Mutual Funds

Seven wonders of SIP

seven-wonders-of-sip

When you receive your salary every month, just saving is not enough. That money has to be invested so that it can earn you more money. A Systematic Investment Plan (SIP) also called `the good EMI’ helps you do just that.

SIP is a method of investing a fixed sum, regularly, in a mutual fund scheme. It allows an investor to buy units regularly on a specific date of the month. If you invest through SIP it can work wonders for your financial goals.

Let us look at how you can benefit by investing in SIP

1) Rupee cost averaging
In SIP, a particular amount is auto-debited at fixed intervals regardless of the share price/NAV. Due to this, an investor automatically buys more units when markets are low and vice versa thus averaging the cost of purchase over time. This can go a long way in minimizing the effects of investing in volatile market.

2) Flexibility
The investor has the freedom to decide the amount, period and interval of SIP as per their convenience. They can also increase, decrease or stop the SIP anytime.

3) Diversification
SIP investors can have diversification among mutual funds depending upon their financial goals and risk tolerance. It follows the principle of don’t put all your eggs in one basket. This diversification often helps in minimizing the risk for the investor. They can have multiple SIPs of different amount for different time frames to suit their short, medium and long term goals. Similarly they can invest in different types of fund.

4) Helps you to meet financial goals
SIP helps you to get closer to your goals in a systematic and disciplined manner. An investor may have multiple SIPs, where each SIP investment is linked to a particular goal. This allows the investor to tune each investment aggressively or conservatively depending on return expected. For example if you have a goal to by a car in a year or two, the amount of investment required to meet that goal can be quantified easily. Thus, the investor can choose the right fund to achieve this goal.

5) Disciplined investing
Disciplined investing is necessary to build wealth in long term. Systematic investing is a disciplined plan that makes it easy to invest automatically. Investing regularly in small amounts can often lead to better results than investing in a lump sum. Your saved money will be utilized to build wealth, thus, saving you from spending your savings unnecessarily. For example, a monthly SIP of Rs.5,000 for a period of 20 years can build a corpus of 66 lacs at CAGR of 15%.

6) No need to time the market
Some people time the market to invest in stocks. However, timing the market requires extensive market knowledge, research, technical analysis and a lot of time from your end. Further it could also be risky. SIP eliminates the need to actively tracking the market and hence, you can stop worrying about when and how much to invest.

7) Benefit of compounding
It takes drops of water to make the mighty ocean. The small amount that you start investing today will help you build a big corpus. Regular investment helps in creating a substantial amount of wealth which includes your own contribution, plus returns compounded over the years. Start early to reap the maximum benefit.

SIP or Time the Market?

Small is Powerful-SIP

The way market is behaving since last six months, most of us with running SIP’s, have this question, what to do next? Continue, Stop, Reduce or Increase SIP?

When we start an equity SIP, our calculation is based on the long term goal allocation & not the short term impact. Logic of SIP is based on two facts:

  1. Monthly Savings: where based on cash-flow, savings are parked in the allocated equity fund, else same will remain in the bank savings account (earning just 4/6%) till the time one decides, or best, will get consumed in some lifestyle purchase.
  2. Cost Averaging: idea is simple, no one can predict the market, therefore the best time-tested philosophy, is to make the best out of the market, i.e. to follow a disciplined approach on monthly investment, irrespective of the market movement (ups & downs of the market), and average out the cost, by buying at all levels.

In case your Goal is nearing, within 12 to 18 months, one should consider reducing or shifting major allocation towards conservative assets. Its recommended to speak & consult your advisor, before stepping or taking the final decision.

Reduce or Increase SIP allocation; one should desist making impulsive decision based on market swings and act like a cowboy. Again, its recommended to speak & consult your advisor on your rationale.

But if your cash-flow permits, keep on increasing your SIP, not because of the market swings, but an exercise, which one should consider every year, towards increasing SIP. Another way to increase, is to link the increase with the increase in income levels.

SIP has created more wealth with people across the world, than the Timing-the-market Cowboy’s, who would have made mediocre returns. Only problem, we don’t analyse, but get to hear more from the cowboys.

My Mutual Fund is Losing Money

loosing money in mutual funds

I’m investing in the best performing mutual fund schemes, but after I invest, the fund’s performance starts degrading. What do I do?

This is the story with each one of us. When NAV is low, FEAR factor surrounds us (what to do now?) & when NAV is high, we have GREED (to hold on or to buy more?).

