Mutual Funds with higher NAVs

Mutual Funds NAVs Online

We thought the ghost of a lower NAV or Net Asset Value has been laid to rest long ago. However, it is suddenly showing signs of life. Some investors have revived it after they noticed higher NAVs of direct plans vis-a-vis their regular counterparts. Several of them mailed, asking whether it really makes sense to buy direct plans since these plans have a higher NAV than their regular versions. Most questions read like this:

Is it prudent to buy a direct plan with a high NAV? I will get a lot units if I buy a regular plan with a lower NAV with the same money. So isn’t it better to go for a regular plan with a lower NAV?

So, we thought it is time to revisit the myth of lower NAV. Here is what we found in our archive. It would dispel the myth of benefits of a lower NAV in a mutual fund scheme. Read on:

Is a fund with a low NAV a better investment option than a fund with a higher NAV? Since you can buy more units when the NAV is low, isn’t it cheaper? Should mutual fund schemes with a higher NAV be avoided? These are questions, which trouble many first-time investors in mutual funds.

The answer to these questions is that it is irrelevant how high or low the NAV of a fund is. The amount of your investment remaining unchanged, between two funds with identical portfolios, a low NAV would mean a higher number of units held and consequently a high NAV would mean lower number of units held. But under both circumstances, the product of the number of units and the applicable NAV, which is the value of your investment, would be identical. Thus it is the stocks in a portfolio that determine returns from a fund, the value of the NAV being immaterial.

When one sells those units, the return will be the same as that of another scheme, which has performed similarly. The ‘cost’ of a scheme in terms of its NAV has nothing to do with returns. What you want to buy in a scheme is its performance. The only instance where a higher NAV may adversely affect you is where a dividend has to be received. This happens because a scheme with a higher NAV will result in a fewer number of units and as dividends are paid out on face value, higher NAV will result in lower absolute dividends due to the smaller number of units. But even here, total returns will remain the same.

So from whichever angle you see it, the NAV makes no difference to returns. Mutual fund schemes have to be judged on their performance. And the simplest way to do this is to compare returns over similar periods.

Sundaram Tax Saver Online

Invest Sundaram Tax Saver Online

Sundaram Tax Saver has a long history having been around since the end of 1999. And it did get noticed for its performance. In 2007 it delivered 68% in a roaring bull market and its fall the next year was (-)47%, below the category average of -55%. Unfortunately, over the past 7 years, this fund has outperformed the category average just once, in 2012.

Not surprisingly when you take a look at the changes undergone by the fund.

Earlier the fund was managed by N Prasad and Anoop Bhaskar. However, the changes at the helm are stark over the past few years. Satish Ramanathan relinquished portfolio management responsibilities in January 2012 to be replaced by Srividya Rajesh and J. Venkatesan. Rajesh quit the fund house in April 2013 and Venkatesh continued to manage the fund until March 2015. Current fund manager Krishnakumar took over the fund’s reins in April 2015.

While Krishnakumar has a lot of experience backing him and has done a good job with Sundaram Select Midcap), senior fund analyst Kavitha Krishnan would like to watch his performance for a while before she concedes to an upgrade.

The changes at the fund management level were also reflected in the fund’s investment strategy. Previously run with a large-cap bias (65-70% in large-cap stocks), it then tilted towards a mid-cap bent as exposure to smaller fare went up from 30%-35% to about 40%-50%.

Earlier, the fund was relatively diversified at a sector level with sector weightings being loosely tied to the index (with a permissible deviation of +/-8%). The fund is now run with a more concentrated approach towards sectors with little heed to the index.

As of now, our analyst has adopted a wait-and-watch approach until such time that she gains confidence in the fund.

The latest portfolio seems well diversified at almost 60 stocks with the top 10 holdings cornering 33.65% of the portfolio. The topmost holding – HDFC Bank is at 5%.

sundaram

  • Fund Manager: S. Krishnakumar
  • Fund Category: Equity Linked Savings Scheme (equity tax planning)
  • Portfolio: A multi-cap strategy that can tend to have a higher exposure to mid-caps compared with its peers.
  • Investment Process: A well-defined process; aimed at constructing a growth-oriented portfolio of high-conviction ideas.

Systematic Transfer Plan Investing in Mutual Fund

Systematic Transfer Plan Online

Making investment under stock market is like a gamble that is why people uses different techniques like Systematic Investment Plan(SIP) or Systematic Withdrawal Plan (SWP) to invest and withdraw their funds in a predefined manner.

Earlier we have discussed about SIP, it is an investment plan which let us invest money in small chunks in the stock market. Now we are here to introduce you with a plan which let you invest your money in lump sum under stock market i.e STP.

