What are the steps for you to take after buying mutual funds? Be mindful of the following cautions to avoid any wealth erosion
Many mutual fund investors tend to think that once they have bought a fund, they can stay invested in it forever and wealth creation will happen. Alas, not all funds are meant for life-time investment. You must review your fund's performance periodically and decide whether it's doing well or not. Following are some scenarios where you may consider exiting a fund:
Fund's performance: If a fund has been consistently under-performing in its category or, even worse, in its benchmark, that's a red flag. However, you shouldn't exit a fund just because it under-performs in the short term. Even good funds with decades of history of out-performance can face temporary setbacks. In such cases, stay invested in them and wait for a recovery.
Change in mandate: If you have invested in a multi-cap fund which will now be operating as a mid-cap fund, that's another reason why you should consider quitting it. Similarly, a debt fund that changes its fundamental attribute and decides to invest more in lower-rated securities can call for an exit.
Change in fund manager: No matter what fund houses say about having a process-driven approach and as a result a change in fund manager doesn't impact the performance of the fund, the truth remains that fund managers have a decisive impact on its performance. In case of a fund-manager change, keep a close watch on the fund.
Change in ownership: Fund houses have their own investment culture, which gets reflected in their stock picks. If a fund house is acquired by another, its investment philosophy is likely to be impacted.
Overlap in holdings: You own two funds, Fund A and Fund B. When you check their stock holdings you realize that there is a significant overlap in their holdings. In such a case, you may want to sell one because you are not getting optimum diversification.
Personal reasons: If you need money, you will obviously liquidate your investments in the fund. Your goal for which you have been saving is nearby, so you want to exit the fund or transfer the corpus to a debt fund from an equity fund.
You may also want to sell a fund if you have too many funds in your portfolio. It's okay to have four to five funds in a portfolio to attain diversification. Anything more than that number adds complexity to your portfolio. If you realize that you have made a mistake by investing in a fund because the fund doesn't offer satisfactory returns, you can exit the fund. Finally, avoid selling a fund just because it is showing some handsome gains. Held for the long term, equity funds have the potential of growing your money manifold. If you sell too early, you not only miss out on those gains, but your goal planning may also suffer as a result.
Source:valueresearchonline.com
Many mutual fund investors tend to think that once they have bought a fund, they can stay invested in it forever and wealth creation will happen. Alas, not all funds are meant for life-time investment. You must review your fund's performance periodically and decide whether it's doing well or not. Following are some scenarios where you may consider exiting a fund:
Fund's performance: If a fund has been consistently under-performing in its category or, even worse, in its benchmark, that's a red flag. However, you shouldn't exit a fund just because it under-performs in the short term. Even good funds with decades of history of out-performance can face temporary setbacks. In such cases, stay invested in them and wait for a recovery.
Change in mandate: If you have invested in a multi-cap fund which will now be operating as a mid-cap fund, that's another reason why you should consider quitting it. Similarly, a debt fund that changes its fundamental attribute and decides to invest more in lower-rated securities can call for an exit.
Change in fund manager: No matter what fund houses say about having a process-driven approach and as a result a change in fund manager doesn't impact the performance of the fund, the truth remains that fund managers have a decisive impact on its performance. In case of a fund-manager change, keep a close watch on the fund.
Change in ownership: Fund houses have their own investment culture, which gets reflected in their stock picks. If a fund house is acquired by another, its investment philosophy is likely to be impacted.
Overlap in holdings: You own two funds, Fund A and Fund B. When you check their stock holdings you realize that there is a significant overlap in their holdings. In such a case, you may want to sell one because you are not getting optimum diversification.
Personal reasons: If you need money, you will obviously liquidate your investments in the fund. Your goal for which you have been saving is nearby, so you want to exit the fund or transfer the corpus to a debt fund from an equity fund.
You may also want to sell a fund if you have too many funds in your portfolio. It's okay to have four to five funds in a portfolio to attain diversification. Anything more than that number adds complexity to your portfolio. If you realize that you have made a mistake by investing in a fund because the fund doesn't offer satisfactory returns, you can exit the fund. Finally, avoid selling a fund just because it is showing some handsome gains. Held for the long term, equity funds have the potential of growing your money manifold. If you sell too early, you not only miss out on those gains, but your goal planning may also suffer as a result.
