Mutual funds

9 Reasons why you should invest in Mutual Funds in 2021

Everyone likes to grow and invest their wealth but hesitate in investing across various investment products due to lack of knowledge or fear. 

A Mutual fund is one such investment option that could help you grow wealth to meet your financial goals either over the short-term or over the long-term. Before moving into the benefits of investing in mutual funds, let’s spend some to understand what are mutual funds and how do they work

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Save Tax and Grow Wealth with ELSS

Those who pay the taxes will be familiar with this product called Equity-Linked saving schemes. If you are the person who is looking to save and invest to save the tax, ELSS could turn out to the best rewarding investment option. The ELSS funds have been superior to the other tax saving investment options.

If you invest in certain products like a life insurance policy, Public Provident Funds, or units of an ELSS scheme, you can get a tax deduction on your taxable income. Thus, ELSS is a type of Mutual Fund which has a lock-in period of 3 years along with the tax exemption under section 80C of the Income Tax Act.

How is ELSS better than other tax-saving instruments?

Here is a comparison of ELSS with other tax-saving investment options.

  • Lock-in period: ELSS has a minimum lock-in period of 3 years when compared with the other tax-saving instruments.
Instruments Lock-in period
ELSS 3 years
FD 5 years
NSC 5 years
PPF 15 years
NPS Till retirement

 

  • Returns: ELSS have the potential to generate good returns when compared with other instruments.
Instruments Returns earned
ELSS 15-18%
FD 6-8%
NSC 7-10%
PPF 8-10%
NPS 9-11%

 

  • Taxation: Like all other tax saving instruments, the amount invested in ELSS is tax-deductible under section 80C of the Income Tax Act and allows a maximum deduction of Rs 1,50,000. Unlike other tax-saving instruments, the returns generated through investment in ELSS and NPS are partially taxable and are not fully taxable. Capital gains on ELSS up to 1 lakh is exempted from tax.
  • SIP option: In a few tax-saving instruments like FD and NSC, only a lump sum amount is acceptable. Whereas you can invest in ELSS through SIP(Systematic Investment Plan) which allows you to deposit a small amount at regular intervals (weekly, monthly, quarterly, yearly) which can be as low as Rs 500.
  • Risk: ELSS will involve a higher amount of risk when compared with the other instruments because they are Equities are subjected to market fluctuations.
Now that you know ELSS is better than other tax saving instruments and start investing through Finity.
investment & profitability

Reality Check: You, Your Investments & Profitability

Since the past month, equity markets have been significantly choppy. While many savvy investors have taken it in stride and are harping on the correction as an opportunity to buy more at discount prices, there is a large faction of mutual fund investors for whom the sweat on the brow has not dried since over a month.

Investors who have started investing in mutual funds only a year back or so are experiencing the real stomach-churns for probably the first time. All this time, novice investors had been exposed to only the bright side of the world of equities with overwhelming returns, many may even have regretted not investing more before the uptick. However now, as the cycle changes, the regret has switched sides because of the “red numbers” in the investment reports.

So, what’s the way ahead for a common Indian investor whose only goal to invest in mutual funds was to build wealth over a longer term? Tried & tested across periods, successful investors swear by these principles for investing during choppy times.

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” -Warren Buffet

‘Market Cycles’ are called cycles for a reason – Don’t react as if you did not know that equity markets are volatile.

Equity markets are sensitive to multiple factors including macro-economic environment, geopolitical scenarios, sectoral stress and similar. The markets react and reflect people’s expectations in the very distinct near term and quite often than not in an exaggerated manner. “Kneejerk reaction” is among the most used phrases on Dalal Street for a reason. However, those who stood the test of time and believed in investing discipline emerged with bountiful wealth.

Sure, the current pandemic has led to a steep decline in trade & commercial activities. But, do you really think that all businesses are going to come to a grinding halt, and more importantly – remain so forever? If not, there is no reason for you to not believe in a recovery of equities – which is nothing but reflective of business health in the longer term.
Right from the 2009 financial crisis to European crisis, North Korean missile tests, Fed Rate hikes and similar global tantrums, equity markets have survived it all and yet delivered spectacular returns over the period.

