IBS TIMES 219TH ISSUE

TEAM IBS TIMES

Editor’s Letter “Mutual Fund investments are subject to market risks, read all scheme related documents carefully.”

We have all heard this disclaimer in every mutual fund advertisement irrespective of which fund house. If it is indeed an avenue of investment that warrants a disclaimer, do people really go for mutual funds? Data shows however, as on October 31, 2020 the total number of mutual fund accounts stood at 9.37 crore making it a seemingly popular option.

For anyone who is new to mutual funds, there are several questions that arise about what they are and how they work. In this 219 th issue, we hope to address all the questions that you, our readers might have. We also look at the different perceptions that people have about mutual funds and busting the common myths one might come across when reading up on mutual funds.

Are mutual funds for you? Read on to find out!

As an editor it gives us immense pleasure when we hear from our readers. We intend to improve ourselves every step of the day and we invite you, our readers to support the same. Keep following us on www.finstreetibshyd.in/ as well. Please write to us and become a part of the discussion.

Email ID: editor.ibstimes@gmail.com Neha Thampi (Senior Editor, Magazine) POC, IBS Times

CONTENTS What is Mutual Fund?

By: Ankush Kapoor Why Mutual Funds?

By: Anjali Arun MFs working in India By: L H Vadiraj Categories of Mutual Fund By: Satya Sree How Mutual Fund Invest and Generate Returns.

By: Rashika Ravichandran Who Can Invest in Mutual Funds?

By: Shailey Dravid How to Invest in Mutual Funds?

By: Mohit Rao Charges and Taxation aspects in Mutual Funds By: Agnit Chatterjee Comparative Analysis of different sector of funds.

By: Mohit Agrawal Equity Funds By: Dishant Mehta Debt Funds By: Supriya Reddy Dendi Top Performing Funds By: PVSN Yamini Apoorva Myths Related to MFs By: Mohammed Abdullah Afridi Where to invest in MF and How right now By: Meghana Gummuluru Financial Planning (for different age group) By: Anish Das Risk Associated with MFs By: Pradeep Gupta

Mutual Funds! Sahi Hai? By: Ankush "The mutual fund industry has been built, in a sense, on witchcraft." John C. Bogle Introduction There are numerous investment options available in the financial market for an investor.

Investors can invest in banks as deposits or fixed deposits, corporate debentures and bonds, post office saving schemes, etc. wherein the risk and the returns are low. They may invest in the stock of companies where the risk is high and probably the returns are also proportionately high. But what about the retail investors who do not have the time and expertise to analyze and invest in stock? For them, Mutual Funds are a viable investment alternative as Mutual Funds provide the benefit of cheap access to expensive stocks.

What are Mutual Funds?

A Mutual Fund is a trust that collects money from investors who share a familiar financial goal, and invests the pooled proceeds in numerous asset classes, as defined by the investment objective. Simply put, the investment firm could be a financial intermediary, founded with an objective to professionally manage the money pooled from the investors at large.

By pooling their money together in a Mutual fund, investors can enjoy economies of scale and might purchase stocks or bonds at far lower trading costs compared to direct investing in capital markets. Other advantages of Mutual Funds are diversification, stock, and bond selection by experts, low costs, convenience, and adaptability. Diversification may help protect the investor from market highs and lows because they are not too heavily invested in one company or industry. In other words, all of their eggs aren’t in one basket. Mutual funds allow them to spread out, or diversify, their assets among a variety of investments so that they can take advantage of strong areas of the market and minimize their risk when other areas of the market perform poorly.

The investor in a Mutual Fund scheme receives units that are in accordance with the amount of money invested by him. These units represent an investor’s proportionate ownership into the assets of a scheme and his liability just in case of loss to the fund is restricted to the extent of the amount invested by him.

The pooling of resources is the biggest advantage for mutual funds.

Since relatively lower amounts are required for investing in a Mutual Fund, the scheme enables small retail investors to enjoy the advantages of professional money management and allows access to different markets, which they otherwise might not be ready to invest in. The experts who invest the pooled money on behalf of investors of the scheme are referred to as 'Fund Managers'. These fund managers make the investment decisions based on the prevailing securities in the market and therefore the proportion of investments to be made into them.

However, these decisions are governed by numerous rules and regulations which are decided according to the investment objectives, investment patterns of the scheme and are subject to regulatory restrictions. It is this investment objective and investment pattern that also guides the investor in choosing the correct fund for his investment purpose.

Utilization of Funds – The proportion in which funds are allocated between equity, debt, money market, cash, etc is decided by the scheme’s investment objective. Today, there is a range of schemes offered by mutual funds in India, which cater to different categories of investors to suit different financial objectives e.g. some schemes may provide capital protection for the risk-averse investor, alternatively, some other schemes may provide for capital appreciation by investing in mid or small-cap segment of the equity market for the more aggressive investors.

For example, in the case of the Axis Blue-chip Fund, the investment objective is to outperform the benchmark index. Which is the benchmark index? Nifty 50. Hence the scheme’s portfolio is almost 80% loaded in equity. An investor with an investment goal of long-term capital appreciation can consider such equity loaded mutual fund schemes.

These diversifiable investment objectives have helped to classify and sub-classify the schemes accordingly. The broad classification is often done at the asset class levels. Thus, we've got Equity Funds, Bond Funds, Liquid Funds, Balanced Funds, Gilt Funds, etc. These can be further sub-classified into different classes like Mid-cap funds, Small-cap funds, Sector funds, Index funds, etc.

How are Mutual Funds Set Up? A Mutual Fund is set up in the form of a trust, which has Sponsor(s), Trustees, Asset Management Company (AMC), and Custodian. The trust is established by a sponsor or over one sponsor who is sort of a promoter of an organization and is also registered with the Securities and Exchange Board of India (SEBI). The trustees of the mutual fund hold their property in the interest of the unitholders. An Asset Management Company (AMC), which is approved by SEBI, manages the funds of the investors by making investments in different types of securities. Custodian, registered with SEBI, holds the securities of varied schemes of the fund in its custody. The trustees are vested with the final power of management and direction over the AMC. They monitor the performance and compliance of SEBI Regulations by the Mutual Fund schemes. This is the basics of how a Mutual Fund scheme works. This is further explained in the upcoming articles.

A Word About Risk!

There are many myths and misconceptions linked with investing in mutual fund schemes. Some of these have faded over time, as investor awareness has increased but some continue to hold strong. It is necessary to dispel these myths as investments should not be made under wrong impressions. It can throw the best of the best laid out financial plan out of control, and the situation can be avoided with a bit of caution. An investor has to be sure and should make up his mind before investing in a Mutual Fund scheme.

Why Mutual fund?

By: Anjali Over the years, MFs have emerged as a simple investment vehicle because of its various benefits such as technical experience, diversification, returns etc. Due to its special characteristics, investors are turning their preference over conventional instruments to MF. As the value of capital declines over time, the placement of one's savings in appropriate investment channels becomes important. An unused number, if not invested will gradually lose its purchasing power. Correct investments help to resolve financial difficulties at the right time and also allow for early retirement. With various risk and return profiles, many investment choices appeal to the investor's desire for the same. In the risk and return matrix, equity ranks the highest, while postal savings are on the lower side of the matrix. Individuals must invest according to the high, medium, or low-risk appetite they can be and the time period-short or long term-of the investment.

The first challenge when assessing investment opportunities is that almost Every investor faces a multitude of choices. From stock, bonds, shares, securities of the money market, to the correct balance of two or more of these, every option, however, poses its own set of challenges and advantages.

So why should investors consider Mutual fund over others to achieve their investment goals?

The MF is a great convenience for those who need to save their cash for future needs. The money is handled by a team of experts and investors will reap the fruits of this experience without being involved in mundane tasks. MF companies handle all administrative tasks, including reports. Via a mixture of Net Asset Values (NAVs) and account statements, they also promote accounting and reporting on the progress of investment portfolios.

MFs helping investors to achieve better inflation-adjusted returns, without spending a lot of time and energy on it. While most individuals consider letting their savings in a bank, they don't consider that inflation may be nibbling away its value.

Suppose you have Rs. 100 in your bank today as savings. They can buy approximately 10 bottles of water. Your bank is offering 5 per cent interest per annum, so you will have Rs. 105 in your bank by next year. Inflation, however, increased by 10 per cent that year. One bottle of water, therefore, costs Rs. 11. With Rs 105 by the end of the year, you will no longer be able to afford 10 bottles of water.

MF v/s Other Investment Avenues MF v/s bank deposits Much of the savings are in MFs with equity. And in both 2018 and 2019, most equity MF groups have performed poorly. As you would know, equity MFs invest mainly in stocks. And, like bank deposits, stocks do not deliver steady returns. In a year, stocks will deliver moderate return, negative return in the next year, fantastic returns the year after that. Long years of bull markets can be accompanied by years of bear markets. That is why equity, in the short term, is considered risky and unpredictable. However, over a long period, equity can deliver better returns than other asset groups. That is why, to reach long-term financial objectives such as retirement, equity MFs are recommended. You can expect to get around 10-12 per cent returns over a long time, but not steady.

MFs often have an advantage over bank deposits because of better after-tax returns. According to your income tax slab, interest on fixed deposits is applied to your revenue and charged.

Taxation is the same if you sell your debt MFs before three years, the taxation is the samereturn is added to your income and taxed at the applicable income tax rate. If you sell your assets after three years, however, the profits are considered as long-term capital gains and taxed at 20 per cent with indexation benefit. Based on the cost inflation index, the indexation allows you to inflate your purchasing cost and it benefits you to minimise taxes, particularly in an inflationary scenario.

Mutual equity funds are taxed accordingly. Returns are taxed at 15 per cent if you sell your stock MFs before a year. Gains of over Rs 1 lakh in a financial year are taxed at 10 per cent if you sell them after a year.

MF v/s Stocks Investing in stocks seems to be a more attractive option compared to MF investments for those investors who are looking for extremely high returns. There is certainly a good chance of obtaining high returns on stock investments, but the risk quotient is also very high. Because of a diversified investment portfolio that mitigates the overall market risk, MFs involve less risk.

Also, the trading costs incurred by individual investors for the purchase and sale of stocks can add up to an enormous amount, while those trading costs can be saved by investing in MFs where equity and equity-related instruments are traded in bulk, thereby reducing the cost per investor.

One of the primary reasons for investing in MFs is to leverage a professional fund manager's knowledge and expertise to earn good returns. Investing in inventories without prior experience or knowledge of the workings of financial markets can be devastating and can easily drain

away from your savings. Therefore, if you do not have a thorough knowledge of financial markets and want to keep your money in safe hands, investing in MFs is advisable.

MF v/s PPF Until now, one of the best solutions available has been the Public Provident Fund (PPF).

However, the reduced yield on PPF has made it less attractive to investors over the years. The high yield is also at the cost of liquidity and growth. The PPF has a 15-year lock-in duration.