Source:valueresearchonline.com
For existing investors who are already invested in several folios across schemes and fund houses, you have a few options on how to go about it
After your bank accounts and phone numbers, it is time to link your mutual fund folios to your Aadhaar number. If you are a new investor, just about starting with mutual funds, this may be simpler as the information can be taken during your Know Your Customer (KYC) documentation.
For existing investors who are already invested in several folios across schemes and fund houses, you have a few options on how to go about it.
1. Get in touch with the AMC: You can directly approach the asset management company (AMC) of your mutual funds. This can be done online through their website. While some have a link on the home page itself, guiding you to the page for updating Aadhaar details, others may have the link under the customer or investor services tab. Once you are there, have your folio number and Permanent Account Number (PAN) handy. Along with this information, you may also need to enter your name, date of birth, email ID and phone number linked to Aadhaar. If there is no option online, you can call your AMC directly and request to link Aadhaar, for which you may need to fill and submit a form with all the relevant details.
2. On the RTA website: Mutual fund registrar and transfer agents (RTAs) can also facilitate this update. For example, Computer Age Management Services Pvt. Ltd (Cams), an RTA, has an online link on its home page to help you connect all the folios for fund houses serviced by it. You can access it entering your PAN, name and email ID or phone number or date of birth. Next, as on an AMC's website, an OTP will get sent to your Aadhaar registered phone number. Once all details are provided, the RTA will share the same with the AMCs and you would receive confirmation from the fund house about this. Other RTAs such as Karvy Computershare Pvt Ltd, Franklin Templeton AMIL and Sundaram BFS will also be able to facilitate for the fund houses serviced by them.
3. Distributors: Modalities of the process to be followed by a distributor, to update your Aadhaar via an AMC, are still being put in place. It is likely that you will be able to do this for online and physical distributors soon. However, there is no process in place yet. Ideally, you should be able to update your Aadhaar and link it to your folio number through any point of transaction including distributors. If you don't want to go about doing this work yourself, just wait till the process is ironed out for the distributors to take it on.
What you need to watch out for
There could be some glitches. First, the name on your folio should match the name in your Aadhaar; else there is a chance of the request getting rejected. The Aadhaar updation is linked to each PAN holder attached to a folio. If you are a joint holder, you too may be required to furnish Aadhaar details. However, in the online process, there is no separate mention of joint holders. As of now, the updation is happening via investor approval, which means an OTP-based verification rather than a biometric one.
Source:valueresearchonline.com
After your bank accounts and phone numbers, it is time to link your mutual fund folios to your Aadhaar number. If you are a new investor, just about starting with mutual funds, this may be simpler as the information can be taken during your Know Your Customer (KYC) documentation.
For existing investors who are already invested in several folios across schemes and fund houses, you have a few options on how to go about it.
1. Get in touch with the AMC: You can directly approach the asset management company (AMC) of your mutual funds. This can be done online through their website. While some have a link on the home page itself, guiding you to the page for updating Aadhaar details, others may have the link under the customer or investor services tab. Once you are there, have your folio number and Permanent Account Number (PAN) handy. Along with this information, you may also need to enter your name, date of birth, email ID and phone number linked to Aadhaar. If there is no option online, you can call your AMC directly and request to link Aadhaar, for which you may need to fill and submit a form with all the relevant details.
2. On the RTA website: Mutual fund registrar and transfer agents (RTAs) can also facilitate this update. For example, Computer Age Management Services Pvt. Ltd (Cams), an RTA, has an online link on its home page to help you connect all the folios for fund houses serviced by it. You can access it entering your PAN, name and email ID or phone number or date of birth. Next, as on an AMC's website, an OTP will get sent to your Aadhaar registered phone number. Once all details are provided, the RTA will share the same with the AMCs and you would receive confirmation from the fund house about this. Other RTAs such as Karvy Computershare Pvt Ltd, Franklin Templeton AMIL and Sundaram BFS will also be able to facilitate for the fund houses serviced by them.
