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Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. Information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information.Its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.
Every mutual fund commercial ends with a few words of caution that read: Mutual Funds are subject to market risks - this bit is absolutely true and almost every investor knows this. However the latter part of the sentence - Please read the scheme related document carefully before investing - is easier said than done.

The scheme related offer documents (ODs), can run into tens of pages and carry legal and financial jargon that can put a retail investor off. That is why most of them rely on financial advisers and bank agents for recommending mutual fund schemes. However, with loads of information (sometimes contradictory) coming through various channels, it helps to be aware of what one should expect from the investment.

When reading the ODs, do go through the following important aspects that will stand you in good stead:

* Investment Objectives: Investment policies and objectives form the mainstay of the ODs. Scanning through these will enlighten the investor about the goals of the specific funds, their expected composition of the underlying portfolio. Investors can also get a fair idea of the strategies that the fund manager will use to achieve the said objectives. Match these objectives with your own expectations about income or long-term capital appreciation as well as your risk appetite.

* Past Performance: Some of the important aspects to look at are the inception date of a scheme, the Assets Under Management (AUM) and its past performance. Investors should compare this with similar funds in the market as well as against the industry benchmark. Ideally, opt for schemes that have offered consistent returns over a long term. However, never use this information to predict future returns because - past performance is not an indicator of future returns.

* Risk factors: The OD specifies the various types of risks that the scheme would be exposed to. Make an informed decision based on your own outlook and understanding of the markets. Study and understand these so that you can choose the right scheme as per your risk-taking ability. A word of caution here - don't be overwhelmed by the various types of risks. Mutual fund companies are stipulated by law to highlight every type of financial risk you may be exposed to if you invest in a particular scheme.

* Fees, Loads and Taxes: Read the ODs to learn about the minimum investments, charges applicable and services available to you. Some of the common charges applicable are Entry and Exit Loads, Transaction Charges, Security Transaction Tax (STT), various charges for managing the fund - together called the Total Expense Ratio (TER). It is important to know that all mutual funds do not have the same type of charges and that all these charges are regulated by the Securities and Exchange Board of India (SEBI).

* Key Personnel/Fund Managers: The ODs also give you significant insights about the credentials of the fund managers, their experience and investment style.

Let us now take a look at the various types of documents that make up the ODs:

1. SID [Scheme Information Document]: This is a compendium of all the scheme related information. It will list all the MF schemes available to the investor.

2. SAI [Statement of Additional Information]: A supplementary document to a mutual fund's prospectus that contains additional information about the fund and includes further disclosure regarding its operations. This is also, known as "Part B" of the fund's registration statement.

3. KIM [Key Information Memorandum]: The KIM sets forth the information, which a prospective investor ought to know before investing.

4. Fund Fact Sheet: Self-explanatory, this document is a data mine. It provides a thorough analysis of the fund with comprehensive financials, graphs, and other research which help investors gain insight into the fund's performance under varying market conditions.

Source:indiatimes.com

A systematic investment plan (SIP) allows disciplined investments (recommended in small amounts) at regular intervals (recommended monthly) to yield high returns over a long period of time. Rather than investing a lump sum amount (usually unaffordable for many) in an investment option, SIPs help to build wealth gradually without hurting your overall financial commitments. Not to forget, it accompanies the power of averaging and compounding which further makes it a smart investment option. However, you might wonder why investors have mixed reviews about SIPs? There are some common mistakes that investors make and fail to extract the maximum advantage from SIP investment as listed below. 

Deciding High Amount for Investing 
Excited by the benefits of SIP, many investors commit high investment amount without calculating their present and future financial capabilities. If you are single at present, you might be able to afford a big amount, which might become difficult once you have a family. 

What to Do? 
Evaluate your financial condition (present and future salaries, expenses, and contingencies) and set a realistic amount for monthly SIP investments. 

Investing for 1 Year 
Many investors try to reap the benefits of SIP through single year investments. Considering the volatile nature of the market, it is an extremely small duration for the plan to work in your favor. 