PPF is safe but the returns are lower as compared to MFs. The money of the investor will be blocked for 15 years. You can withdraw partly in between after minimum holding period for specific purposes whereas, In the long term, MFs offer much better returns and are extremely liquid. Any day, you can withdraw your money. In 3–4 working days, the balance comes to your bank. Over the long term, they are reasonably healthy.

MF v/s Corporate Bond The tax impact makes corporate bond and debenture net returns less appealing relative to MFs, which benefit tax exemptions on dividends earned. Investors must also be highly vigilant about such investment and must check that the issuing entity is credit rated. As compared to MFs, corporate bonds often have less liquidity.

MF v/s Financial Institutional Bonds While financial institution bonds have high compounded yields, as compared to MFs, they are unsecured and more sensitive to interest rate risks. On the other hand, MFs are much more diversified because they invest in several instruments, such as the money market and debt.

Investment decisions are focused on the fund manager's extensive analysis and validated experience. Risk diversification is minimised by MFs as they invest through different industries and stocks. The advantages of scale in brokerage, custodial and other fees translate into lower investor costs. Investments in MFs provide a lot of versatility with features such as systematic investment plans, systematic withdrawal plans, dividend reinvestment and a minimal investment of Rs 100. As compared to direct investments in stocks or some other investment method, it is easier to liquidate holdings in MFs. For those who need to save their cash for future needs, the Mutual Fund is a great convenience.

The money is handled by a team of experts and investors will reap the fruits of this experience without being involved in mundane tasks.

How Do Mutual Funds Work?

By: Vadiraj The corporate killer downsizing is directly responsive to what the mutual funds have wanted.

-Jim Cramer Mutual funds are the products of Asset Management Company (AMC) which gets a nod/license from SEBI to launch mutual funds. For example, SBI Mutual Funds offers almost 54 schemes including debt funds, equity funds, and hybrid funds, etc. we can invest any of them of our choice. A total of 44 AMC’s are registered under SEBI which operates more than 1000 mutual funds. Mutual Funds work the same way it works in the United States offering a wide range of different types of fund types to invest based on risks, objectives and patience level of investors.

We all know when we invest in a company in return, we receive shares but what about Mutual Funds, what we receive in return?

So, what we receive are “Units” for mutual funds. The value of one unit can also be called the Net Asset Value (NAV). This NAV can be the price of one unit of Mutual Fund. In mutual funds we reap profits when the units we buy for NAV, its value gets increased, we sell the units at higher NAV. For example, we invested Rs 1000 in an ABC mutual fund, at the time of investment the value of NAV of ABC was 100, so it implies we need to pay Rs 200 to buy one unit. So, it implies that we will get 10 units of ABC mutual fund. If we suppose after one year the value of NAV is 110, we will receive a profit of Rs 100.

THE CYCLE OF MUTUAL FUNDS

New Fund Offer (NFO) Launch When AMC launches a new mutual fund to collect money from the public, it is termed as NFO. The investors get an opportunity to invest in mutual funds but that too for a shorter period as once it gets closed you will not be able to invest. An AMC is appointed to manage the money as per our objectives. The AMC has professionals who have knowledge, skills, experience, and who understand the dynamic and uncertain market fluctuations. They keep in mind our objectives and observe the market and prepare the strategy as per the situation to invest the money. At the time of NFO Launch, the strategy is to be disclosed, as the investors invest in funds as per the strategy. Once the strategy disclosed cannot be changed afterwards. We can invest in mutual funds either in Lumpsum or in the smaller bits with proper planning and execution. These bits and pieces are termed as SIP. Money is Pooled and Invested Investors like me, you, and others pool in money to form a mutual fund. Trustees are there who monitor the activities of AMC to ensure investors’ interests are protected and try to ensure everything is going safe and secure. The AMC takes pooled money from investors and invests in shares, bonds, government securities, and other fixed-income instruments. Well we know daily right from Monday to Friday stock market fluctuates, we cannot control it. We can’t escape from the risks associated with the fluctuations of the market. But somehow we need to diversify or minimize the risk associated. For equity investments the AMC adopts the strategy that comes right from the starting of NFO, they invest not only in one industry but also invests in more than one industry to balance the risk. The better performing stock will easily balance out the low performers. Same as for debts the pooled amount is invested in various securities to diversify the risk. Making the proper combination of Debts and Equities is beneficial as it is less risky as it balances the risk.

What exactly the fund manager does is, he simply performs EIC (Economic, Industry and Company) Analysis to find out the best securities to invest in as per the strategy mentioned during NFO to maximize the returns for investors as it is the prime objective. If the securities are low performers, then they can be replaced. The fund manager puts in all his efforts to delight the investors by giving access to larger portfolios either by using a combo of trading and investing strategies or using multiple strategies to select securities.

Now we know as per the market conditions, the fund manager looks for tactics and strategies to make investments, after which we receive are the “Units.” You may be wondering what are units. They are nothing but the representation of money invested in the Mutual Fund. You know what, these units are easily redeemable.

Fund Returns What is the goal of the portfolio manager, what does he need to do? He simply strives to earn better returns continuously for the investments made on behalf of the investors. We know what all efforts the manager put whether it is the research, monitoring, or rebalancing portfolio to increase the NAV. This expert called as a fund manager handles a lot of money of the investors decide where to invest and how to be invested to make it grow for investors. This vital expert management role played by the fund manager comes with a small annual of money known as a fee. Whatever the profit is made is returned to the investors depending on their share in the money pooled.

What about the returns? What needs to be done? Whether it needs to be reinvested or to be distributed? The equity fund returns are distributed in the form of dividends. If they are growth

funds, then they might be reinvested to enhance the wealth. If the returns are retained then, we can do whatever we need to, it’s better to invest in further investment options to enhance the wealth.

Hence, mutual fund investing is a continuous process that channelizes small savings of many investors in productive securities to maximize their wealth.

Categories of Mutual Fund By: Satya Sree Introduction An investor can put resources into any categories of funds as per his necessities and risk index.

A mutual fund is classified according to its investment objective and risk profile. The industry has been in existence for close to 25 years now.

This was all good till only a few fund houses were in. However, as the industry grew, more fund houses joined in leading to a huge increase in the number of mutual fund schemes. There were times when it was difficult to tell the difference between two schemes, sometimes even from the same fund house. The small, retail investor was left confused then the SEBI Mutual fund categorization has taken place.

SEBI mutual fund categorization: The securities exchange board of India manages the stock market of India. SEBI has reformed the categorization of mutual fund schemes and there are 36 reclassified schemes and are accessible now Why is SEBI doing it?

SEBI, as the regulator of the mutual fund industry, issued a set of guidelines in 2017. It laid out specific categories under which mutual funds schemes had to operate with a single scheme per category and defined the universe of opportunity for these various categories.

List of new categories are: 1. Mutual funds that invest in 60% or more of its assets in equity shares are known as equity mutual funds.

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Large-cap funds: these funds invest only in large-sized companies.

E.g. Axis Blue Chip Mutual Fund.

Mid-cap funds: These mutual funds invest only in mid-sized companies.

E.g. HDFC mid-cap Fund Small-cap funds – these mutual funds invest only in small-sized companies.

E.g. HDFC small-cap fund Sectoral funds: These mutual funds invest in companies in a particular sector.

E.g. SBI pharma fund is an area store that puts just in PHARMA organizations.

Thematic funds: These mutual funds invest in a particular theme.

E.g. HDFC housing opportunities Fund invests in companies related to the housing industry like cement, construction, metal & paint companies Dividend Yield Fund: These are mutual funds that invest in companies that pay regular dividends.

ELISS Fund: An Equity Linked Saving Schemes (ELSS) Fund is a tax saving mutual fund scheme. The investment in ELISS is locked for 3 years.

2. The mutual fund which invests money in government securities, debentures, corporate bonds & other money-market instruments are called debt mutual funds. They have lesser risk as compared to equity funds.

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Gilt funds: invest primarily in government securities Overnight funds: securities invest in bonds that mature in one day Usually, business owners park their money in these funds.

Liquid funds: is a high-credit quality fixed pay bringing in cash market instruments like treasury bills, commercial paper, etc., which has matured within 91 days Credit risk bonds: lend at least 65% of their money to not-so-highly rated companies.

Dynamic bond funds: can switch from short to long duration and vice versa for high returns.

Corporate bond funds: these plans contribute to any event 80% of absolute resources in high appraised securities Floating rate funds: invests in debt securities which include government bond, corporate bond, certificate of deposit (CD), municipal bond, or preferred stock.

3. The mutual fund scheme that is characterized by diversification within two or more asset classes is called hybrid mutual funds. The term “hybrid” indicates that the portfolio invests in multiple asset classes.

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Conservative hybrid fund- the asset is needed to make investments in both equity and debt instruments and for equity and equity-related instruments is between 10% to 25% of the all-out resources and that for debt instruments it is 75% to 90% of the entire belongings.

Balanced hybrid fund: the base investment requirement for this fund scheme is 40% to 60% of the whole effects for both equity as well as debt instruments. Arbitrage is not allowed in this scheme

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Aggressive hybrid fund: these assets put resources in both equity and equity-related and debt instruments with a base prerequisite of 65% to 80% for the former and 25% to 30% last mentioned.

Dynamic asset allocation or balanced advantage: this scheme is free to dynamically change the investment in any speculation i.e. equity and debt instruments.

Equity savings: this scheme put investment in both equity and debt securities. The base prerequisite for equity for equity-related instruments is 65% of all the total resources and for debt instruments, it is 10% of the total resources.

4. Funds that aim to satisfy the specific financial goals of the speculators, like retirement, child's education, marriage etc., etc. are called solution-oriented mutual funds.

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Retirement fund: these schemes having a lock-in period till the age of retirement, subject to a minimum lock-in period of 5 years.

Children’s fund: these funds aim for investment having a lock-in period till the child attains majority, subject to a minimum lock-in period of 5 years.

5. Other schemes • •

Index funds/ETFs- those schemes imitate a specific file by contributing in any event 95% of the absolute resources in the protections of the full belongings.

FOFs (Overseas/Domestic)- the FoF schemes have a minimum funding requirement of 95% of the full belongings withinside the underlying fund.

Conclusion By doing this recategorization and rationalization, SEBI intends to work with the MF industry and enable investors to compare schemes and select the one that aligns with their investment objective and risk profile to make life simple for the investor and to increase in transparency.

Understanding how MF Companies earn their cash through You By: Rashika Mutual Funds’ Investments do seem complicated at first especially for first-time investors.

Investing hard earned money in mutual funds which are subject to market risks does seem daunting since many people are not financial experts but understanding how mutual fund companies make money can help investors to make sound decisions and thus understand how to maximise returns and minimise their risk. Understanding the fees being charged, size and type of fees being charged which varies from fund to fund can lead to better decision making.

How do Companies garner Returns through mutual funds?

Mutual Funds primarily make money through sales charges that work like commissions and by charging investors a percentage of assets under management (AUM). Fees are easily the largest source of revenue for basic mutual fund companies though some companies may make separate investments of their own the most common source is fees which can be of different types like purchase fees, sales charges, or the mutual fund load, deferred sales charges, redemption fees, account fees and exchange fees.

