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**Worried about the fall in FD rate? Here are four alternatives**
The interest rate offered by fixed deposits were already moving south, and major banks have yet again cut their FD interest rates.
Banks like SBI, HDFC Bank and Kotak Mahindra Bank have cut their FD interest rates. SBI has sharply reduced the interest rate on fixed deposits between from 45 days to 10 years by 50-75 basis points.
This rate cut comes on the back of the cut in the repo cut by the Reserve Bank of India (RBI). RBI has cut interest by 75 basis points since January 2019. One basis point or bps is one hundred of a per cent.
Fixed deposits are ‘the’ favorite saving avenue of Indians. And, now the fall in the FD interest rate has hit FD customers, especially for retired and people who are near their retirement. As a result, it has become the need of the hour to look at better alternatives to bank FDs.
Here are some of the investment options that may help you in the current scenario.
**Small finance banks FDs**
Smaller finance banks offer higher interest rates than bank FDs. These banks have a regional presence and may not have pan India presence like major banks. Small banks rely on deposits from customers to expand their loan book. As a result, unlike these banks offer higher interest to attract customers. E.g., Jana Bank offers an interest rate of 8.50% on their one-year deposits while the current rate one-year FD of SBI is 6.80%.
Many people fear to park their money with these banks. However, the deposits of up to Rs.1 lakh in these banks are insured. This is similar to other big banks. It is better to do a little bit of background check before opening FD in these banks.
**Post office time deposits**
The interest offered by the post office on their time deposits is a tad higher than bank FDs. E.g. the interest rate of 1 to 3 years PO time deposits is 6.90%, which is higher than the rate given by major banks. For 5-year FDs, the post office is offering 7.7% while SBI FD is giving 6.5% per annum. Also, post office saving deposits carried with a sovereign guarantee on both capital and interest earned. While bank FDs change their rates as and when it seems fit, post office FDs are revised every quarter.
**FDs issued by companies or non-banking finance companies**
Many non-banking finance companies and other companies also offer attractive interest rates on their FDs. These company FDs give 1-3% higher than bank FDs. However, the higher interest rate comes with higher risk. Company FDs are not insured and hence carry default risk. In case the company runs into trouble, and the company is not able to pay the principal and interest, it will be hard to get your money back. Hence, do your due diligence or seek help from your financial advisor.
**Debt funds**
In the last few months, debt funds have been news for several reasons. The returns have tumbled striking fears in the minds of many investors. Having said that, debt funds is a strong contender among all the alternatives of bank FDs. It is because debt funds can generate higher real returns and are tax effective. Real
returns are the returns given by an investment product after subtracting the inflation rate. With bank FD rate at 6.5% and the inflation rate is 3%, the real rate is just 3.5%. And if you happen to be in the highest tax bracket, the real rate will come down further.
Historically, debt funds have given better returns than bank deposits. Also, debt funds also come with indexation benefits. This means that tax on the gains is based on the inflation rate of the year. Tax is applicable on the gains that have exceeded the inflation. This helps to fetch better real returns. However, it should be noted that fund houses do not assure fixed returns or capital safety.
These were some of the investment options available to you. Your financial advisor will be able to help you to select the right choice.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
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**Why Should Women Take Charge of Their Money?**
Most women today work in the formal sector and take high-level decisions in their organization. However, it is still seen that when it comes to money and financial decisions, it is yet taken care of by their male family members whether it is their fathers, brothers or husbands.
It is not that the male members know better; women hesitate to make the decisions for fear of being wrong. It is because it is easy to blame someone when things go wrong rather than take ownership.
Many times, it is seen that the wife does not have a single clue of her husband’s investment, and it becomes a confusion after divorce or after the death of the husband. Hence, women need to take care of their finances. Women also need to save more than their male counterparts.
While income discrimination among men and women are decreasing, still many women are paid less than their male counterparts. This also affects their future growth potential. Women also shoulder the responsibility of their family’s take carer and take breaks when they become a mother. As a result, they have fewer working years than men. It also limits their earning potential. Also, the life expectancy of women is higher than men. That means that women will outlive their husbands.
Managing money may seem an uphill task for many women. But it is not so. Knowing what you want from your money is the central question that women need to ask before they start managing their money.
One way to take control of your finances is to take the help of a financial advisor. This will boost your confidence, and you can easily make your investment decisions.