Ever wondered why?

Recovery and wealth building

Simple, do you believe that many years down the line, the world (includes national economies, sectors, companies, humans, art, music and everything) will reach a pedestal at least some place higher than now?

Basically, do you believe that mankind will continue to progress?

If your answer is yes, you must realise that equities are nothing but a reflection of economic progress (driven by mankind, obviously) and so has a direct correlation and reason to grow with the rest of the world.

“We continue to make more money when snoring than when active.”
-Warren Buffett

The ability to time the market right each time is not just a matter of intellectual ability, it also requires some amount of psychic abilities

Equity markets fluctuate basis the demand and supply by millions of entities.

Can you read a single mind? If not, why try read millions of them and time the market?

Millions of minds and algorithms maintain the demand-supply and consequent pricing in capital markets. What is the likelihood that you would be able to fathom the direction in which the majority decisions would flow?

Even when you think you can make some sense out of the chaos, let me tell you, very often even the entire market gets things wrong – hence the term “correction” instead of “decline” is used to describe such scenarios when sudden enlightenment reverses the effect of overtly optimistic valuations previously placed by the market.

Following is a classic illustration of what would have happened if your parents did what you are contemplating now –

Impact on skipping SIP

Honestly, nobody – literally nobody in the world can time the market while many are paid to try. The best way to go about investing is through a periodic investment (think SIP) just so that you manage to average your purchase cost across cycles and benefit from the rupee-cost averaging.

“Most People don’t plan to fail. They fail to plan.”

-John L. Beckley

Plan right & believe in it – That’s the reason you had a plan in the first place

Times like now are testing times where many novice investors get shaken by volatility and choose to step out of the markets instead of riding the tides till, they reach their goals. Statistically, an investor can expect failure 100% of the times he invests without thinking it through.

Asset allocation and financial planning are key to being profitable and building wealth. Let’s say you start exercising to get fit – you have a planned schedule, workout routine and diet plan. While planning, you knew it would take at least 8 months of perseverance before you achieve your target body. Now, what happens if you follow the regime regularly but don’t see much of an impact in one month? Would you stop? If you stop, you know who is to blame when eight months have passed, summer has begun, and you can’t get into your summer outfit on the beach.

Quite often in life, you will not be able to achieve goals (financial as well as non-financial) if you give up way before the time comes when you were expecting to reap the benefits.

It is extremely important that you plan extremely well, keep reviewing and make situational alterations – not a revamp.

Please understand, there’s a fine line between being reactive & course-correction.

While these principles are not a definite guide to becoming Uncle Scrooge wading through an ocean of gold coins, but it sure can help you achieve your financial goals.

Anybody can be a mutual fund investor with SIP

Did you know that it takes ₹100 to become an investor? Well, as curious as it sounds, it is far easier than you think to become an investor.

Anybody over 18 can be a pro-investor. Here’s how!

Did you know that it takes ₹100 to become an investor? Well, as curious as it sounds, it is far easier than you think to become an investor. If an individual has a PAN card and completed his KYC for investment, it takes only to be an adult to invest in mutual funds. But why would someone so young, want to invest in mutual funds? What kind of opportunity can it present to someone who is just out of college? 

Why would you want to be a mutual fund investor?

For every hidden Zuckerberg, Musk or Gates hidden among scholars and graduates one very essential ingredient is always missing. The ability to fund your life or career goals on your own. While this is just the tip of the iceberg, there are so many dreams and goals young individuals have that get lost in time because they don’t have the resources for fulfiling their dreams. This is where mutual funds could be the ticket to achieving goals and fulfiling dreams.

