Debt Fund Categories

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Here’s a list of all the debt fund MF categories.

Debt MF Schemes

Category Scheme Characteristics
Overnight Fund Investment in overnight securities having maturity of 1 day
Liquid Fund Investment in Debt and money market securities with maturity of upto 91 days only
Ultra Short Duration Fund Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 months – 6 months
Low Duration Fund Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 6 months- 12 months
Money Market Fund Investment in Money Market instruments having maturity upto 1 year
Short Duration Fund Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 1 year – 3 years
Medium Duration Fund Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 years – 4 years
Medium to Long Duration Fund Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 4 – 7 years
Long Duration Fund Investment in Debt & Money Market Instruments such that the Macaulay duration of the portfolio is greater than 7 years
Dynamic Bond Investment across duration
Corporate Bond Fund Minimum investment in corporate bonds- 80% of total assets (only in highest rated instruments)
Credit Risk Fund Minimum investment in corporate bonds- 65% of total assets (investment in below highest rated instruments)
Banking and PSU Fund Minimum investment in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions- 80% of total assets
Gilt Fund Minimum investment in Gsecs- 80% of total assets (across maturity)
Gilt Fund with 10 year constant duration Minimum investment in Gsecs- 80% of total assets such that the Macaulay duration of the portfolio is equal to 10 years
Floater Fund Minimum investment in floating rate instruments- 65% of total assets

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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You can write to us at

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When to Sell a Mutual Fund?

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Compared to buying a mutual fund, investors often make worst decisions when it comes to selling them

The fact that there are so many mutual funds in India and choosing a suitable one is difficult is now understood by every saver. Everyone has a way around it, whether it’s advisors or websites or just asking around. However, there’s actually an even more difficult choice that investors face–which funds to sell off and when. Curiously, more knowledgeable and more involved investors face this problem a lot more than others. The reason is those of us who are active and involved investors always have an urge to do something. Such investors generally do well because because they learn, analyse and act more than others. Therefore, they start equating being good investors with doing something, often anything. Unfortunately, along with everything else, in practice, this also translates into being all too ready to sell off their investments.

There are many reasons for selling funds but not all of them are good ones. There can be exceptions but the good reasons tend to be about the investor’s own finances and the wrong reasons tend to be about the fund. Let me explain.

Overactive investors give three reasons for wanting to sell off a fund investment. One, they’ve made profits; two, they’ve made losses and three, they’ve made neither profits nor losses. That sounds like a joke but isn’t. Someone will say, ‘Now that my investments have gone up, shouldn’t I book profits?’ Alternatively, ‘This fund has lost a bit of money recently, shouldn’t I get out of it?’ And finally, ‘The fund has neither gained nor lost, shouldn’t I sell it.’ Basically, what I’m saying is that investors who have a bias for continuous action can create a logic for taking action out of any kind of situation.

And which is the right reason for selling a fund? Obviously, none of the ones above. By themselves, they are not legitimate reasons for selling a fund. The first comes from the spurious ‘booking profits’ concept that advisors have promoted. Booking profits doesn’t make sense for stocks, and it makes even less sense for mutual funds. In both, this attitude makes investors sell their winners and hang on to their losers. In mutual funds, the whole point is that there is a fund manager who is deciding for you which stocks to sell and which to buy. If the fund manager is doing this job well, then the fund is making good returns. Therefore, selling a fund that has made good returns is the exact reverse of what investors should be doing.

Let’s come to the second reason now. While selling underperformers is a legitimate idea, you need to evaluate the timeframe and the degree of underperformance. Investors try to sell funds that have generally excellent performance but may have underperformed other funds by small margins. Someone will say that over the last year, my fund has generated 25% but five other funds have generated 30% so I will switch to those. This switching based on short-term past performance is counterproductive and does nothing to improve your future returns. Only if a fund underperforms consistently for two or more years.

