments. Therefore, you should carefully opt for such a repayment option only if there’s a need as the major portion of the EMI in the initial years represents the interest.

II. Home loan by linking idle savings in bank account
Few home loan offers such as SBI Maxgain, ICICI Bank’s home loan ‘Overdraft Facility’ and IDBI Bank’s ‘Home Loan Interest Saver’ allows you to link your home loan account with your current account that is opened along with. The interest liability of your home loan comes down to the extent of surplus funds parked in the current account. You will be allowed to withdraw or deposit funds from the current account as and when required. The interest rate on the home loan will be calculated on the outstanding balance of loan minus balance in the current account.

For example, on a Rs 50 lakh loan at 8.5 percent interest rate for 20 years, with a monthly take home income of say Rs 1.5 lakh, the total interest outgo for a plain vanilla loan is about Rs 54,13,875. Whereas, for a loan linked to your bank account, it will be about Rs 52,61,242, translating into a savings of about Rs 1.53 lakh during the tenure of the loan.

Watch outs: Although the interest burden gets reduced considerably, banks will ask you to pay that extra interest rate for such loans, which translates into higher EMIs.

III. Home loan with increasing EMIs
If one is looking for a home loan in which the EMI keeps increasing after the initial few years, then you can consider something like the Housing Development Finance Corporation’s (HDFC) Step Up Repayment Facility (SURF) or ICICI Bank’s Step Up Home Loans.

In such loans, you can avail a higher loan amount and pay lower EMIs in the initial years. Subsequently, the repayment is accelerated proportionately with the assumed increase in your income. There is no moratorium period in this loan and the actual EMI begins from the first day. Paying increasing EMI helps in reducing the interest burden as the loan gets closed earlier.

Watch outs: The repayment schedule is linked to the expected growth in one’s income. If the salary increase falters in the years ahead, the repayment may become difficult.

IV. Home loan with decreasing EMIs
HDFC’s Flexible Loan Installments Plan (FLIP) is one such plan in which the loan is structured in a way that the EMI is higher during the initial years and subsequently decreases in the later years.

Watch outs: Interest portion in EMI is as it is higher in the initial years. Higher EMI means more interest outgo in the initial years. Have a prepayment plan ready to clear the loan as early as possible once the EMI starts decreasing.

V. Home loan with lump sum payment in under-construction property
If you purchase an under construction property, you are generally required to service only the interest on the loan amount drawn till the final disbursement and pay the EMIs thereafter. In case you wish to start principal repayment immediately, you can opt to start paying EMIs on the cumulative amounts disbursed. The amount paid will be first adjusted for interest and the balance will go towards principal repayment. HDFC’s Tranche Based EMI plan is one such offering.

For example, on a Rs 50 lakh loan, if the EMI is xx, by starting to pay the EMI, the total outstanding will stand reduced to about Rs 36 lakh by the time the property gets completed after 36 months. The new EMI will be lower than what you had paid over previous 36 months.

Watch outs: There is no tax benefit on principal paid during the construction period. However, interest paid gets the tax benefit post occupancy of the home.

VI. Home loan with longer repayment tenure
ICICI Bank’s home loan product called ‘Extraa Home Loans’ allows borrowers to enhance their loan eligibility amount up to 20 per cent and also provide an option to extend the repayment period up to 67 years of age (as against normal retirement age) and are for loans up to Rs 75 lakh.

These are the three variants of ‘Extraa’.

a) For middle aged, salaried customers: This variant is suitable for salaried borrowers up to 48 years of age. While in a regular home loan, the borrowers will get a repayment schedule till their age of retirement, with this facility they can extend their loan tenure till 65 years of age.

b) For young, salaried customers: The salaried borrowers up to 37 years of age are eligible to avail a 30 year home loan with repayment tenure till 67 years of age.

c) Self-employed or freelancers : There are many self-employed customers who earn higher income in some months of the year, given the seasonality of the business they are in. This variant will take the borrower’s higher seasonal income into account while sanctioning those loans.

