By pooling a lot of stocks or bonds, mutual funds reduce the risk of investing.
By ZeeBiz WebTeam | Updated: Wed, Nov 29, 2017 12:59 pm | ZeeBiz.com
Both stocks and mutual funds market are booming in India, but as an investor, we are often confused to choose between the two for our investment plans.
Investment in equity, bonds or funds comes with higher risk and higher reward, therefore, it is always better to first study about the scheme we plan to invest.
Mutual fund scheme is a pool of savings contributed by multiple investors. The term ‘mutual’ fund means that all risks, rewards, gains or losses pertaining to, or arising from the investments made out of this savings pool are shared by all investors in proportion to their contributions.
There are wide-range of mutual funds in India like – equity, debt, money market, hybrid or balanced, sector-related, index funds, tax-savings fund and lastly fund of funds.
Stock market are usually interesting source of income for both companies and share holders. Under the stock market, anyone can buy stakes of a company in whom they have faith.
Companies which have received better ratings by agencies are generally preferred the most. No matter what may be the circumstances, an investor holds on to the company’s stake for their regular source of income.
Which one is better for investment?
According to Motilal Oswal, if you are typically in your 20s to 30s belt, you can start building your investment portfolio with the help of mutual funds. You need to start off with a very minimum capital and you can find that your investment keeps growing at a gradual space.
The agency believes that for first-time investors, the mutual funds offer a tremendous scope for growth as your funds are invested in diversified forms of revenue generating sources.
On the other hand, Motilal believes that if an investor belongs to late 40s up until 70s of their age and are also seasoned investors, then investing in stocks is a good idea.
It further said that decades of exposure to the financial market helps you gauge the right type of equities, shares or stocks, you need to invest your money in.
Among many advantages of investing in mutual funds is that you can appoint fund managers to select funds, track performance, make appropriate asset allocations and cash-in your profits for you.
These managers try to ensure that an investor’s portfolio consists of well-performing funds, rather than those that might drag down the overall investment returns.
In case, you are stock market investor, and sell your holding within a period of one year, then you have to pay 15% as short-term capital gains tax.
As for mutual funds, there are no gains tax levied on the stocks that are sold by the fund. But one needs to remember that an investor must hold equity funds for a minimum of one year (the longer, the better, really) if they want to avoid paying capital gains tax on the investments.
If you venture into stock investments on your own, brokerage costs of 0.5-1% will be a common expense. Apart from this, you will also have to pay for demat charges.
BankBazaar stated that mutual funds pay only a fraction of the brokerage costs compared to what is charged to individual investors. Investors in Mutual Funds do not need demat accounts.
A well-diversified investment portfolio ideally has around 25-30 stocks, and this kind of portfolio is only achievable with a sizable corpus.
With investment in mutual funds, an investors can buy a certain number of funds which can be invested in various stocks.
The primary objectives of ELSS investments are long-term capital growth and tax saving.
Navneet Dubey | Nov 10, 2017 09:47 AM IST | Source: Moneycontrol.com
Most investors who invest in equity-linked savings scheme (ELSS) do so to save taxes under Section 80C of Income Tax Act. However, they tend to forget that the ELSS schemes can also help them to achieve their financial goal if they remain invested for a long time.
“The primary objective of ELSS investment is long-term capital growth and tax saving. Superior long-term growth is facilitated by the power of compounding. Power of compounding works best over a long investment horizon when gains are reinvested every time they accrue,” said Rahul Parikh, CEO, Bajaj Capital.
The schemes under ELSS category also gives you high inflation-beating returns, similar to PPF they also provide you EEE (exempt-exempt-exempt) benefit.
However, make sure you don’t commit the usual mistakes while investing in ELSS. Here are some of the common mistakes investors make while investing in these schemes:
Trying to time the market: Do not try to time the market when you are investing. Unless you have seasoned investors with a phenomenal understanding of the market, the chances are that you might not be able to identify the precise time to invest.
