Scheme Name Change after Recategorisation

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When investors sit to review their mutual fund schemes, they will notice some of the schemes that they held have merged or their names have changed.

1. Why have names of some mutual fund schemes changed?

Names of some equity and debt mutual fund schemes have changed as fund houses align them to comply with the directives of the Securities and Exchange Board of India (SEBI). As per the mandate, a fund house can offer 10 types of equity funds, 16 categories of bond schemes, and 6 categories of hybrid funds. In addition to this, they can also have index funds, fund of funds and other solution based schemes.

2. What is the outcome of this SEBI ruling?

Based on this mandate by the regulator, fund houses have completed the exercise of re-categorisation of their existing open-ended equity mutual fund schemes. Consequently investors will notice names of some schemes have changed, while some have merged.

3. What should investors do now?

This exercise by fund houses has come to an end. Investors will now have to see the impact of this on their portfolio and readjust them in line with their asset allocation. For example, if an investor holds a large-cap fund which post reclassification becomes a large and mid cap fund, could see his large cap allocation go down and mid-cap go up. Many mutual funds have just changed or altered the name to comply with the regulatory requirement. In such a case one could stay put in the scheme. Financial planners believe investors should not rush to make changes to their portfolios immediately. They should also keep in mind the taxation impact and exit load impact before rushing to make changes to their portfolio. As funds move to the defined categories, merge schemes, investors will have to see the overall impact on their equity and debt portfolios. They will have to recalculate their exposure to large-cap, mid-cap or multi-cap schemes and decide whether they need to make any changes to tune their portfolio in line with the new classification.

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

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What is an NFO?

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What is an NFO?

NFOs are first-time subscription offers for a new scheme. Many funds launch NFOs to complete their product basket. For example, if an AMC does not have a hybrid fund or multi-cap fund, it could launch an NFO to offer that product to investors. NFOs can be for both open as well as closed-end funds. In a closed-end NFO, you can invest only during the offer period. On the other hand, open-end funds reopen for subscription again and investors have the option to subscribe on any working day at the prevailing net asset value.

Should investors put money in a new fund offer?

Financial planners say investors should invest in an NFO if there is a need for that product in their portfolio, or there is a theme, which can be played only through the new fund. Many investors invest in an NFO because it is priced at ₹10, compared with other existing schemes with higher NAVs. It is a wrong strategy, say financial planners. Investors to stick to open-end schemes, which have a track record. They believe that in an existing scheme, the portfolio and fund manager’s style of investing is well known. In comparison, in an NFO one does not know what the portfolio will look like or how much assets the fund will gather.

What is the difference between an equity IPO and a mutual fund NFO?

Equity IPOs are issued by companies seeking capital to expand or to become publicly traded. On the other hand, an NFO from a fund house just pools in money from investors and invests in a set of securities (stocks or bonds or government securities), based on a stated strategy. Rarely are IPOs done at the face value today, as most of them are done at a premium to the face value. On the other hand, an NFO is always available at ₹10.

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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SWP or Dividends

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Mutual Fund SWPs are better option

When your clients are looking to generate regular cash flow from mutual funds, they often find it difficult to decide whether or not they should redeem their investments. Currently, mutual fund investors have two options to generate regular cash flow, systematic withdrawal plan (SWP) or dividends. Let us understand what is best suited for your clients.

Dividends in mutual funds

Choosing the dividend option for a mutual fund scheme entitles an investor to receive dividends declared by the fund scheme periodically. Dividends are tax-free for investors. The fund house though has to pay Dividend Distribution Tax (DDT) on such dividends on behalf of investors. This means investors indirectly bear the tax burden on dividend income.

However, in case of close-ended schemes or schemes with a lock-in period like ELSS, the dividend option is preferable. This is because your clients will receive part of the profits throughout the investment tenure. Even though the investment is locked in, they would still benefit from some liquidity from time to time.

