Choosing the right fund to invest

Selecting a fund in hindsight is easy, as anyone investing in top funds for the past few years (such as HDFC 200, Franklin Templeton, DSP) would agree. Many investors reaped over 20% returns in the past few years and those who look back, only wish they had chosen the right funds.

While hindsight is definitely a gift, it is not one to rely on for future investment. Many investors make the folly of solely relying on the past performance of funds to make an investment decision. However, what you need is an overview of various factors such as past performance, CRISIL ranking, fund house reputation, portfolio diversification and expense ratio.

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Choosing a fund becomes important when you have a long-term investment horizon in mind. If you plan to stay invested for 8-10 years, investing in an equity fund is a wise option. Here are some tips to choose the best fund for your requirements:

  1. How is your money invested – When you choose a fund to invest in, check what are you looking for – debt, equity or money market? Once you choose the type of fund, it is imperative to check how the money is going to be invested. A well diversified portfolio is key to good returns.
  2. Key information document – Read your key information document and scheme information document well. It contains all the information about the scheme as well as about the fund house. The reputation and approach of the fund house is very important to understand, as you are mandating it to invest your money on your behalf. It is important to know the team managing your funds. Are they seasoned investors who will manage your money well?
  3. Expenses – Even though all funds in India come without a sales cost (no load funds), asset management fee and brokerage fee is often ignored while selecting a fund. Funds with lower portfolio turnover ratio have lesser costs associated with them. Secondly, look for funds that charge lower asset management fee. You will find many well-performing funds charging less than 2% per annum.
  4. Fund performance – When checking for fund performance, look for consistency and not volatility in returns. For equity funds, it is a good idea to check returns over a 3-5 year period, benchmarked against an index and other funds in the category.
  5. Consistent investments – When you start investing in a mutual fund, stop thinking of it as a liquid amount for at least 8-10 years. Make consistent payments and let the magic of compounding work over a period of minimum 8-10 years. Starting an SIP to invest in mutual funds or ELSS can be a good way to achieve discipline in your investments.

It is important to plan your investments well. At Navemarg, Dr. Celso can guide you to achieve your future objectives with well-planned investments. Contact now for a consultation.

 

 

 

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Volatility and Investments

Every investor is made to fear market fluctuations and many-an-investor stay away from investing in equity and mutual funds as they consider market risk to be their biggest enemy.

Undoubtedly, investment returns are closely related to market volatility and investors stand to gain or lose from volatility, however, the thing that savvy investor must understand is that volatility is their best friend in the market.

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Yes, you heard us right. It is a simple concept – if the market doesn’t go up and down cyclically, there will be no opportunities for new investors and sellers in the market.

Here’s why volatility is good for investors:

As the market descends on a downward trajectory, it becomes possible for investors to buy erstwhile high priced shares at low prices. Though many investors take advantage of low prices, they lose their cool if share prices fall further and register a huge loss.

However, in such a case, volatility is not the culprit, but bad investment strategy is. In order to get returns, the entry time and exit time is key. You have to wait for a period of time to take full advantage of the cyclic nature of equity markets. History has proven time and again that whatever goes down comes back up, much stronger. In fact, many funds gave best returns in the five year period post the global financial crisis.

Equity investments have provided returns over 15% over a long term horizon. It is also true that slumps in the market are always followed by recovery and growth. A patient investor understands this and befriends volatility for sound investment strategy.

Key takeaways:

  1. Volatility is the friend of patient investors.
  2. Markets are cyclic in nature. Slumps have historically been followed by growth.
  3. Do not try to time the market. Instead, time your entry into the market.
  4. Align your investments to your goals to plan effectively for the future.
  5. Consider professional financial management services by an expert like Dr. Celso at NaveMarg to have your money working for you.

5 ways to save tax

Are you surprised that your monthly pay cheque happens to be much lesser than your CTC? It is quite possible that heavy taxes are burning a hole in your pocket.

The progressive taxation in India is a concept many find hard to understand and this lack of knowledge and inefficient tax planning can lead to thousands being deducted from your salary.

If you recently faced the wrath of the taxman, this new financial year plan your investments smartly and save tax legally by planning ahead.

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Section 80C of the IT Act is the most common section under which one can claim tax deductions. You can invest a maximum of INR 150,000 per financial year in any of the following schemes and claim tax deductions against your salary for the particular amount:

  • ELSS – ELSS or Equity Linked Saving Schemes are really the only instruments that give real returns above inflation. As far as liquidity, tax benefits on maturity and flexibility are concerned, ELSSs outscore most of the other investment options, offering tax free returns on maturity. ELSSs are great for investors who have a risk appetite. Linked to the market, they are volatile in nature but have consistently given returns over 14% on a long-term horizon. It is possible to start investing in ELSS online. Choose a well-performing fund and invest in a lump sum or opt for SIP to spread your risk.
  • SIPs or Systematic Investment Plans – Apart from promoting disciplined savings, SIPs also offer returns of over 10% on a medium to long-term horizon. You can start investing with as low as INR 500 per month and if you choose to systematically invest in an ELSS, you could also receive tax benefit under Section 80C.
  • PPF or Public Provident Fund – A historic favourite with most traditional investors, the budget this year has taken the sheen out of this investment scheme. From 8.7%, the annual interest has been brought down to 8.1%. However, those who are looking for safe and assured returns may still opt for PPF, as it is still one of the best traditional savings plan on the horizon.
  • School Fee – Deduction is allowed under Section 80C for tuition fee paid for your child’s education. Benefit can be claimed for maximum 2 children, and each spouse can claim for 2 children individually. This deduction is not available for funding spouse’s education and can only be claimed if you are not claiming tax benefit for your own education. Total cap of INR 150,000 under Section 80C applies.
  • House Loan – Take advantage of the low property prices to buy a house as well as save tax. The principal amount of the loan is deductible up to INR 150,000 under Section 80C but can only be claimed once the construction of the house is complete. The interest on your home loan is deductible under Section 24 subject to a maximum limit of INR 200,000. For first homebuyers, an additional deduction of INR 50,000 has been announced in the budget this year under Section 80EE.

 Take the lead on your taxes now. Start the financial year on a fresh note by getting in touch with Dr. Celso at NaveMarg for innovative and easy to follow investment advice.