Anybody can invest in a lump sum mutual fund or an SIP. An SIP, is a Systematic Investment Plan where you are able to make investments on a monthly basis. While SIPs are a monthly affair, they start at ₹100/month and the investment amount can always be adjusted. It allows you to invest in regular intervals. It is also called the “planned way of investing.” It helps investors to cultivate a habit of saving and accomplish the goal of wealth creation. You can invest on an SIP on the go on Finity app where SIPs are extremely easy to maintain can be tracked 24×7 with real-time tracking and much more.

How do you determine the amount and time for the investment necessary to achieve your goals?

Ever had the burning sensation of a new idea in your mind and did not know where to start? It gets tragic when people don’t work on their ideas because they do not have the financial resources. Here is what you need to do. You need to calculate how much time and how much money you would have to invest to achieve your goal. Such calculations may get overwhelming unless there is a tool which can calculate your investment requirements based on goals and invest accordingly. ‘Save for a Goal’ tool on Finity app can help in doing so.

It takes a matter of seconds to select your goal on this tool and it will not only project the amount that you need to save for your goal but the amount of investment that is necessary to be made. You can also toggle with your risk appetite and plan your investment to save your particular goal.

What if your investment KYC isn’t done?

It has been made mandatory by the Government of India, to complete a once in a life-time KYC  process which allows people to invest in Indian mutual funds. It might sound like a task but it isn’t much of an effort if you get it done on Finity app. It takes only a few minutes to complete it as long as you have your essential documents with you. It’s completely paperless and does not levy any charges

Don’t have dreams? You definitely need to start an SIP, then. With SIP, you would have to invest in regular investments helping you in maintaining a healthy financial routine because you know that a minimal portion of your income would go for your investment every month. Such investments would help to practise discipline when it comes to managing your funds or finances.

In other words, c’est la vie and start an SIP, only on Finity app from an early phase of your career, so that you can use your professional skills to fulfil your dreams and not just others.

Is it a good time to invest in midcap and small cap funds?

The equity market is never meant to take a straight-line trajectory. It has its shares of ups and downs based on a number of other factors like the general economic and political conditions within and outside the country, the interplay of global capital markets, movement of the local currency, and many other factors.

There are 5000 odd stocks listed on the Bombay Stock Exchange, there is a classification put in place to differentiate between the stocks based on market capitalization. For the uninitiated, market capitalization is the market value of all outstanding shares of a company.

According to changed norms for fund categorization, large-cap funds can only invest in Top 100 stocks by market capitalization, mid-cap funds can choose between the 100-250th stocks and small-cap funds from the 251st stock by market cap.

What Is So Interesting About The Mid Cap And Small-Cap Space?

The Upside of Mid & Small Cap Space

Is it only the market capitalization that makes mid-cap and small-cap space unique and interesting? Of course not!!

Mid-caps and small-cap space represent that universe of the stocks which are budding or has the highest potential for growth. These companies are in their expansion phases and often prove to be value buys. These companies are not very popular so there are a limited number of value seekers investing in this space.

In a phase when the market is growing, the mid-cap and small-cap stocks often perform better than the large-cap stocks due to their potential of growth. Similarly, the mid-cap and the small-cap funds that majorly invest in these companies do well than the large-cap peers.

No wonder there is a lot of interest in this space.

The Downside of Mid & Small Cap Space

The Mid& Small Cap universe has a number of green-horn companies.

While the management of large-cap stocks is seasoned and can better weather a crisis, midcaps and small caps stocks might still be reaching there. Also, these stocks can quickly go down when there is an economic crisis/bear phase in the market.

Therefore investment in this space is not free from risks as these stocks show higher highs and lower lows (volatility).

Although, Mid-caps and small-cap mutual funds are handled by experienced fund managers yet they cannot guarantee you lesser volatility.

Performance of Mid-Caps/Small Caps vis-a-vis large caps

All said and done each one of us looks to maximize our investments. So performance is a key factor.

We looked into the performance of BSE Large Cap 100, BSE Mid Cap and BSE Small-Cap indices over a 5 year period. This is considered as a proxy for Large Cap and Mid& Small Cap funds.