Systematic Withdrawal Plan (SWP)

Just as systematic investment plans (SIPs) allow investors to make investments in mutual funds periodically, SWPs redeem your investments periodically. SWPs give investors the flexibility to choose the periodicity and amount of redemption.

Why SWPs score over dividends

Here are three reasons why an SWP is a better option than dividends

  1. Consistent cash flow: The dividend option does not guarantee regular cash flow since AMCs declare dividends after realising profits, if any. However, with SWPs, your clients can choose to have regular cash flow by redeeming their investments. There is no ambiguity on cash flow with SWPs.
  2. Control over quantum of cash flow: With SWPs, your clients can decide the amount and timing of cash flow depending on requirement. Simply put, your clients cannot rely on the dividend option to meet regular requirements.
  3. Tax efficient: The government levies DDT on dividends arising out of mutual fund investments. Since the NAV of the fund is reduced to the extent of dividend, investors end up paying the tax from their MF investments. SWPs, on the other hand, are treated as redemption from mutual funds. The tax treatment of such redemption is just like growth options in mutual funds.

Hence, SWP scores over the dividend option. However, if the periodic payouts are considerably higher than the returns generated by the mutual fund, you should consider recommending the dividend option as the investment amount might get exhausted. There is no such fear with the dividend option, as any dividend has to be declared only out of profits realised.

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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GST on Mutual Fund Investors

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If you were stumped to read that you will now be paying goods and services tax (GST) on your mutual fund exit load, you are not alone. The frequently asked questions (FAQs) issued by the Central Board of Indirect Taxes and Customs (CBIC) reveals the impact of GST on some financial services.

The FAQs explain tax implication on various charges, penalty and fees such as “exit loads” charged by mutual fund companies at the time of redemption, additional interest charged for default in payment of loan instalments and charges for late payment of dues on credit card outstanding. Here is how GST will impact your investments and financial transactions.

GST Impact on mutual fund investors

In case of mutual funds, expenses incurred by asset management companies (AMCs) are factored in the net asset value (NAV) of the scheme on a daily basis. However, exit loads are not included in the total expense ratio (TER) and charged at the time of redemption based on the scheme you have invested in and the tenure of your investment.

Typically, exit loads are nil or charged at a nominal rate in case of debt-oriented mutual fund schemes, if the redemption is made within a short period, say, 7 to 30 days from the date of purchase. However, in case of equity-based schemes, fund houses typically charge exit load of 1% of the NAV if the investor redeems from schemes within 365 days from the date of allotment.

In the recent FAQ, it has been clarified that the exit load will attract GST. However, the load will not increase for the investor as GST is included in the existing load levy. The scheme on the other hand will lose out as the exit load amount credited back to the scheme will be net of 18% GST

He said the fund houses made a representation to the GST authorities and the service tax authority about this. In that they requested the tax to be withdrawn, and clarified that this is not a service provided to the investor, it is in fact, a levy to deter investors from exiting too soon. Their request hasn’t been accepted and thus fund houses are going to pay GST on exit load, but the tax will be included in the load itself.

All fund houses do not have clarity on this yet. Another fund house that Mint contacted was unclear about this issue and its treatment.

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

Invest [at] SaveTaxGetRich [dot] Com

Focused Funds

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They are bit more Risky. The risk comes in two forms.

One is the likelihood of a fund manager losing money in a certain stock. I think if a fund manager goes wrong, the possibility of significant loss in a focused fund is far higher. Because in a focused fund a position in a stock can well be in the region of 5 to 10 percent.

The other is that focused funds can be far more volatile because you have fewer stocks. Nowadays, we are seeing a volatile market. So, the days on which the market goes down you see the concentrated fund falling much more than the market, compared to a more diversified fund.

I would say volatility is not as much of a risk on a 5 to 7 year basis. Because volatility, if you stay invested, is not a risk. But the risk of the fund manager going wrong is reasonably high.

