Vijaibabu's Blog - Personal Finance Guide for Financial Freedom

Mutual fund is increasingly getting popular since last few months. Mutual funds are a fund that invests investors’ money in various companies. Since the investment is in a set of companies, any upside or downside in a few companies is compensated by the reverse in other companies. This is what makes mutual funds attractive. It makes sense for individual investors to invest in mutual funds. Investment rationale in mutual funds As explained earlier mutual funds invest in a set of bonds and stocks depending on type and target investors of the fund . It essentially minimizes the risk because of investment in various assets. Any fluctuation in one or few assets is usually offset by reverse gains and losses in other set of assets which are part of mutual fund. Let me illustrate with an example. Say XYZ equity fund invests in approximately 40 companies. The possibility of shares of all the firms going down at the same time is very remote unless there is huge disaster in the economy. H

NAV or Net Asset value is the price per unit of a scheme on a given date. It is the NAV of the fund that determines the number of units you will get when you invest in a particular scheme. Many investors have misconceptions about the NAV of mutual funds and about how NAV is linked to a fund’s performance and its returns. Hence as an investor, it becomes very important for you to understand:  1. What is NAV? 2. How is it Calculated? 3. The Application of NAV  1. What is NAV in mutual funds? Net Asset Value (NAV) in simple terms is the current worth of each unit of the mutual fund . NAV is the single most important number for a mutual fund scheme because all transactions of a fund are with reference to NAV. NAV, which reflects the worth of each unit of a scheme, is computed and declared by mutual fund AMCs on all business days. Depending on the type of scheme NAV is calculated up to 2 or 4 decimal places. 2. How to calculate NAV? On subtracting liabilities of a scheme from its to

Liquid / Ultra Short Term Plans Liquid / Ultra Short Term plans are best suited for those investors which have a very short term investment horizon ranging from 1 to a few days. Infact, this is not an investment but just parking of the “surplus liquidity” – it’s a superior alternative to a “bank saving account” wherein you will earn higher yield. Although these funds don’t carry interest rate risk but they certainly carry credit risks. The aim of the investor should be to earn accrual interest. Short Term Plans Short Term Plans invest in similar kind of instruments as does a liquid fund but with a slightly high maturity profile. Hence, this fund is best suited for someone having an investment horizon between 3 to 12 months. This fund finds its place between a bank savings account and a fixed deposit. These funds carry credit risks as well as some amount of interest rate risk. The aim of the investor should be to earn accrual interest along with some capital gains. Income / Gi

The survey conducted by Financial Intermediaries Association of India (FIAI), also found that more than 60 percent of the mutual fund investors were content with services of distributors and advisers of investment schemes. More than 80 per cent of investors in the country are satisfied with their mutual fund schemes, a survey by trade body of financial distributors said. The survey conducted by Financial Intermediaries Association of India (FIAI), also found that more than 60 percent of the mutual fund investors were content with services of distributors and advisers of investment schemes. The survey targeting mutual fund investors was conducted across the country and covered all segments of individual clients - retail as well as HNI - across all age groups.  As much as 86 per cent of the investors in mutual funds were found to be satisfied or neutral about their investments , while the rest had expressed low satisfaction with their fund investments, the survey said. Moreover, 15

Are you planning for your child’s wedding or deciding on your new house? Do the thought of funds daunt you? Mutual funds could be your answer. Being the brain-child of Wall Street, mutual funds offer hassle free investment opportunities that can cater to different risk profiles. Understanding the nuances of investing in mutual funds requires hard work and the returns take on a learning curve. With meticulous planning, the rewards from mutual funds will far outweigh the required efforts. To know more about mutual funds and its different flavours, do read the following section on how these can be suited for individual investment requirements. Are mutual fund investments the one stop shop? Imagine you are unwell and need medical advice. Which doctor would you resort to? Medical science these days has numerous specialties and for the best advice you need to visit the doctor who has specialized in the area where you need consultation / advice. This increases your chance of recovery

Investments in top mutual funds yield better returns when an investors sticks with it for the long term. While sector based funds have been providing high returns, they come with a higher risk. On the other side, large cap mutual funds have been providing good returns in the long run. Here are some of the mutual funds which have tripled the money in the last 5 years which are worth considering for investment.  1)Fund A: This mutual fund scheme invests primarily in shares of companies that are included in the BSE 200 Index. Performance of the fund: Its 5 year annualized returns are 25%. It gave 9% annualized returns in last 3 years. If you have invested Rs 10,000  five years back, your investment would have been Rs 30,518 . Who should invest: This is a good fund for those with a medium risk appetite, but looking for good returns in the long run.  2)Fund B: This mutual fund scheme invests in top 20 large cap stocks among the top 200 stocks listed on BSE based on market capitalizatio

1. Performance Ranking  More than the recent or long term performance of any scheme its ranking among peers should be looked at. To find out the ranking you need to check out the quartile ranking which will show how the fund has performed quarter on quarter among its peer group. In quartile ranking each quartile comprises of 25 percent of peer group schemes. So one may select the scheme which has remained in top quartile most of the time. If at all you find your scheme going below 3rd quartile in a couple of consecutive quarters it hints that time has come to exit the scheme. You can find these rankings from the factsheets of various AMCs and also on some mutual funds research websites  2. Ratio analysis Risk and return ratios like standard deviation, Sharpe ratio etc.  I have discussed in my earlier article on Measuring Mutual funds risk. Along with those ratios, one also should check out the ALPHA of the fund.  Alpha tells us what extra or less the fund manager has generated ou

An MIP, as the name suggests, provides investors with a monthly income. Well, almost.   MIP is similar to your bank deposit with a monthly interest option, but unlike a fixed deposit where interest rate is known before you invest and the capital is repaid to you when you close it, neither the returns nor the capital is guaranteed in an MIP.   MIPs are typically suitable for investors who want to largely play it safe. They are for conservative investors who might be investing for the first time and are eyeing marginal exposure to the equity market.  These investors don't mind taking a little risk in order to increase the potential returns that pure income/debt funds or fixed instruments will provide. Also, MIPs are better for investors who are nearing retirement, do not have any other substantial source of regular income and do not mind a marginal additional equity risk.  In MIPs, typically a large portion (75-100 %) of the fund is invested in debt and money market instru

Age, many believe, is crucial to investing. Logically, the younger you are, the greater must be the equity exposure. One’s goals,investment horizon and risk tolerance should also be the determining factors. So there is no blanket rule. Given here are five different portfolios targeted at various profiles. Check to see which one suits you most. Consider these as guidelines to help fine tune your portfolio. AGGRESSIVE GROWTH This portfolio is meant for you: If wealth creation is your agenda If young and starting a career The riskiest portfolio of all, it has the capability to generate high returns. Your aim must be to build wealth. Age is on your side and you have almostzero financial liabilities - no dependents or loans to serve. Money saved in these years of your life will contribute the most to your overall wealth. GROWTH This portfolio is meant for you if you: Want to diversify your assets and already have an investment base Are fairly young or just married