Mutual Fund Companies charge investors a percentage of assets under management and may also charge a sales commission(load) upon fund purchase or redemption. Fund fees also called expense ratio can range from 0% to more than 2% depending on the fund’s operating costs and investment style.

However, it is widely acknowledged that no matter what category the mutual fund falls into, its fees and performance will depend on whether its actively or passively managed.

Exhibit 1 - How Mutual Fund Companies Earn Returns (Source- Sangam Sharma, Mutual Fund Evangelist)

Passively Managed Funds – A passively managed fund is strategically invested, and the performances of specific market indexes are matched and therefore they require little investment dexterity. Since these funds require little management, they will carry lower fees than actively managed funds but there is a catch here since the skills required for investment are less thus the return on passively managed funds is also not much. There are two types of passively managed funds such as –

1. Index Funds – These funds are made up of stocks comprising of a particular market index, such as S&P 500 or the NASDAQ or any other such similar index, so that the fund risk and returns mirror the risk as well as the return of the market.

2. Exchange-traded Funds – They can be traded like individual stocks but also offer diversification benefits of mutual funds.

They charge much lower fees than traditional mutual funds, but the costs of these funds may not be feasible to an active trader of mutual funds.

Actively Managed Funds – An actively managed fund has a manager or a team making decisions regarding the monetary investment of the fund. They often try to outperform the market or a benchmark index but are considered to be less lucrative compared to passively managed funds.

Know what you are charged and how– Fund Companies can attach an assortment of fees to their services and products but the inclusion of those fees at various points of the fund makes a great difference.

Sales Charge fees commonly referred to as loads that are triggered by the purchase of mutual fund shares by an investor. This suggests that the investor pays an additional percentage on top of the actual price of the share. The entire sales charge is not retained and a large portion of it is distributed to brokers and advisors.

Exhibit 2 - Types of fees imposed by the MF Companies (Source - Distribution Channels for Mutual Funds Retail Sales)

The most common types of loads are – Front End Loads They are instantaneously deducted from the investment amount before shares are purchased Back End Loads They can be charged at the time of the selling of the shares. The most widely used back end load is the contingent deferred sales charge (CDSC). It is expensive and the return usually drops to zero after about 10 years.

Some fund companies charge purchase or redemption fees which is quite different from sales charge. These charges are paid to the fund in all entirety and the fees are paid at the time the shares are bought while redemption fees are taken at the time the shares are sold off. Also, fund fees known as distribution fees more commonly known as 12b-1 fees are charged to shareholders to recoup any losses and are capped at 1% of the fund assets. This fee structure of 12b-1 fees differs from share class to share class. Class A-shares have lower fees compared to Class B and Class C Shares while some fund companies reduce it based on fund investment.

This is commonly known as a ‘breakpoint’ Many mutual funds these days do not have sales charges at all and are what we call no-load funds. This does not mean that they do not charge any fees and may still defray on marketing and distribution expenses. No-load companies still earn income from other kinds of fee income although their costs are substantially reduced.

And thus, the shareholders of a mutual fund company can reap returns in any of the three ways – 1. Income from Stock dividends and/or Bond interest gains Returns from the interest and dividend payments off of the fund’s underlying holdings.

2. Capital gain from securities sold Capital Profit secured on stocks which have been sold for a higher price capital profit which is again redistributed to the shareholders.

3. Increase in value of mutual fund scheme As per the standard asset appreciation, the value of the mutual fund shares increases.

All said and done, Mutual Fund companies are companies at the end of the day. Though the assets for a mutual fund company will differ greatly from the assets of any other company its ultimate goal is the same as that of any other company and that is to earn rich dividends for the shareholder.

So, understanding the whole process of Mutual funds investment is what will make it even better for the investor.

Who Can Invest in Mutual Funds?

By: Shailey Purpose of Mutual Funds The purpose of the mutual fund is to gain or inculcate investment as well as saving habits to the individuals by giving them a basic knowledge of its working, and eligibility criteria and also help the investors or individual reach its objective.

The Bigger Question All of us must have wondered who is eligible for investing in mutual funds. Below is the list of individuals who fulfil all the criteria to invest in this scheme.

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Resident Indian Individuals: An individual who is a citizen of India and stayed in India more than 182 days are eligible to invest in Mutual Funds.

Example: Let us consider that Mr X has invested Rs 2000 in a Mutual Funds for which he gets NAV (net asset value). On the money, he invested in the mutual funds of Rs 20. Through that way, the AMC (Asset Management Company) too will allot you 100 unit of Mutual Fund Scheme. Later on, the amount is entirely summed up and is indirectly invested in stock markets or instruments in which the fund manager invests your money. This is for Indian residents only.

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Indian Companies: A Company registered in India is an Indian Company and registered in India under the Companies Act of 1956. Indian Company is treated as resident in India are eligible to invest in mutual funds.

Example: Indian Companies such as TATA have their mutual fund schemes. They have 76 different types of investment schemes ranging from large and mid-cap funds to sectoral funds like pharma sector fund.

Eligibility Criteria: Step 1: -It should be registered under the Companies Act 1956.

Step 2: - It should be an authorized and licensed Company.

Step 3: - KYC should be done contactless through an app with a residential proof of Aadhar Card & Pan Card.

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Indian trusts / Charitable Trusts: Trust created for the advancement of education, promotion of public health, relief of poverty, etc. regarded as charitable in law is public charitable trust are eligible for investing in mutual funds.

Example: According to the Reliance Foundation Charitable Trust, there are certain guidelines that need to be followed by them before investing in the mutual fund scheme.

Eligibility Criteria for Indian Charitable trust Step 1: -The investments of the trust should be in Savings Certificate under the savings Certificate Act 1959. If there are some other securities or certificates then it should be issued by the Central government under the small saving scheme of the government.

Step 2: - Deposit in any account with the Post Office Savings Bank.

Step 3: - Investment or deposit can be done in any public sector company ▪

NBFC: Non-Banking Financial Companies are too eligible to invest in mutual funds.

Example: Shriram Transport Finance Company Limited.

This Shriram Transporter Finance Company Limited focuses on funding the commercial and business vehicles. The company itself specializes in General Insurance, Mutual Funds, Common Assets, Stock brokering and General Protection.

Eligibility Criteria for NBFC in Mutual Funds: Step 1: - The Company should be registered under the Companies Act 2013 Or should be already registered Under Companies Act 1956 as either Private Limited or a Public Limited Company.

Step 2:- The minimum net owned of the company should be Rs. 2 crores.

Step 3: - The 1/3rd of the directors must possess finance Experience.

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Provident Fund: A fund contributed by employees, employers, and state from with lump sum is provided to each employee during retirement. There certain Provident fund organizations that are also eligible for investment in Mutual Funds.

A) Non-Residents Including ▪

Non- Residents Indians (NRI): An Indian citizen residing outside India for a combined total of at least 183 days in a financial year is an NRI. NRIs too eligible to invest in mutual funds.

Eligibility Criteria for NRI to invest in Mutual funds: Step 1:- NRIs can invest in Indian Mutual Funds scheme subjected to provision applicable in FEMA. Step 2:- They should open an NRE or NRO account.

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Other Corporate Bodies: They are too eligible to invest in mutual funds.

B) Foreign Entities ▪ Foreign Investments institutes: FIIs are too eligible in investing mutual funds.

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Foreign citizens and other foreign entities: They are not allowed to invest in mutual funds in India.

Benefits of investing in Mutual Funds In today’s world, some mutual fund advisors give us suggestions and proper scheme regarding our budgets and plans. They also guide us through the entire process of Mutual Fund investments.

We all have heard the disclaimer, “Mutual Funds are subjected to market risks. Read all scheme related documents carefully”. “Kyuki Mutual Funds Sahi Hai.”. According to me, this famous saying holds some truth if we carefully analyse the security market and invest wisely.

How to invest in Mutual Funds?

By: Mohit Rao In order for you to be able to invest in mutual funds, you will have to submit all of your KYC (Know Your Customer) details through a SEBI-registered intermediary. This is done to prevent fraud and will make sure your identity can be verified. Especially in light of the recent pandemic, this whole process can be completed online. e-KYC This is a paperless version of KYC and can be done in three ways: 1. Complete the registration process online by using either a one-time password to your registered phone number or by using a biometric system.

2. Use your PAN (Permanent Account Number) card or Aadhar (unique identification number) card to complete KYC registration through a SEBI registered mutual fund advisor 3. Complete KYC on a whitelisted device operated by an intermediary and input your biometrics through their device.

To get you started on your journey of mutual funds investment you will require the following documents: Identity proof- Here a PAN card, Aadhar, passport, driving license, or a voter ID will do along with a recent picture (within the last six months) Address proof- Here an Aadhar card, driving license, passport, voter ID, or a bank passbook will do.

Now you can start investing in any of the following: Mutual fund houses- When going through a mutual fund house brokerage fees don’t have to be paid like on the website or some apps but you can only invest in the schemes of that fund house.

Registrar and Transfer Agents- Karvy is a popular example of an RTA that allows you to choose schemes across multiple mutual fund houses, this will require you to apply separately.

FINTECH investment platforms- These are 3rd party websites or apps that allow you to invest and work like RTAs. DEMAT account- You can invest directly through your De Materialisation account but will have to pay the brokerage charges as well as the expense ratio (i.e. how much of a fund's assets are used for administrative and other operating expenses).

Stock Exchanges- After completing a one-time registration you can invest in mutual funds directly through a stock exchange and skip brokerage fees.

MF Utilities- You can invest in these platforms which are run by many AMCs for fund transactions (Asset Management Companies).

What to consider for a first-time investor?

Lumpsum investment vs SIP A lump sum investment is a one-time investment and a SIP is a systematic investment plan that involves small investments at regular intervals. When deciding which to go for you must consider the following: 1. How much money are you able to invest?

2. Do you have a regular income to keep putting into the SIP or do you just have a large sum currently at your disposal?

3. Will you be able to keep on maintaining your SIP or would you rather put in a lump sum so you will not need to invest monthly and have no risk of making deadlines.

4. Market timing- When you invest a lump sum you are susceptible to the volatility of the market when you invest whereas when you invest in a SIP your investment is distributed over a period of time so your risk is lower. In SIP you also have the advantage of being able to invest when the market is down giving you the opportunity to get a weighted average return over time.

Fixing a goal for your investment- Define your financial goals, your budget as well as how much time you can set for investing. This will give you an idea of your risk appetite. Basing your investment on the duration you are able to invest for is more important than picking the fund with the highest return.

Diversifying your portfolio- If you invest in more than one mutual fund you can even out the risks, one fund underperforming will not bring down the worth of your whole portfolio.

Different Approaches to Investing The following terms are used by fund managers and while these approaches may not be of use to newer investors, they will certainly be encountered and must be understood when gaining a grasp of mutual funds. The approaches in question are top-down and bottom up approaches.