So when should investors actually sell their funds? The right answer is that they should be guided by their own financial goals. You should sell a fund and get your money out when you need it. Let’s say you have invested for five or ten or fifteen years, continued your SIPs, and now the money has grown to what you need. You may need to make a down payment for a house, or pay for your child’s education, or whatever else. If you’re getting close to that time, you should sell and redeem, irrespective of the state of the market. In fact, unless it’s an expense that can be postponed, you should start acting one or two years before time. Withdraw the money from the equity fund and start parking it in a liquid fund. You can use an automated STP (Systematic Transfer Plan) for this which will be convenient.

In a manner of speaking, the primary goal of investing is not to invest but to sell because that’s when you achieve your goal. Be guided by that.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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About Equity Mutual Funds

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An equity mutual fund is a mutual fund that invests in stocks. They are a lucrative and interesting investment avenue present in the market today. Over the period of time, we have seen people moving from low-return instruments like NSC, Provident Fund and fixed deposits. Equity mutual funds not only help you get capital appreciation but also help save tax. There are options available under equity mutual funds which are specially designed to give you tax benefits. These funds may even provide you inflation-beaten returns in the future.

Here are the reasons why you should be investing in an equity mutual fund today:

1. They are aligned with your financial goal

Most of the funds are open-ended, which makes it easy to link the investments with any of your financial goals, like child marriage, child education, vacation, retirement planning, wealth creation etc. Investors can achieve their financial goals, as the schemes comfortably fit in the duration of any goal which they wish to get it fulfilled. However, make sure that the financial goal you are opting for should not be less than five years.

2. Diversification in stock investment

The amount invested through equity mutual funds are spread in substantial sectors and have holdings in various companies which allow mutual fund managers to spread the risk and reduce the future losses due to market volatility. Since the amount is invested through an expertise and a demonstrated performance, it is much safer compared to buying stocks directly.

3. Tax-saving element

Investors can avail tax benefits by investing in ELSS (Equity linked saving scheme) funds. These equity-linked tax saving investment schemes provide investors with total tax saving benefits of Rs 1.5 lakh under section 80C of the Income Tax Act, 1961.

4. They are Tax-free

Equity mutual funds, which are invested for more than one year of time horizon, are tax-free. Even dividend received till Rs 10 lakh from mutual funds is tax-free in the hands of investors.

5. Highly return-orientation

The scheme gets compounded returns which help in multiplying your money over a certain period of time. In a re-investment option, your earnings get reinvested and returns are calculated on every sum of the final earnings which includes return earnings of the previous years. The more you remain invested, the more you will be able to increase the potential of your inflation-beaten investment earnings.

6. Redemption is easy

Redemption of money from open-ended equity funds is relatively easy. You can invest through a direct plan using electronic clearing system (ECS) facility of your bank. Whenever you want to withdraw your free units, it can be done very smoothly through the redemption process. After signing the redemption form, it takes a maximum of three working days to get your money in the registered bank from where you have started your investments.

7. Offers versatility of investment

Investment in equity mutual funds can be done through a Systematic Investment Plan or in a lump sum. You have an option to stop or halt the instalments of your systematic investment plan. Investors also have the flexibility to go for the systematic withdrawal plan (SWP) which allows them the benefit of periodical withdrawal, at the same time retaining the fund.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Mutual Fund Reclassification

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Around 20%-30% of mutual fund schemes have seen a change in investment style after the Sebi-mandated recategorisation exercise.

Are you wondering why you are getting name change and category change emails from your fund house? Last month, based on the instructions of the Securities and Exchange Board of India (Sebi), mutual fund houses recategorised their schemes. What does mutual fund reclassification mean for you and how does it impact you?

Not all mutual funds have changed. “Funds that have seen changes can be classified into three levels — funds that simply changed the name; funds that have changed the category; and funds that have wound up and merged with another fund

Oall the funds that have seen changes, around 50%-60% have only changed names. “For instance, ICICI Prudential Balanced Fund and is now ICICI Prudential Equity and Debt Fund. The characteristic remains the same

Around 20%-30% of the mutual funds have seen a change in investment style. The remaining funds have either wound up their schemes and merged with another scheme. The third type of change is in 5%-10% funds—you have scheme A and scheme B, where scheme B dies and merges with scheme A. It doesn’t have a big impact on scheme A, but there is a huge impact on scheme B

What should you do?