So, yes, focus funds do come with high risk of volatility as well as the penalty for a fund manager going wrong with his selection is very high. And if he goes wrong with a couple of things, it could be a disaster.

But, I guess, that is where evaluation of a fund manager for a focused fund comes in handy. As a fund performs well and gets more money, it tends to become more diverse. So, I think 30 also gets you reasonable diversification.

So, check two things. You should look at the experience of the fund manager, of what he has set out to do and what are the quality filters. That apart, make sure even if it is a focused fund, it has at least 20 to 25 stocks, which is reasonable diversification for an investor. If you are comfortable with the volatility some of the focus funds look very promising.

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

Invet in Short Term Debt Funds

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Following a hike in the repo rate by the Reserve Bank of India (RBI) and expectations of a few more increases in the current financial year, fund managers insist that investors should stick to short-term debt funds. Apart from short-term debt funds, fixed maturity plans (FMPs) and debt-oriented hybrid funds can be opted by investors in current scenario.

The RBI, in its second bi-monthly policy of 2018-19, has raised the key repo rate by 25 basis points to 6.25%. In the past three years, RBI has cut repo rate down by 200 basis points (100 basis points=1%).

The policy was in line with expectations and three key reasons led to increase in rate hike. First is turbulence in emerging markets, then rise in oil prices and finally pick-up in the core inflation last month. These were some of the key reasons for rate hike. Investors should look at short-term products with average maturity of two-three years if they have investment horizon of 18-20 months.

Short-term bond funds invest in debt securities that mature in about a year to three years. They can invest in a mix of short-term instruments like commercial paper and certificates of deposits. In the last one year, short-term debt funds like Franklin India Low Duration Fund, Baroda Pioneer Short Term Bond Fund and Franklin India Short Term Income Plan have given returns in the range of 6.5% to 7.75%

On an average, returns on short-term debt funds were around 5.25% in the past one year, while returns of longer duration funds like income and gild-medium and long-term funds have given average returns of 3.2% and 0.44% respectively. On Wednesday, the 10-year benchmark government securities (G-Sec) closed at 7.92%. Its very unlikely that RBI will stop with just one rate hike. We might see few more in this financial year. So we would suggest investors to stay away from longer duration funds and stay in short-term or money market securities

Market participants also added that, 10- year yield will continue to remain in the range of 7.75-8% in the next two-three months. The prices of fixed income securities are governed by interest rates prevailing in the markets. Interest rates and price of fixed income securities are inversely proportional. When interest rates decline, the prices of fixed income securities increase. Similarly, when there is hike in interest rates, the prices of fixed income securities come down.

Some industry players also think that, fixed maturity plans (FMPs) and hybrid funds are best bet during the current times. “Investors can lock-in money at the higher yields in FMPs at this point of time. Even hybrid funds which have equity exposure of 10-15% can be attractive at this point of time. Such hybrid funds invest in both debt and equity, but around 70-80% of the corpus is invested in debt instruments while remaining in equity.

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

High Rating Does not means high Mutual Fund Returns

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Mutual fund schemes need to be tracked with respect to their benchmark and the ability of the management to show its true ability during volatile and choppy periods to evaluate their performance

A mutual fund that is rated highly today may not necessarily maintain its rating a year later. While a highly rated fund is a good first step to short list a scheme to invest in, it does not guarantee better returns. There are more crucial parameters to be evaluated before investing.

Schemes need to be tracked with respect to their benchmark and the ability of the management to show its true ability during volatile and choppy periods to evaluate their performance. Past performance in the short term does not matter.

Also, every rating agency ranks a mutual fund scheme according to its own standards. Do your due diligence before selecting a scheme.

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 the Debt Funds Risks

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Debt Funds Risks

Interest rate risks on longer maturity: Bond prices are affected by the interest rate cycles and policy stance of central banks. Higher the average maturity, the more volatile and risky is a fund considered.