It’s like planting a tree, once the seed is planted, we virtually see it every day, to check on the growth. First few days/ weeks are very exciting, when we see a small bud, leaves sprouting; but after few weeks or a month, it becomes frustrating, as growth is small & we want to see a big tree right away. Whereas it will take years, before the tree is fully formed, will bear flowers & fruits, and above all it must withstand harsh weather& other factors.

Your returns or growth in a Mutual Fund, is an outcome of multiple years of holding period. And in this period, market will behave in both directions, i.e. market may come down resulting in lower NAV or go-up in one swing, with a higher NAV.

Prudent advice; is to just ignore the market swings & stay-put, and only bother about the holding period. No one can control markets, but one can control to STAY PUT 😉.

You are not investing to time the market, but investing for an objective, which has a duration (time-line); for instance, your kid’s education, which is 10 years from now. Therefore, just STAY PUT.

Mid-cap & Small-cap downfall – What do I do now?

midcap downfall

Mid-cap & Small-cap stocks (& mutual funds) are witnessing a major correction since budget in Jan-18. One of the reason is the SEBI’s new guideline on stock categorization, resulting in Mutual funds correcting & realigning based on new guideline.

On the other hand, NIFTY is close to an all-time high now, but what one needs to understand is that, historically we have witnessed these scenarios again and again, i.e.a surge in the market over a period of years, after a massive plunge.

This includes the year 2003 when after the market plummeted, NIFTY Mid Cap and BSE Small Cap Indices have grown at the rate of 75% and 99% CAGR for the next 3 years. This theory is further bolstered when after reaching a low in 2007, NIFTY Mid Cap and NIFTY Small Cap grew at an absolute rate of 68% and 25% respectively. Last but not the least, 2013 also serves as a perfect example when NIFTY Mid Cap and NIFTY Small Cap grew at an absolute rate of 134% and 142% respectively after the shoddy performance.

All of this brings us to the current scenario, where we are witnessing the same volatility in the market where the NIFTY Mid Cap and NIFTY Small Cap have ALREADY CORRECTED 26% and 16% respectively FROM ITS ALL TIME HIGH. But nothing should deter us from making further investments looking at the growth opportunities. Therefore, this gives us the clue to invest in niche Mid & Small Cap Funds.

Can You Analyze My Mutual Fund Portfolio? Is it Right Time to Opt for Large-cap Funds for 3-4 Years?

What should I do when market is down
These are questions we receive daily, thru various mediums (like Quora). Is this right time to invest in Mutual funds? Which Mutual funds are best? What is the correct time frame to invest in Mutual Funds? and many more…
So today I am sharing summary of the answers I have already posted on Quora.
It’s great to see that you are clear on your investment objective. But what is not logical, is the fact that; you want “Advisory Services”, which is free of cost, and that too, thru an open forum like Quora. That’s the biggest mistake you are undertaking, for your savings.
First, Direct plans are only meant for people, who can do independent research on their own, i.e. don’t need any guidance or help whatsoever, whereas you are seeking help.

Even though some Samaritan may offer you advice today, but next 25 years, who you will ask these questions? which will coming again & again, as market will give swings (market fall, like last 6 months)? on what next? Also, you may have question, is the advice biased?

Rule of Life: Nothing comes FREE, and if its free, there is a CATCH!

(more…)

My SIP is showing a lower return? What to do?

My SIP is showing a lower return? What to do?

India is going thru one of the most uncertain times; as national elections are due in a year’s time to decide on current incumbent or the new stakeholders, US trade war has intensified with Trumps unrelenting signature, Crude surge is unstoppable with OPEC targeting USD 100 per barrel, and many more related events.

All these events are resulting into stock markets behaving badly. This is where one gets to see a difference between the Matured & Panic state of mind.

SIP is a monthly commitment on an individual’s saving, to be invested in funds based on risk, objective & the asset allocation model. One of the key feature of a SIP is the Price Averaging, which means, one is entering or buying Mutual Funds at various price points. These price points can be low, as-well-as high, based on the stock market swings. In-short, one gets to invest at low points in the market, as-well-as high points in the market.

We are today going thru a phase, where we are witnessing such low points, and this may continue for some time to come. But it’s a big opportunity in hand, to buy at low price and to bring the overall cost down (total invested value), by the Rule of Averaging. Therefore, whenever the market is low, even though overall returns will be lower (earlier purchase), but it’ll be the best time to enter market (buy), or even TOP-UP on SIP (increase).