Ajit Narasimhan, Head – Savings and Investments, BankBazaar said that there is a high amount of uncertainty which makes it next to impossible to correctly predict events or their impact on the market and hence to time the market. Instead, focus on identifying a few good funds. Once you invest, have the patience to ride through the rough and tumble of the stock markets. “Equity investments grow by staying systematically invested for the long run. This is what makes SIP a good option as it averages the cost of investment over time and cancels out the effect of price fluctuation in the market,” he said
Not understanding the fund category: It very important to understand that most of the AMC’s design their ELSS tax saving mutual fund scheme on the basis of large cap, mid cap/small cap and accordingly their risk and returns vary. Here it is vital to first know your risk taking capacity that whether you will be able to risk or not. Take help from your financial adviser to know all holdings mentioned in your scheme and then choose the fund accordingly.
Investing at the last minute: Investment should be a planned activity and not at the spur of the moment.
Narasimhan points out for investments to be successful and provide the required returns, investors should have a financial goal in mind and a plan to work towards it. Leaving it to the last minute can lead to insufficient time to set your goals or create a viable investment plan. “Lack of time may imply that you may have to cut down your research and depend on someone else’s research and opinion to base your investment. This can be very dangerous as the goals, requirements, and risk appetite may not match. It may also cause the investor to invest in one go instead of small regular SIPs. This is an important factor as SIPs provide price averaging and take away the need to time markets,” he said.
Redeeming soon after the lock-in period ends: Minimum investment time period in equities should ideally be for 5-7 years and when you take a decision of redeeming your units before time as mentioned thereon, you may not gain much from it. The longer you remain invested, the more you gain from compounding effect and rupee cost averaging principle. You should always link your investment with a long time horizon financial goal.
Investing in too many funds: ELSS funds have a lock-in of 3 years, If you are investing in too many funds of the same category then it may become difficult for you to review your portfolio since you cannot exit before 3 years. Moreover, too much of diversification may also not help you in proper asset class analysis.
Choosing the dividend option: You should opt for growth option while investing in ELSS mutual fund schemes because if you opt for the dividend, you can lose on gaining from compounding effect. Parikh also said that investing in a growth option ensures that gains are reinvested and grow at the same rate as the principal investment. “However, in dividend payout option, the gains are not reinvested but are paid out and hence not available for compounding, resulting in lower long-term returns. When investing for long-term capital growth in any of the equity mutual fund, one should opt for the growth option,” Parikh said.
NIMESH SHAH | Wed, 12 Jul 2017 – 07:35 am | DNA
Dynamic asset allocation funds is a smart way to invest in markets without worrying about market highs or lows
The stock markets are at all-time highs, and it’s understandable if you are confused whether to invest or wait for correction. Timing the market is not easy. And while piling up your savings or putting them into traditional investment options seems like an easier option, it lacks the growth opportunities which capital markets could present.
A smart investor would look to participate in the growth of capital markets but in conservative manner. Introduce yourself to dynamic asset allocation funds, a smart way to invest in markets without worrying about market highs or lows.
Investing in mutual funds which follows the principle of dynamic asset allocation gives you the flexibility of investing in both debt and equity depending on market conditions. These funds aim to benefit from growth of equities with a cushion of debt. Such funds work on an automatic mechanism switching from equity or debt, depending on the relative attractiveness of the asset class.
In a scenario when the equity market rallies, the fund is designed such that profits are booked and the allocation would shift towards debt. On the other hand, if the markets correct, the fund will allocate more to equity, in order to tap into the opportunities available. The basis for this allocation is based on certain models which takes into account various market yardsticks like Price to Book Value amongst several others for portfolio re-balancing.
This model based approach negates the anomaly of subjective decision making, thereby ensuring that the investment made is deployed at all times to tap into the opportunities of both debt and equity market. The other added benefit is that one gets to follow the adage – Buy low, sell high. For an equity investor, this is one maxim which is the hardest to execute, but this fund effectively manages to achieve this objective.
Also, investing in such funds renders an added benefit of tax efficiency as 65% of the portfolio is allocated to equities. Since this category of fund is held with a long tern view, capital gains on equity investment (if invested for over one year), are tax free, as per prevailing tax laws.