Top-Down Approach The top-down approach involves looking at the big picture (macro-economic factors), such as GDP growth of an economy, inflation, interest rates, and several other parameters that define the strength of the economy. The fund manager will then look at which segments/sectors of the economy are doing well or are expected to benefit more, given the macro picture. These sectors will have the highest weight in the portfolio. Conversely, the sectors which are expected to perform moderately will have less representation. After having decided the sectors and their respective weights, the fund manager will then pick the stocks that are well placed to increase the gains of that particular sector.

Bottom-Up Approach In contrast, the bottom-up approach focuses completely on individual attributes of a company, and the assumption that backs this approach is that a good company will perform well irrespective of the sector it operates in. While picking a stock, the fund manager looks to pick fundamentally strong companies with good cash flows and so fund management keeping in mind that its present valuation may provide room for appreciation in its stock as opposed to its future potential.

The bottom-up approach is often seen as very risky since it assumes a company will do well, but must still be picked up at the right time. The top-down approach also carries its own share of risk since a majority of the weight of the portfolio will be carried by a fewer number of sectors, meaning that the returns of the portfolio will depend heavily on the success of these main sectors.

With the information above I hope you will start to delve into the world of mutual funds.

CHARGES & TAXATION ASPECTS IN MF By: Agnit Mutual funds can provide income in two forms - capital gains and dividends. While capital gains are taxable at the hands of investors, the tax on mutual funds dividends (DDT) is paid by the fund house) on behalf of the investors.

Mutual Funds Capital Gains Tax for the financial year 2019-2020 Capital gain refers to the difference between the value at which an investor buys units of a mutual fund scheme and the value at which he/she sells or redeems them. For example, Mr X. On April 1, 2016, he invested Rs 1 lakh in a mutual fund scheme and on April 1, 2019, his investment value was Rs. 1.5 lakhs. He subsequently made a capital gain of Rs 50,000.

Mutual fund capital gains tax depends on the type of mutual fund scheme and the duration of the investment. Based on the term of investment, there are two types of capital gains tax - shortterm capital gains tax (STCG) and long-term capital gains tax (LTCG).

Equity investments are considered ‘short term’ if the holding period is less than 12 months whereas for Debt funds it is less than 36 months.

Hybrid equity-based funds (more than 65% equity exposure) are considered taxable equity funds. If the equity exposure of a hybrid fund is less than 65% or if it is equally exposed to equity and debt instruments, i.e. 50% equity and 50% debt, it is considered a taxable debt fund.

The long-term capital gain of equity mutual funds is exempt up to Rs 1 lakh per year. For example, if your long-term capital gain in the financial year 2018-19 is Rs. 1,50,000 only Rs. 50,000 will be taxable as LTCG. The index can be better understood with the help of an example. Mr X invested Rs. 100 in a debt fund in FY 2015-16 and sold it for Rs. 150 in FY-2018-19. Since Mr X is sold 3 years later, the profit is long-term and is subject to 20% LTCG tax with the index. In FY16 the CII is 254 and in FY19 it is 280. As a result, the purchase price of Mr X for tax purposes is increased to (280/254) * 100 = 110 and the taxable profit is 150 - 110 = 40 and the tax payable is 20% of 40 = Rs 8 & not Rs 10 (20% out of 50).

The capital loss under a mutual fund scheme can be adjusted to the capital gains earned on another mutual fund investment in the same year. This set-off cannot be made against other revenue heads.

Short-term capital losses can be adjusted for long-term to short-term capital gains. However, long-term capital losses can only be adjusted from long-term capital gains.

Mutual fund dividend taxation rules for the financial year 2020-2021 Dividend distribution tax is a liability paid by a company to the government according to the dividend paid by the company to the investors.

From the 2019-20 financial year, DDT should be paid to the government through the fund house managing the mutual fund rather than an investor. In most schemes, the DDT rate is 30%. However, according to the recent budget for the financial year 2020-21, the dividend tax is paid by the investor, not the fund house. Therefore, DDT was discontinued under the new tax regime.

Mutual fund taxation A. Equity Funds Tax savers and regular equity funds are considered the same for taxation. If LTCG exceeds Rs. 1 lakh per annum, LTCG tax on equity funds at the rate of 10% is applicable. However, ELSS funds are different from regular funds when it comes to the lock-in period. Although most

common equity funds do not have a lock-in period, ELSS funds have a lock-in period of three years. This means that ELSS mutual funds can only be redeemed at the end of the lock-in period.

Note: The total tax benefit of Rs 1 lakh, is cumulative of the capital gain of all equity instruments such as stocks and equity mutual funds B. Debt funding The debt fund's long-term capital gains are taxed at 20% after the indexation. Indexation is a method of factoring inflation from the time of purchase to the time of sales of units.

The indexation allows inflating the purchase price of debt funds to reduce the number of capital gains. Short-term profits from debt funds need to be added to gross income. They are subject to short-term capital gains tax (SCGT) and are taxed according to the income tax slab the person falls under.

C. Balanced funds Balanced funds are taxed according to equity exposure. Hybrid equity-based funds are taxed like any other equity fund, while hybrid debt-oriented funds are taxed like any other debt fund.

D. SIPs Systematic Investment Plans (SIP) are a way to invest in mutual funds. These are designed so that investors can invest in small amounts from time to time. This gives investors complete freedom to choose their frequency. It can be weekly, monthly, quarterly, biennial or annual.

The tax on mutual funds depends on the type of investment.

SIP investment is taxed on a pro-rate basis. Each SIP is treated as a new investment and its profits are taxed separately.

For example, you start a SIP of Rs 10,000 per month in an equity fund for 12 months. Each SIP is considered a new investment. So, after 12 months, if you decide to recoup all the corpus (investments and benefits) you earned, not all your wins will be tax-free. Only profits from the first SIP are tax-free, as the investment can only be completed in one year. The remaining profits are subject to short-term capital gains tax.

E. Security Transaction Tax (STT) Also, there is another type of tax called the Securities Transaction Tax (STT). The STT Government (Ministry of Finance) charges 0.001% when you decide to sell units of your Equity Fund or Hybrid Equity Oriented Fund. There is no STT on the sale of debt fund units. The investor does not have to pay STT separately as it is deducted from mutual fund returns.

Tax benefit of mutual funds The Equity-Linked Savings Scheme (ELSS) is a type of equity fund and is a type of equity fund and the only mutual fund scheme which qualifies for a tax deduction of Rs. 1.5 lakh per annum under Section 80C of the Income Tax Act. An ELSS has a lock-in period of 3 years, which means that the investment made in it cannot be withdrawn before 3 years.

It can be said that the more you hold on to your mutual fund units, the more tax-effective it will be. The long-term gains tax is very low compared to the short-term gains tax.

THE SIP EDUCATION By: Mohit As your children grow, get them a piggy bank or a gullak. This could be their first lesson in SIPS. Periodically give them some money and ask them to put it in their gullak. This accumulation of money over time will give children a lesson that small amounts saved over time can become big. It will also teach them to defer consuming today to plan for something bigger tomorrow. Further, introduce your teenager to the banking system by helping him open a bank account. The interest on the savings account will be his first return'.

That's why it's crucial to teach children and teenagers the importance of investing and SIPs. If they understand these concepts, they can set themselves up for life-long prosperity. Start with creating an environment at home where resources are used judiciously and saving is encouraged. It doesn't have to be money. Judicious use of basic amenities such as electricity, telephone, the car, etc., can instill the attitude to conserve. This attitude would later become the foundation for saving money. This is especially important in today's highly consumptionoriented times, where there are countless avenues to spend and children are frequently dazzled by the glitz. Do ensure that you walk the talk. Lead by example so that your children can emulate you.

As your child becomes comfortable with using the bank account, further graduate him to mutual funds: This will require some extended hand-holding, begin with telling your children why they need to invest for higher returns and why equity is the right option for that. Introduce them to the wonder of compounding. It's also important to keep reminding them that they must keep a long horizon. Make them think in terms of goals. You can open an account for them and let them invest small sums through SIPs. If their corpus diminishes due to a short-term correction, use that as an opportunity to tell them why continuing to invest is even more crucial now. Eventually, as the market recovers, they will enjoy the fruit of their perseverance.

Do allow your child from time to time to also buy things from part of the accumulated corpus.

This would both be a reward for him and a real-life manifestation of the power of saving and investing. This will motivate him to repeat the process.

As your children grow up into adults, managing money will become second nature to them. As they start earning, they will be more responsible with their expenditures and saving for the future. That will kickstart the virtuous cycle of wealth creation. Another advantage of teaching your children about money is that as adults they won't find themselves helpless or worse, in a financial crisis. No matter what career they choose or the subjects they study, financial education must be a part of their learning. That would probably be your best gift to them.

Finance your future dreams with SIP: The main purpose of investing is to achieve financial goals such as buying a home or creating a future educational plan for your children. SIPs can help you achieve these goals over time with a small but regular investment.

Fight for savings: SIPs help you incorporate a common savings practice as it requires you to invest a certain amount regularly. Regular investing in small amounts can lead to better results than investing a large amount of money.

SIPs offer flexibility: SIPs give you the flexibility to choose the amount you intend to invest in. SIP is a simple, easy, and inexpensive way to invest your future in the amount of Rs 500 every month.

Limit your exposure to stock options: By using SIP, you have the opportunity to regularly invest in the stock market regardless of the categories of the bull and the bear. By investing a fixed amount every month, you can get more units where prices are lower and vice versa so that, over time, the acquisition costs per unit are reduced. This is called the cost of the rupee on average.

Create wealth with the power of integration: Integration is a great friend of a professional investor. A Strategic Investment Plan (SIP) is one of the most effective ways to reduce market volatility and benefit from greater integration capacity over time.

With SIPs, you can dream big and gain a lot over time. Start investing with SIP today and work to achieve your dreams.

Investing in Lumpsum: While SIPs are the best way to invest in equity, there could be occasions when we have to invest a windfall lump sum. The recent rally in the market has left investors wondering if they should invest that lump sum now.

Something similar occurred with Abhijeet Solanki, who runs a photo studio specializing in weddings and other family occasions. He was pleasantly surprised when he received 30 lakhs as a gift from his grandparents at his wedding in January this year.

Abhijeet was a management student and knows how to manage his finances. He had started investing in equities through SIPs right when he started at his new job. However, he is not sure as to how he should invest this relatively bigger sum. When the market had started to fall in early March, he thought that would be a great opportunity to invest. However, as he waited for the market to bottom out, he never got an opportunity to invest as a rally soon followed.

Naturally, Abhijeet is extremely disappointed to have missed out on the rally. He has reservations about investing now as fears the rally could be followed by a downturn. given the economic impact of the pandemic and the lockdown.

What to do?

First of all, stop kicking yourself for having missed the rally. A market bottom is obvious only in hindsight.

