Mutual funds Tag

Daily Market Analysis – 9th June 2021 (ICICI)

Axis MF added most folios in FY21; followed by ICICI, whereas HDFC loses client base

The Axis Mutual Fund beat the top three mutual funds in the industry to record its largest addition to new folios in FY-21. It added 20,42,150 new folios in FY-21 whereas ICICI added 20,42,016 new folios. In this, ICICI remained the winner in the top three which include HDFC Mutual fund & SBI Mutual fund. Mirae AMC also managed to add another 8.26 lacs new folios in this similar period, whereas ABSL AMC lost 1.20 lacs folios.

The increasing investor awareness along with the right asset allocation since years helped Axis Mutual fund to come up as a leader for the said period, whereas, for ICICI AMC, sectoral funds where it has dominance in the IT & Pharma sector funds might have played a pivotal role in the performance of the AMC, whereas acc. to the ICICI AMC’s MD & CEO, Mr. Nimesh Shah,  delivering good returns throughout all market cycles with zero default rate for nearly two decades helped them throughout.

The story of IPOs to look out for

The Ed-Tech Startup Byju’s is planning to go public before April 2023. On April 5, the startup acquired Aakash Educational Services Ltd. cracking a deal worth $1 Billion (7300 Cr.) marking its biggest acquisition to date. Byju’s, the most valued ed-tech startup in the country, is backed by marquee investors like Mary Meeker, Yuri Milner, Chan-Zuckerberg Initiative, Tencent, Sequoia Capital, Tiger Global and others. It is estimated to have raised over USD 2 billion in funding to date.

As the Pandemic situation has enticed the educational systems all over the world to restructure the way they work, Byju’s should be an interesting IPO to watch out for. While the current valuation of Byju’s is $16.5 Billion which is amongst the highest globally whereas that of Unacademy stands at $2 Billion.

Also read: Wealth Habits – Learn, Unlearn and Relearn – Fintoo Blog

Vedanta gets a nod to acquire Videocon

The Bankruptcy court of India gave a nod to Anil Agarwal’s Twin Star Technologies (a part of the Vedanta Group) to acquire Videocon Industries Ltd. The company will put up 5 billion rupees within 90 days and the rest as non-convertible debentures over a period of time.
Videocon’s debt stood at over 635 billion rupees in 2019, out of which, 574 billion rupees was owed to over three dozen banks and other financial creditors.

Paytm IPO moves an inch ahead

Recently Paytm came up with a draft red herring prospectus that gives the employees of the company the option to sell their shares ahead of the IPO. The company, whose investors include Berkshire Hathaway Inc., SoftBank Group Corp., and Ant Group Co., is seeking to raise about 218 billion rupees ($3 billion) at a valuation of around $25 billion to $30 billion.
Paytm’s public market debut will include a mix of new and existing shares to meet regulatory obligations in India. The country’s regulations require that 10% of shares are floated within two years and 25% within five years. Paytm Is Said to Target $3 Billion IPO, Largest Yet in India.

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To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP

Daily Market Analysis – 8th June 2021 (Mutual Funds)

Franklin Templeton AMC slapped with a fine of 5 crore; Banned from launching new debt mutual funds

The SEBI has banned Franklin Templeton AMC from launching debt schemes for the next two years. Rs 5 crore penalty has been levied for “several irregularities” in the running of its six debt schemes that were wound up in April 2020. The irregularities extend to failures to exercise adequate due diligence, carry out valuation of securities as per the principles of fair valuations and ensure a robust risk management framework.

A refund of Rs 451 crore management and advisory fees with 12% interest has also been ordered along with separate adjudication proceedings against the CEO & Directors.

SEBI asks mutual funds to classify debt schemes on credit, interest rate risk basis

AMCs will have to classify all debt schemes in terms of a potential risk class matrix, based on interest and credit risk, SEBI announced. AMCs will have full flexibility to place single or multiple schemes in any cell of the Potential Risk Class matrix.

Interest rate risk will be now categorized into three buckets. The lowest risk bucket Class I with a Macaulay Duration of up to a maximum of 1 year, Class II-moderate risk bucket to have MD up to 3 years and the class III can have MD above 3 years. Class I schemes will have debt paper with a maximum residual maturity of 3 years and Class II schemes with a maximum residual maturity of seven years, while maximum residual maturity has not been fixed for Class III. Credit risk will also be divided into three categories- greater than 12, greater than 10 and less than 10.

It is another progressive step to ensure the potential risks in a debt scheme are appropriately revealed to the investors and support informed decision-making.

Also read: The Five Secrets You Never Knew About Mutual Funds – Fintoo Blog

Piramal Group Likely To Complete DHFL Takeover By August

The NCLT has approved a resolution plan submitted by Piramal Group. Piramal Group’s resolution plan, which offered Rs 37,250 crore for DHFL, was approved by the committee of creditors in January with a majority. Once this happens, the equity of existing shareholders is said to be written down to zero and DHFL shares to be delisted.

DHFL’s fixed depositors are part of the committee of creditors and those with dues up to Rs 2 lakh will receive full payment on their principal amount. Depositors with dues between Rs 2-10 lakh will get 40-43% of their principal outstanding. Those with dues higher than Rs 10 lakh are likely to be repaid through a mix of cash and securities on a pro-rata basis.