So, while the markets are soaring high, you can consider investing in dynamic asset allocation fund to keep you well footed in the market, even during volatile times.
The writer is MD & CEO, ICICI Prudential AMC
By Yogita Khatri, ET Bureau|Jul 17, 2017, 06.30 AM IST
The Metropolitan Stock Exchange of India (MSEI) is keen to extend trading hours to 5 pm. This might force top exchanges NSE and BSE to follow suit.
However, will the move benefit small investors? ET Wealth reached out to market participants to know their views.
Rahul Jain, Head of Retail Advisory, Edelweiss Wealth Management, says Yes
Extension of trading hours will help drive volumes, which helps market liquidity, increasing confidence of smaller participants.
For secular retail participation in the capital markets, two things are important. One, education about the asset class and two, the confidence in the markets. While institutions are investing in educating the clients, confidence of small investors in markets will be boosted by growth in volume and more broad-based participation.
Longer trading hours will benefit traders and expert participants in multiple ways. Benefits will accrue to smaller participants as well. Here’s how:
A. It will increase time overlap with global markets, thereby reducing, to some extent, open gap shocks. Minimising such shocks is good for retail and small investors as it helps reduce the volatility of returns. In a country like ours where retail investors have traditionally invested in FDs or physical assets like gold and real estate, low equity market volatility will be a confidence booster.
B. Extension of trading hours will also help drive volumes which is good for the overall market liquidity, thereby increasing the confidence of smaller participants in the equity markets. As it is evident that more overlap with global markets and increased volume is good for all market participants, extending trading hours is an idea worth exploring.
Sudip Bandyopadhyay Group Chairman, Inditrade (JRG) Group of Companies, says Yes
If India is to become a global financial powerhouse and if exchanges are to become truly international, we need to have extended trading hours.
The Indian capital market is significantly influenced by the global markets and global investors. No market participant can deny this influence and co-relation. The most influential global market is the US market. It starts trading long after the Indian markets close.
This creates a peculiar situation which leads to “gap-up” or “gap-down” of opening of Indian markets post any major global event. For the health of any market and its investors and in particular the retail investors, this is definitely detrimental. Extending Indian market hours to align with at least the opening of the US market, will prevent some uncertainties.
Further, Indian financial markets, systems and processes are now robust enough to support long market hours. Both back office processes and banking activities even in normal course, continue far beyond the present market closing hours. Thus, adopting extended trading hours should not pose any operational or banking issues.
If India has to become a global financial powerhouse and if Indian exchanges aspire to become truly international, we need to have extended trading hours. However this can be done over a period of time in phases. At this stage, extending trading hours up to New York opening time, should at least be considered.
Deepak Jasani, Head, Retail Research, HDFC Securities says No
Impact of moves in global stock exchanges do impact the opening levels of Indian markets but in most cases, that effect is overcome in a couple of hours.
For small investors, extended trading hours will not help in any way. The six hours available now for trading are sufficient for price discovery and execution. With mobile trading on the rise, even investors who are occupied at work till evening can track the markets and trade within the trading timings.
Though currency and commodity markets are open till late, this is mainly to allow hedgers/traders to track forex markets or commodity prices abroad. As far as equity markets are concerned, Indian stocks prices do not track any other prices on a minute-by-minute basis. Impact of moves in global stock exchanges do impact the opening levels of Indian stock markets but in most cases, that effect is overcome in a couple of hours.
Exchanges would like to extend time to offer differentiation, gain market share and boost income. Compulsive traders would like extended hours to get more opportunities to trade. Brokers would welcome extended hours provided the incremental revenues are more than the cost in terms of manpower and other running costs.
However, they currently feel that extending trading hours would bring more pressure on them and may not result in much higher volumes and revenues. Markets are trending for 25-35% time and are range-bound/trendless for the balance period. In the latter period, extending the trading hours could prove to be discomforting for all participants.