5 year performance of indices

We see that all 3 indices had a common base figure (almost) in 2013. While the index figure for Large Cap is just nearing the double-figure, the Mid-cap and Small Cap indices have moved way past that figure indicating growth in these stocks.

On the other hand, the volatility (ups and downs) for the Mid and Smallcap indices is also much higher when compared to volatility for Large Cap index. For Ex: Consider a one-year horizon from Dec 2017 to Dec 2018, the fall in mid & small-cap indices has been much more than the fall in large-cap, thereby validating our view of higher highs and lower lows.

Takeaways

There is no right or wrong time to invest in any fund. Every fund stands to satisfy a certain need like large caps allow lesser returns with lesser risk and it is the vice-versa for mid and small caps.

The time horizon for holding also matters. Investments in mutual funds generally pay well over longer time horizons.

One cannot totally shun or embrace the mid-cap and small-cap funds. The investments in these funds should be guided by your risk appetite, holding horizon and your financial goals rather than timing the market.

Why choose mutual funds as your go-to investment option?

“An investment in knowledge pays the best interest.”
–Benjamin Franklin

Mutual funds are one of the most lucrative personal investment options available in India and it is has been booming in recent years with the advent of increasing accessibility, powered by the Internet. But, before we give you the reasons to consider investing in mutual funds it is essential that you decide on it with at least the basic understanding and knowledge of mutual funds.

What are Mutual Funds?

A mutual fund is simply a professionally managed investment fund that collects money from different investors to purchase company shares, stocks, or bonds. A mutual fund is generally managed by Fund Managers, who drive this investment vehicle to earn the highest possible returns.

In short, mutual funds are:

  • Money pooled from many individuals.
  • Professedly managed by Fund Managers
  • Well regulated by SEBI (Securities Exchange Board Of India)
  • Allowing you to invest in small amounts
  • Helps you earn returns higher than Fixed Deposits

What Makes Mutual Funds ‘Click’, for Investors?

This particular investment instrument is loaded with a lot of features and benefits. Let’s take a closer look at them:

  • Diversification:- Mutual Funds invest in 50-100 different investments. This feature reduces the risk of loss for an investor because it allows the investor to maintain a diversified investment portfolio.
  • Professional Management:- Mutual Funds are managed by professional fund managers who back the purchases with active research using financial methods and historical data of the fund. They make sure to put in a thorough analysis before picking the right companies to invest in, thus making sure that the scheme fulfills the investment objective.
  • Ease of Buying and Selling:- Investors can invest in Mutual Funds online within minutes. It spares cumbersome paperwork that investors have to go through if they have to invest from a bank. All you need is to complete the paperless online KYC (Know Your Customer) process, which takes less than 5 mins, and you are ready to invest.
  • Affordability:- Investments as small as Rs. 100 via SIP (Systematic Investment Plan) can be made and still allow the investors to earn high returns. However, the thumb rule is to stay invested for long periods to reap the benefits of the fund more.
  • Wide Range of Funds:- You are unique, and so are your investment goals. Mutual funds have a wide range of investment options that allow you to invest in funds that suit your risk capacity, financial situation, and investment goals. Right from equity to debt to hybrid funds, you can achieve all your investment needs with Mutual funds.

Why Should ‘You’, Invest in Mutual Funds?

Mutual funds make investing easier for you because each fund is designed to address different financial goals.  The most convenient way to invest in mutual funds is with SIP (Systematic Investment Plan). This allows you to start your investment with a minimum of Rs. 100 or more, based on your financial portfolio. A smart mutual fund investor always starts early. The more you delay, the more you will lose out on making higher returns.

How Can You Invest in Mutual Funds?

Investing in mutual funds is easy and have the following options:

  1. Direct investment
  2. Through Agents or Brokers
  3. Online (Recommended)

Why Invest in Mutual Funds Online?

