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

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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

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

Contra Funds vs Multicap Funds

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You should have a time horizon of at least 5 to 6 years. All these categories are good. They invest in equity but have a different strategy. Most multi-cap funds will be growth-oriented. They’ll be investing in companies which are likely to go up in value because the companies are growing. It may not be cheap.

Value funds target to invest in those companies which are out of favour and are available at discount. So, it’s completely about buying cheap. In contra strategy, the companies may not be cheaper, but there could be special situation companies which are out of favour for some reason and the market is unwilling. It could be a turnaround situation.

So, these fund managers follow a different style of investing. I would say that they all fit into a portfolio. I would say that invest a third of your money in a value fund and invest 2/3 of your money in one multicap fund. That will do the job. If you are investing a large sum of money, maybe two multicap funds and one value fund will do the job. A third of money in value fund will work because different segments of the market do well at different points of time. This is another level of diversification which investors should be aware of.

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

Investing in Bond Funds

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Bond funds make a lot of sense for investors who are looking for slow but steady growth. They are tax-efficient too compared to the good old fixed deposits for individuals in higher income tax bracket. But contrary to popular perception of being risk-free, they are fraught with risks. Here are five factors you should be aware of before committing your money.

Credit risk

The portfolio of bond funds comprise investments in instruments such as treasury bills, commercial papers, government securities, certificate of deposits and bonds. Each of these differ from each other in terms of credit risk. Simply put, credit risk is the chance of default by the issuer of the instrument. Credit risk impacts investments in two ways. First, a default may lead to permanent loss of capital. In case of rated instruments, papers with AAA rating are seen as the safest bet. Not a single AAA rated long term instrument rated CRISIL AAA has ever defaulted, says CRISIL default study 2017.

A change in rating issued by rating agency also impacts bond prices. A rating upgrade pushes up bond prices and a downgrade pulls down prices. As per CRISIL default study 2017, during 2007-2017 around 95.3 percent of CRISIL AA ratings remained in that category at the end of one year; 1.2 percent were upgraded to CRISIL AAA and 3.5 percent were downgraded to CRISIL A category or lower. The numbers mentioned above are just for understanding purpose and are expected to change over a period of time.

Always check the portfolio of the schemes. If the fund manager is taking undue risks to boost the returns, avoid such funds. Liquid funds are marketed as safe investment bets. However, many of them invest in commercial papers issued by corporates which carry credit risk. Ideally, liquid funds should have a sizeable chunk of their money in treasury bills and government securities maturing in three months

If you are comfortable taking extra credit risk for extra returns, do consider credit risk funds. As the name suggest, these funds invest in bonds that carry high credit risk. These schemes are expected to reward you with extra returns for the extra risk you took.

Interest rate risk

Existing investors in bond funds have learnt it hard way over the past couple of years. For the uninitiated, when interest rates go up, bond prices fall and vice-versa. The 10 year benchmark yield has moved closer to 8 percent now as compared to 6.18 percent recorded on December 7, 2016. The rate of interest changes is seen the most in long dated bonds. If you have been holding long dated papers, you have pocketed moderate returns. Government securities funds investing in long term government bonds lost 0.6 percent over the last one year on an average.

If you are not too comfortable with interest rate risk, stick to short duration bond funds, which earned 4.5 percent over the past one year.

Expenses and exit loads

Double-digit returns potential in equity funds make many Indian mutual fund investors ignore the expense ratio of mutual fund schemes. In bond funds, you have to be very careful. Keep a track of expenses. Any uptick in expense ratio pulls down returns payable to investors

There are many short duration funds and corporate bond funds that invest in high quality papers and charge very low expenses. On the other hand, there are credit risk funds that charge high expenses and invest in low rated high risk bonds to earn extra returns.

“Investor returns – arrived at by deducting expense ratio from portfolio yield-to-maturity – must be compared by investors before taking investment decision

For example, a short duration fund investing in high quality papers may have portfolio YTM of 8.3 percent and have expense ratio of 40 basis points. Here investors are expected to pocket 7.9 percent returns, other things remaining the same. Now compare this with a credit risk fund that comes with YTM of 9.1 percent and expense ratio of 1.6 percent, which nets an investor 7.5 percent. If investors are not getting adequately compensated for the extra risk they are taking, then there is no point taking that extra risk.

Do check the exit loads at the time of investing. If you have to sell before the stipulated time, the fund house deducts exit load, eating into your returns.

Fund manager risk

There are many celebrity fund managers in the equity space. However, not many are bothered about knowing more about the fund manager when they are investing in bond funds. A fund manager’s role is critical in dynamic bond funds and credit risk funds as the fund manager takes interest rate calls and credit risk decisions.

Changes in AUM of the scheme

Large changes in assets under management may change the expense ratio of the fund. A sudden dip in the assets may push up the expense ratio leading to lower returns.

One should also understand that a few strategies work the best with limited money. Sudden large investments in credit risk funds may force the fund manager to settle for sub-optimal investments in already illiquid corporate bond market. However, this is not a risk in government bond funds, given the ample liquidity.

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 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

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com