What to Do? 
SIPs are the best investment option in fluctuating market scenario as they help you benefit due to averaging. Investing for a longer time period helps you benefit optimally from SIP investments. 

Discontinue SIP in Falling Market 
Market volatility drives the decision of man investors who usually discontinue their SIPs when the market falls. 

What to Do? 
The market mood should not influence your investment commitments in SIP. Due to the investment being spread over different months of the year, the ill-effects of 'wrong investment time' are reduced considerably. Plus, when market sentiment is down, gain by getting more SIP units due to the low price. 

Choosing Dividend over Growth 
Counting on the short-term profits, investors usually prefer taking 'dividend' option to withdraw a part of the earned SIP benefits regularly. It actually defeats the amazing power of compounding that SIPs are known for. 

What to Do? 
Allow the dividend to be reinvested to gain compounded wealth in the end. 

Invest and Forget 
Investors most of the times invest in SIPs and forget to monitor and renew it. Considering that every mutual fund is bound to perform differently, you should keep a watch on your investments. 
What to Do? 
Evaluate the investment portfolio frequently and replace the non-performing mutual funds by those with a high probability of good returns. 

Your hard-earned money should follow the right investment approach to grow. By avoiding these mistakes, you are empowered as a smart investor with the right insight for handling SIPs.

Source:timesofindia.indiatimes.com

In April-May 2017, Mint surveyed 19 financial advisers to know some of the biggest mistakes investors make. Over the next few weeks, we spoke to more advisers about these mistakes. This week, we talk to Bharat Phatak, founder, and director of Wealth Managers (India) Pvt. Ltd.

Phatak said that he has observed that investors approached mutual fund investing looking at the “rear view mirror”.

One example in recent times is balanced funds and how investors were drawn into them on the back of high dividends. In January 2018, Mint carried a story on how balanced funds were being mis-sold on the premise of high dividends that some of them were paying till that time. Budget 2018’s imposition of 10% dividend distribution tax on equity-oriented mutual funds has made dividend plans unattractive but there are some funds that still give a subtle assurance of dividends. “Some investors have this misconception that dividend is an extra return on your fund. However, when the dividend is declared, it comes out of your own funds and that reduces the net asset value,” said Phatak.



He added that when investors think that balanced funds are regular return products, there is a problem. “Balanced funds, like any other equity funds, can be volatile and no income is assured. It’s just that over a long period of time, chances to earn higher returns are there—with higher risks— but investors need to be patient,” he said.

Another way of investing looking in the rear view mirror is by investing in sector funds and closed-end funds. Although sector funds have gone down over time, closed-end funds have continued. But recently, the Securities and Exchange Board of India has told mutual funds that it will not approve of any such funds unless they are different from existing funds, even if existing funds are open-ended.

“This is a good move as investing in the popular sector and closed-end theme funds, when they are launched based on a market fancy, is a bad idea. Unless these funds offer something unique, it doesn’t make sense,” said Phatak.

Having started distributing mutual funds—especially debt funds—in as early as 1999, when dividends from debt and equity funds were made tax-free in the Budget, Phatak knows the importance of debt funds in an investor’s portfolio. This is also why he advocates caution in investing in debt funds, without understanding the risks that come along with them. “Debt funds are beneficial for investors. But understand credit risk, interest rate risk (how the movement of interest rates can impact your debt funds) and expense ratios. Debt funds are sensitive to high expense ratios also,” said Phatak.

He added: “In many cases, it may be too late to correct the mistakes as investors come to us after they have had a setback. However, what needs to be done is to avoid the mistakes in future and compounding existing problems. For this, it is essential to go back to the drawing board, decide the objectives for which the investments are being made and align the restructured portfolio to them.”

Source: livemint.com
What do you feel when you hear a piece of (good) wealth-building advice like – ‘Start early, invest systematically, and stay invested for the long haul?’ Do you think it sounds too simplistic? Perhaps that’s why most of us are not convinced to follow it.

On the other hand, bad advice can sound complex and therefore, it may appeal to the human mind better. That’s why it is important to reiterate to yourself on what you need to ignore. Here are five often-heard bad pieces of advice in the mutual fund world that are best ignored by you.