Secondly, avoid the urge to time the market. No one knows in which direction the market will move in the short to medium term. Few can guess the next boom or bust. Because you never know precisely about the market directions, it's futile trying to time your entry and exit. That's why one should invest via SIPS. SIPs help you average your investment cost and they naturally flatten the effects of a market fall or rise.

If you are going to invest a lump sum in equity, better spread it over time. The larger and the more crucial the lump sum, the more the investment period. Normally, the period can range from six to 18 months. To benefit from a market crash, you might want to invest a part of your lump sum when the market falls by a certain percentage, but then this is completely optional.

Most investors would do well just by spreading the lump sum equally over a period.

Equity Mutual Fund By: Dishant INTRODUCTION An investment is an asset that is bought with the expectation that it will produce income or acknowledge an incentive eventually. Investment requires a careful and very good idea to avoid potential losses. Investment preferences of retail customers have evolved since the beginning of Mutual Funds. One of the most favoured categories is Equity Mutual Funds.

WHAT IS EQUITY MUTUAL FUNDS? Equity Mutual Funds invests largely in the shares of various companies. It tries to offer great returns by spreading its investment in various companies from different sectors with fluctuating market capitalization. Equity mutual funds are known for generating better returns compared to term deposits and debt-based funds. The risk associated with this fund is higher compared to other funds.

HOW DOES EQUITY MUTUAL FUNDS PERFORM? If an individual invests more than 60% of its total assets in the equity shares of various companies then a mutual fund scheme is classified as Equity Mutual Funds. Equity funds mostly deliver higher returns. The returns can fluctuate depending on the market and economic conditions. The fund manager’s objective is to provide higher returns for their investors.

WHAT ARE THE CLASSIFICATIONS OF EQUITY MUTUAL FUNDS? The funds are classified as per the investment preferences of the investors. Equity mutual funds are differentiated as: BASED ON INVESTMENT STRATEGY Theme and Sectoral Funds: An Equity Asset may choose to follow a particular investment theme like an International stock theme or developing business sector theme, and so on Likewise, a few plans may put resources into a specific sector of the market like BFSI, IT, Pharmaceutical, and so on. Also, note that sector or theme-based funds convey a higher risk since they focus on a particular sector or theme.

Focused Equity Fund: Focused Equity Fund follows a pattern by investing in a maximum of 30 stocks of a particular company having a market capitalization having market capitalization as indicated at the time of the launch of the strategy.

Contra Equity Fund: Contra Equity Fund analyze and evaluates the market to find the underperforming stocks and invest in them assuming that these stocks will provide profits in the long term.

BASED ON MARKET CAPITALIZATION Large-Cap Funds: The investment schemes invest a minimum of 80% of their total assets in equity shares of companies with large capital i.e. the top 100. These schemes are more stable and perform more consistently than mid-cap and small-cap companies.

Mid-Cap Funds: The investment schemes invest a minimum of 65% assets allocated into midcap companies i.e. placed between 101 to 250 as per market capitalization. This scheme offers a better return than the large-cap schemes but is more unstable than them.

Small-Cap Funds: The investment schemes invest around 65% of their total assets in equity shares of small-cap companies i.e. placed at 251st or below as per market capitalization. This scheme is highly unstable but offers better returns than large-cap and mid-cap schemes.

Multi-Cap Funds: The investment schemes invest around 65% of their total assets in equity shares of large-cap, mid-cap, and small-cap companies in a wavering proportion. The fund manager keeps rebalancing and reallocating assets to match the market according to the market fluctuations.

Large and Mid-Cap Funds: The investment scheme invests 35% of their total assets equally both large-cap and mid-cap. This scheme has great potential to offer better returns with lower instability.

BASED ON TAX BENEFIT Equity Linked Savings Scheme (ELSS): Equity-Linked Savings Schemes (ELSS) funds are the only tax-saving mutual fund investment scheme that invests widely in equity and equityrelated schemes. The tax benefits offered are up to Rs 1.5 lakh under Section 80C of the Income Tax Act. It has a lock-in period of 3 years mandatory.

WHAT ARE THE BENEFITS OF INVESTING IN EQUITY MUTUAL FUNDS? Equity Funds permit you to invest in the capital market without stressing over picking singular stocks or sectors. Some of the benefits are: Professional Management: Fund managers are the ones who manage the funds with enough knowledge of the functioning of the market. These experts analyze the market and study the market and the performance of the companies and then invest in the stocks that deliver great returns.

Portfolio diversification: Investments are exposed to different sectors in the market. In the diversification of the portfolio, the individual would achieve capital gains from the stocks which are performing well while the other stocks are underperforming.

Investment costs are low: Individuals can invest with a minimum amount of Rs 500 per month via Systematic Investment Plan (SIP).

Income from Dividends: Subscribers can earn extra income in the form of dividends; this happens when the company announces about it.

Liquidity: Subscribers can easily redeem its fund whenever required unless it is not in a scheme of a lock-in period of 3 years.

Tax benefits: Individuals investing in ELSS funds can get tax deductions under section 80C of the Income Tax Act. Also, can save up to Rs 46800 assuming the highest slab rate of income tax i.e. 30% plus education cess 4%.

WHAT ARE THE TAX BENEFITS IN EQUITY MUTUAL FUNDS? Capital Gains Tax If an individual holds the stocks for a period of up to 1 year then the capital gains earned by the individual are known as short-term capital gains or STCG which is 15%.

If an individual holds the stocks for more than 1 year then the capital gains earned by the individual are known as long-term capital gains or LTCG which is 10% only if LTCG is above Rs 1 Lakh.

Dividend Distribution Tax (DDT) If an individual has received evidence from the company then before distributing the dividends DDT is deducted i.e. 10%. This is a tax which is deducted at the source.

WHAT MAJOR THINGS SHOULD BE CONSIDERED BEFORE INVESTING IN THE EQUITY MUTUAL FUNDS? Financial goal: Always have a target or goal for the investment, after that based on the goal in mind the individual should evaluate and choose the best option to invest. Equity mutual funds are mostly considered by an individual to invest in the market.

The risk involved: Before investing in any equity share an individual should first see its risk factors as it will help him to choose the best option for investment without much risk.

Lock-in period: One should always see the lock-in period before investing as if an individual wants to redeem then in a lock-in period he/she won't be able to redeem before the lock-in period.

Asset Management Company and Fund Managers: In Mutual Funds, there are numerous Asset Management Companies (AMC). The fund managers decide and invest in different companies for great returns. He is the one who plans the investment strategies and allocations of the asset for every fund.

CONCLUSION Fund houses pool your money and invest in equity funds after fully examine and top to bottom research of the market. However, it is very important to comprehend the internal operations of equity funds. This incorporates knowing the goal of the equity fund and planning it to your risk profile. The following is the asset allocation which is followed by the investment system.

Lastly, an individual should know the cost proportion of the asset as it could affect returns.

Debt Funds By: Supriya Introduction We all know what debt is But, a very few of us know what a debt fund is and how it is associated with mutual funds!!?? So now we'll know what's debt fund?

A debt fund is a mutual fund scheme that invests in fixed income securities like bonds and treasury bills, corporate debt securities, money market instruments, monthly income plans, short term plans, liquid funds, and fixed maturity plans that offer capital appreciation. Debt funds also are known as Bond Funds or Fixed Income Funds.

Why should we invest in debt funds i.e.., what are the benefits of debt funds? Debt funds have relatively stable returns, high liquidity, decent safety and has a low-cost structure. Debt funds are optimal for investors who aim for regular income but are risk-reluctant. Debt funds are less risky than equity funds because they are less If you have been saving in traditional fixed income products like Bank Deposits, and searching for steady returns with low volatility, debt Mutual Funds might be a much better option, as they abet you to achieve your financial goals in a more tax-efficient manner and thus earn better returns. In operation, debt funds are not solely contrasted from other mutual fund schemes. However, in terms of the safety of capital, they score above equity Mutual Funds.

HOW DO DEBT FUNDS WORK? Debt funds generate returns for investors by investing their money in bonds and other fixedincome securities. This implies that these funds buy the bonds and earn interest income on the money. This is the same as how a Fixed Deposit (FD) works. When deposit in your bank, you're practically lending money to the bank. In return, the bank offers interest income on the cash lent.

However, there are more nuances to debt fund investments. For instance, a specific debt fund can purchase only specific securities of specific maturity ranges - a gilt fund can purchase only government bonds while a liquid fund can purchase securities of maturity up to 91 days. Debt funds also don't offer assured returns but have market-linked returns which may fluctuate.

Interest rates that are rising can have a positive impact on yields, but a negative impact on bond prices. The reverse is true when interest rates fall.

WHAT ARE DIFFERING TYPES OF DEBT FUNDS? Various sorts of debt fund available in the Indian market are 1. Short-Term Funds If you would like to invest for a shorter duration, say for 3 months or more, then these are the best debt funds for you to invest in. Short term funds invest in papers like Certificate of Deposit and commercial paper.

2. Ultra-Short-Term Funds These funds invest in short-term debt securities with some limited part in long-term securities.

The returns during this category are almost like the returns offered by short-term funds.

3. Liquid Funds Debt funds may be easily converted into cash that too within a working day or two. Liquid funds invest in highly liquid market securities like commercial paper (CPs), Treasury Bills, and Certificate of Deposit (CDs).

They invest in financial instruments with a maturity period of up to 91 days. Among all debt funds, liquid funds provide the foremost stable returns. Liquid funds are best fitted to investors having a surplus amount lying idle within the savings checking account.

4. Income Funds Investors invest their money in debt instruments like government securities and corporate debentures. Income funds are for investors with a high-risk appetite It works well for long-term investments since there's a high risk of change in interest rates.

So, invest in income funds if you would like to gain from the change of interest rates over an extended period.

5. Monthly Income Plans MIPs is a mixture of equities (around 10-15%) and glued income securities. MIPs are suitable for investors with a giant lump sum amount and need a monthly income on their investment.

6. Fixed Maturity Plans FMP is the answer for those looking to park their money for a hard and fast tenure during an uncertain rate of interest movements. The funds have a fixed maturity period. They deduct the risk of change in interest rates by holding it until maturity. So, the NAV of the fund isn't affected albeit interest rates up or down.

7. Dynamic Mutual Funds Dynamic funds switch aggressively between short-term and long-run debt funds. These funds invest over all classes of debt and money market instruments with no limit on maturity, or investment type. Returns are taxed as per your taxation slab if sold before three years and post that long-term capital gains tax applies.

8. Credit Opportunities These are almost like dynamic funds as these invest in debt starting from short term to long term to get high-interest income. These funds are applicable for investors who can take the risk for higher returns.

9. Debt-oriented hybrid funds As the name suggests, invest mostly in debt and little part of the corpus in equity. The equity a part of the portfolio would offer extra returns, but the exposure also makes them a bit risky.

10. Gilt Funds Investors invest their money in securities issued by both state and central government. There no risk related to gilt funds as these are backed by the government. However, these not completely risk-free and are susceptible to change in interest rates.