Watch outs: The enhancement of loan limit and the extension of age come at a cost. The bank will charge a fee of 1-2 per cent of total loan amount as the loan guarantee is provided by India Mortgage Guarantee Corporation (IMGC). The risk of enhanced limit and of increasing the tenure essentially is taken over by IMGC.

VII. Home loan with waiver of EMI
Axis Bank offers a repayment option called ‘Fast Forward Home Loans’ where 12 EMIs can be waived off if all other instalments have been paid regularly. Here. six months EMIs are waived on completion of 10 years, and another 6 months on completion of 15 years from the first disbursement. The interest rate is the same as that for a normal loan but the loan tenure has to be 20 years in this scheme. The minimum loan amount is fixed at Rs 30 lakh.

The bank also offers ‘Shubh Aarambh Home Loan’ with a maximum loan amount of Rs 30 lakh, in which 12 EMIs are waived off at no extra cost on regular payment of EMIs – 4 EMIs waived off at the end of the 4th, 8th and 12th year. The interest rate is the same as normal loan but the loan tenure has to be 20 years in this loan scheme.

Watch outs: Keep a tab on any specific conditions and the processing fee and see if it’s in line with other lenders. Keep a prepayment plan ready and try to finish the loan as early as possible.

Nature of home loans
Effective from April 1, 2016, all loans including home loans are linked to a bank’s marginal cost-based lending rate (MCLR). Someone looking to get a home loan should keep in mind that MCLR is only one part of the story. As a home loan borrower, there are three other important factors you need to evaluate when choosing a bank to take the loan from – interest rate on the loan, the markup, and the reset period.

What you should do
It’s better to opt for a plain-vanilla home loan as they don’t come with any strings attached. However, if you are facing a specific financial situation that may require a different approach, then you could consider any of the above variants. Sit with your banker, discuss your financial position, make a reasonable forecast of income over the next few years and decide on the loan type. Don’t forget to look at the total interest burden over the loan tenure. Whichever loan you finally decide on, make sure you have a plan to repay the entire outstanding amount as early as possible. After all, a home with 100 per cent of your own equity is a place you can call your own.

Source: https://bit.ly/2wjnSId

ATM :: Home loan from bank or NBFC: Which one should you opt for?

Banks and NBFCs follow different guidelines when it comes to lending and, thus, home loans disbursed by them are also done on certain different parameters. Here’s all you need to know.
By: Adhil Shetty | Published: May 3, 2018 1:03 PM | Financial Express

ATM

When buying a house, we all want to get the best deal on the home loan we avail as it is probably the longest financial commitment we will make impacting our overall portfolio and expenses. However, deciding on the right financial institution to avail the loan from is a rather tricky task, given the market is competitive.

With the rise of non-banking financial corporations (NBFCs) in India, the choice has only gotten wider as customers can now choose not only among banks, but also NBFCs. But did you know that availing a home loan from a bank and an NBFC may seem similar, but work in very different ways?

Banks and NBFCs follow different guidelines when it comes to lending and, thus, home loans disbursed by them are also done on certain different parameters. Find out how these two differ when it comes to assessing an individual for a home loan and which one can you resort to for your home loan.

1. Interest Rates: MCLR vs PLR

Banks operate their housing loan interest rates based on Marginal Cost of Lending Rate (MCLR), which serves as their lending benchmark and is closely monitored by the RBI. On the other hand, loans by Housing Finance Companies (HFCs) and NBFCs are not linked to the MCLR. They are linked to the Prime Lending Rate (PLR), which is outside the ambit of the RBI. So while banks can’t lend at rates below the MCLR, PLR-linked loans do not have such restrictions.

Banks have both floating and fixed rates, of which before only floating rates felt the occasional impact of MCLR. But in February this year it was announced by the RBI that all new loans whether with floating interest rates or base rates will be linked to the MCLR.

An MCLR-linked loan clearly mentions the intervals at which its interest rate will automatically change. In a falling interest rate scenario, this allows customers to receive RBI-mandated rate cuts in a transparent, time-bound manner.