3. Distributors: Modalities of the process to be followed by a distributor, to update your Aadhaar via an AMC, are still being put in place. It is likely that you will be able to do this for online and physical distributors soon. However, there is no process in place yet. Ideally, you should be able to update your Aadhaar and link it to your folio number through any point of transaction including distributors. If you don't want to go about doing this work yourself, just wait till the process is ironed out for the distributors to take it on.
What you need to watch out for
There could be some glitches. First, the name on your folio should match the name in your Aadhaar; else there is a chance of the request getting rejected. The Aadhaar updation is linked to each PAN holder attached to a folio. If you are a joint holder, you too may be required to furnish Aadhaar details. However, in the online process, there is no separate mention of joint holders. As of now, the updation is happening via investor approval, which means an OTP-based verification rather than a biometric one.
Source:valueresearchonline.com
ELSS funds are an advantageous way to use the Rs 1.5 lakh limit for tax saving investments under Section 80C
Under Indian tax laws, savers have a complete range of tax saving instruments available to them. And yet, individuals often take sub-optimal investment decisions with their tax-saving investments. Deposits with long lock-ins that hardly pay anything more than inflation, insurance schemes that eat away a lot of the gains in agent commissions, Equity linked Savings Schemes (ELSS) of mutual funds chosen with scant regard to performance track-records--all these (and more) are often seen when it comes to tax-saving investments.
Why does this happen? One common reason is that there is a confusion of goals between saving tax and making investments. The typical investor makes this decision either in late March under the duress of having the deadline slip by. At the end of the day, we make sub-optimal investment decisions and when they ever realize it, they console themselves by saying that that at least they got tax benefits for the investments.
This duality of concern--tax as well as investments--prevents clear-headed thinking about just exactly what one is getting out of an investment and whether the quantum of disadvantages is worth the quantum of tax benefits that are being obtained. Investors should work on eliminating both these sources of poor decision-making--time pressure as well as not thinking through about these investments.
Eliminating time pressure is simple--just plan these investments as early in the year as possible--if you haven't done it already, then this is the right time to do so. And once you start in time, there's no need to stop after a year. Since the best way to invest regularly in a fund is through an SIP, you should start an SIP in a carefully-chosen ELSS fund and let it run for a long duration.
These investments are pure investments and should not be made if you do not have any plans to invest. For example, if you do not want to invest in a fixed deposit but would rather invest in equity, then do so in your tax-saving investments only. Any investment must first make sense as an investment, and only incidentally be a tax-saver.
Within this framework, ELSS funds are an advantageous way to use the R1.5 lakh limit that is there for tax saving investments under Section 80C. But for many people, a good part of it gets consumed by statutory deductions.
Unfortunately, all the statutory deductions are invested into fixed income instruments Now, the Government has even placed some tax-deductible expenses under Section 80C.
Within this limit, ELSS is the better way to get the advantages of equity investing.
Source: valueresearchonline.com
Under Indian tax laws, savers have a complete range of tax saving instruments available to them. And yet, individuals often take sub-optimal investment decisions with their tax-saving investments. Deposits with long lock-ins that hardly pay anything more than inflation, insurance schemes that eat away a lot of the gains in agent commissions, Equity linked Savings Schemes (ELSS) of mutual funds chosen with scant regard to performance track-records--all these (and more) are often seen when it comes to tax-saving investments.
Why does this happen? One common reason is that there is a confusion of goals between saving tax and making investments. The typical investor makes this decision either in late March under the duress of having the deadline slip by. At the end of the day, we make sub-optimal investment decisions and when they ever realize it, they console themselves by saying that that at least they got tax benefits for the investments.
This duality of concern--tax as well as investments--prevents clear-headed thinking about just exactly what one is getting out of an investment and whether the quantum of disadvantages is worth the quantum of tax benefits that are being obtained. Investors should work on eliminating both these sources of poor decision-making--time pressure as well as not thinking through about these investments.
Eliminating time pressure is simple--just plan these investments as early in the year as possible--if you haven't done it already, then this is the right time to do so. And once you start in time, there's no need to stop after a year. Since the best way to invest regularly in a fund is through an SIP, you should start an SIP in a carefully-chosen ELSS fund and let it run for a long duration.