Sandip Raichura, Head, Retail, Prabhudas Lilladher, says No
A small trader has a defined risk appetite and that doesn’t change because more time is available. He will be looking at price levels, not the time.
Proponents of the benefit of longer trading hours have often justified this by giving examples of the commodity exchanges etc., which work for longer hours. While it may benefit certain segments of investors and traders, I don’t see any direct benefit to smaller investors, at least not immediately.
The small trader has a defined risk appetite and that doesn’t change just because more time is available. The small investor will typically be looking at price levels, and not necessarily the time of day to take decisions. Self-driven clients trading online may possibly do more trades, but that is a conjecture at this stage.
It might negatively affect relationships between small traders and sub-broker or RMs who typically meet in the evenings. This can affect fund flows with cheques not collected in time or that client feeling a deficiency in services if not met regularly.
In fact, brokers might desist from offering sit in or walk in services at low brokerage rates due to the enhanced costs of an extended day and attempt to pass on these costs. What’s most likely is that the same trades are likely to now get staggered over a longer period.
The benefits of an internationally aligned market are more likely to accrue to bigger investors. While European and Asian markets get factored into our markets adequately, the US markets open much later than 5 pm and therefore, it is unlikely that volatility would reduce due to the additional hours.
Equity investing have always been associated with high riskiness and the proverbial doom and crash in India
ANUPAM SINGHI | Fri, 16 Jun 2017-07:25am | DNA
Systematic investment plans (SIPs) were first introduced in India about 20 years ago by Franklin Templeton, a global investment firm. SIPs entail recurring disciplined investing via experienced portfolio managers. By necessitating fixed periodic (monthly, quarterly etc.) investments, it makes the timing of the markets, which can be risky, irrelevant, and at the same time, it typically provides above average market returns over a long period. Therefore, SIPs can be relatively less risky and also offer a hedge against inflation risk.
The top SIP funds have consistently given annualised returns of about 20% over the last two decades. The return from SIPs are calculated by a methodology called XIRR, which is a variant of internal rate of return (IRR). In the recent times, SIP fund managers usually tend to invest not more than 2% of the total capital available in a single stock. Portfolios are usually well diversified.
Currently, there are scores and scores of SIP funds to choose from. Different types of SIPs are available to suit an individual’s risk appetite, ROI goals, the time period of investment, and liquidity. Unlike PPF or Ulip, there are no restrictions and penalties on regular SIP payments and withdrawals. Investment can be as low as Rs 500 per month. Retail investors can look to invest in small-cap SIP funds initially, and once their capital builds up significantly, can shift to the less risky large-cap SIPs.
Equity investing have always been associated with high riskiness and the proverbial doom and crash in India. However, the trend is changing in recent times. Increased availability of information about investing, and greater digital marketing, has led to more and more individuals taking the SIP route. The number of SIP accounts has gone up by about 30% in the last 12-15 months alone. SIP monthly inflow volume now stands at about 3,000-3,500 crore, as opposed to about 1,000-1,500 crore in 2013. Retail participation is low India but is bound to increase at an accelerated rate.
Several brokerages are now waking up to the fact that higher P/E ratios are the new normal, as they are warranted by a fundamentally strong economy. Currently, the Indian stock market capitalisation to GDP ratio is approximately 98%, compared to 149% in 2007. With only about 250 Futures and Options (F&O) available out of approximately 4,200 individual securities, shorting opportunities are limited. Increased inflow SIP money could very well drive and support quality stocks in a growing economy.
The writer is COO, William O’Neil India
Sidhartha | TNN | May 5, 2017, 06.22 AM IST | Times of India
ICICI Prudential Asset Management Company managing director & CEO Nimesh Shah believes in speaking his mind. While most market players are euphoric about the recent rise in stock market indices, Shah cautions investors against chasing high returns, given that the valuations are high. But he is optimistic about the medium term prospects and insists that mutual funds will be the preferred mode of investment, given the “repair work” in real estate. Excerpts:
What should someone looking to enter the stock market either with cash or via SIP do at this time?