However, saving and investing will mean different things to different women, depending on their life stage. The goals and aspirations of women in their 20s will be very different from women who are in their 40s. A woman in her 20s is most likely to save money to travel and plan for her dream wedding. Children’s higher education may be the top priority for a woman in her 30s and 40s. Also, the risk taking capacity will vary according to their age. Hence, it is essential to consider the age, financial goals and risk-taking ability before you start investing.
When you are single, and in your 20s, you don’t have too many financial responsibilities and the whole life awaits in front of you. As a result, you can take exposure in high-risk instruments such as equity mutual funds to fulfil your long-term goals such as buying a house or retirement. If you want to invest in a dream wedding, you can park your money in a short-term debt fund.
If you are in your 30s, children’s education may be one of the main priorities. Depending on the timeline of your children’s education, you can easily plan for the same. If it is for higher education, which is 7 to 10 years down the line, then equity funds would be the preferred option. Hybrid funds can be useful if the time horizon is around five years.
Women make sure that everyone around them is happy. However, it is seen that women forget to take care of themselves. While men think and invest for their retirement, retirement planning among women is extremely rare. Women can start planning for their retirement with their husbands. Retirement planning is vital for women because the average life expectancy of women is more than men. With inadequate savings and lack of social security in India, women have to depend on their children to get their needs met. Hence, building retirement corpus throughout the different life stages can help women to live a dignified life.
To summaries, leaving money matters in your husband’s or father’s hands may not be the right approach. Take control of your finances, and if you need help, a financial advisor will be able to help you.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
**info@finoptical.com | www.finoptical.com**
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Have you ever got stuck up in traffic? I am sure you have. Just imagine your car is new brand with powerful engine, but unable to move an inch because of heavy traffic. And you get what? Frustrated! What happens when you cannot move but the smaller cars in lane next to you is moving faster than you because that lane has lesser traffic than the one in which you are driving. More Frustration! Right?
As a human being it is obvious that you would have strong urge to change the lane and move to the faster lane. And using your driving skills you change the lane. The moment later the lane which you left start moving and the new lane in which you entered stops moving due to traffic. Now what? Height of frustration!
If there is a smile on your face while reading this, it means you have already have experienced it, probably not just once but more than once you have changed the luminously reached the height of frustration.
Not just driving whenever in our life when we see someone is moving faster than us, we try to change the course and find ourselves caught in trap and then feels like we should have stayed in our lane.
**Changing Mutual Fund scheme based on Past Performance **
So is the case with Mutual Fund schemes. Most investors after investing in mutual fund scheme start comparing the return of their schemes with that other mutual fund schemes. And many a times we change the mutual fund schemes and switch our money into other better performing mutual fund scheme in recent past. And what happens next?
In recent times, Past Performance has become a major criteria of the mutual fund selection system. Investing based on recent past performance is as risky as driving a car by looking only into rear view mirror. While driving, rear view mirror is useful but more than rear view it is your front view which is more important for smooth and safe journey.
Past track record definitely helps in understanding the quality of scheme and ability of management team but recent past performance is not the guarantee for the future.
**What else matters while selecting scheme?**
Apart from Recent past performance, one should look at consistency of return which can be derived from rolling return analysis for various periods, which requires lot of data crunching rather than just finding out the past one-year return.
One should also look at how fund has performed during the best and worst period in past compared to its benchmark and category return.
You also cannot avoid looking at risk parameters. If some fund is generating superior return, then it is also necessary to check at what cost. How much risk or volatility is it adding into portfolio.
Choosing fund from the basket of hundreds of funds requires lots of data, analytical skills, education and experience. One can do it by own but it is very risky. It’ is always advisable to take the help of qualified professional for building quality portfolio and stick to it with discipline.
Frequently changing lanes rarely helps, in driving or investing.
Happy Investing!
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
**info@finoptical.com | www.finoptical.com**
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**Why you should get term insurance right now?**
We all love our families and want the best for them. We try to fulfil their wishes to the best of our abilities. One easy and simple way to show your love for your family and to make sure that they continue to live a dignified life even in your absence is to take a term insurance.
Life is unpredictable, and there will be times when things don’t go according to the plan. Term insurance is one of the simplest financial products which can safeguard your family in times of an unfortunate event.
Getting insurance is the first and most crucial aspect of financial planning. In term insurance, the beneficiary receives the sum insured after the death of the insured person. However, one needs to remember that the term plan does not pay back any amount if the insured person survives the tenure of the policy. You can avail higher life cover by paying a lesser premium.
