Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions and its affiliates, 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.
For quite a long time, mutual funds have been offering people numerous advantages, which include providing investors with broad diversification, a relatively low cost of investment, professional management, and day-to-day cash conversions.

Systematic Investment Plan:

If you decide to set aside a portion of your earnings for a bright future of you and your loved ones, what better option than a SIP or a systematic investment plan can one think of?SIP is an investment scheme to help you save regularly in small portions. The amount that you keep aside as SIP thereby invests as an MF investment.

There are a few tips and guidelines, which one must remember and take care of, in order to maximize returns from his/her SIP in mutual funds.

Invest Over The Entire Life Cycle:

The common tendency of people starting with a SIP in a mutual fund, and then terminating the same once the market is on the drop, beats the whole purpose of investing through the SIPs.

The method of staying invested over the whole cycle is a good approach as it allows you to take advantage of lower prices, as well as enables you to average out the purchase cost over time.

Therefore, by exiting during the market decline, one abandons his chance of buying more units at low prices that can produce good returns, in case the market again takes a turn.

One way to benefit from the SIP is to stay invested in it for a long term, almost through the whole market cycle.

Link Your SIP To Some Goals:

Like any investment, you should link your SIP with some financial goal. Not keeping eye on your goals will let you invest in a haphazard manner and even fall short of your requirements. List your goals in the order of priority, fix a period to achieve the same, and finally measure each goal in terms of the funds required.

By doing this, you can make your SIP investments correspond to each goal, depending on the timelines and the risks involved. The greater benefit involved here is reducing the risks of timing the markets. As you stagger and invest over a period of time, you can reduce the impact of adverse market movements.

Escalate An Annual Commitment:

Although SIPs allow you to invest a fixed sum monthly, that does not mean that you have to stick to the same amount for the whole tenure. Your savings automatically go up, as your income rises. Therefore, the SIP amount should also keep raising in the same proportion.

Always remember that your fund requirement increases over the years, due to inflation. Thus, to have an approach where you hike or step-up your monthly commitment every year, will ensure that you are in pace with the lifestyle changes and inflation. You need not allocate the extra savings to an additional SIP scheme; rather can proceed with the existing

Use Also STP and SWP:

You need to have enough balance in your bank account to ensure the fund availability for the SIP. However, it is also true that maintaining a big balance is not always prudent, as that does not fetch high returns. Alternatively, you can put a lump sum in the liquid fund and give the necessary instructions, in order to transfer a fixed sum to your chosen equity fund over regular periods. This may prove to be a better option, as the liquid funds fetch a better option, compared to a bank account.

When near to your financial goal, you can choose SWP (systematic withdrawal plan). This lets you withdraw money at regular intervals over a period, thereby protecting your gains and ensuring your goal realization.

In case, you do want to withdraw, you can also opt for a systematic transfer plan (STP), where your money gradually moves from the unstable asset class to a more stable one.

Working upon the above-mentioned guidelines will surely take you forward towards increasing your SIP returns in a Mutual Fund Investment.

Source:holisticinvestment.in

One must buy direct plans in mutual funds or regular plans? This is one question that often comes to mind while one is researching mutual funds for investing.

Though the answer is short and easy, I thought to write more elaborately about it. It is important for investors to know the difference between direct plans and regular plans before investing. So let's get a few basic concepts and history behind direct plans.

It was around in the year 2012 that SEBI introduced the concept of Direct plans in mutual funds. Earlier, direct & regular plans had only one NAV displayed for both of them. These days they have 2 separate NAV. This makes them very distinguished from each other.

What is the difference between direct plans in mutual funds and regular plans?

Direct plans have smaller expense ratio than regular plans (difference: 0.5-1.5%). Why?

When one buy mutual fund units through a broker/ distributors/ platforms/ agent, they end up buying regular plans.

From the total invested corpus of a mutual fund, a portion is paid to brokers etc as a commission.

This commission becomes a part of the expense ratio of the mutual fund.

This is the reason why the expense ratio of regular plans is higher.

#1. Who can invest in direct plans in mutual funds?

People who know how to pick mutual funds on their own can buy direct plans. The benefit of the direct plan is, one can buy the same mutual fund with a lower expense ratio. As you are not paying any commission, a majority portion of your invested money is used in buying the “units”. Over longer time horizons, buying mutual fund units of direct plans can build bigger corpus compared to regular plans.