1. Buying units in a New Fund Offer (NFO) will give gains sooner
NFOs are not like the Initial Public Offerings (IPOs) of stocks. For instance, they may offer you mutual funds units at the Net Asset Value (NAV) of Rs. 10 per unit. This is just a value, and there is nothing cheap about it. The fund then decides where to invest, and does so in a phased manner. In other words, there are no underlying stocks in the fund’s portfolio when you buy an NFO. So, how can one even know whether it is cheap, or if it will provide gains? In fact, if the market tanks soon after your investment, chances are that your Rs. 10 NAV may fall below that price! There are no listing gains or post-offer gains the way it is with stocks.

2. Buy the fund with lower NAV
The above holds good even if you buy a fund after its NFO. I have seen investors who look at the newspapers diligently to see a fund’s 52-week low NAV. Buying at a lower NAV means more gains, they seem to think! Again, the NAVs of funds are not like stock prices. The last thing to do with your fund is a trade based on its NAV. There is no such thing as “high NAV” or “low NAV”. NAV is simply a reflection of the value of the underlying stocks in a fund’s portfolio. A fund that has been around for long may have added a lot of gains to its NAV and therefore, it may sport a high NAV. This does not make it an expensive fund as the stocks inside (which are sold periodically and new opportunities are constantly explored) may hold high potential.

3. Sell funds on the dividend declaration
While funds are now not allowed to announce dividend declaration way ahead, investors consider themselves lucky if they bought a fund just before its dividend declaration, and got a dividend soon after. They then go on to sell their units in the fund, thinking they pocketed some quick money! Think about it! It is your own money out of which that dividend is declared!

If you cared to see the NAV post the dividend, it would have exactly fallen by the dividend amount. Also, you are not allowing the fund to do any compounding for you because you took the money out very soon. If you had invested Rs. 100 and you got back Rs. 20, you would likely have sold it at Rs. 80, which means you’re just getting your own money back!

Mutual funds, especially equity funds, are for wealth building. You will do no good to yourself by playing with your own money back and forth.

4. Go for only funds with a lower expense ratio
Mutual funds charge you an expense on your NAV for running the fund for you, for marketing it, and for distributing it. Yes, a host of people get paid their salaries from your fund. But remember, a lot of people get paid their salaries from what you buy in the market too. Yes, like all other products and services, this too comes at a cost. Some of them charge more, while some charge less.

But the returns that you see post all the expense (called expense ratio). And when the returns post those expenses are high, it simply means that the fund has delivered, and the saving factor is that the regulator has a cap on how much can be charged on your NAV.

A passively managed index fund or Exchange Traded Fund (ETF) may have a lower expense ratio (since they are not actively managed), but will likely under-perform active funds in the Indian context. Hence, to go merely by expense ratio alone can be misleading when you are looking to build wealth for the long term. Typically, the larger a fund gets, the lower is its expense ratio. This is because its expense is spread over a larger base of assets. The large size of assets is also, often, a reflection of the good performance of a fund. Besides, actively managed funds have a higher expense ratio than passively managed ones, i.e., index funds and ETFs. That takes us to the next point.

5. ETFs are better than regular funds
If you had a friend return from any of the developed countries, chances are he/she would have told you – buy ETFs; they are low cost and outperform mutual funds. Yes, they are right, but about a different market – not India. ETFs and index funds have a low expense ratio, no doubt; but unlike the western markets, they do not beat diversified equity funds.

In the west, the variety of indices, and the index construction is sophisticated and complex, leaving few active fund managers to beat them. However, in India, with few indices and not greatly constructed ones at that, besides plenty of opportunities outside the index, fund managers with an above-average performance can beat indices convincingly. If that be the case, and the return outperformance is indeed after all the expenses have been deducted, why would you want to lock your entire portfolio in passive options that deliver sub-optimal returns?

Let’s just say that the Indian markets are different and that you need a different approach for different markets. If you take the passive approach here, you will face a big opportunity lost.

Source: fundsindia.com
Please do not reply back to this mail. This is sent from an unattended mail box.
Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. Information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information.Its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.