There are innumerous benefits of investing in mutual funds online. Here are the reasons that matter:

  • Speedy Business Deal: The main benefit of online investment is the rapid execution of business transactions. With a simple click of the mouse, the investor can buy shares.
  • Simple Execution and Mere Formalities: We all know India is in the phase of digital transformation. People nowadays prefer online investment because it is an easy and time-saving mode of investment. There is no involvement of paperwork, all you need to do is update your bank details and complete the KYC (Know Your Customer) process, making you ready to invest online.
  • Comfort and Easy Accessibility: It offers the advantage of sitting at the comfort of your home and invest. The investors don’t need to travel for various deals. Instead, complete certain formalities online, and you can get all the investment options at your fingertips.
  • Secured Dealing: These days, online applications have been upgraded to provide the best security to the investors and make sure that their investments are safe and reliable.

Why Choose Finity – Wealth App to Invest in Mutual Funds Online?

Finity – Wealth comes fully charged and advantageous for the smart investor in you. Here’s how:

  • Zero Commission and Zero Fees
    You can invest in Direct Plan Mutual Funds on Finity for free. You don’t have to pay any commission or fees to brokers or agents. Hence, you don’t lose a substantial amount of your investment money.
  • Portfolio Rebalancing
    Finity – Wealth comes with this feature that helps you to get your risk covered through regular and periodical balancing of your investment portfolio.
  • Smart Recommendation Engine
    Finity’s smart recommendation engine suggests funds that have outperformed the market based on significant financial models and historical data.
  • Insta Switch
    This feature allows you to switch from your regular plans to direct plans making it possible to earn 1-1.5% more returns on your investment.
  • Advance Research Reports
    Investors get access to superior, advanced, and smart fund reports. As an investor, this gives you complete control of your investments with complete transparency.
  • Portfolio Alters 
    This feature allows investors to remain updated about his/her current portfolio at any time, anywhere, allowing you to invest to make informed decisions.

What Makes Finity – Wealth Safe and Secure for Your Investments?

Investments made on Finity is 100% safe and secure, since:

  • Finity is a SEBI registered investment advisor. (INA200005323).
  • Provides Bank Grade Security
  • All orders are executed via the Bombay Stock Exchange
  • 256-bit secure socket layer (SSL)
  • All payments are routed via BillDesk.

It is wise and necessary to remember that as an investor, it is of utmost importance to choose mutual funds based on your risk capacity and financial background. Education, awareness, and sound judgment can ensure that your investment journey with mutual funds will be fruitful and productive.

Download Finity – Wealth and start building your portfolio today.

loan against mutual fund

Loan Against Mutual Fund

“Vision without execution is daydreaming.”
-Bill Gates

Financial crises can occur at any time. Loans are handy and are the first option most of them opt for. So today we would look into one the topic: -Which is the better option between loans against mutual fund and a personal loan? The answer is a loan against mutual funds because it allows you to borrow by putting your mutual fund investment as collateral with the bank. And since an asset class backs the loan, the interest rates are usually lower than the personal loan. You cannot redeem the mutual fund units as long as they are pledged with the bank but can redeem if you default.

Each bank offers a loan against mutual fund as per the list of approved mutual funds. It’s the agreement that banks own, on sale and hold your investments. The banks have all rights to sell your funds in case of default or non-payment of the loan amount.

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SIP vs SWP vs STP

Choose between NAV, SIP, STP, and SWP

STP (Systematic Transfer Plan)

In simple words, STP means transferring money from one mutual fund to another. STP is a smart strategy of investment over a specific term to reduced risks and balanced returns. Here, an AMC (Asset Management Company) permits you to put a lump sum in one fund, and transfer a fixed amount to another scheme regularly.
STP is a useful tool in mutual funds to average your investment over a specific period, which depends on three factors:

  1. Market view
  2. The risk profile of the investor
  3. An investor’s current allocations to equities.

Things to remember while investing via STP:

  • STP is the method that requires discipline; it’s not you who gets to cook your money overnight; it will take time to cover your returns.
  • It would help if you kept an eye on the underlying assets and their phases.
  • STP is one of the most reliable risk-reducing investments in which you can invest.
  • Go with STP only if you have a lump sum amount to invest.
  • You need to make at least 6 STPSs as per the SEBI guidelines.