RBI implements operational flexibility for reporting FPI deals in G-Secs

The RBI is to provide operational flexibility for reporting Over the counter transactions in Government securities transactions undertaken by the Foreign Portfolio Investors . The new rules will come into effect from June 14.

Due to this announcement, the information about trades undertaken by domestic counterparties with FPIs must be disseminated by the Clearcorp Dealing Systems India Ltd (CDSL) after one part of the trade is reported on the NDS-OM platform by the domestic counterparty with a suitable qualifier to indicate that the trade is awaiting counterparty confirmation.

Also watch: Daily Market Analysis – Sensex, Nifty, Go Air IPO & Debt Schemes – YouTube

Rising fuel prices in India- reasoned by Union Petroleum and Natural Gas Minister Dharmendra Pradhan

The recent surge in global crude oil prices is the major cause of the fuel price hikes in India. Its price has gone over USD 70 (per barrel) in the international market. This negatively impacts consumers here, as India imports 80 percent of its oil requirement.

He added, it is up to the GST Council to decide whether fuel should be brought under the Goods and Services Tax, which, many believe, would substantially bring down prices.

FIIs Invest 3K Crore in First 4 Days of June After Withdrawing 18K Crore in April

FIIs have net invested Rs 3,049.81 worth of Indian equities in the first four trading days of June. It is too early to make a call with certainty but this data shows that FIIs might be changing their outlook to India to a more positive one as COVID 19 infections drop and the vaccination drives in various states gather pace.

Economies across the world have also opened up and exports from India are going up with Indian merchandise exports up 67.39% to $32.21 billion in May compared to May 2020 and goods exports are up 195.7% in April 2021 compared to 2020.

A financial planning platform where you can plan all your goals, cash flows, expenses management, etc., which provides you advisory on the go. Unbiased and with uttermost data security, create your Financial Planning without any cost on: http://bit.ly/Robo-Fintoo

To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP

Daily Market Analysis – 18th May 2021 (WPI)

WPI Shoots up to 11-year high

The WPI or the Wholesale Price Inflation shot up to an 11 year high of 10.49% in April as compared to 7.39% in March 2021. The steep climb in wholesale prices is witnessed due to the hardening of global commodity prices. The official release states that the rate of inflation is primarily high due to the rise in prices of crude petroleum, mineral oils viz petrol and diesel.

Ratings agency ICRA has also alarmingly stated that they expect the WPI to rise to 13-13.5% in May 2021.

Adani Green Energy to acquire SB Energy Holdings

Gautam Adani owned, Adani Green Energy Ltd. is in advanced talks to acquire SB Energy Holdings Ltd. The deal could value SoftBank-backed SB Energy Holdings at around $650 million. The primary motive of Adani Green to acquire SB Energy is to expand its energy generation capacity to its planned 25 gigawatts by 2025. Currently, Adani Green is looking at a buyout of the renewable energy company through an all-stock deal.

Go Air files DRHP for IPO

Low-Cost carrier, Go Air has filed its Draft Red Herring Prospectus ahead of its IPO. The carrier aims at raising close to Rs.3600 crore via fresh issue of shares.

The IPO is to be managed by ICICI Securities, Morgan Stanley, and Citigroup. The IPO will be closely monitored as the aviation industry faces its biggest crises after the second wave of Covid cases in the country. With the pandemic and lockdown, the aviation sector has been one of the worst affected due to the travel restrictions imposed. The impact can be seen in the quarterly results as well with almost all major airlines running into losses.

Also read: How to do Retirement Planning? – Fintoo Blog

MFs increase exposure to Metals

In an aggressive move, domestic mutual funds have doubled their stake in metal stocks to close to 3.2% in a short span of 13 months. The move is a result of record prices of steel, aluminum, copper which has driven the earnings of metal companies. The advantage to metal companies is that even with record prices, their prices are still at a 10-15% discount to Chinese imported prices and prices under the Free Trade Agreement. It is because of this move that we have seen steel companies like Tata Steel and JSW Steel report an earning upgrade of 20-40% FY22 despite the second wave of the pandemic.

PE players set to bet on intermediate pharma companies

Global Private Equity players are set to invest close to $3-4 billion in India’s thriving Active Pharmaceutical Ingredients (API) market. These companies are mainly into vaccines-related manufacturing and bulk pharmaceutical chemicals.

After the Covid-19 pandemic, the situation changed which has forced PE players to rejig their investment strategy and they see India as a global powerhouse when it comes to API, bulk, and contract manufacturing in the field of medicines.

APIs have now become one of the hottest sectors to bet on and some of the biggest names in the Private Equity business like KKR & Co, Carlyle, ICICI, and Chrys Capital have shown keen interest to invest in this sector.

To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP

What is ELSS? Is ELSS Different from Mutual Funds?

Mutual funds have revolutionized the way people invest. Earlier, risk-averse individuals preferred fixed deposits while risk-taking investors went for stock markets. However, lately, mutual funds are becoming a favourite among investors. They promise market-related returns while the risk is diversified over a wide portfolio. What’s more, even small investors can invest in a mutual fund scheme if they want to reap the returns promised by capital markets.

Mutual funds come in various types and ELSS plans are also one type of mutual fund scheme. However, many investors confuse between the two. While some believe that ELSS schemes are not mutual funds, others feel that both ELSS and mutual fund schemes are one and the same. Are these beliefs correct?