In fact, for long-term investing, they are the riskiest of all other debt funds available within the market due to their sensitivity to variations in interest rates

WHO SHOULD INVEST IN DEBT FUNDS? Debt funds are for investors inquisitive about moderate risk. The risk of investing in debt mutual funds is a smaller amount than in equity funds. If you are risk-averse, these funds are often the right choice for you.

You can also invest in debt funds if you have surplus possession. Debt funds will diversify the investment portfolio. This will be a decent way to reduce the general portfolio risk just in case you have got a better equity allocation in your portfolio.

CONCLUSION If you are searching for relatively stable income as compared to equities and limited exposure to market risk, debt mutual funds are an option worth exploring. You can choose among the various sort of debt funds like liquid funds, ultra-short-term debt funds, fixed maturity plans, and plenty of others to invest basis your investment goals and time horizon.

Top Performing Mutual Funds By: Yamini New investors often ask what the best funds in the market are, to see if they stumble across a magical list that will make them rich just that easily. But the reality is quite obviously different.

That being said, a list of top-performing mutual funds can be put together based on different criteria like short term performance, the category they belong to like large-cap, mid-cap or small-cap, if they are hybrid funds or pure equity funds, etc and using such criteria topperforming funds from 4 categories have been put together in the article.

Before we discuss the top-performing funds it is beneficial to observe the performance of each fund category over the past few years.

Fund Category Returns Name

1 Year

3 Years

5 Years

10 Years

Equity: Large Cap

1.96

5.04

9.2

7.76

Equity: Large & Mid Cap

3.77

1.49

8.76

9.45

Equity: Multi Cap

2.93

2.59

8.52

8.51

Equity: Mid Cap

10.64

1.01

8.54

11.24

Equity: Small Cap

12.89

-2.53

7.87

10.1

Equity: Value Oriented

2.62

-0.82

7.22

8.76

Equity: ELSS

3.22

2.19

8.51

8.88

Equity: Sectoral-Banking

-14.7

-3.41

5.82

2.37

Equity: Sectoral-Infrastructure

-7.96

-7.31

3.42

3.06

Equity: Sectoral-Pharma

54.76

14.54

6.33

13.85

Equity: Sectoral-Technology

39.92

25.54

14.76

14.71

Equity: Thematic

4.25

1.3

7.26

8.88

Equity: Thematic-Dividend Yield

4.02

-0.28

7.19

7.07

Equity: Thematic-MNC

3.8

2.86

6.49

12.6

Equity: Thematic-Energy

14.89

1.84

--

--

Equity: Thematic-PSU

-20.53

-12.77

-0.09

0.15

Equity: Thematic-Consumption

2.66

3.32

9.47

10.5

Equity: International

15.91

9.17

9.31

6.26

Debt: Long Duration

12.32

9.48

9.6

8.87

Debt: Medium to Long Duration

10.12

6.89

7.38

8

Debt: Medium Duration

6.24

5.95

6.84

7.71

Debt: Short Duration

8.87

6.37

7.03

8.02

Debt: Low Duration

6.38

5.07

6.1

7.43

Debt: Ultra Short Duration

5.53

5.97

6.53

7.96

Debt: Liquid

4.28

5.98

6.43

7.69

Debt: Money Market

5.92

6.98

7.15

8.09

Debt: Overnight

3.61

4.98

5.46

6.91

Debt: Dynamic Bond

9.35

7.09

7.71

8.62

Debt: Corporate Bond

9.88

7.6

7.8

8.3

Debt: Credit Risk

0.03

0.99

3.78

7.2

Debt: Banking and PSU

9.83

8.47

8.43

8.76

Debt: Floater

8.93

7.79

7.78

8.26

Debt: FMP

3.74

5.64

6.27

7.54

Debt: Gilt

11.04

8.56

8.75

8.89

Debt: Gilt with 10 year Constant Duration

12.02

10.15

10.35

9.87

Hybrid: Aggressive Hybrid

4.2

2.94

7.83

8.47

Hybrid: Balanced Hybrid

3.28

2.99

6.51

7.63

Hybrid: Conservative Hybrid

5.13

4.15

6.67

7.56

Hybrid: Equity Savings

4.43

3.79

6.12

--

Hybrid: Arbitrage

3.9

5.27

5.72

7.07

Hybrid: Dynamic Asset Allocation

6.13

4.46

7.12

8.06

Hybrid: Multi Asset Allocation

6.64

4.41

7.31

7.02

When a market fluctuates so often and due to many factors, it is almost impossible to standardize each fund category’s performance in the past. Nevertheless, it may be deduced that equity funds reap better returns in long term than the short term, debt funds remain consistent overall with lower risk. Hybrid funds earn lower returns in short term but better returns in long term because of their balanced portfolio and minimized risk.

Now that we have glanced at the overview, let us look at the top-performing schemes under different categories individually.

Equity funds Large-Cap funds: Scheme Name

NAV

3 Years

5 Years

Since Inception

Axis Bluechip Fund-Reg(G)

30.18

8.32

10.1

10.84

Canara Rob Bluechip Equity 26.84 Fund-Reg(G)

7.65

9.57

10.26

Edelweiss Large Cap Fund(G)

4.74

7.48

11.79

Essel Large Cap Equity Fund(G) 21.9

0.23

6.08

9.1

HSBC Large Cap Equity Fund(G) 205.39

2.3

7.51

18.5

ICICI Pru Bluechip Fund(G)

40.25

2.49

7.43

11.94

Indiabulls Blue Chip Fund(G)

19.57

1.33

6.01

8.09

35.48

Invesco India Largecap Fund(G) 28.54

3.67

7.04

9.9

Mirae Asset Large Cap Fund50.59 Reg(G)

4.52

9.73

13.87

SBI BlueChip Fund-Reg(G)

1.55

6.45

9.45

37.68

It can be deduced from the table that large-cap funds show very consistent results irrespective of the period in consideration and bullish or bearish market scenario. Net Asset Value remains moderate and returns over the years consistently grow.

All the companies involved in large-cap are very well established and are most likely the market leaders, therefore being very apt for investors with low-risk appetite and moderate yet consistent returns.

Mid-Cap Funds: Scheme Name

NAV

3 Years

5 Years

Since Inception

Axis Midcap Fund-Reg(G)

41.16

10.46

9.87

15.87

DSP Midcap Fund-Reg(G)

60.2

5.11

11.26

13.81

Edelweiss Mid Cap Fund-Reg(G) 27.5

2.59

7.43

8.25

HDFC Mid-Cap Opportunities 52.88 Fund(G)

-0.1

7.29

13.38

Invesco India Midcap Fund(G)

52.41

6.07

9.24

13.11

Kotak Emerging Equity Fund(G) 40.03

2.69

9.16

10.82

L&T Midcap Fund-Reg(G)

134.96

0.04

9.04

17.5

Nippon India Growth Fund(G)

1139.77

2.72

7.48

20.87

Tata Mid Cap Growth Fund(G)

142.93

2.69

6.85

10.66

4.25

9.53

6.1

Taurus Discovery (Midcap) Fund46.86 Reg(G)

One may notice that Mid-cap funds have high NAVs but have mediocre returns in the short term and no standard pattern in long term. This is because mid-cap funds are expected to be

the future markets if managed efficiently. But as can be deduced from the table, many of such companies might not reach their optimum potential and may even fail.

Therefore, new investors are advised not to opt for mid-caps, even though they might earn higher returns, they are riskier than large-cap funds.

Multi-Cap Funds 3 Years

5 Years

Since Inception

Aditya Birla SL Equity Fund(G) 698.5

0.58

7.97

21.19

Canara Rob Equity Diver Fund141.54 Reg(G)

6.83

8.92

16.83

DSP Equity Fund-Reg(G)

39.72

3.96

8.38

10.92

13.88

2.64

7.31

5.98

Kotak Standard Multicap Fund(G) 34.13

2.78

8.45

11.75

Motilal Oswal Multicap 35 Fund24.7 Reg(G)

-1.17

7.28

15.13

Parag Parikh Long Term Equity 30.34 Fund-Reg(G)

11.81

13.52

16.34

Principal Fund(G)

133.9

0.13

7.99

13.9

SBI Magnum Multicap Fund45.69 Reg(G)

0.95

7.34

10.63

UTI Equity Fund-Reg(G)

7.44

8.68

13.71

Scheme Name

Edelweiss Reg(G)

NAV

Multi-Cap

Multi

Cap

Fund-

Growth

151.57

Multi-cap funds are risk regulators. One may observe from the data given that the schemes perform extremely well in long term and moderately well in short term. Multi-cap funds can absorb shocks from the market because they include some large-cap funds and reap great returns because they include mid and small-cap funds.

Small-Cap Scheme Name

NAV(Rs)

3 Years

5 Years

Since Inception

SBI Small Cap Fund

60.23

3.10%

13.60%

23.10%

Nippon India Small Cap Fund

42.33

-0.80%

10.10%

15.40%

Kotak India Small Cap Fund

83.3

2.30%

9.90%

14.35%

L&T Emerging Business Fund

22.51

-6%

9%

13.31%

DSP BlackRock India Small Cap 62.027 Fund

-1.30%

8.50%

14.58%

HDFC India Small Cap Fund

-3%

8.20%

11.29%

ICICI Prudential India Small Cap 26.51 Fund

-3.70%

5.80%

7.75%

Franklin India Smaller companies 49.75 Fund

-5.80%

5.20%

11.40%

Aditya Birla Sun Life India Small 31.15 Cap Fund

-9.80%

5.10%

8.72%

Sundaram India Small Cap Fund 80.47

-8.30%

3%

14.17%

38.52

As one may observe from the above table, even the top-performing small-cap funds are highly volatile in the short term and are meant to reap great returns in the long term. The funds have showcased high returns in bullish market phases and extremely low performance in bearish market phases. Therefore, even to invest in the best small-cap funds the investor must have a high-risk appetite and patience to invest for 3 to 5 years to gain through capital appreciation.

Debt FundsLiquid Funds: Scheme Name

Risk

1 Yr return

Fund Size (in cr)

IDBI Liquid Fund

Low

4.90%

₹ 1,340.00

Franklin India Liquid Fund

Low

4.80%

₹ 2,132.00

Aditya Fund

Low

4.70%

₹ 32,611.00

Quant Liquid Fund

Low

6%

₹ 70.00

ICICI Prudential Liquid Fund

Low

4.70%

₹ 44,170.00

Nippon India Liquid Fund

Low

5%

₹ 24,930.00

LIC MFLiquid Fund

Low

4.80%

₹ 7,836.00

PGIM India Insta Cash Fund

Low

4.70%

₹ 670.00

Edelweiss Liquid Fund

Low

4.70%

₹ 1,145.00

TATA Liquid Fund

Low

4.80%

₹ 15,556.00

Birla Sun Life Liquid

Liquid funds have low risk and generate moderate returns in short periods as can be seen in the table above. The returns are moderate because liquid funds are investments in financial instruments with short maturity periods and no exit barriers, consequently making it apt for investors with low-risk appetite and short-term goals.