As NBFCs and HFCs are free to set their PLR, it gives them greater freedom to increase or decrease their loan rates as per their selling requirements. This sometimes suits customers and provides them more options, especially when they fail to meet the loan eligibility criteria of banks. But in many cases, for those who easily meet the criteria this may also result in inflated interest rates compared to banks.

2. Loan Eligibility via Credit Score

As paperless financial technology takes prominence, more and more lenders are depending on credit scores to determine loan eligibility. While there are upper caps set on interest rates through MCLR and PLR, the actual interest rate you pay on your loan is linked to your credit score. Leading lenders are known to offer their best rates to customers with a CIBIL score of 750 or more.

While both banks and NBFCs consider credit scores carefully, NBFCs tend to have more relaxed policies towards customers with low credit scores. However, with a very low score, both banks and NBFCs will likely charge you a higher interest rate. In some cases, banks may ask to convert the home loan into a secured loan by mortgaging some asset if the credit criteria is not met, but you still need the loan.

A customer with a low score can in fact start with a loan from an NBFC. Through timely repayment, s/he can improve his credit score. After this, once the bank’s eligibility criteria is met, the loan balance can be transferred to a bank.

To keep yourself ready, make sure to access credit reports by CIBIL or Experian. This will allow you to be ready even before you approach a lender. Since credit scores change every quarter, you can take your time to improve it before you decide to avail the loan in order to get a better rate of interest and disbursal amount.

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3. Loan Amount

The actual cost of property is never just the selling price promoted by developers and builders. During acquisition it typically goes up as other costs like stamp duty, registration, an assortment of payments towards brokerage, furnishing, repairs and more always add up. Based on where you are in India, you may have to pay between 3 and 11 per cent of the property value as registration cost alone.

Banks are allowed to fund up to 80% of a property’s value. For example, if you are buying a property worth Rs 50 lakh, you may receive a loan of Rs 40 lakh from banks excluding the registration cost and associated charges of course. The rest of the fund requirements would have to be met by you and often these last mile costs weigh heavily on the final decision to buy a property.

Although both NBFCs and banks are not allowed to fund stamp duty and registration costs, NBFCs can include these costs as part of a property’s market valuation. This allows the customer to borrow a larger amount as per his eligibility.

4. Pre-Payment, Foreclosure and Late Payment Charges

Just like other loans, home loans also have associated charges attached. Both banks and NBFCs will have charges for pre-payment and foreclosure but NBFCs tend to charge much higher. In addition, late payment charges by NBFCs may sometimes be close to 10 or 20% of your monthly EMI, giving you no respite in case you default on any payment. NBFCs also tend to have higher processing fees, although some banks may charge similar amounts.

Whoever the lender may be, make sure to calculate you future interests and factor in additional costs associated with your repayment as home loans range between 10 and 30 years and you may have to bear such high charges in future.

(The writer is CEO at Bankbazaar.com)

Source: https://bit.ly/2rhfZOE

ATM :: Markets closed, but that need not stop you from investing!

Imagine a platform for investments where you do not need to worry about whether the market or the MF office is still open.
Rohit Ambosta | May 01, 2018 09:28 AM IST | Source: Moneycontrol.com

ATM

What are the trading timings for the stock markets in India? When can you walk into a mutual fund office and invest in mutual funds? Obviously, you can only trade when the market is functioning between 9 am and 3.30 pm. Similarly, you can only walk into a mutual fund office and execute transactions when the office is functioning, which is typically between 10 am to 5 pm. What if you want to invest in mutual fund because you just got a credit amount into your bank account at 6 pm on Friday? You will typically have to wait till Monday morning, talk to your advisor and then walk into the mutual fund office and submit your application for an equity fund along with your cheque for the amount. But, what if all these timings could really cease to matter very soon? Here is how…

Welcome to the anywhere and anytime financial market

The legendary investor Warren Buffett rightly said that to be successful you have to work hard for your money but if you really want to be wealthy then you have to make the money work hard for you. Imagine a platform for investments where you do not need to worry about whether the market or the MF office is still open. You just log into an online platform on your computer and execute the buy or sell trade. Of course, the actual execution may happen on the next day but as far as you are concerned you have done your job. You have transcended the constraints of time and place and managed to execute your financial transaction at the time and place of your choice.