STP

What Is Systematic Transfer Plan (STP)?

Systematic transfer plan (STP) is a technique of investment under mutual funds where investor can transfer a fixed amount of investment from one type of mutual fund to another at defined intervals. In other words, when an investor want to invest a lump sum amount under stock market then using STP feature of mutual funds he can choose to invest his funds under debt and equity funds and can switch from one fund type to another to protect his funds in volatile market conditions.

STP plans offers Daily, Weekly, Fortnightly, Monthly, and Quarterly Transfer. Which means investment made by one investor can be switched on defined intervals as per the plan chosen. So to save risk in volatile market condition investor use this facility to switch there investment from equity to debt funds.

Investor investing under mutual funds using STP needs to choose and intimate the AMC about:-

  • Time interval for the transfer from the available options like Daily, Weekly, Fortnightly, Monthly and Quarterly.
  • Fund from which the transfer will take place and the fund to which transfer will take place for e.g from equity fund to debt fund.

For Example, If Mr X want to invest under Kotak 50 Rs 10 Lakhs then he can invest Rs 10 Lakhs as lump sum under a debt fund and then choose the time interval for transferring funds from kotak debt fund to Kotak 50 in small chunks like Rs 5,000, Rs 10,000 or Rs 20,000 as per your choice.

Benefits Of Systematic Transfer Plan (STP)

Offers You The Benefit Of Systematic Investment Plan (SIP) :- As with STP you can first invest your lump sum money in a debt fund and then transfer funds from debt to equity like you make investment under SIP.

Offers You The Benefit Of Systematic Withdrawal Plan (SWP) :- As with STP you can also transfer your funds from equity to debt which help you take out your money in risky market conditions like SWP.

Offers You The Benefit Of Liquidity :- As with STP investor keep the lump sum amount under debt funds and investor can redeem debt funds any time so investor get complete liquidity.

Offers Returns :- Amount invested under debt funds also offers returns to the investor.

ELSS and ULIPs

ELSS Vs ULIP

Savers sometimes think of ELSS funds and ULIPs as alternatives. This is a mistake

Functionally, there is nothing common between ELSS funds and ULIPs. It’s a basic rule of saving to not mix up insurance and investments. ELSS and ULIPs are two different products that serve different purposes. While ULIP is a mix of life insurance and investment offered by life insurance companies, ELSS is an equity fund. Both are eligible tax-saving investments but there the similarity ends.

ELSS have predictable cost, and easily understandable returns and are transparent about how the fund operates and what it invests in. Not so with ULIPs. From the premium paid, the insurer deducts charges towards life insurance (mortality charges), administration expenses and fund management fees. So only the balance amount is invested. ULIPs have high first year charges towards acquisition (including agents commissions). In order to evaluate the return generated by a ULIP and thus compare it with another investment, you need to take into consideration only that portion of the premium that is invested in a fund. This information is not easy to come by.

In a ULIP, the mix of investment and insurance prevents savers from having a clear cost-vs-benefit understanding of either of the two components.

Also, with a ULIP, you have to block your money for long periods of time. So you sacrifice on transparency and liquidity. In theory, ULIPs have a five year lock-in, but since terminating the policy early returns adversely, in effect is a ten to fifteen years commitment.

All the charges, which could be as high as 60 per cent in the first year, begin to taper from the fourth year onwards. So you will have to stick on for at least 10 – 15 years to make sure you get a decent overall return on the investment you have made.

The high costs, difficulty in evaluation, lack of transparency and low liquidity don’t make a ULIP a suitable avenue to put one’s money. It is the agents who benefit most since commissions can go up to 25 per cent. Insurance should never be an investment.

Invest ELSS Online

Ultra Short Term Funds Lock-in Period

invest Ultra Short Term Funds Online

Ultra short term funds invest in securities with a residual maturity of not more than 1 year. They are a suitable option to park your surplus for a few months to a year.

Of course, they do not offer guaranteed returns or safety of capital but the risk is negligible. You can expect to earn slightly higher returns by assuming slightly higher risk in comparison to a savings account.

These Ultra short term funds do not have any lock in period. After submitting a redemption request, you can typically get you money back in 1 or 2 business days.

The withdrawal will have tax implication as debt funds.

Although a few fund houses are now allowing instant redemption facility.

Tax Deductions under Section 80DD on caring for a disabled dependent

Only a family that takes care of a disabled member can truly understand what they’re going through. It is never an easy journey–emotionally as well as in terms of expenses. But there can be some monetary relief that families of disabled dependents can claim at the time offiling income tax returns.