Credit Risk Funds Scheme Name

Risk

1yr returns

Fund Size (in cr)

HDFC Credit Risk Debt Fund

Moderate

10.90%

₹ 6,189.00

ICICI Prudential Credit Risk Fund Moderate

10.90%

₹ 6,563.00

Axis Credit Risk Fund

Moderate

9.40%

₹ 566.00

Kotak Credit Risk Fund

Moderately 8% Low

₹ 1,905.00

IDFC Credit Risk Fund

Moderate

8.30%

₹ 795.00

SBI Credit Risk Fund

Moderate

10%

₹ 3,721.00

Principal Credit Risk Fund

Moderate

12.30%

₹ 14.00

Invesco India Credit Risk Fund

Moderate

9.40%

₹ 147.00

L&T Credit Risk Fund

Moderate

6.50%

₹ 256.00

DSP Credit Risk Fund

Moderate

5.90%

₹ 328.00

The table above showcases that credit risk funds are attached with moderate risk but higher returns than liquid funds. New investors looking to venture into slightly riskier territories can invest in such funds and may even earn through capital gains if invested for long enough.

Gilt Mutual Funds 1yr returns

Fund Size (in cr)

Edelweiss Government Securities Moderate Fund

12.80%

₹ 61.00

IDFC Government Securities Moderate Fund Investment Plan

14.70%

₹ 1,596.00

Nippon India Gilt Securities Fund Moderate

12.40%

₹ 1,506.00

SBI Magnum Constant Maturity Moderate Fund

12%

₹ 745.00

DSP Government Securities Fund Moderate

13.80%

₹ 549.00

SBI Magnum Gilt Fund

Moderate

13%

₹ 3,693.00

LIC MF G Sec Fund

Moderate

11.70%

₹ 56.00

Axis Gilt Fund

Moderate

13.50%

₹ 140.00

Aditya Birla Sun life Government Moderate Securirites

12.50%

₹ 574.00

PGIM India Gilt Fund

10.60%

₹ 153.00

Scheme Name

Risk

Moderate

One may notice from the above values that Gilt funds earn relatively higher returns at a moderate risk level. Gilt funds allow retail investors to invest in Central and State Government bonds consequently, generating greater returns.

Hybrid Funds Scheme Name

Risk

Edelweiss Equity Savings Fund

Moderately 9.00% High

India bulls Savings Income Fund Moderate

1yr returns

5.30%

Fund Size (in cr)

₹ 75.00

₹ 13.00

ICICI Prudential Regular Savings Moderately 9.50% Fund High

₹ 2,115.00

Baroda Pioneer Hybrid Fund

₹ 26.00

Conservative

Moderate

12%

Canara Robecco Equity Debt Moderately 12.60% Allocation Fund High

Edelweiss Arbitrage Fund

Moderately 5% Low

₹ 3,438.00

₹ 3,316.00

Moderately 7.10% Mirae Asset Hybrid - Equity Fund High

₹ 3,735.00

BNP Paribas Substantial Equity Moderately 6.80% Hybrid Fund High

₹ 452.00

Moderately 5.20% Low

₹ 7,168.00

DSP Dynamic Asset Allocation Moderately 9.50% Fund High

₹ 1,633.00

Nippon India Arbitrage Fund

Hybrid funds are expected to minimize the overall risk and generate decent returns, and the case is the same in the above table. It is very beneficial for beginners, especially those who are afraid of facing deadly lows in equity investments as the risk remains in the moderate range and returns may be high depending on the market.

*Note: All the data available in the above tables has been collected on 6th November.

Myths related to Mutual funds By: Abdullah "Mutual funds are subjected to market risk". This is the most common line we have heard during advertisements or from brokers about Mutual funds. After hearing about mutual funds being subjected to market risk many of the people or investors who do not know mutual funds tend to make their perception and form their opinion. These opinions get communicated from one person to another person, these mass communications lead to the formation of myths in the market. Due to these myths, people lose their interest to invest in certain markets, one such market is mutual funds. This article will be the key to crack myths that have been formed about mutual funds and why one should not believe these myths.

1) Lot of documents are required.

We think lots of documents are required to invest in mutual funds but in reality, due to digitalization, the processes have become easier and more transparent. Know your customer (KYC) is a one-time registration process. This process can be done easily through SEBI registered intermediary and you may not undergo the same process again if you are investing through another intermediary. You need to submit some basic identity and address proofs and KYC will be done. KYC is a mandatory process, it is just like a ticket to an amusement park, once the ticket is purchased you can enjoy all rides. Similarly, once KYC is completed, you can invest in all mutual funds hassle-free.

2) Demat account is required for mutual fund investment.

People think a Demat account is mandatory to invest in mutual funds. An investor can buy mutual fund shares either from the Demat account or from a third-party intermediary. If bought through an intermediary you can hold mutual fund shares with physical fund certificates and this process does not require a Demat account. Demat account has some advantages like you can track your investment on a real-time basis, there will be no involvement of intermediaries, you can buy mutual funds directly from the company, and no need to hold any physical certificates. But this is not mandatory and investors can buy mutual fund shares from intermediaries and hold it in form of physical certificates.

3) Mutual fund investments are difficult to exit.

Another myth that is often heard about mutual funds is, that it is difficult to exit once you have started investing, many people believe once you have opted SIP for X years, this is a strong commitment they have to make and they cannot stop their investment before X years or they will be penalized for doing so. But the truth is investors can stop their investment at any point in time even if they have opted for SIP for the long term like 10 to 15 years. When an investor wants to exit from a mutual fund scheme, all he has to do is submit a redemption form. After this, his mutual fund will automatically be redeemed and money will be transferred to his registered bank account.

4) Investors need to invest a huge amount of money in mutual funds.

Most people say you need to invest thousands of rupees if you want to invest in mutual funds, but there is no such limitation. In contrast, it's opposite you invest according to your investment plan, investment can be made by a systematic investment plan and lumpsum mode. In a systematic investment plan, the investment can be made with the denomination as low as Rs. 500 per month and in lumpsum mode, the investment can be done with a small amount of Rs. 5000. There will be no monthly or annual maintenance charges even if you do not want to invest further.

5) Investment in mutual funds should be made for the long term.

Generally, mutual fund investments are made according to an individual's financial plans.

Some invest in a retirement fund, while others invest to buy tangible or intangible assets.

Financial goals are different for different people. Hence, people take advantage of compounding by investing for the very long term. There are many schemes for a different type of investors like for short term, medium-term investors can invest in liquid and short-term debt funds as they give better returns than other financial instruments like FD and long-term investors can invest in equity funds as this will help to attain your long-term financial goals.

6) Investor should be an expert to invest in mutual funds.

There is no need for an investor to have expert knowledge in mutual funds. Even if the investor has basic to no knowledge, he can invest in mutual funds. Mutual funds are a platform where common people can invest and earn high returns to achieve their financial goals. Mutual fund companies use their experienced fund managers and analysts and allocate your money to gain the maximum return possible. This feature is not available in other investment tools. But once you gain experience and knowledge, you can invest in other investment options too. In short, mutual funds are an inexpensive way in which investors can get a full-time professional fund manager to manage their money.

7) Investing in the best performing funds give better results.

Mutual funds ratings are used to gauge the past performance of the scheme. These ratings are dynamic and change continuously to market fluctuations. Due to these fluctuations, the funds that are on top today may not be on top of charts next month. Top-rated funds can be the first step to shortlist a scheme. Although this does not guarantee the performance and return to be as good as the past, the results may be optimal. The investment in a mutual fund scheme must be tracked to its benchmark and performance should be periodically monitored and then evaluate whether to stay invested in the scheme or to exit the scheme.

These are few important myths that have been floating across in the mutual fund market. These myths are the reason why common people hesitate to invest in mutual funds as they fear their investment will lose value and incur losses. It is also seen that due to economic, environmental, and political factors, the market changes abruptly. Hence the investor should be cautious and review his portfolio periodically.

How, Where and Limitations By: Meghana Are you thinking of investing in Mutual Funds?

Mutual funds are not bank deposits and are not guaranteed by FDIC or any other government organization. Mutual funds involve risks, including loss of some or total investment. Past performance is not a reliable indicator of future performance, but the past performance helps to access a fund’s volatility and its performance in various market conditions.

Before knowing where to invest, let’s know Why to invest.

The advantages that are involved with the investment in mutual funds.

1. Professional Management 2. Diversifications 3. Choice 4. Affordability 5. Liquidity 6. Automatic reinvestment

Where to Invest?

One can start investing in funds directly through the Demat account, which holds securities like stocks, mutual funds, bonds, exchange-traded funds, and government securities in one place.

Where to Start?

A mutual fund is set up in the form of a trust, which has Sponsor, Trustees, Asset Management Company (AMC) and Custodian. The trust is established by a sponsor or more than one sponsor who is like a promoter of a company and registered with Securities and Exchange Board of India (SEBI). The trustees of the mutual fund hold its property for the benefit of the unit holders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over the AMC. They monitor the performance and

compliance of SEBI regulations by the mutual fund. SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent.

Mutual funds houses One can physically visit an AMC office or the fund house website and start investing if your KYC is over. Some AMCs also have apps for investing in funds. The advantage of investing directly through the fund house is that one doesn’t have to pay agent/broker fees. However, one will only be able to invest in the projects of that particular fund house.

Registrar and Transfer Agents One can visit the SEBI- registered RTAs and start investing by completing the application form and submitting a cheque or bank draft at the branch office. CAMS and Karvy are more wellknown RTAs. Investor Service Centres (ICS) These are physical branch offices of mutual funds or RTAs in various parts of the country. All transactions, like investment or redemption, at these centers.

DEMAT Account Through a DEMAT account, one can invest in funds directly. This account holds stocks, mutual funds, bonds, exchange-traded funds, government securities. However, one has to pay annual charges to the broker, in addition to the expense ratio.

Stock Exchanges SEBI, since February 2020 has allowed investors to invest in mutual funds directly through recognized stock exchanges, allows them to detour brokers or intermediaries, but to detour them, one must complete the one-time online registration with NSE or BSE. How to invest in Current scenarios?

Before moving onto the details of best investments in 2020, one must keep two important points in mind, i.e. first, the best investing strategy is a diverse one. And second, make and stick to automatic investment plans. The 05 best mutual investments in 2020 are: · Axis Bluechip fund · Mirae Asset Emerging blue-chip fund · Canara Robeco Emerging Equity Fund · Axis Mid Cap Fund · SBI Equity Hybrid Fund

Limitations of Mutual Funds Following are some of the limitations of mutual funds.

Tax issues Although, the returns on investment are quite high, a mutual fund cannot guarantee lower tax bills. The tax amounts are usually high, especially in case of short-term gains.

Investor issues A mutual fund requires a deep and long-term analysis of the amount of investment and its potential investment areas. If the company fund manager changes regularly, it may adversely affect the returns on investment.

Fluctuating Returns Mutual funds are like many other investments where there is always the possibility that the value of mutual fund will depreciate, unlike fixed income products, such as bonds and treasury bills, mutual funds experience price fluctuations along with the stocks that make up the fund.