This is a dual advantage for you. Firstly, you can execute the transaction at the time of your choice; that is whenever you are free. You do not really have to worry about whether the mutual fund office is open or whether the market is functioning. You just open your system, punch in the details and the order is logged into the system. Execution is then just a matter of formality. You can also execute anywhere. It is immaterial whether you are at home or office or attending a wedding. You do not even need access to a computer or laptop since these days you could download this entire platform on an App and execute all your transactions from your smart phone itself.

How to make an informed decision anytime and anywhere?

That is the logical next question. You obviously cannot talk to your advisor in the midst of the melee. Also, you do not have access to all your existing investment documents. There is a solution which the platform can offer. Imagine that the platform assists you at two levels. Your entire financial plan and the details of investments held by you are clearly documented and stored in the platform itself. That means you can access your portfolio and your plan 24X7 from any part of the world. So, your portfolio reference point is always available with you. Now the bigger challenge is getting the right advice before investing.

That is where machine intelligence comes into play. Did you know that there is a way of getting advice that is entirely free of emotional bias? That is called algorithm driven advisory. This is not some black box program throwing up esoteric solutions based on a methodology you do not understand. The algorithms are designed to help you make an informed decision. It is based on the use of big data and many years of expert research to tabulate all the investment opportunities on one side and then again use big data to mine and create a picture perfect investment-needs profile of yours. When you combine the two you have a neat solution. All that you have to do is to click a button to say OK. That is surely a lot simpler.

Monitoring and rebalancing my portfolio when required…

So you have managed to get advice at the place of your choice and invested at the time of your choice. Can you also monitor your investments at the place and time of your choice? The answer is an emphatic “Yes”. When we talk of monitoring, we not only refer to the portfolio evaluation but also whether the portfolio of investments is in tune with the original financial plan. Has any sector outperformed? Has any sector underperformed? Have valuations become too steep. The beauty of having such a big data driven platform is that it not only helps you with such analytics but also gives you the answers. What should you do if you are overinvested in a sector? Which funds can you shift out of and which funds can you shift into? How to rebalance your entire portfolio mix and then execute with the click of a button? All these can be done from the comfort of your chair!

The big question, therefore, is can this kind of a platform do everything which can be managed by human advisors? The difference could lie in the use of big data. That could be well be the future of investing!

(The writer is CIO, Angel Broking)

Source: https://bit.ly/2FDKW3W

ATM :: What should you do if your fund gets a new name and strategy?

Existing mutual fund investors would need to evaluate their schemes if they change their strategies substantially in order to ensure they are still in sync with their financial goals and asset allocation
Kayezad E. Adajania | Last Published: Tue, May 01 2018. 10 30 PM IST | LiveMint

ATM

HDFC Prudence Fund (HPF), the country’s largest equity-oriented mutual fund scheme with assets close to Rs37,000 crore, will now be known as HDFC Balanced Advantage Fund and can switch entirely between equities and debt. Until now, it could invest only 40-75% in equities. On 25 April, HDFC Asset Management Co. Ltd announced plans for many of its schemes, as part of the ongoing merger and re-categorisation exercise.

Most other fund houses, too, have announced their plans to re-categorise their schemes. If you don’t agree with your schemes’ new form, you have a chance to exit without paying an exit load. Here’s how you should decide what to do.

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Your scheme could change…
If there is no change to your scheme, you have nothing to worry about. But if your scheme is about to change, check how big or small it is. For instance, if you own a large-cap fund that is set to become a large- and mid-cap fund or a multi-cap fund, it won’t matter much. In fact, this particular move is good, said Prateek Pant, head of product & solutions at Sanctum Wealth Management. “Going ahead, it will get difficult for large-cap funds to outperform their benchmark indices. The definition of large-cap fund has narrowed down and benchmarking performances against total returns index would make things tougher for large-cap funds,” he said. Read more here.