On a price-to-earnings basis, market is over-valued at current levels. Because of the persistent flows from both foreign and domestic portfolio investors, the market is currently running a year ahead given that earnings per share (EPS) is expected to improve significantly by 2018-19. This is because we believe that over the next twothree years, capacity utilisation can increase and so can the return on equity . Currently , the macros are strong but Indian companies are facing various pockets of challenges. But consumption across the spectrum is likely to hold strong. Given this expected improvement, it is likely that there could be a consistent flow of investment from institutional investors, thereby lending a reasonable investment experience over next twothree years. But since the market is already slightly over-priced, one cannot expect abnormal returns.
For those investing via SIP , they can continue with their investments because over the next three years, the investment price will average out, thereby yielding better returns. For someone who is coming in when sensex is at 30,000 level, can consider dynamic asset allocation funds which result in lower equity exposure when the equity level is up and vice versa.
But it gives you conservative returns…
Yes, it does. But it is good to opt for conservative returns when sensex is at 30,000 level.Even if the index were to head higher say 33,000 level, the only limitation here would be that the entire upside is not captured. But when market turns volatile at higher levels, this class of funds can limit downside. As we all acknowledge, there is more pain in losing Rs 5 than the joy in gaining Rs 30.
If you are investing in equity MFs, one should consider large-caps because mid-caps are over-valued at present. Continue investing but invest with caution because returns may not be too high from current levels. Just because banking funds as a category has delivered 40% plus returns, it does not mean everyone should invest in it based on past one-year return.
A few years ago, the government was worried about the huge inflows from FIIs and feared the impact post withdrawal. But now mutual funds seem to have emerged as an effective counter-balance. Has the domestic MF industry matured?
To a certain extent domestic institutions have emerged as a strong counterbalance. Over the last few months, mutual funds and foreigners have pumped in money into stock markets, thereby pushing up benchmark indices. However, even if foreign investors were to withdraw tomorrow, Indian MF and insurance industry which is putting in over $3 billion a month, will be able to balance it out, thereby limiting any adverse shocks. Today , people refrain from investing in real estate, gold and bank FDs, which is currently yielding 6-7% return pre-tax. In such an environment, equities are becoming a TINA factor -there is no alternative. So, we believe that steady inflows may continue.
How much of small investor money is coming into the market?
Mutual fund in India is all about small investors; high net worth individuals form a very miniscule portion. We are opening nearly 120 offices across smaller towns such as Nadiad (Gujarat) and Arrah (Bihar) because we believe that MF is a viable business. We have ensured that we are present pan-India, including North East. If we can give a better alternative to unorganised investment avenues, people can invest. While people in Gujarat who are more evolved investors can move to value investing, in the East, money can be moved into mutual funds from unorganized sector, there by giving us an opportunity to show the importance of well-regulated businesses.
Will the recent change in regulations push MFs?
We are in an infinite market as the MF penetration is hardly 4% in the country . The one major challenge now is simplified onboarding process for investors. Today, 85% of our business comes from existing consumers and this shows that the market is not expanding adequately . As a fund house, we receive several queries on our website, but the conversion rate is disheartening. We have come to realize that investors are wary of the entire KYC process. Like insurance, AMCs too should be allowed to use the bank KYC details, thereby eliminating the duplication of paperwork.
The reason why bank KYC should suffice is because entire industry does not deal in cash transactions. MFs receive funds via bank accounts and at the time of redemption the funds are transferred to the same bank account. So there is absolute transparency .
Source : https://goo.gl/y2MtpW
Sun, 19 Mar 2017-12:14pm | PTI | DNA India
Buoyed by the surging stock markets, the Employees Provident Fund Organisation (EPFO) may propose to invest up to 15 per cent of its investable amount in equity markets during the next fiscal, Union Labour Minister Bandaru Dattatreya said.
“We are proposing to invest up to 15 per cent during the next year. Central Board of Trustees (CBT) meeting will be held on March 30. We will seek its opinion. So far, during the past one-and-half year we have invested Rs 18,069 crore. We are getting good yield. It is encouraging,” Dattatreya told