#2. Expense ratio makes a difference in returns

The NAV of mutual funds is declared every day. The declared NAV is after adjusting for the expense ratio.

So one need not do a separate calculation for the expense ratio.

How to buy direct plans?

As the name indicates, direct plans can be purchased directly from websites of the mutual fund AMC’s. Mutual Fund AMC’s offer their “direct plans” on their respective websites.

But to invest like this, one must have their PAN number handy. The website will ask for the investor's PAN number to authenticate the KYC. KYC authentication by Mutual Fund AMC’s is must as per SEBI guidelines before investing in direct plans. A person who has a PAN number will get his/her KYC approved in minutes. Once the person enters the PAN number, the Mutual Fund AMC will immediately allocate a Folio Number. From here you are good to do.

Conclusion

Direct plans are more cost effective mutual funds. They have a smaller expense ratio. Over the longer term horizon, investing in direct plans in mutual funds will fetch better returns. But if this is so, why mutual funds offer “Regular Plans”? The regular plans are sold through brokers/distributors/advisors. These advisors help novice investors to select good funds as per one's investment goals. Hence Regular Plans are a better option for those people who have less investing/market knowledge. So it is clear that Direct Plans generate better returns. But is this all? As an investor do we need to note something else? Yes, the difference between direct and regular plan is not so much. For a common man, it does not make a lot of difference (direct plans having marginally better returns). The difference in returns between direct & regular plan can be in tune of 0.5% to 1.5% (in general).

Source:getmoneyrich.com

Any type of financial investment needs proper planning and ELSS (Equity Linked Savings Scheme) investments are no different. The ELSS is considered by many as one of the top tax saving investment options due to its short lock-in period and potentially high ROI. As per historical records, ELSS tax saver mutual funds have outperformed every other tax saving option available in India. No wonder the interest in this tax saving option is growing by the day!

However, despite the increase in investments and interest in ELSS schemes, these are various myths associated with them and this is the key reason why some investors still view them with a degree of skepticism. The following a list of 5 common myths associated with these funds that just aren’t true.

High Entry Load and Fund Management Charges:

Mutual funds used to have a high entry load as an upfront fee which was charged by the mutual fund company on the initial investment. However, entry loads were abolished in 2009 though most equity-related mutual funds still have an exit load if liquidated before a 1 year period. However, in the case of ELSS funds, such loads or redemption charges are not applicable as these funds have a lock-in period of 3 years, to begin with. In the case of fund management fees, these too are capped at 2.25% by law. Moreover, there are 3rd parties, who do not charge a portfolio management fees that some others may do. 

Only Suitable for Short-Term Investments:

Investors often believe (wrongly!) that having a shorter lock-in period means that the fund cannot offer long-term capital appreciation benefits. Thankfully, nothing can be further from the truth. A shorter lock-in period means that you can withdraw your investments after the minimum lock-in period of three years but if you want to, you can extend your investment indefinitely beyond this lock-in period. If you invest in a mutual fund for a longer period the possibility of higher returns increases substantially.

It is too Complex to Understand and Invest In:

Investing in an ELSS is as simple as any other mutual fund. It allows you to choose the market segments where you want to invest. You can also allocate the corpus as per your preferences and understanding. However, most investors leave this task to their fund managers as they usually have far more experience and a better understanding of market conditions and risks to choose how much to invest in what category.

ELSS is short for Equity Linked Savings Scheme and when people hear “equity”, they think of shares and DEMAT accounts and so on. This tends to detract from many people, however, ELSS mutual funds are not the same as shares. Agreed they are market linked and the value of units changes daily as per market movement, but apart from that, ELSS funds are managed professionally by fund managers who have decades of experience, so you don’t have to worry about the complexity of the stock market to invest in ELSS funds.

Good for Investment but not Good for Tax Savings:

This is one of the most popular (and of course false!) myths about ELSS. These funds are excellent tax saving instruments. Unlike the NSC and tax saving FDs, the principal investment, the capital gains and maturity amount are all completely tax-free. Add to this the short lock-in period of 3 years (min. among tax savings investments) as well as the fact that ELSS tax saver funds have outperformed all other options in the category and you have a winning combination that is impossible to beat.  