No, they are not. ELSS schemes are, actually, a subset of mutual funds. They are a type of mutual fund which has distinct features and benefits. Let us study ELSS and mutual funds in conjunction with one another –

ELSS and Mutual Funds

You can invest in ELSS and in mutual funds either through lump sum or through SIPs (Systematic Investment Plans– i.e. periodic installments).

Both invest in the capital markets and yield good returns.

Nature of investment

ELSS stands for Equity Linked Saving Scheme. As such, about 65% to 70% of the scheme’s portfolio is invested in equity shares. That is why ELSS plans promise good returns and are also prone to risks. Mutual funds, on the other hand, come in different varieties. There are debt mutual funds that invest a majority of their portfolio in debt instruments and equity mutual funds that have higher equity exposure, balanced funds that have a combination of debt and equity in moderate proportions and so on. So, while ELSS is primarily an equity fund, Non- ELSS mutual funds can be equity, debt, balanced, hybrid or any other type.

Tenure

ELSS plans have a lock-in period of 3 years. This means that your investments are locked in the scheme for three years and you cannot withdraw them. ELSS schemes are, thus, not very liquid. Non-ELSS mutual funds have no such lock-in period. You can redeem your investments whenever you like without any restrictions.

Tax benefits

ELSS is popular because it is tax-saving in nature. The investments you make, up to Rs.1.5 lakhs are exempt from tax under section 80C. Moreover, the interest earned and the redemption proceeds are also tax-free upto 1 lac of gain because they are called long-term capital gains.

The taxation of Non-ELSS mutual funds depends on the portfolio. The gains from equity mutual funds becomes tax-free upto 1 lac after 12 months. So, if you redeem your investment after a year, it becomes a long-term capital gain and is exempted from tax upto 1 lac and taxed at 10% on balance gain amount. For debt mutual funds, however, the redemption proceeds are taxable. If redeemed before 3 years, debt mutual funds are taxed at your income tax slab rate as short-term capital gains. If, however, you redeem your debt mutual fund after 3 years it becomes long-term capital gains and you get the benefit of indexation. The tax rate is 20% with indexation benefit.

Here is a comparative table for a quick analysis –

Points of distinction	ELSS	Other Mutual Funds
Type	Equity oriented mutual funds	Can be equity, debt, hybrid, balanced, etc.
Tenure	Compulsory lock-in period of 3 years	No lock-in tenure. Can be redeemed when desired.
Taxation	Investments up to Rs.1.5 lakhs are exempted under Section 80C. ELSS are tax-free upto 1 lac after 12 months.	Investment is taxable. Equity mutual funds are tax-free upto 1 lac after 12 months. Debt mutual funds are taxed at income tax slab rate if redeemed before 3 years. If redeemed after 3 years they get indexation benefit and the tax rate is 20%.
Suitability	Investors who are looking to invest for tax saving purposes for long-term as ELSS have a lock-in of 3 years.	There are various Non-ELSS mutual fund options for all risk appetites and investment horizons.
Non-suitability	Investors towards retirement (low-risk appetite) or who have already exhausted their Sec 80c limit, can look at other tax saving options.	Investors with high to moderate risk appetite should invest in Non-ELSS plans.

So, the next time you go shopping for investments, remember that ELSS and other mutual funds are not the same. They differ from each other in various aspects, as explained above. So, be wise and choose your investment instrument after a thorough analysis of your investment goals, time horizon and tax benefits. Do consult an expert, should you require help with picking up the best plans as per your requirements.

Retirement through Equity Linked Savings Scheme

Retirement Planning through Equity markets, really? Sounds pretty much like you won’t be thinking is possible, right? But what if I tell you that Retirement Planning through ELSS is very much possible and optimal option.

Let’s see why you should plan for your retirement first.

Why there is a need for Retirement Planning?

We enjoy and spend as much as we can afford when we are earning in our youth. But what happens when we retire and we don’t have an active income source which would be accruing and can be used for settling the commitments?

Retirement Planning helps us deal in a financial sense with the Post retirement expenditure and Lifestyle requirements as mentioned below : 

• To maintain the current standard of living even after retirement 
• To manage the increased burden of medical expenditure 
• To allocate and mark up funds arrangement for vacation planning 
• To maintain independent financial health and plan for succession 

What is ELSS?

ELSS refers to Equity Linked Savings Scheme which means the mutual funds which invest primarily in Equity or stock market. 

• ELSS allocate their 80% funds towards stock markets or equity instruments 

ELSS are actually called Equity Linked since most or all of the money of the investors is invested in shares and securities. 

• ELSS have tax benefit on investment

This means that investors can opt for tax deduction under section 80C for the amount invested in ELSS.  If you redeem the ELSS after the expiry of lock-in period, then the proceeds will also be exempt from Income tax if the gain is less than 1 lac. Otherwise 10% of gain needs to be paid as taxes.

• Lock-in Period of 3 years

Since ELSS are tax-saving instruments, they come with a lock-in period. Once you invest in ELSS, you block your money for 3 years at least if you wish to save on tax.

• ELSS earn more than your regular deposits 

Bank deposits are yielding lower interest rates right now and the Stock Market is beaming high. Even where all the ups and downs are considered, a decent wealth-building plan would definitely earn you more than Fixed deposits. 

Related Article : FD vs. ELSS – Where does Mr. Gupta invest and why?

• Invest in SIP or in Lumpsum 

You can opt for SIP route where you will investing in ELSS monthly or you can invest aa single amount in a lump sum.  

