A beginner’s guide to mutual fund investment

The cost of living, real estate, medical and education cost are on all-time high. You might be worried that with the current investments of FDs, PPF and other risk-averse investments, will you be able to build a corpus big enough to fund your family’s financial needs. Investing directly in stock market might not seem a good idea due to the market’s volatile nature. So, if you don’t want to take very high risk and want to earn good returns on your investment, mutual funds are definitely a perfect buy for you.

Mutual funds are investments wherein large number of people pool in their money and this money is invested by experts called as the fund manager. Basically, the responsibility of the fund manager is to manage the portfolio and its trading activities. The money can be invested in equities, bonds, debentures, government securities etc.

Banks and financial institutions offer investments in mutual funds. SEBI monitors the mutual funds investment on a regular basis. To prevent investors from fraud/embezzlement, the SEBI forms policies and procedures which should be followed by mutual fund houses.

Mutual funds are broadly categorized into 3 types:

1. Equity based mutual funds

Mutual funds which invest entire funds of the investors in the stock market are equity based mutual funds. The return on investment of these funds depends on the performance of the market. Though the equity funds are high in risk but they have the ability to generate high returns.

2. Debt based mutual funds

As the name says, these mutual funds invest the investor’s funds in government bonds/securities and fixed income securities. Debt based funds are low in risk as well as return. This fund is more suited to people who want to enjoy a fixed income without any risk to their investments.

3. Balanced mutual funds

Balanced funds provide a balance to the investment by investing both in debt markets as well as equity markets. Generally, 65% of the money is invested in equity markets and the rest is investment in debt market. Balanced mutual funds help the investor enjoy the benefits of opportunity from investing in equities as well as bring stability of the investment by investing a part of the total investment in debt market.

Mode of Payment

Payment can be made in two ways i.e Lump-sum payment or SIPs

Lump-sum payment is one-time payment for buying a mutual fund. SIP is an acronym for systematic investment plan in which the investor pays a fixed amount of money at frequent intervals generally monthly. If you want to invest in debt securities which are low in risk and low in return, go for lump-sum payment mode and if you wish to invest in equities fund, go for SIPs.

NAV

NAV is the price per unit of the fund which helps you know the performance of the fund. At the time of investing in mutual fund, the investor is allotted units as per the NAV of the fund. Suppose, you invest Rs.10,000/- in fund XYZ, wherein the NAV was Rs.20/- per unit. So, as per the NAV, you will be allotted 500 units of the mutual fund.

Types of investing options:

Ideally, there are two types of funds. The open ended funds and the close ended funds.

1. Open-ended funds

In case of open-ended funds, the investor can put money and withdraw money as and when he wants. This is because there is no limitation on the number of units which can be issued by mutual fund.

2. Close-ended funds

In close-ended funds, the investor cannot withdraw money as and when required. There is a lock-in-period imposed on such funds. Generally, mutual funds companies have a lock-in-period of 3 years while offering a close-ended scheme to the general public.

Entry and exit load

Entry load is charged as the time of investing of investing in mutual funds and exit load is charged at the time of withdrawal of funds. Now-a-days, mutual fund companies provide free entry load and an exit load of 1%, if the money is withdrawn before the stipulated time frame.

Documents required for investing in a mutual fund are:

You have to submit your bank account, PAN card and KYC (Identity proof and Address proof) documents. A recent passport size photograph of the investor has to be provided with the application form of mutual fund.

Source:   A beginner’s guide to mutual fund investment

Top 5 Financially Savvy decisions to be taken in this financial New Year

Financial savvy decisions help you to utilize your money effectively and get optimal returns on the same. The financial moves you make now will determine whether you’ll thrive financially or have a financially secure future during the course of this year. Firstly, you need to set your financial goal according to your needs and resources and then take the financial moves to achieve your goals. Below mentioned are the top 5 financially savvy decisions to be taken this financial New Year:

1. Going cashless: In 2016 government pushed demonetization, which has created a new era for cashless transactions. If has become evident that it is important to know the usage of credit , debit cards , banking , and mobile banking .Online banking is not only convenient but also saves time and cost . You should also Link your Aadhar card with bank account and investments that will further helps to buy online insurance policy and even a NPS account .Also in future it will be easy for bank portability.
2. Investing:Saving money and investing it strategically is essential for a secure future and to make your money grow. There are various channels where you can invest your money like Mutual Funds,equity, SIP , Gold ,bonds etc but  You should invest according to your risk appetite and income. Although Market movements and timing plays an important factor while investing in market linked investments but it is advisable to keep investing regularly and follow your financial goals instead of deferring due to market movements. In present scenario investing in SIP can be considered a best bet. It helps to combat the market uncertainties by investing regularly and spreading the risk across time and allows the money cost averaging.

Investing in PPF and VPF: Traditionally, fixed depths were considered as safe investment options. But with demonetization the FD rates have dropped to 7 %. So it is better to opt for more lucrative options like investing in Public provident funds and Employee provident funds (EPF) which are more secure and unlike banks, government cannot cut the PPF rates beyond a point. If you are salaried, FEPF is statutory you don’t need to bother about it, it will fetch you good returns. You can also use voluntary Provident Fund (VPF) to build up the debt part of your portfolio.