**Who should take term insurance?**
If you have dependents whether it is your spouse, young children or elderly parents, taking insurance is necessary. However, even if you have no dependents, but have outstanding loans like home loan or vehicle loans, taking term insurance is also essential in this scenario.
It is beneficial to take term insurance at the earliest because the premium paid and the age of the insurer is directly proportional. This means that longer you wait to get term insurance, the higher will be your premium. The premium is likely to increase as the number of responsibilities and health issues may crop up. Also, unlike health insurance, where the premium covered keeps on growing, the premium for term insurance remains the same throughout the tenure.
**What should be the ideal insurance cover?**
Figuring out the ideal insurance cover is one of the most important things to consider when taking a term insurance cover.
A cover of Rs.50 lakh may be sufficient if you don’t have dependents. But it will not be enough after you have a family. You will have to increase your cover after every significant event like marriage, the birth of the first child and second child etc.
As a thumb rule, life cover should be equivalent to 10 times of your annual income. However, that is just the tip of the iceberg. Loans and debts, future expenses, savings and investments, are some of the other factors that should be kept in mind while calculating the insurance cover. The outstanding dues on your home loans and vehicle loans should be considered in the term insurance. However, you don’t have to calculate your credit card debt in this scenario.
The other important part is providing for future expenses such as children’s education, marriage and day to day expenses. Consider a reasonable inflation rate while calculating future costs. You may also be investing in these goals through systematic plans in mutual funds, but it is essential to consider these goals as accumulating for these goals may come to an abrupt to end in your absence. Having adequate term insurance will make sure that your children don’t have to compromise with their education. You can use a ‘Human Life Value’ calculator available on the websites of insurance companies to find out the ideal life cover for you. Don’t make the mistake of rounding of the amount to the nearest round figure. It is better to take higher insurance cover than to take less insurance cover.
You can take the help of financial advisor to calculate and find out the right amount necessary for you.
Another essential aspect of term insurance is tenure. Many people make the mistake of taking the term insurance to 75 or more. Typically, you should consider term insurance till your retirement age of 60 as the family’s dependency after your retirement will come down drastically.
Term insurance is one of the vital steps in financial planning.
Take one now and relax.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
**info@finoptical.com | www.finoptical.com**
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Diversification is investing in investment options to limit the exposure to any particular asset class or investment. This practice helps to reduce the risk associated with your portfolio. Simply put, diversification helps you to yield higher returns as well as reduce the risk in your portfolio. Balancing your comfort level with risk against your time horizon is one of the keys to a long successful investing journey. For e.g., keeping pace with inflation may not be easy if you start investing in conservative investment options from a young age. On the other hand, taking a large exposure in high-risk instruments near retirement could erode the value of your portfolio. Hence, it is important to balance the risk and reward in your portfolio so that you don’t lose sleep on market ups and downs.
**What are the components of a diversified portfolio?**
The major components of a diversified portfolio are equity, debt and money market instruments.
Equity investments carry the highest risk in your portfolio and it has the potential to give higher returns over the long run. But with higher return comes greater risk especially in the short run. Equities tend to be volatile than other asset classes. Investing in equity mutual would be the best way to take exposure in equities. Equity mutual funds are diversified funds as fund managers invest in different stocks and across sectors (except sectoral funds) which optimizes the risk in your portfolio.
Another important component of a diversified portfolio is debt securities. While equities have the potential to grow your wealth, debt investments provide stability and act as a cushion through the market cycles. Debt instruments include debt mutual funds, fixed deposits, bonds etc. The main objective of debt instruments is not to provide high returns like equities but capital protection along with inflation-beating returns. Debt investments can also be a source of income.
While equity investments give higher returns and debt instruments protect the capital to help us fulfil our financial goals, a part of the portfolio should be in liquid and money market instruments such as liquid mutual funds or a separate savings account. It provides easy access to money during emergencies such as job loss or accident.
**Why is diversification important?**
Diversification helps to minimize the risks associated with your portfolio. Let us assume that two years ago, you had invested your entire savings in a particular airline stock. Now, the airline is near bankruptcy and the stock price went down 60% in one month. Would you be comfortable in that kind of scenario? Most people wouldn’t. You would have less stressed out if you had diversified your portfolio and invested in a few other companies rather than taking 100% exposure in one particular stock.
Diversification is important because different investment options react differently to the same development or move in a different pattern. For example, real estate and gold tend to underperform when equity markets are soaring. A cut in the interest rate may benefit the bond market but may not be good news for individuals with fixed deposits.