• ELSS does not provide stable returns 

Having said that ELSS earn more, it is because of the fact that these are based on the dynamic stock market. ELSS will not provide you fixed income however, you can decide to invest in ELSS based on various parameters which can give you leverage over this risk.

How can ELSS and Retirement Planning go hand in hand?

• ELSS allows you to track the value and much more at any time 

Investors can easily track the value of their investment and the NAV of their investments at any point in time when they opt for ELSS. This allows them to check whether their funds have underperformed or are at optimal levels.

• ELSS helps you switch to other funds too

If you are unhappy about the performance of ELSS then you can use the switch option to divert your fund to the most eligible option, subject to conditions. This is possible in the same AMC and only after the lock in period is over.

• ELSS are professionally managed 

Investors having an urge to invest in stock markets due to its lucrative returns, often back off due to lack of knowledge. However, ELSS helps you deal with this insecurity since those are managed by the qualified and experienced Fund Managers 

• ELSS are transparent 

All information related to inception, their composition, fund managers, returns, other parameters etc. is always available on public domain w.r.t ELSS. So there is nothing which is hidden about the ELSS.

What should you consider while doing Retirement Planning through ELSS?

• Expense Ratio 

Expenses ratio refers to the expenditure with respect to the administrative structure which also includes a fund manager’s salary. ELSS with lower expenses ratio will always earn more just because the actual return earned by the fund is little eaten off by the costs of the ELSS fund management.

• Benchmarking of performance 

This is a tricky one since the ELSS performance should always be compared with

1. Its own historical performance 
2. And peer performance 

These two criteria will always allow the investor to filter out the best ones.

• ELSS has dual advantages of tax saving and wealth building 

ELSS are a very optimal investment option considering that it allows you to reap tax benefits as well as helps in wealth building. If you select an appropriate ELSS then you are sure to get inflation factored returns. 

• AUM (Assets Under Management) and their composition 

This data is always available on the public domain, so it is advisable that one should check these before investing in the same. Higher the size of AUM, greater are the chances of higher returns on the same. 

Even with all these, ELSS is the most favourite tax saving instrument and can also be used as a tool for Retirement Planning. However, you will always need to check the corpus of retirement funds, desired ROI, Inflation rate impact and tax benefits. And once you are done with the evaluation, you should always jump in at the right moment to start earning early with ELSS. 

To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP

ULIP Vs Mutual Funds. Check out where Mr Mehta invested.

Everyone wants to be safe and make the optimum utilization of their funds. However, not every financial instrument is made up of everyone. Financial Advisors always look at the following angles before advising the investment alternative. 

• Short term Goal

Tax saving instrument, Interest earning, etc.

• Medium-term Goal

Wealth building instrument, Value Investing, Mutual Funds (dividend option), etc.

• Long Term Goal

Related Article: 5 Factors To Consider While Making Lump-Sum Mutual Fund Investment

Retirement Planning, Succession Planning, etc.

Each phase of human life needs a peculiar and appropriate investment instrument. Let’s understand how should you choose and opt for the appropriate option of ULIP or Mutual funds.

What are ULIP and Mutual Funds?

ULIP refers to Unit Linked Insurance Premium which is a unique insurance plan, which integrates benefits of both insurance and investment in a single instrument. 

In all, it can be said that ULIP is a Hybrid instrument and not a pure insurance policy. ULIP will allow the flexibility to go for wealth building while being under insurance cover.

Mutual Funds refer to the investment pool which is managed by a professional portfolio manager. Any mutual fund would be divided into a number of small units. These units are calculated based on the basis of Mutual Fund’s Net Asset Value.

Difference between ULIP and Mutual Funds 

ULIP	Mutual Funds
ULIPs include both the components of Investment Insurance	Mutual Funds are purely an Investment instrument.
ULIPs carry a Lock-In period of 5 years. ULIPs can not be fully or partially withdrawn during this Lock-in Period.	Mutual Funds are Liquid Financial Instrument since these can be redeemed or sold in the market at any time. (apart from ELSS which have Lock-in Period of 3 years)
ULIP do not display or present their structure of investment on public domains for the general public. This is because ULIPs have a very complex structure hence becomes a little less transparent as compared to Mutual Funds	Mutual Funds carry a simple investment structure which is determined at the inception of Mutual Fund only. Hence, Mutual Funds are much more transparent since the smallest detail about their investment structure are usually hosted on public domain.
ULIPS are good for tax management because Investment in ULIP is considered as a deduction from taxable income under section 80CMaturity amount is tax-free under section 10(10D)	Tax impact with respect to Mutual Funds can be summarised as below Investment in Mutual Funds is covered under section 80C  only if the same is ELSS (Equity Linked Savings Scheme)Maturity amount / Redemption amount / Amount on sale is taxed as capital gains
ULIPs come with several charges like Fund Management Charges, Mortality Charges etc. This will result in a reduction of pure investment corpus which would actually be deployed for return earning purpose.	Mutual funds on the other hands are not burdened with the Mortality charges and also expense ratios are competitive. This results in better-earning prospect even with the impact of exit and entry load
ULIP are subject to discontinuance charges when they are redeemed prematurely. This would impact the return.	Mutual funds are subject to only exit load even if withdrawn before the expiry of Lock-in Period. This would not impact the returns already earned during the period of investments.