High Minimum Investment Limit:

This myth is probably the worst of them all. ELSS has a minimum threshold of Rs. 500 only. This makes it a smart investment option for people who want to test its effectiveness by putting in small sums before making larger investments later on if they choose to do so. Thus this investment option provides investors with a degree of flexibility, which is unheard of in case of most other tax savings investments.

Source: paisabazaar.com
Systematic Withdrawal Plan: Retirement is a bitter truth of life which cannot be changed or ignored. People work hard in their pre-retirement period to amass a good amount before they reach the golden age in order to spend a worry-free post-retirement life. This process of gathering the capital is known as accumulation. The time when you actually retire and start collecting capital from various investments for utilization or allocation is the distribution phase. Both the phases hold their importance in their own time, but distribution phase always has a stronger case. Two strong reasons to support this are — first, smart planning of the accumulated wealth at risk-free places and second, maintaining a regular cash flow to deal with the inflation-influenced expenses. The hardship is when you know you are not a government employee who has access to regular income in the form of pension. So, how can you relish and spend a stress-free life after retirement? The optimum solution to this may be leveraging SWP or Systematic Withdrawal Plan provided by mutual funds. SWP is an automatic withdrawal plan where a pre-determined amount can be withdrawn at regular intervals of time. These withdrawals let an investor cherish the same feeling as that of a pensioner receiving his pension.

What Procedure Is Required to Avail the Benefits of SWP?

Investors are required to first shift the accumulated amount to a low-risk investment fund, and then apply for an SWP plan for regular withdrawal. Most of the retired people prefer shifting their investments or collected corpus to safe options which include debt mutual funds, retirement plans, etc. On the other hand, some retirees who have the ability to endure high risk choose to shift their accumulated corpus in equity in order to pocket in higher returns and maintain a regular cash flow. Lastly, investors can decide the date and frequency of withdrawals.

Retirees, Why Not Harbor the Tax Advantage?

By now, we know that SWP is a reversal of SIP (Systematic Investment Plan) and since it is looked upon as redemption, it is also subjected to tax. To understand how tax calculations are carried in SWP, let us imagine a scenario wherein a retired official has accrued a corpus of Rs 1 crore with him, but he is not sure about how to put this money to work. What do you say will be a smart choice — Depositing the corpus in banks as FDs or Investing that corpus in equity funds or debt funds, and then implementing SWP? Let us reach a conclusion by performing the tax calculations. The calculation is done for one year on the corpus of Rs 1 Cr. The interest earned on FD is 7.2% (which makes monthly interest of Rs 60,000) and the withdrawal amount in SWP is kept Rs 60,000 per month from equity fund and debt funds. However, the average annual return on the remaining balance is assumed to be 12-15% in equity and 8%-10% in debt investments. This is an additional benefit on investments in equity and debt funds, but such benefits are not considered in the tax comparison.

SWP tax calculation on equity and debt funds v/s FDs:



# In debt funds, the STCG is applicable on redemption before 3 years, so we are assuming that the retired person implements SWP for the fourth year. Hence, the total tax on the capital gain is applied at 20%.
# Although for calculating the capital gain, we need to deduct the cost from the sale value, in the above example, we have ignored the cost deduction.
# LTCG on debt fund is calculated with Indexation benefit, but to simplify the calculations, we have ignored the indexation benefit as well. Analyzing the data in the table above, we can see that in order to save more tax, SWP is a better option to go with rather keeping the corpus in FDs.

What Is the Moral of the Story?

Retiring from work gives you dual feeling – one is the feeling of relief that says you do not have to work anymore and the other is of distress about not having to depend on anyone and still coping with the regular monthly expenses. To live an independent and respectful life and to stop worrying about the source of getting a regular income, one can choose to invest in mutual funds and start SWP then. Through SWP, you will not only have access to a regular fixed income but also your invested capital will earn interest on the same simultaneously. As they say, ‘tomorrow never comes, and if it comes, it never dies.’ So, one must never delay or procrastinate things for tomorrow. What if you are still in your 20s? You should not think it’s too early to plan for post-retirement corpus because you too will hit the retirement day and get the retirement treat from your junior employees.

Source: financialexpress.com
Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. and its affiliates, 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.