If you are a mutual fund investor, you have to firstly take a look at your investment portfolio to see what is happening with your holdings. You need to go through all the schemes that you have. If there is no change to your mutual fund scheme, then you don’t have to do anything.

However, it is important to be aware of any changes. Do take a look again and if you are wondering where to find the information, go online. From an investor point of view, the most pertinent change is the second and third type of change — where the scheme has either changed the category or has got merged with another one. The funds that have had category changes and have been wound up and merged with larger scheme will require closer scrutiny. Here it varies from one fund to another. There is no blanket advisory possible at this point of time. You have to see, especially on the debt side, whether the fund has gone from, say, liquid fund to ultra-short term. “In case you see a major change in the objective of the fund then you should take a relook. In the debt fund space, there hasn’t been much of a change

Next, you have to check your overall portfolio and see whether you want to continue to remain in the same category. That assessment has to be done. The category changes are very diverse. Sometimes the risk has gone down, sometimes it has gone up. It has to be scrutinised on a case-by-case basis.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Hybrid Fund Categories

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Here’s a list of the seven new hybrid MF categories.

Hybrid MF Schemes

Category Scheme Characteristics
Conservative Hybrid Fund Investment in equity & equity related instruments- between 10% and 25% of total assets; Investment in Debt instruments- between 75% and 90% of total assets
Balanced Hybrid Fund* Equity & Equity related instruments- between 40% and 60% of total assets; Debt instruments- between 40% and 60% of total assets. No Arbitrage would be permitted in this scheme
Aggressive Hybrid Fund* Equity & Equity related instruments- between 65% and 80% of total assets; Debt instruments- between 20% 35% of total assets
Dynamic Asset Allocation or Balanced Advantage Investment in equity/ debt that is managed dynamically
Multi Asset Allocation# Invests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes
Arbitrage Fund Scheme following arbitrage strategy. Minimum investment in equity & equity related instruments- 65% of total assets
Equity Savings Minimum investment in equity & equity related instruments- 65% of total assets and minimum investment in debt- 10% of total assets. Minimum hedged & unhedged to be stated in the SID.
*Mutual Funds will be permitted to offer either an Aggressive Hybrid fund or Balanced fund.
#Foreign securities will not be treated as a separate asset class

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Pay Less Tax with MIPs and Beat Inflation

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Retirees looking for regular income in their golden years should opt for these funds which invest a small portion of their corpus in equities and the rest in the safety of debt.

Retirees who invest in fixed deposits for regu lar income in retire ment don’t realise that their money is losing value due to inflation. Even though their monthly requirement will gradually go up due to inflation, their deposits will continue to give out a fixed amount. The best alternative are monthly income plans (MIPs) from mutual funds. These funds follow a conservative investment strategy, allocating only 1020% of their corpus to equities and putting the rest 80-90% in safer bonds and other debt instruments.The returns are not very spectacular but are enough to beat inflation.

The good thing about MIPs is the relative safety they offer. These funds will give investors good returns if stock markets do well but they will also protect the downside because of the limited exposure to equities.

MIPs are also more tax efficient than fixed deposits. Interest from fixed deposits is fully taxable. For a person in the 30% tax bracket, the post-tax returns from a fixed deposit that offers 8% is actually 5.6%.Worse, this income is taxed every year even though he may get it only after the deposit matures. Also, if it exceeds a certain limit, it attracts TDS, so there is no escape. Retired engineer Kalyan Ghosh was advised by friends to split his fixed deposits across different banks. That might help him escape TDS but the income will still be taxable.

On the other hand, the gains from MIP funds are taxed only when the investor redeems the investment. Even then, only the gains are taxed and that too at a lower rate (see box). Investing in MIPs can help retirees bring down their tax liability.

Is monthly income assured?