Related Article: Postal Recurring Deposits Vs. Mutual fund SIPs

Case Study Analysis for ULIP Vs. Mutual Funds 

Let’s take an example of Mr Mehta who is in aged 30 years. He wants to invest in credible and safe investment instrument which will put his funds to optimum utilization. His annual income is Rs.20 lakhs and he is ready to invest Rs.2 lakhs maximum in a year 

Mr Mehta is contemplating 2 alternatives for investment; One is ULIP and another is Mutual Funds 

A financial advisor has suggested Mr Mehta to invest in ULIP for 20 years which would earn him a decent rate of return and an additional insurance cover. This ULIP is estimated to earn a rate of return around 10-12% since it is market-linked. 

In this case, if Mr Mehta thinks that he could allocate the whole of his excess towards the ULIPs. This would result in the following scenarios 

1. The insurance cover in ULIP is only proportional and usually on the lower side. This would only give him insufficient cover in the long run. Suppose Mr Mehta goes for Rs.50,000/- in a year, it would only give him Insurance cover of Rs. 5,00,000/- in the long run.
2. The returns fetched would be first allocated towards charges and the commission so the effective rate of return earned on ULIP would not reach the target rate of return.
3. If Mr Mehta wishes to switch or discontinue the ULIP, it would only wipe off the return earned so far and would result in a reduction of the corpus.  

It would only make sense if Mr Mehta invests in ULIP at an early age and only a part of his targeted investment amount.

Suppose Mr Mehta wishes to invest in Mutua Funds it will Give him following results 

1. Mutual fund Investment is directly related to the market and hence the investment would always be subject to market risks.
2. However, since the entire investment would be directed towards corpus, it would result in wealth building.
3. It will not have any additional insurance cover 
4. ELSS will have tax benefit as well and would earn a decent rate of earnings 

An ideal plan would be as below for Mr Mehta

1. Opt for ULIP for 1/4th of his target investment amount which would give him leverage of diversified investment bucket. Suppose he opts for Rs.50,000/- ULIP annually, then it would give him an effective rate of earnings of 10% maximum and insurance cover of Rs.5 lakhs to 7 lakhs. However, this money will be locked in and would be able for withdrawal only after 6-7 years depending upon terms and conditions.
2. Choose a mutual fund based on the risk appetite and financial goal. An equity-based mutual fund or Index funds have the lowest Expense ratios. Also, they have the safer potential of earnings since they are directly linked to markets. Mr Mehta in this case can go for the lumpsum investment of almost 50-60% of target investments or through SIP plan. 
3. Mr Mehta can consult with Insurance Advisor for additional insurance cover which would be sufficient for his age. Ideally, he should choose an insurance cover of almost 10 times of his annual income which would be Rs. 2 crores as his sum insured.

Gold Mutual Fund vs Gold ETF

In India, buying gold is more of a tradition than just investing. It is considered as a symbol of prosperity and luck. This auspicious metal has given good returns over the long term. When you create your wealth portfolio, it is suggested to allocate atleast 10-15% to Gold investment. This is majorly because this yellow metal is used to hedge against inflation and is also negatively co-related to stock market investments.

In other words, we can say that gold protects your portfolio from high volatility of equity markets. Thus it provides stability to your portfolio and often proves fruitful in times of crises.

How to invest in Gold?

There are multiple ways of getting exposure to gold asset class. Some of these are physical gold jewellery, sovereign gold bonds, Gold Mutual funds and Gold ETF.

For investment purpose, physical gold does not make much sense owing to high making charges and lack of safety.

If we talk about Sovereign Gold bonds (SGB), it is one of the best investment to increase your allocation to gold. However, it is suitable only to those investors who has a time horizon of 8 years. It comes with a lock-in period of 8 years and post which on maturity, the capital gains are tax free. Not only this, apart from capital gains, you are also entitled to receive interest of 2.5% p.a. These unique features make investment in SGB bonds very attractive.

If we see on the flip side, there are two major drawbacks of investing in SGB bonds. First is availability and second is liquidity. One can invest in these bonds only when it is available for subscription.

For an investor, who is looking for liquidity, Gold mutual funds and Gold ETFs will be the best option. It is considered better as you can invest here anytime of the year. It simplifies the entire gold investment process.

Investors often get confused between Gold Mutual fund and Gold ETF? Are you also getting a question in your mind – which is better Gold Mutual fund or Gold ETF?

If yes, let us discuss these two options in detail.

Gold ETFs

Gold Exchange Traded Funds invest in physical gold. The aim of Gold ETF is to track the price of domestic physical gold and invest in 99.5% purity gold bullion. Each unit of a gold ETF is equal to 1gm of gold. It is essential to note that it is backed by physical gold of very high purity which is stored in secured vaults.

These are listed on stock exchange and one can buy and sell gold ETF like stocks. Thus, it provides ample liquidity. Since ETFs are held in demat form, you need to have a demat account to invest in Gold ETFs.

Gold Mutual Funds

A gold mutual fund is an open-ended mutual fund scheme investing in units of gold ETFs. This does not require any demat account. Like any other mutual fund, there is complete flexibility and one can invest and redeem from gold funds anytime.

We can also say that Gold MFs are investing in Gold ETFs itself but indirectly.

Related article : Know Your Expenses When You Go For A Mutual Fund Investment

Gold MF Vs Gold ETF

Now that we are clear with the basic understanding, let us see the comparison between both of these options.