If your scheme undergoes a big change, evaluate. For instance, SBI Treasury Advantage Fund, which will be known as SBI Banking and PSU Fund, was meant for short-term investments. Now, its strategy would be to invest in debt scrips of state-owned companies and banks. “If the risk profile of a scheme changes, look at it again. If it no longer meets your purpose, leave it,” said Vidya Bala, head-mutual fund research, Fundsindia.com.

…but do not jump the gun
Don’t blindly go by the change in your fund category. Mirae Asset Emerging Bluechip Fund (MEBF)—an erstwhile mid-cap fund—has become a large- and mid-cap fund. The name remains the same, and, what’s more, the fund remains the same too.

On the face of it, a shift from a mid-cap to a large- and mid-cap fund is a big change. But dig a little deeper and you might not want to worry about it. According to capital markets regulator Securities and Exchange Board of India (Sebi), a large- and mid-cap fund must invest a minimum of 35% each in large- and mid-cap stocks. As it turns out, MEBF has been increasing its exposure to large-cap companies over time; from an average of 20% in 2014 and 26% in 2015 to 38% so far this year, as per Value Research.

“We didn’t want to tamper our existing portfolios too much. So, whichever categories our funds fitted into naturally, we have moved our funds there,” said Swarup Mohanty, chief executive officer, Mirae Asset Global Investments (India) Pvt. Ltd. HPF, too, remains the same. Although a dynamic category fund can switch entirely between equity and debt, a person close to HPF said it can—and will—continue to invest 65-70% in equities like always. Of course, how the fund performs in falling markets in the face of its present equity allocation remains to be seen as the fund will now be compared to other dynamic funds. HPF refused to comment.

The tax implications
If your scheme merges with another or ceases to exist, there are no tax implications. If, however, you choose to withdraw, you may have to pay short-term capital gains tax of 15% (plus surcharge and cess) if you had bought the units in the past one year or long-term capital gains tax, otherwise.

The only respite is you don’t pay an exit load, if any, even if you withdraw within the exit load period.

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What should you do?
Each merger and re-categorisation poses a unique situation. How one investor reacts to a change could be different from another investor’s reaction. Sit with your financial adviser to understand the ramifications of your scheme changes. But here are some broad principles you should follow.

* If your scheme’s risk profile increases a little, there is no cause for alarm. For instance, a large-cap fund becoming a large- and mid-cap fund is acceptable. If your scheme’s risk profile increases a lot, take a closer look. For instance, SBI Magnum Equity Fund (a large-cap fund) is now a thematic fund SBI Magnum Equity ESG (Environment, Social, and Governance).

* Just because the fund has changed its category or name does not necessarily mean the scheme has changed. Check if the scheme will continue with its strategy.

* But if the scheme’s objective has changed—especially due to a merger with some other scheme—evaluate it. HDFC Gilt (government securities) Fund – short-term plan will now be merged with HDFC Corporate Bond Fund. Both schemes are different.

* New investors, beware. Past performance is set to become a bit hazier, especially for those schemes that have to alter their strategies, for the next three years. In this case, check who the fund manager is, and go by his track record.

* Debt funds are trickiest to navigate in this exercise. The good news is that they’ve become sharper and each of them now comes with a well-defined objective. Revamp your entire debt schemes portfolio.

Source: https://bit.ly/2HILziu

ATM :: Essentials Young Investors Must Know Before Investing in Mutual Funds via SIP

By SiliconIndia | Tuesday, May 1, 2018

ATM

A Systematic Investment Plan (SIP) is the best investment option for many investors – especially if you’re a young person, just beginning your investment journey. A SIP is a low-risk move, ideal for those who are in it for the long haul because else, the returns tend to be low. A steady investment of even Rs.500 per month has the potential to generate decent returns in the long run without putting a major dent in your pocket. But like all other investment options, it’s never wise to put in your money unless you’re well informed. Here are some things you must keep in mind when investing in Mutual Funds via SIPs.