Over Diversification Although diversification is one of the keys to successful investing, many mutual fund investors tend to over diversify. The idea of diversification is to reduce the risks associated with holding a single security; over diversification occurs when investors acquire many funds that are highly related and, as a result, reduce benefits of diversification.

High Costs and Risks Mutual funds provide investors with professional management, but it comes at a cost. Funds will typically have a range of different fees that reduce the overall pay-out. In mutual funds, the fees are classified into two categories: shareholder fees and annual operating fees. The shareholder fees, in the forms of loads and redemption fees are paid directly by shareholders purchasing or selling the funds. The annual fund operating fees are charged as an annual percentage – usually ranging from 1-3%. These fees are assessed to mutual fund investors regardless of the performance of the fund. Mutual funds are subjected to market risks or assets risks. If the investment is not sufficiently diversified, it may involve huge losses.

Strategic Planning with Mutual Funds By: Anish Financial Planning plays a major role in protecting our future. But choosing the right investment among the different options present in the market is a hefty task. But the most sort after investing plan is investments in Mutual Fund. No matter what the age group is, it is essential to have the correct financial portfolio that combines all the asset classes in which investors can pour in their money.

The first stage of wealth accumulation starts from that period when you began earning your bread for a secure future. While you are growing through your phase, it carries an important essence at the advent of your career. While you are taking a stride towards wealth accumulation, the wealth creation phase encapsulates concentrating on the return from the investments you made. Here, comes Mutual Funds which provides an array of options and schemes for investors with various risk-taking instincts and financial goals. Also, both balanced funds as well as monthly income plans come with various options to invest in equity as well as debt asset classes. However, investment strategies vary from person to person.

Young Earner (Age group 24-30) A young individual who is just at the crossroads and have started earning shortly but have certain targets to achieve, he can invest through Equity Mutual Funds. This provides growth as well as capital protection. Now, with the increase in income, there will be a burden of the tax.

In such a scenario, he/she can go with E.L.S.S of Mutual Fund or P.P.F investment. Moreover, an insurance coverage plan must be there to mitigate sudden problems.

Short Term Goal Now when it comes to investing for short terms, Liquid Funds are ideal. They are the safest ones for the high rated corporates for a short span of time. Now suppose, say Amit has short term goals of saving for an annual trip. Now, he will decide what sort of money he is willing to pay for the trip and thereby decide accordingly how much to invest in mutual funds.

Mid Term Goal In order to satisfy the mid-term goal like buying a car, Amit can invest in aggressive hybrid funds. For these funds, almost around 65-80% of the funds lie in equity and remaining in debt.

Therefore, a small exposure to debt securities can easily stabilize the volatility in equity.

Long Term Goal For the long-term goals, like Amit wants to get maybe after five years. In this case, he should invest in Equity Mutual funds. There are various categories, but to start fresh he can stick to either mid-cap or large-cap funds. So, if he can follow this small practice for day to day financial activities, then he can save a sufficient amount of money even after covering all the monthly expenses.

Middle Aged People (35- 55) In the age group between 35 to 55 years of age, people are settled with kids and family. So, your next plan of action will be to secure the future of your kids and to plan his/her education.

This includes almost a budget of 40-50 lakes. Therefore, you have to allocate 30% to debt, 70% can move to equity out of which 50% goes to the large caps and 20% to the midcaps. Largecap is perfect for the middle-aged people with EPFO is going straight into the NIFTY. An amount of 1 lakh if invested in Nifty and the stock will shoot up as there is having tonnes of money, it tells that the liquidity demand is following very little stocks. Therefore, if you are investing in large caps at this point, it will provide you returns.

Retired Person (60 and above) Mutual Funds can bring growth and an optimum amount of wealth to the portfolio of senior citizens. There are a lot of retirement plans provided by various mutual funds. If we consider the equity funds, large-cap funds are of low risk, while mid and small-cap funds yield high risk-return. Equity Mutual Funds which are there for 1 year comes under the tax of only 10% for profit above 1 lakh. If the amount is held for less than 1 year, they are taxed at 15%. Debt mutual funds come under a tax rate of 20% for more than three years. But within three years Debt Mutual Funds are taxed under the slab rate. Below is the list of Mutual Fund investment options for Senior Citizens.

Jacob's Model Portfolio This model is generally used to build a model portfolio for investors based on various age groups. With the increase in age, both financial goals as well as the number of independents tend to grow. Therefore, it is mandatory to keep a close watch and uptake various changes as per the desired portfolio of the investors.

Young Unmarried Professionals ● 50% should go to aggressive equity funds. ● 25% available with high yield bond funds, growth funds, and income funds. ● 25% in conservative money market funds.

Couples with Two Sources of Incomes and Two Children's 35% comes to municipal bond funds. ● 30% will move to aggressive equity funds. ● 25% is invested in high yield bond funds as well as long-term growth funds. ● 10% in money market funds.

Older Couple with Single Income ● 35% in long-term municipal funds. ● 30% in short-term municipal funds. ● 25% in moderately aggressive equity funds. ● 10% in emerging growth equity funds.

Recently Retired Couples ● 40% in money market funds. ● 35% in equity funds for capital preservation or income. ● 25% in moderately aggressive equity funds for modest capital growth.

There is no perfect time to begin investing in mutual funds. One can start investing at any point in time. But when the investor moves into this part of investing, he/she should take into consideration various after effects of investments in various stages. Risk appetite and the financial goals are the two major attributes that provide the strategic asset allocation of portfolios. Therefore, if someone is unable to make any financial decisions, it is advisable to seek help from a financial planner. This makes the investment process quite seamless.

Risks Associated with Mutual Funds By: Pradeep “Mutual Funds’ investments are subject to market risk. Please read all Scheme related documents carefully before investing.” – Then too Mutual Funds SAHI HAI!!!

A line, which has stuck in each person’s mind by repeated advertising in order to make people aware that investing in it is just not a simple thing and states that there could be multiple risk associated with Mutual Funds and not for the means of sales promotion.

The scheme related documents include – KIM, SID & SAI

What are the risk of investing in Mutual Funds?

Risk comes in picture as mutual funds invest in a variety of financial instruments be it equities, debt, bonds and many more. Fluctuation in the prices brings the NAV of the invested amount at loss.

VOLATILITY RISK MARKET RISK

LIQUIDITY RISK RISK ASS WITH MUTUAL FUNDS INTEREST RATE RISK

CONCENTR-ATION RISK

CREDIT RISK

Volatility Risk This risk is purely associated to equity mutual funds where the amount is invested in the stock market. The value of the companies listed totally relies upon their performance also the stock market keeps on varying day by day. There could be other macroeconomic factors too, which can affect the share price of the companies, such as – the COVID 19 pandemic, which brought the Sensex to the lowest of its lifetime value.

Liquidity Risk: Another risk, which is related to the ELSS scheme of mutual funds specifically, where there is a lock in period of 3 years on the invested amount. This makes the investors unable to withdraw the money without incurring a loss. Even ETF’s also comes with liquidity risk, as this scheme comprises of buying and selling of shares of the company in stock market. At times due to a smaller number of buyers in the market, the amount cannot be redeemed that easily.

Interest Rate Risk: A kind of risk linked to investment in bonds or fixed income securities and it is due to rise in the interest rate of the security, which further reduces the value of the same. Hence, there exists an inverse relation between the interest rate and the value if the security. A reason of fluctuation in the interest rates could be the credit available with the lenders and demand amongst the buyers.

Credit Risk: When the issuer or the borrower fails to repay the bond or the interest amount it might end up as a valueless investment. Credit rating agencies rate various agencies, which look after investments. Thus, a person always looks for firm with high rating will pay less and vice versa. Investment grade securities are often incorporated by the fund manager.

Concentration Risk: The word basically means focusing completely on one thing. This type of risk in mutual funds arises when investors tend to invest entire money into a single sector or single scheme and doing so is never a good option. In such cases, profits can be very huge but at times, the investor might have to incur loss repeatedly.

Market Risk: A kind of risk which leads to losses for an investor mainly due to the bad condition of the market. Multiple factors affect the market such as any kind of natural disaster, inflation, political issues, interest rate fluctuation, recession and many more. This risk can be also known as systematic risk, which is non-diversifiable even though an investor has a portfolio.

Only option left with the investors is to wait for the market to come at a normal situation.

How can the above-mentioned risks be avoided?

All these risks can be avoided or can be minimised by taking some necessary steps by the investor, which would help him reduce his losses in mutual funds.

Portfolio with respect to an investors risk and return The investment profile for an investor is to made according to the capability of taking risks and this would help him to combat multiple risks by a single step. Multiple factors are to be considered before making an investment profile, as this would help to know that whether the investor is ready to bear risks with higher returns or interested in low risk investments with long-term financial goal hence considering these factors the investment is to be planned

The three magical words Systematic Investment Plan If a person wants to know what is compounding and its effect on the principal amount it can be clearly comprehended through systematic investment plan. Using this kind of plan no doubt there will be definitely a reduction in risk burden and rather than investing a big amount at a single time, investments can be made in small amounts.

Systematic Transfer Plan Investors are also provided with some comfort zone by STP. Investing through this route not only contributes to minimise the risk over a period but at the same time it would provide a privilege to the investor to move its fund from one fund to another which would provide a balance to the investor with respect to gains, losses and risks simultaneously and successfully.

Eat – Sleep – Invest – Diversify Repeat Every investor had somewhere heard about this word – diversification and if heard by an investor then he should do so while making an investment in mutual funds. An investor should always make sure that the funds are invested across various asset categories such as debt, equity etc. that would help the investor balance the risk return ratio. Considering the risk bearing capacity of the investor and the financial goals diversification of the portfolio should be made.

If an investors desires for short term financial goals, he might opt for debt schemes for capital protection and if has long term goals then quity mutual funds would be the best option as it would provide high reward factor accompanied with high risk.

Want to create wealth, want to save tax, money at the time of emergency, want regular income, want to do one time or regular investment? multiple questions one answer MUTUAL FUNDS… SAHI HAI!!!

KIM – Key Information Memorandum SAI – Statement of Additional Information

SID – Scheme Information Document

FINANCIAL TRIVIA

MONEY FOR THOUGHT: Stocks with fantastic long-term returns can be agonizing to own over the short-term.

From 1995 to 2015, the US-listed Monster Beverage topped the charts – its shares produced a total return of 105,000%, turning every $1,000 into more than $1 million. But Monster Beverage’s stock price had also dropped by 50% or more from a peak on four separate occasions. From 1997 to 2020, the peak-to-trough decline for Amazon in each year ranged from 12.6% to 83.0%, meaning to say that Amazon’s stock price had experienced a doubledigit peak-to-trough fall every year. Over the same period, Amazon’s stock price climbed from US$1.96 to US$ 3,135, for an astonishing gain of over 159948.97%.

So, we can state that Volatility in the stock market is a feature, not a bug.

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