1. Cost – Investing in gold MF via broker is a little expensive compared to gold ETF.
2. Price – Gold MF units are priced at their respective NAV similar to any other mutual funds. NAV is updated on AMFI website on a daily basis from Monday to Friday. Price of gold ETF on the other hand is updated on real time basis just like stocks.
3. Mode of investment – SIP is available for Gold mutual funds whereas gold ETFs are not SIP based. You can still invest in gold ETF on a monthly basis to accumulate units. If you are a layman investor, it will be easy to invest in Gold Mutual fund. For seasoned investors who can study the market and take effective decisions on investments, Gold ETFs will be a better choice.
4. Type of Investment – Gold MFs invest in gold as well as other liquid funds. However, Gold ETFs invests almost 100% in pure gold and very minimal balance in debt.
5. Liquidity – Both these gold investment avenues are highly liquid. But some Gold mutual funds comes with an exit load which differs from fund to fund. Gold ETF has an edge here as there is no exit load.
6. Transferability – Gold ETF can be converted into precious metal whenever needed unlike gold mutual funds.

With this, we hope you now have a better clarity to distinguish between Gold ETF and Gold mutual fund. If your portfolio doesn’t have 10-15% allocation to gold, it is highly recommended that you do so now.

Benefits of investing in global markets

When it comes to investing in the stock market, it is always better to become a long term investor rather than becoming a trader. It is relatively highly risky to do intraday trading or trade in futures and options. As an investor, one should focus on creating long term wealth through equity markets and not just short term gains which are based merely on chance. We all understand that gambling only works when luck is on your side. So why get into all that and expose your money to greater chances of loss.

Stock market is no doubt an amazing investment avenue to create wealth if used in the right way. One needs to make informed decisions regarding financial investments. When we say stock market, it does not only mean Indian Stock Market. Investing in stocks is like investing in companies that you have confidence that will grow in the future. This means not only Indian companies but also international stocks have a great scope in growth when it comes to stock investing.

What are the goods and services you use on a daily basis? 

Think about watching movies on Netflix, placing orders on Amazon, using an Apple’s iPhone or the most used search engine – Google. All these companies are based internationally and are listed on international stock exchanges. 

Don’t you want to invest in these companies, the product/services of which you are using intensively on a regular basis? 

So, in keeping with the view of going global, let us see some benefits of investing internationally.

Global Diversification

This is one of the most important benefit of all as there is a tendency of investing a major part of the portfolio in Indian/ domestic equity market. Investors usually ignore the benefits of diversification into the international equity market owing to unfamiliarity. In India, approximately 99% of investors invest only in Indian stock market which indicates resistance to invest globally.

Another fact is that India accounts for only 3% of the global market capitalization. It means even if you think you are diversifying your money among different sectors, you are only being exposed to a tiny part of what the world is offering.

The major problem with restricting yourself to only domestic markets is that it raises your portfolio’s concentration risk of investing in just one economy.

The strategy should be to diversify your investments across nations whose market cycles are not perfectly correlated. As we all know, there is volatility in stock markets. Thus, it is recommended to not make all your investments in a particular region.

If your money is spread out among various countries, then an economic crash in one country won’t affect other investments. A globally diversified portfolio helps you take advantage of market cycles in different countries and better manage the risk.

Related Article: 10 Tips to Raise Equity Investment in 2020-21

Some of the other benefits are: 

• More options to invest: Investing in global markets will open a plethora of different stocks to invest in. With proper research, one can shortlist the stocks. Currently, many equity investment opportunities are in sectors that are not available on Indian stock exchanges. These sectors include Consumer Internet such as Facebook, E-commerce giants such as Amazon, Consumer brands such as Nike, and Payments such as Visa and MasterCard.

• More ways to invest: There are also many ways by which you can invest globally. These are direct stock investments, ETFs, and mutual funds. On one hand, mutual funds are the easiest way for investors to have international exposure. On the other hand, it takes a little more advanced knowledge to invest in ETFs. 

• Mutual Fund route: One of the compelling reasons to invest globally is “It is very simple”. It is convenient to do so easily through mutual funds. You can opt for this route if you are a comparatively conservative investor. Fund houses offer international funds where you can leverage the expertise of global fund managers. Many Indian fund houses have schemes like fund of funds that invest in overseas equities. You can invest in these funds like any other mutual fund. You can also invest via the SIP route, with a minimum of Rs. 500 per month. 

• Protection/Insurance – No need to worry about the safety of your money invested in international markets. When investing abroad, many financial institutions are able to protect your investments. For example, if you are looking to invest in US markets, Securities Investor Protection Corporation provides insurance to your account up to $5,00,000. Please note that it is not applicable to general losses in the stock market.

• Confidentiality– Global investments come with confidentiality concerns about your finances. International financial institutions are not legally required to divulge your monetary details to anyone.  So you can consider your information to be safe at all times.

• More Growth – It is expected that your portfolio will show better growth when exposed to international stocks. The combination of Indian and international stocks will work best in your favor. There is an increased return potential in overseas investments.

• Currency Risk – Another reason is to take advantage of the depreciating currency. It is a good idea to have a globally diversified portfolio. As it is suggested to diversify your portfolio among different economies, internationally diversified portfolios will also be exposed to different currencies from country to country.

• Tax-efficient – Attractive tax incentives are offered by many countries across the world to foreign investors. These incentives are subject to strengthen other country’s investing environments as well as attract outside wealth. These incentives or benefits differ from country to country.