– What exactly is a SIP?

A SIP lets you invest small amounts regularly in equities, debts and other kinds of mutual funds. It involves you buying units of any (or many) Mutual Funds of your choosing by investing a minimum of Rs. 500 per month. It is then up to you to redeem your units at any point in time. A SIP is ideal for younger investors since it practically guarantees good returns with a lower risk of capital loss. It bridges the gap between high-risk options like equities and low-risk options which may not produce returns.

– The Power of Compounding

There is a thumb rule talking about investments. The truth is that the longer you keep your money in a fund, the more money is likely to be generated over time. This is where young investors have an edge over older ones. If you’re 40 and want to begin investing in a retirement fund, you’re 18 years behind those who began at 22. The 22-year olds are likely to generate higher returnsprimarily because of the compounding effect. Start as early as possible.

– Be Informed

No investment option is completely risk-free and investing in the wrong fund may end up being a grave error. You can never be too careful with where to put your money. It’s always better to look at the past performance of any mutual fund you decide to put your money into. Of course, this is not possible if it’s a new mutual fund. Try to ensure that the mutual fund you pick has been around for a few years at the very least before investing your money. You don’t want to be risking letting it all go to waste, do you?

Your fundsare distributed into a set of pre-decided companies from numerous sectors. These companies are usually mentioned in the prospectus, and you’re free to check up on them. In the interest of staying informed, it is advisable to check out all the companies mentioned.After all, it’s your money that will help fund its future endeavors, and you have every right to know what it’s being used for. Read up on the companies, the industries and the sectors that your mutual fund is investing in, and analyze whether they are ones you’re comfortable with, or if they’re ones you’d like your money to be invested into.

– Your Own Goals

Don’t just start investing because it’s the “in” thing and everyone around you is doing it. If you really want to gain from your investment, align it with your goals. Whether that goal is to buy your dream car after 10 years or to generate enough capital to start your own business in 15 years, or even go to the vacation you always wanted – your end goal and the money it’ll require should be fixed in your mind as early as possible. Once that’s settled, you can go about looking at what exactly to invest in and how much to put into it every month. For example, if your goal is to buy a car costing ?30 lakhs in 15 years, you can’t invest in something that’ll give you any less than that at the given time.

– Market Risks

Mutual Funds Schemes can be considered low-risk and safe to the extent that they are regulated by the Securities and Exchange Board of India (SEBI), and the fact that companies must have a minimum net worth to be eligible for mutual fund investments. However, fraud is a very real possibility and the less informed can easily be ensnared. Technicalities are everything here, so always read the terms and conditions thoroughly. Only pick a SEBI registered investment adviser.

– Choosing the Right Scheme

Mutual fund selection depends on the kind of an investor you as an individual, are. If your goals are long-term and you can handle risk, you could invest in equity schemes. If you’re more of a moderate investor with a lower of appetite for risk, you should consider investing in large cap or multi-cap mutual funds (that is, large companies or multiple companies) which tend to have lower exposure to risks. This is because such funds are channeled into companies which are comparatively stable. If you’re more aggressive and don’t mind the risk, invest in small cap or mid cap funds instead.

– Choosing the Right Bank and Date

This may not look very significant, but it’s actually pretty important. The general practice is for the plan to directly take money from your bank account monthly (or at whatever regular interval you have fixed). So, the date you fix should be keeping in mind that the account isn’t low on funds when the money is cut. Keep your balance at a minimum of at least the investment amount, and make sure you set the date of investment as one which is placed after you get your income (salary, rental income, etc.).

Be careful not to use an account that you hardly use otherwise, sincethere’s a higher chance of it running into issues of insufficient funds around the time your SIP debit is due.

Get Started Now

Once you’ve understood these essentials of mutual fund investments, it gets fairly easy to take a plunge as an investor and start crafting your investment goals. Get started now. The sooner you do, the more the returns! Remember the power of compounding?

Source: https://bit.ly/2jq1iEH