Credit risks: Credit risk is about the fund’s ability to pay back money at the time of maturity. 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

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

Fixed Deposit vs Debt Mutual Funds

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Despite a few hiccups along the way, it’s more than likely that India is heading for lower interest rates for years, perhaps for decades. In fact, if one steps out of the ivory tower of economists and into the real life of savers, a huge amount of damage is already done. 2.5 – 3.5 per cent on savings banks and 5-7 per cent on various deposits are going to be the normal range now onwards.

Most Indian savers–including retirees who need income–are heavy users of bank fixed deposits. Their earnings are down by 25 per cent or more in the last three years. Is there a solution? As it happens, there is. There are mutual fund products that fit the bill perfectly. They not only give you higher returns than these banking products, but are also liable for an effectively lower tax outgo, making the effective return very attractive. In fact, compared to fixed deposits, the liquidity and the convenience are also superior, especially if you deal through the special apps that many funds have released for the purpose.

SEBI’s recent reorganisation of fund categories has somewhat changed the lie of the land, so the types of mutual funds that work well as substitutes for bank accounts are liquid funds and ultra-short duration funds. These funds have predictable and stable returns that have negligible volatility. The precise definitions that SEBI has now enforced has made them even more so. Over the last one year, liquid fund returns have been an average of 6.85 per cent, ultra-short duration fund returns have been 6.47 percent.

While these compare well to the deposit products they can replace, the real kickers are the convenience and the tax factors. Liquid funds can be invested in and redeemed through a smartphone-based app for many fund companies. Through these apps, you can invest instantly by transferring money from your bank accounts. More to the point, you can redeem the investments and the money gets transferred to your savings account within five to ten minutes. To be able to earn interest which is 1.5X that of savings accounts and yet have a liquidity compromise of only a few minutes.

The benefits of using funds go much beyond a simple comparison of returns. The different taxation structure means there’s a bigger difference in post-tax returns. The tax difference arises from the fact that returns from fixed deposit are classified as interest income while mutual fund returns are classified as capital gains. Under interest income, you have to pay tax every year for the what you earned that year. If your total interest income from a bank (all accounts and deposits together) exceed Rs 10,000 then the bank also deducts TDS at 10%. In fact, if the bank does not know your PAN, it will deduct 20%. This means that a part of your return is not available for compounding because it is taken out and paid as tax every year.

There is a further advantage to the mutual fund option if you stay invested for more than three years. If you redeem after three years, then the gains are classified as long-term capital gains and are taxed after indexation. Essentially, you get taxed only on inflation adjusted returns. Again, this does not happen with FDs. Applying all these factors, a three-year investment in a short-term fund will leave you with almost twice the returns as an FD over the same period, and with excellent liquidity.

Earlier, this kind of fine-tuning could be expected only for a handful of knowledgable and involved investors. However, with low interest rates, the payoff is huge, and a lot of us could benefit substantially from shifting away from deposit-type products and move towards mutual funds.

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 is Portfolio Turnover in MFs

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Does your fund changes its stock holdings frequently? Does it sell a lot to book profits or buy more on dips? Portfolio turnover reveals these things. It is a number that is disclosed at the end of the month in fund factsheets. Portfolio turnover is calculated by taking either the total amount of new securities purchased or the amount of securities sold, whichever is less over a particular period, divided by the total net asset value (NAV) of the fund. This is the method used globally.

A turnover ratio of 100% or more does not necessarily suggest that all securities in the portfolio have been traded. In fact, it represents the percentage of the portfolio’s holdings that have changed over the past year. A low turnover figure indicates a buy-and-hold strategy, while a high turnover would indicate considerable buying and selling of securities.

If the portfolio is churned many times during a year, the fund will incur higher transaction costs. Aggressively managed funds generally have higher portfolio turnover rates than conservative funds. When you use portfolio turnover, do not forget to compare it with peer category schemes.

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