Though these are called “monthly income plans“, there is no assurance of monthly income. In fact, the dividend option of these funds is a very tax inefficient way to get a monthly income. Though the dividend received is tax-free, it comes to you after a heavy 30% dividend distribution tax. It is best to go for the growth option of the MIP fund and redeem units as and when you need the money. You can also start a systematic withdrawal plan (SWP) under which a fixed sum is redeemed every month and put into your bank account. Ideally, one should start redemptions after three years of investing for greater tax efficiency.

MIPs can be good source schemes for systematic transfer plans (STP) into equity funds. In an STP, a fixed sum flows out of the scheme to another scheme (usually an equity fund) on a predetermined day of the month or quarter.

Be wary of the charges though.MIPs have high charges (some charge up to 2.5%), which can be a drag on the overall returns.

Motilal Oswal Focused 25

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Motilal Oswal Focused 25

1/3 year return: 9.54 /9.91%

Top 10 holdings (%): 62

Top 3 holdings: HDFC Bank, Maruti, kotak Mahindra Bank

THE FUND manager aims to own compact portfolios of quality stocks with secular long-term growth prospects, with low portfolio churn. The fund prefers to restrict its holdings to no more than 25 companies. The fund manager follows a bottom up approach to stock picking and is index agnostic and does not hesitate in taking large concentrated bets in its portfolio. Stocks like HDFC bank, Kotak Bank have helped it outperform.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

What are International Funds

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Ask any finance professional ‘should investors diversify their investments?’ The answer will be a resounding yes. Diversification is a key risk mitigation strategy. Generally, we view diversification as investing in unrelated asset classes. However, diversification also means spreading your risk across geographies.

Usually individuals invest all their savings in their home country. This exposes investors to country risk. That is any negative economic or political event in the country affects their investment returns. A way to shield your clients against country risk is to invest internationally.

Investing directly in foreign markets requires expertise and is subject to investment limits. However, investors planning to diversify internationally can do so via the mutual fund route.

Let us understand the pros and cons of investing in foreign funds.

Advantages:

  • Risk mitigation – Helps in providing portfolio diversification
  • Broader investment basket – Your clients can gain exposure to strong international businesses which are not listed in India
  • No limit – RBI has imposed certain restrictions on direct foreign investments. However, there are no such restrictions on investments made through foreign funds. As per RBI guidelines, the annual overseas investment ceiling for individuals is US $250,000 (approx. 1.7 crore).
  • Planning for foreign education – Children of many clients dream of studying in a foreign university. Being well aware of the foreign education costs many parents save for their children’s education. However, these savings do not adequately reflect the impact of currency on investments. To elaborate assume the year is 2008, your clients calculate that they need to save 50 thousand dollars that is 21 lakhs for their son’s education over a period of 10 years. USD/INR was around 42 in 2008. Come 2018 Rupee has depreciated to 68 that is a change of 61%. Now the same amount 50 thousand USD translates to 34 lakh Rupees. This huge increase will turn the client’s financial calculations on its head. Instead if the client would have invested in a foreign fund investing in US markets then the currency movement would have no impact on the client’s financial plan.

Disadvantages:

  • Increased global risk – The client portfolio is exposed to country specific risks of all economies in which the international fund invests
  • Currency risk – This is the main risk while investing internationally. Any movement in Rupee compared to the currency of underlying investment influences scheme performance. An appreciating Rupee negatively affects the returns while a depreciating Rupee boosts returns.
  • Tax inefficiency – For tax purposes, they are treated as debt funds. Earlier when long term capital gains tax (LTCG) for equities was nil foreign funds were at a significant disadvantage. However, this disparity has reduced post budget as the Government has reintroduced long-term capital gains (LTCG) tax on equity investments.