The Income Tax Department allows deductions under section 80DD to individuals and Hindu Undivided Family (HUF) on the expenses made to take care of a disabled or differently-abled dependent. This deduction is available when the dependent is differently-abled and wholly dependant on the individual or HUF claiming the deduction.

There is also a Section 80U that allows the disabled person to claim deductions. What is important to note is that the same deductions cannot be claimed by the individual or HUF under Section 80DD if they have been claimed by the disabled individual under Section 80U.

To claim deduction under Section 80DD, the following conditions have to be met:

  • For an individual taxpayer, the dependent has to be a spouse, child, parent or sibling
  • For an HUF, the dependent has to be a member of the HUF
  • The taxpayer claiming the deduction should have incurred expenses for the medical care, training and rehabilitation of the disabled person
  • The taxpayer should have deposited money in an insurance scheme for the maintenance of the dependent
  • The disability of the dependent should not be less than 40% and defined under Section 2(i) of the Persons of Disabilities Act, 1995
  • The disabilities that are covered under the section include mental retardation, cured leprosy, loco motor disability, hearing impairment and vision impairment

If the above mentioned conditions are met, the taxpayer can claim deductions to the tune of the following amounts:

  • Rs 75,000 for FY2015-16 where disability is less than 80% and more than 40%
  • Rs 1,25,000 for FY2015-16 where disability is more than 80%

These deductions are allowed irrespective of the actual expenses incurred. This means that the full amount can be claimed even if the expenses have not been that high. The government has even increased the deduction amounts by Rs 25,000 for FY2015-16 from what the allowed deductions were in the previous financial year.

To claim deductions under Section 80DD, the taxpayer needs to produce a certificate of disability from specified medical authorities.

This is how you can claim deductions under Section 80DD for caring for a differently-abled family member at the time of e-filing your tax returns.

Save Tax with Section 80C

Before you rush to make any investments under Section 80C, check the outflows that qualify for a deduction in this section.

1) EPF contribution

If you are a salaried employee, calculate the amount that is already exhausted under the EPF. This is a forced contribution from your salary to your provident fund.

2) Education expenses

Now look at the education expenses of your child. To avail of a tax break, the fees are for a maximum of two children and for full-time courses at a recognised institution within India.

3) Home loan repayment

The principal paid towards a home loan, up to Rs 1.50 lakh, can be claimed as a deduction.

4) Life insurance premium

If you are paying any premium towards life insurance policies, then this too will qualify for a deduction under Section 80C.

Only once you have exhausted the above, look at the investments permitted under this section.

EPF: Employees’ Provident Fund

PPF: Public Provident Fund

NSC: National Savings Certificate

ELSS: Equity Linked Savings Scheme –>> This is the Best Tax Saving option

Invest in ELSS – SIP or Lumpsum

How to Invest in ELSS – SIP or Lumpsum

You should plan ahead and spread your investments throughout the year to reduce the risk of catching the market at a wrong time

ELSS are an excellent way to grow your money and save tax at the same time. Like any other equity mutual fund, the best way to invest in ELSS is through the SIP mode. You should plan ahead and spread your investments throughout the year to reduce the risk of entering the market at a wrong time.

If you invest a large sum at one go, you could end up catching a high point of the equity markets. If the markets fall sharply thereafter, a substantial portion of the value of your money can get eroded in the short-term. To save yourself from the stress this may induce, you should always opt for SIP to invest in equity

Tax saving is just one aspect of ELSS investments; wealth creation should also be an equally important objective. The key to equity investment is to remain invested for a sufficiently long time horizon of at least 5-7 years.

Invest for the Long Term in Equity MFs

Invest in Equity MFs Online

While investing in equity or balanced funds, one needs to be mindful of the amount of time one stays in the product and should be sceptical of investing for time horizons of less than 7 years. Also, the choice of funds depends a lot on your risk-bearing capacity. Investing solely with the past returns as your guiding light could be misleading. Also, past returns for 3 years and more should be reviewed for a meaningful analysis. The funds chosen by you have had a decent track record and you may want to continue investing here. For additional investments you could look at diversified large cap funds like ICICI Prudential Focused Bluechip or Birla Sun Life Frontline Equity or DSP Black Rock Focused 25 Fund

To begin with, having a time horizon of 10 years in mind makes a lot of sense if you are planning to invest in equity funds. Equity funds most often end up beating inflation and should be looked at a time horizon of 7 years plus. Debt funds are meant for a medium term -3 to 7 years and liquid funds can be looked to building emergency funds or for funding goals between 0 to 3 years.