• Lower and better-managed Risk – Another crucial argument in favor of global investing is that different markets have different risk levels. Developed markets tend to have a lower risk. Also, one should be aware that different markets behave differently. Thus, it offers the scope of returning better risk-adjusted returns. 

Related Article : 4 Important Financial ratios to check before Investing

Conclusion

In today’s world of interconnectivity, nothing seems to be out of reach in the world. You can buy from any part of the world even if you are in the remotest corners of the globe. But when it comes to investing, why do we resist going global? Adding a global flavour to your current investments will truly diversify your portfolio, unlike a portfolio which has invested 100% into Indian markets that only provides partial diversification.

Having said all of the above, it is highly recommended to consult a financial advisor to get a learned understanding of various global economies and markets. This way you will make informed global investments, which is always better than the “All eggs in one basket” approach. Start Diversifying! Start investing!

5 Factors To Consider While Making Lump-Sum Mutual Fund Investment

Though mutual funds are highly subject to market risks, despite it is one of the most lucrative investment avenues seen in the current market scenario. It can be seen that AMFI is highly promoting mutual fund investment through television commercials. When we talk about investment in mutual funds, the first & foremost thought that pops into our minds is SIP (Systematic Investment Plan). Even though, SIP is one of the safest and economical means of investment in a mutual fund; it is a tool for small players in the market. But if one has surplus funds lying idle, lump-sum or investment at once can prove to be a high yielding decision.

Factors to be considered before making lump-sum mutual fund investment

Parameter for Fund Selection

One of the most benevolent parameter as a reference for one-shot allocation of idle resources is the P/E (price per earnings ratio). Since equity mutual funds are a collection of shares, evaluation of funds on the basis of P/E ratio can be very helpful. P/E ratio is computed by dividing the market price per share (MPS) of the stock by its earnings per share (EPS). Suppose, MPS of stock A is Rs. 200 and EPS is Rs. 10, the P/E ratio is (200/10) = 20 i.e. stock A is trading at 20 times earnings.

P/E ratio of a mutual fund is the weighted average P/E ratio of all the stocks contained in the fund. The weights of the stocks are determined by their market values; let’s say, a fund consists of stocks of MN Ltd. worth Rs. 6,00,000 and PQ Ltd. worth Rs. 4,00,000, the total value of the fund Rs. 10,00,000, a weight of stock MN Ltd. is 60% and stock PQ Ltd. is 40%. If P/E ratios of stock MN Ltd. is 15 and stock PQ Ltd. is 10, then, fund’s P/E ratio is (0.6*15 + 0.4*10) = 13.  

From the investment point of view, a lower P/E ratio is preferable. This implies that the average price of the shares in the fund as compared to the earnings of such companies comprising the fund is low. Lump-sum investment is favorable when the markets are at a low so that one can gain when the market starts improving.

Time the Investment 

It is crucial to wait for the best opportunity to invest lump-sum in mutual funds in order to earn maximum returns. The best time for lump-sum investment in equity mutual funds is when the NAV (net asset value) of the fund is at its year’s low and there are probable chances to gain when the market takes an upturn. Investing when the NAV’s are low, larger units of a fund can be procured; this shall provide a broader base to earn when the fund makes an up-move.

Timing the market means how better one understands the market performance, predict the upcoming situation of the market, and allocate the resource when the best moment arrives. 

Purposive Investment 

The purpose of the investment should be to achieve the financial objective. If the investment is for the short term, it is better to invest in a liquid fund that is exposed to low risk and return and provides a hassle-free redemption option. Investment in a balanced fund is recommended for medium-term investment and for one having a long-term investment horizon, equity mutual funds can prove to be fruitful. Likewise, if the purpose is to save tax, then one can invest in ELSS funds which have a lock-in period of 3 years.

Must Read: – Top 6 things to avoid while investing in ELSS

Also, Mutual Funds require frequent monitoring to review whether the schemes are performing and attaining the determined objectives. Diversification of investment is necessary to reduce the risk that can arise from investment in a single fund if such fund starts deteriorating. Hence, funds churning and diversification ensures that the overall portfolio performs well despite any poor performance by a particular fund.

Consider the Tax Effect

Normally people invest in mutual funds by considering the return or yield capacity of the scheme, paying the least attention to the tax impact on the redemption of such fund. This can result in the drainage of a substantial portion of the gain made towards income tax. In the case of short-term investment; profit from investment in debt funds are subject to tax at the applicable slab rate and profit from equity-oriented funds are taxable @ 15%.

Profit from long-term investment, if the investment period is more than 3 years, debt funds attract a tax rate of 20% with indexation. However, Long-term capital gains from investment in equity-oriented funds are exempted from tax up to a gain of 1 lac. A realized gain of Rs. 1 lac and above in a financial year will attract a tax of 10%.

Systematic Transfer Plan (STP)

STP is a mix of SIP and lump-sum investment or a hybrid SIP. STP allows the periodical transfer of amount or units from one scheme to another of the same fund house, thus, helps in allocating funds at regular intervals.

One can target investment in an equity fund while remaining invested in a debt fund, thus ensuring high returns from equity funds and protection from part investment in debt funds.

The lump-sum mutual fund investment requires a cautious assessment of the factors affecting the market in which the investment is sought to be made. Resorting to these factors, you may be able to make a better investment decision.