In short, STP is a useful strategy to manage risks without affecting your returns significantly.

SIP – The recommended option

A SIP (Systematic Investment Plan) is an ideal way of investing in mutual funds. It allows you to invest in regular intervals. It is also called the “planned way of investing.” It helps investors to cultivate a habit of saving and accomplish the goal of wealth creation.
Through SIP, you can invest in a quarterly, monthly, or weekly basis as per your convenience. A fixed amount is debited from the policyholder’s account and invested in mutual funds. As you start investing a pre-decided number of units get allocated as per the current market price. Besides, mutual funds plans are flexible in nature, and you also have the option to discontinue it whenever you wish. However, you make the most out of Mutual Funds investments, remember to stay invested for a long period.

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direct-vs-regular

Difference between Direct & Regular Plan Mutual Funds

“One of the only ways to get out of a tight box is to invest your way out.”
-Jeff Bezos

A Mutual Fund is divided into two categories:

  • Direct Plan Mutual Funds
  • Regular Plan Mutual Funds

And in this topic, we will dive deeper into these two broad categories to understand how they work and who should invest in them.

Direct Plan Mutual Funds

The Securities And Exchange Board Of India (SEBI) introduced Direct Plan Mutual Funds in January 2013 making is compulsory for all the Asset Management Companies (AMCs) to provide an option to invest in Mutual Fund scheme directly. When an investor invests in a Mutual Fund directly with an Asset Management company(AMC) without the help of any broker, distributor, banker or any kind of intermediary, that is known as Direct Plan Mutual Fund. One can apply to Direct Plan Mutual Fund just by visiting the Mutual Fund house or visiting the company’s official website or through an online app such as Finity that provides the option on investing online.

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Active vs Passive Funds

Passive funds or active funds

In Equity funds, we have different kinds, Active and Passive funds are one among them. Generally to brief on these funds:

“Passive funds: A lazy man’s strategy to earn money
Active funds: weathered the storm to earn money.”

Before having these two in your portfolio, let’s understand the concept.

Active Funds:

Active funds usually incur high cost because investors pool money and hand it over to a fund manager whose job is to select investments based on scientific research, intuitions and his experience. The investors take risk of investing in these funds because the outcome will be more effective.

Passive Funds:

It eliminates humanly ideas in predicting market moves. Passive investing means owning the market rather than trying to beat the market. It sounds uninteresting, but it is a desirable investing.
There is no difference between passive funds and index funds. All the index funds form the part of passive investing.

Beating or matching the market?

Passive investors consider that beating the part is impossible whereas, on the contrary, active investors believe that they can beat the market by selecting the good stocks. But with an aim to overcome the market and beat the benchmark, the fund managers end up substantially raising the cost of buying and selling the stocks.
The idea behind passive investing is to take advantage of market moves and compensate for the risk with the returns.
Don’t look at investing as a medium to make more money in a short span. The successful investors are those who invest for the longer term and understand that the returns are compounded over a period of time along with risk. This is the strategy used by investors to build the money.

Balanced funds:

The fund manager will always try to handle the asset allocation to safe the fund of the investors. And balanced funds are new kinds of funds launched and gaining huge popularity. Let’s understand the balanced funds in deep. There are 3 kinds of balanced funds-

  1. Conservative Funds.
  2. Balanced Funds.
  3. Aggressive funds.

Conservative funds have 10-25% in Equity, balanced have 40-50% in Equities, aggressive funds have 65-80% in Equities.

screen shot Finity

Balanced funds are marketed as “Monthly Income Plans”. MIPs don’t offer any assured incomes, these are just the combination of debt funds with a small unit of equities that offer slightly higher returns than the pure debt funds.
Start investing in Finity– to see the fractions on your gains.

“Don’t gamble- take all your savings and buy some stocks, hold it till it goes up, then sell it. If it doesn’t go up, don’t buy it”

– Will Rogers