Gold: It is advisable to invest not more than 10% of your investment portfolio in gold as financial experts expect that gold prices may drop further due to uncertainties in foreign markets.

3. Shifting your loan to MCLR:

If you have taken a home loan, you might be paying a higher interest if you loan is linked with the prime lending rate or the base rate .While MCLR (marginal cost of lending rate) is lower than the lending rate.So if there lies a difference of 50-60 base points between your existing rate and new rate, then it is advisable to switch to MCLR by paying an extra conversion fee. This will help you to cut down on your EMI and in turn saving money.

4. Don’t let your cash be idle: Sometimes it happens that we let our cash be idle in the saving account and just that 4% interest. But that cash can be used for better returns. You can open a fixed deposit or a better option is to invest this money in short term debt funds which can deliver up to 7-8% returns annually also in short term debt funds you can get tax benefits and have the flexibility to withdraw or invest more as per your requirement.
5. Real Estate: Buying own house: Demonetization had hit the real estate sector badly .Property rates have dropped drastically. A lot of sellers want to sell of their property at very low rates .It is expected that property rates will future drop reducing the demand further reducing the rates.So if you are looking for buying a house or property, this is the best time. However, one should buy a property for personal use only as buying a property for investment purpose won’t be a good idea as the rates are still too high.

Lastly, apart from the above mentioned moves it is always better to consult a financial advisor. A financial planner will help you achieve your financial goals by strategically utilizing your money to get optimal returns.  Also remember that  Financial independence largely depends on how well you use your money, thus you need to create a contingency fund that you can use in case of emergency .It is good to be self-sufficient and have a corpus amount for uncertainties rather than depending on others.

Source:  Top 5 Financially Savvy decisions to be taken in this financial New Year

Here’s How To Calculate How Much You Need to Save For Retirement

Life has become a race where you are constantly running to achieve deadlines and targets. Here, targets and deadlines do not imply what your boss sets for you or what your work demands, instead it entails your monthly expenses, EMIs, rents, loans, child expenses and basically all your responsibilities which stop you from doing all that you love to do.

Amidst this, one major event invariably takes a backseat, which is planning for your retirement. Old age is inevitable and unavoidable, but a phase of your life where you will be able to fulfill all your dreams. Planning for this time is imperative and thus, it is high time you wake up from your sleep and start your retirement planning.

Benefits of Retirement Planning

Before you start calculating the funds you will need for retirement it is important to know how your planning will help.

• Retirement planning will ensure you have a secure life once you stop working and there is no steady income. You can opt for a pension plan so that this worry is taken care of.
• It ensures a lump sum or regular income which will guarantee you continue living the same way as you did and you do not need to compromise. Your pension plan can ensure your regular income.
• You will not need to depend on your children to take care of your needs. You like always be self sufficient and independent.
• You can take all the holidays you wanted to and basically, live your dreams and enjoy life to the fullest.
• Most of the retirement plans come with a death benefit and thus, retirement planning secures your family in case of an eventuality.

Things to Consider when Planning for Retirement

Retirement Age:

Before you start planning you need to know when you will retire and when will you start withdrawing benefits. This will also help you to plan how many years you have to save. For people who are doing their own business or are in a profession where there is no retirement age, they need to think when they will need the funds. Pension plans if taken earlier helps you to accumulate a larger corpus.

Life Span:

No one can answer the question that how many years will they live post retirement but an approximate age can be thought of. Many life expectancy calculators are available online which can help. Thus, if you retire at the age of 62 and your life expectancy is say, 90 years, you know that you need to plan an income for 28 years. 

Current Lifestyle:

You need to calculate the annual or monthly expenses that you incur, and also see which of these will remain or increase when you retire. For example when you are in your 30’s you might be paying EMIs for home loan and a car loan and you will be paying for school fees of your children and their monthly expenses which is something you will not need to pay later. On the other hand, your medical and travel expenses might increase and your household expenses will increase too depending on inflation. This will help you come to a figure you will need every year when you retire. You need to choose your pension plan accordingly.

Inflation:

While calculating your requirement post retirement you definitely need to account for inflation. Once you know the amount you will need at the current cost an inflation rate of 6-7% will need to be accounted for. Everything will become more expensive due to rising prices and thus, what you save as per the current scenario will not last you for long. 2 lakh today will not have the same value 20 years later thus, planning for a figure which has taken into account the inflation is important.

Sources of Income:

After you have arrived at a figure of the amount you will need when you retire, you need to list down the sources of income you will have then. If you have a business or some rentals coming in, the amount you need to save will differ. For people who have no sources of income, they will need to start investing in a manner that they can cater to all their needs later.

After all the above has been done, you will know how much money you will need to have a good and comfortable life and then you can start allocating funds annually and invest in different retirement plans and investment options.

Source: Here’s How To Calculate How Much You Need to Save For Retirement