You invest in equity SIP, keeping in mind a long-term horizon (at least 5 years+). Equity market has always given good returns, whenever the holding period is long, with “Matured state of mind”.

All that’s required; is to keep in touch with your advisor, such that you have someone who you can reason & talk, on your portfolio or on any financial query.

Mutual Funds = 2-minute Maggi Noddle

Is mutual funds selection as easy as instant noodles?

Sounds exciting! This is the story of Mutual funds today.

We all are looking at Mutual Funds like a 2-minute Maggi noddle. Maggi is promoted as an instant noddle, i.e. it can be cooked in flat 2 minutes, without any hassle & help, compared to Chinese noodles, which requires time & effort.

Mutual Funds on a similar note, are projected as the best investment avenue, where one can easily shortlist funds (with diverse options), and execution (buy) takes not more than 10 minutes effort (as claimed by many).

But it misses out one of the important piece; i.e. Mutual Fund is not a commodity, which you can experience & feel instantly. You buy Mutual Funds from some objective in mind, which will result in returns (how much you want your money to grow), and same can be experienced NOT NOW, but after 5/10/15 years of holding.

What if, the desired returns don’t come? Can you go back 5/10/15 years to the seller & question?

Mutual Fund offers one of the best investments avenue, no doubt. But to arrive at the right fund, one needs to go thru a process, which will usually depend on your financial standing, data & your advisors know-how.

How to find the right advisor? Usually an advisor, will first try to understand your requirements, in the form of your objective, returns, holding period, risk, cash-flow. Post that, will offer you insights on asset allocation, returns expected, risk & funds selection. This entire exercise will last for few days to few weeks, depending on how many times you will ask, WHY? 😉

Mutual Funds Guide to Millennial

Mutual-Funds-Guide-to-Millennial

Akash just completed his MBA and landed a six figure salaried job in IT company. The shift from small town to city with its fast lifestyle made him ecstatic as his dreams came true. Work hard and party harder became his life. At the same time, he fulfilled his family obligations by taking care of his parents. His girlfriend born and brought up in city had a problem of plenty. Living life today was the mantra. But a sudden economic slowdown and many of these young generation had no saving to fall back on. Welcome to the millennial generation of urban India.

The generation born between 1980-2000 is demanding, ambitious, tech savvy, entrepreneurial and socially conscious. At the same time, they are stressed due to need for recognition and instant success. They want to be financially independent soon and like to fulfill their passion for travel, adventure, priced possessions at early age. Whatever maybe the goals, one needs to provide for it and earn more returns so that dreams come true sooner. Mutual fund investing fits the bill as professional managed investments, track record, ease of access, daily update and returns matching the risk all go well with the millennial generation. A good financial planner can help them to invest in high returns scheme to fulfill their dreams. Higher savings at early age can help them to achieve short term as well long-term goals for the young generation. Mutual funds are preferred over traditional investment options like real estate and gold due to stagnant returns and higher investments required. Direct investments in stocks requires in-depth and continuous study which all may not be inclined and often lose money in greed for short term returns. There is no doubt that Mutual fund will replace traditional form of investments as more millennial choose it as the most preferred option. 

Mutual Funds Name Change, Category consolidation – how does this affect me?

Mutual Funds Name Change

“What’s in a name? that which we call a rose by any other name would smell as sweet.”
― William Shakespeare, Romeo and Juliet

Most Indian mutual fund managers won’t agree with the above quote. SEBI has instructed Mutual fund companies to distinguish different schemes in terms of asset allocation and investment strategy. The aim is make it easier for the investor to compare the products. According to the regulator, AMCs use these names as marketing tools to attract customers and many of the new buyers may not fully understand the scheme. This makes sense if one has to choose from around 1998 mutual fund schemes (AMFI March 2016 newsletter) that have raised funds till date.

The regulator mandated fund houses to categorize all their existing and future schemes into five broad categories and 36 sub-categories. The five broad categories are – equity funds, debt funds, hybrid funds, solution-oriented funds and other funds.

The categorization and the related name change will make life easier for the investor. It will give clear understanding in which category the investments fall and returns generated by similar fund products. Secondly it will bring clarity of various terms that are defined by each fund as per their investment strategy (e.g. Large cap, Mid cap etc). Various rating agencies will now be able to rank the fund in the broad categories defined by SEBI. The investor can make more informed decision based on the expert analysis provide by various funds. This change however needs to be explained to investors in simple form by the mutual fund industry as name change might be misunderstood by lay investor as change of scheme or asset class.

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