Now, profits (above one lakh) from equity investments where the holding period is more than a year are taxed at 10%. While, long-term investments in foreign funds (holding period greater than three years) are taxed at 20% with indexation benefit.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Edelweiss Large cap Fund

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Edelweiss Large cap

1/3 year return: 15.6 /10.14%

Top 10 holdings (%): 37

LOOKING FOR companies with secular growth stories coupled with sharp portfolio management relative to the benchmark has helped the fund manager deliver superior results over the last one year. The fund also scores by having the lowest expense ratio in the large cap fund category. Decent exposure to stocks like Reliance, HDFC Bank, HDFC, TCS, Infosys, which accounted for a chunk of the Niftys return in the last one year, has helped the has helped the fund beat its benchmark over the last one year.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Debt Mutual Funds are not Risk Free

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When it comes to debt investments there seems to be an acute aversion to any sort of volatility among investors. But that need not be the case. In the current market bond yields have seen movements of as much as 100 basis points within a month. There are chances that many investors may want to redeem their debt funds fearing fall in their returns. But what may happen is that investors may miss out on potentially improved returns at portfolio level due to lack of adequate planning.

Today mutual funds offer a number of different types of debt funds that cater to the investment requirement across the segment. As a thumb rule, the longer the investment horizon, the better is one’s ability to withstand intermediate volatility and, thereby, enhance expected return.

Understanding price-yield movement

A basic fundamental of bond investing that yield and price are inversely related may not be commonly understood. Therefore it is important that investors take efforts to educate themselves to understand the product before taking the investment decision.

A simple way of understanding debt funds is to think of them simply as passing through the interest and capital gain income that they receive from the bonds they invest in, after deducting expenses and fees. There are a couple of further complexities to this.

One, unlike fixed deposits, mutual funds invest in bonds that are tradable. Two, in the debt market, prices of different bonds can rise or fall, just like they do on stock markets. Debt market focuses on various parameters such as global market development, interest rate cycles, inflation and credit pick-up. Bond prices are affected by the interest rate cycles and policy stance of central banks.

Don’t panic if yields move up

Some investors withdraw untimely from debt funds because fear of loss is irrationally higher; the perception that the debt market does not witness volatility leads to panic when there is an upward movement in yields, adversely impacting returns during that period.

In current scenario no economy can sustain being standalone, therefore development in one part of the world is naturally going to affect the linked economy. Like in every other asset class, investors need to show patience in this asset also. An investor with long-term horizon should remain invested to benefit the most from the interest rate cycle.

Choose the right kind of fund

An investor should build his/her debt portfolio keeping in mind the time horizon and risk profile and invest in fund strategy matching their investment need.

Debt funds can broadly be categorised in the following three groups:

(1) For short-term investment-Liquid Fund/Low Duration Funds

(2) For medium term investment, defined as 18 months to three years – Short Term fund/Credit Risk Funds

(3) For long-term investment horizon of over three years – Bond Funds

Generally speaking, risk matrix in debt funds is measured on two major counts. Firstly, the average maturity of the fund’s investments and secondly the average credit profile of the fund. Higher the average maturity, the more volatile and risky is a fund considered and similarly, the lower the rating profile of a fund’s investment, the more risky is it considered.

Longer maturity risk is normally due to fluctuation in bond prices and is considered recoverable over long periods. Credit risk is typically binary in nature, where if the investee company defaults in repayments on due date, the subsequent recovery is generally unlikely.

Kinds of debt funds

Liquid Funds, typically invest in papers of maturity up to 91 days. Investors with very short- term horizon should consider such funds, especially for creating an emergency fund corpus (which should be ideally three to six months income).

Low-duration fund can have average Macaulay duration of six to 12 months. If investor has investment horizon matching the above, this category may suit them. Short-duration funds typically have maturity between one and three years. Credit risk funds generally invest in lower rated papers to capture higher carry yields. Such funds may suit medium term investors.

Bond funds typically can invest in long-term papers. Due to higher average maturity, typically, returns are very volatile and highly sensitive to change in interest rates. However, past experience suggests that over interest rate cycles, these funds in the long term have provided good returns. Hence, a long term investor should consider such funds.

Another way of managing the interest rate volatility is through Dynamic Bond Funds, which can increase or reduce their duration based on the interest rate outlook.

DEMYSTIFYING DEBT FUNDS

  • There are debt funds to match varying investment horizons
  • Debt funds can also suffer losses like equity funds
  • Key is to have patience and wait out the volatility

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich – Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com