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Know the Tax Treatment for Mutual Funds

Mutual Funds are one of the best investment avenues when it comes to creating wealth in the long term. In order to grow your wealth, your portfolio needs to beat inflation and mutual fund is an investment avenue which ensures that you beat inflation in the long term.

It seems quite convenient for those who do not want to jump into the market directly. Since mutual funds are professionally managed and fetch reasonable returns adjusted to risk appetite (as per the investment strategy of the fund), they have become investor’s favorite, be it conservative or be it, aggressive investor.

If you have made up your mind to invest in mutual funds, it is important that you know the tax implications of the same. You cannot ignore taxes while investing in mutual funds.

“How much tax I need to pay on mutual funds?”

You must have this question in mind. But the answer is not direct. The amount of tax that you need to pay depends on various factors. These are:-

1. Type of Income
2. Type of Mutual Fund
3. Holding period of investment
4. Type of transaction

Let us take this one by one

Type of Income

When do we pay income tax?

As simple as it may sound, we pay tax only when we earn income, right?

So what kind of income is generated when we invest in mutual funds?

There are two types of incomes generated through Mutual funds –

1. Dividend Income
2. Gain on selling mutual funds

These are the two instances where we gain out of mutual funds. Tax treatment is different in both instances.

Let us first focus on dividend income

• Dividend Income

Regarding dividend income, there have been recent changes in Budget 2020 on how dividend income needs to be taxed. The finance minister has proposed the abolition of DDT and made the dividend income taxable in the hands of the investor.

Now the question comes, how much tax you need to pay on dividend income.

The answer is simple. Dividend income from mutual funds is taxed as per slab rates.

• Gain on selling Mutual Funds

Apart from dividends, you can earn through capital Gains from mutual funds. Let me clear one point here, capital gain here refers to the gain you get when you sell your mutual funds and not on notional gains.

Thus, we can say

Capital Gain = Redeemed Value – Cost of investment.

Now the main question, how much tax needs to be paid on capital gains?

It does not have a one-word answer. It depends on what kind of mutual fund it is. This brings us to the next factor i.e. “Type of Mutual Fund”

Type of Mutual Fund

The amount of tax to be paid on capital gains depends on which type of mutual funds you had invested in.

As per Mutual fund scheme rationalization and categorizations, SEBI has provided the following classification of mutual funds namely-

1. Equity Mutual Funds
2. Debt Mutual Funds
3. Hybrid Mutual Funds
4. Solution oriented Funds
5. Others

Each of the above categories has subtypes as well. For example, there are 11 different types of equity funds and 16 different types of debt mutual funds.

But don’t worry! From a tax perspective, all these funds are divided only into 2 categories. This means there are only two types of mutual funds that you need to consider to find out how much tax you need to pay. These are:

1.Equity Oriented Mutual Funds

All the types of equity mutual funds come under this category. Not only this, any mutual fund which has an equity exposure of 65% or above will become under this category. This implies that balanced funds where equity holdings are 65% or more will come under this classification.

2.Other Funds

All the funds which do not fall in the above category come in the “Other Category”. This includes all debt funds, Gold funds, real estate funds, any balanced fund where equity exposure is less than 65%.

Now once we know these two categories, it is simple to know the tax implication on these mutual funds. This is because the tax rate on Equity oriented mutual funds is different from all other funds.

However, there is one more step. This next step is to find out what is the holding period of these investments.

What does holding period mean? That is our next factor – Holding period of investment.

Holding Period of Investment

Holding period means that for how many months you hold on to that particular mutual fund before you sell. Based on this we have two types of gain i.e.

1. Short term Capital Gain
2. Long term Capital Gain

Short-term capital gain is when an investor receives gain by selling an investment in a short duration and long-term capital gain is when an investor receives gain by selling an investment in a long duration.

Now the question comes, how do we define short term and long term.

Short term and long term holding period differ for equity-oriented mutual funds and other funds. That is the reason we covered that part first.

The below chart explains the short term and long term holding periods along with the applicable tax rate.

Type of Transaction

Now that we are clear with all tax rules, I would now like to specify a few common transactions to make it clearer. In mutual funds we have the following transactions:-

1. Lumpsum purchase
2. SIP
3. SWP
4. STP
5. Switch
6. Redemption

Related Article : Understanding SIP, SWP and STP

No income tax you need to pay when you are making an investment whether Lumpsum or SIP. However, if you are making this investment in an ELSS fund (Equity Linked Saving Scheme) then, you are eligible for an 80c deduction up to Rs. 1,50,000.

Transactions like SWP (Systematic Withdrawal plan), STP (Systematic Transfer Plan), Switch, Redemption are considered as selling units i.e. redemption only. So the treatment will be the same as described above. That is, first you need to check which type of fund and then holding period.

Securities Transaction Tax (STT)

Apart from income tax, you also need to pay STT. STT is to be paid on transaction value and not on gain amount.

How much STT needs to be paid?

An STT of 0.001% is levied by the government (Ministry of Finance) when you decide to sell your units of an equity fund or an equity-oriented fund. There is no STT on the sale of debt fund units.

To summarise, an investor first needs to check whether the income is through a dividend or capital gains. If it is capital gain, check the type of fund – Equity or other. Next check the holding period and tax rate applicable. This was a 360-degree view on tax implications on mutual fund investments. I hope it has given you a better understanding.