These investments are pure investments and should not be made if you do not have any plans to invest. For example, if you do not want to invest in a fixed deposit but would rather invest in equity, then do so in your tax-saving investments only. Any investment must first make sense as an investment, and only incidentally be a tax-saver.
Within this framework, ELSS funds are an advantageous way to use the R1.5 lakh limit that is there for tax saving investments under Section 80C. But for many people, a good part of it gets consumed by statutory deductions.
Unfortunately, all the statutory deductions are invested into fixed income instruments Now, the Government has even placed some tax-deductible expenses under Section 80C.
Within this limit, ELSS is the better way to get the advantages of equity investing.
Source: valueresearchonline.com
Experts advise investing in mutual funds only after understanding the schemes and their functioning in the light of one’s investment needs and risk appetite.
Over the years, investing in mutual funds has emerged as a popular option among a vast population of investors with varied incomes and risk appetites as mutual funds have outperformed most investments avenues in last few years. However, there are many myths or misconceptions related to mutual fund investment which may result in a wrong investment decision.
If you have been investing in National Pension Scheme and waiting for the clarity on the withdrawal norms, here is how much and how to withdraw from the NPS. As per the guidelines a subscriber can make partial withdrawal for the following purposes:
Being the start of the new year, many salaried individuals are in a hurry to invest their money to save income tax. But don’t jump the gun and avoid these mistakes. Instead make a more informed decision while investing to save income tax.
Source: moneycontrol.com
Over the years, investing in mutual funds has emerged as a popular option among a vast population of investors with varied incomes and risk appetites as mutual funds have outperformed most investments avenues in last few years. However, there are many myths or misconceptions related to mutual fund investment which may result in a wrong investment decision.
- Everyone who tends to invest in mutual funds first looks at the historic performance of the fund and then decides to make the investment. Therefore, we can clearly say everyone feels the future performance will be linked to the previous performance and will fall in line. If future was based on past, every analyst would have made money thick & fast which is clearly a myth.
- Commonly believed that when the NAV is lower, the fund is cheaper and hence will provide higher returns. NAV is nothing but the current market value of the portfolio today. Older the fund, higher is the NAV as the market value grows over a period.
- When someone suggests a mutual fund, the first question asked is whether it is “long-term " investment. The fact is it's good if you invest for a very long term, as you reap the benefits of compounding, but one who needs money sooner can also invest with a view of getting the better return than other asset classes. There are multiple schemes to choose from that suit different types of investors
- A common myth among investors is everyone feels one must have many funds to invest in a mutual fund. But the ground reality is that you can start investing in a fund with as small as Rs 500 only.
If you have been investing in National Pension Scheme and waiting for the clarity on the withdrawal norms, here is how much and how to withdraw from the NPS. As per the guidelines a subscriber can make partial withdrawal for the following purposes:
- For higher education of his or her children including a legally adopted child
- For marriage of his or her children, including a legally adopted child
- For purchase or construction of residential house of flat in his or her own name or in a joint name of his or her legally wedded spouse. In case, the subscriber already owns either individually or in the joint name a residential house of flat, other than ancestral property, no withdrawal under these regulations shall be permitted
- For treatment of specified illness
- The subscriber shall have been in the NPS at least for a period of 3 years from the date of joining
- The subscriber shall be permitted to withdraw accumulations not exceeding 25% of the contributions made by him or her and standing to his or her credit in his or her individual pension account, as on the date of application of withdrawal
- FREQUENCY: The pension regulator has said that a subscriber shall be allowed to withdraw only a maximum of 3 times during the entire tenure of subscription under the NPS. The request for withdrawal shall be submitted by the subscriber along with relevant documents to the Central record-keeping agency or the NPS Trust for processing of such withdrawal claim through their nodal office. However, if the subscriber is suffering from any of the specified illnesses, the request for withdrawal may be submitted through any family member of the subscriber
Being the start of the new year, many salaried individuals are in a hurry to invest their money to save income tax. But don’t jump the gun and avoid these mistakes. Instead make a more informed decision while investing to save income tax.
Source: moneycontrol.com