Category Archives: Mutual Funds

Can SIPs in equity mutual funds help to avoid losses?

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Advertisements with the tag line ‘Mutual Funds Sahi Hai’ have become popular among retail investors. Such awareness programs are run by Association of Mutual Funds of India (AMFI) and individual fund houses to educate retail investors. Investors now know that one does not need a huge lumpsum amount to invest in the stock markets. Even small amounts as low as Rs.500 can be invested in mutual funds on a regular basis to create long term wealth through SIP (Systematic Investment Plan).

How do Direct plans in Mutual Funds make a difference to your long-term returns?

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The regulations in the mutual fund industry have evolved over time and in the best interest of investors. After the abolition of entry load in 2009, the SEBI introduced zero-commission, i.e., direct plans in 2013. This means that you as an investor can directly buy mutual funds from the fund house with no distributor/broker/agent in the picture. Thanks to the internet and the various digital platforms available today, it has become even more easier now to buy mutual funds directly online.

The one crucial thing that you should NOT ignore while selecting an Equity Mutual Fund:

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Investors lay a lot of emphasis on past returns and star ratings while selecting an equity mutual fund. Some do-it-yourself investors (DIYers) also consider investment objective, fund size, expense ratio, fund house, fund manager, etc. But there is one crucial factor that investors usually ignore in fund selection. In a scheme document or a fund advertisement, the one thing that is always mentioned is “Mutual funds are subject to market risk”. Yes, it is the RISK FACTOR that investors do not consider at all in selecting a fund. You must be knowing that higher the risk, higher the returns. What do you think is better & preferable – 18% returns with acceptable risk or 20% returns with very high risk? Do you know how much risk is your mutual fund taking in generating an X% of return for you?  How will it perform in a falling market?

Is your Mutual Fund performing well? How do you evaluate?

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With the rising stock markets, the value of your equity mutual fund must also be going up. Assume your mutual fund has clocked 15 per cent annualised returns. On the face of it, 15 per cent returns look good, as it has obviously beaten inflation. But is this enough? How do you interpret this 15 per cent? Analysing it in isolation is not very helpful. Performance must be viewed on a relative basis. Here is how you can evaluate your mutual fund performance.

Dividend or Growth option – which one is better in equity mutual funds?

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Many a times, I sense that people do not completely understand the financial products they are investing in. These can be easily gauged from the kind of questions they ask. For instance, amongst the many queries I receive on investments, the commonly asked are about suggesting a good SIP (systematic investment plan) mutual fund or dividend fund or a growth fund. There are no such funds actually. These are just methods of investing. The rationale behind buying mutual funds is inappropriate at times and such decisions are often influenced by agents. Their selling point – ‘Buy this mutual fund because this fund gives regular dividends or buy because dividends are tax free’.

Understanding STP and SWP investing options in Mutual Funds

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Investing in mutual funds via systematic investment plan (SIP) is common knowledge amongst investors. But majority of the retail investors do not know that there are other investment options in mutual funds which can help them to tackle volatility in stock markets. These are known as systematic transfer plan (STP) and systematic withdrawal plan (SWP). Even if investors have heard of these terms, they are not exactly sure how they work.