**How to diversify your portfolio?**
Diversifying your portfolio is as healthy as consuming green leafy vegetables, fruits, exercising and meditating on a regular basis. However, eating just one kind of fruit may not be very effective. Hence, it is important to diversify. Investment is no different. Here are some of the ways through which you can
**diversify your portfolio:**
Spread your investments among different asset classes: A diversified portfolio should include equities, debt and cash. Exposure to international market and commodities such as gold can help you in further diversifying your portfolio. It is because different investments come with different risk and returns. Higher the returns, higher will be the risk and vice versa.
**Diversify within individual types of investments:** Diversification is also necessary within an asset class. For e.g. in case of equity mutual funds do not concentrate on one category. It is recommended that you have mutual funds across market capitalization such as large cap funds, mid cap funds and different investment strategies. Different funds and stocks come with varying risks thus minimizes the risks.
**Rebalance your portfolio regularly:** Diversification is not a one-off exercise. Rebalancing your portfolio depends on two important things which are the number of years until you expect to need money (time horizon) and risk-taking capacity (risk tolerance).
To summaries, diversification is important for every investor whether it is across asset classes or within an asset class. The nature of diversification depends on financial goals, time horizon and risk tolerance. It is also important that the diversification of the portfolio is updated on a regular basis.
A Friend, “Your Financial Life Partner”
97128 63430 – 86553 06591
Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD
921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007
info@finoptical.com | www.finoptical.com
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**ELSS vs PPF: Which Tax Saving Instrument Is Better**
“But in this world, nothing can be said to be certain, except death and taxes.” Benjamin Franklin
While we can’t get clever with death, we can be smart with taxes and save our hard-earned money. One can save tax by investing in various instruments such as Equity Linked Savings Scheme (ELSS), Public Provident Fund (PPF) and National Pension System (NPS) and tax saving fixed deposit etc.
Out of these tax saving options, ELSS and PPF are the most popular. Investment of up to Rs.1.5 lakh in a financial year in these two options among others qualify for tax deductions under Section 80C of Income Tax Act 1961.
Have you invested in PPF or ELSS? In this article, we will compare these two tax saving instruments which will help you to figure out the right one for you.
**Lock-in Period:** Both ELSS and PPF come with a lock-in period. ELSS funds have a lock-in period of three years while PPF comes with a 15-year lock-in period. However, in PPF, you can make partial withdrawals after the seventh year. Hence, we see that ELSS has a shorter lock-in period than PPF. This means that you can redeem the ELSS fund’s units after three years. However, it is suggested that you do not redeem it, as by being invested your capital will appreciate over time.
**Returns:** The returns is one of the key factors that distinguishes PPF and ELSS. The government of India fixes the interest rate of PPF every quarter. On the other and, the returns in ELSS are not assured and is linked to the equity market. If we see the historical performance of both the two options, ELSS funds, in the last ten years has given returns of 13.55%* while the interest rates in PPF have ranged from 7.6% to 8.8%.
According to research by Value Research, an investment of Rs.1.5 lakh every year over the last 20 years, have grown to Rs.79.39 lakh in PPF. While in the same time frame, investment in ELSS has increased to 2.28 crore. Hence, in terms of returns, ELSS has outperformed PPF.
**Investment amount:** In case of PPF, you can only invest up to Rs.1.5 lakh in a financial year. However, there is no such restriction in the case of ELSS. While the tax benefit will apply to Rs.1.5 lakh, you can invest more and earn returns on the entire investment amount. As a result, ELSS is also a popular option to plan for long term goals.
**Taxation:** Gains from ELSS funds are taxed as per the equity funds and is subject to short term and long-term capital gains. Short term capital gains are applicable if the units are sold before the 1st year. In this scenario, a tax of 15% will be applicable. If the units are held for more than a year, gains up to Rs.1 lakh in a financial year is exempted. If the gains are higher than Rs.10 lakh, long term capital gains will be applied in ELSS funds.
On the other hand, PPF falls under the EEE (Exempt, Exempt, Exempt) category. This means that the interest earned by investing in PPF and the principal amount is exempted from taxation.
**Conclusion**
By now, you may have become familiar with the differences between PPF and ELSS. PPF is the darling of Indian masses, but its long-term performance is not attractive while ELSS funds have given attractive returns. Also, with the interest rate trending down from 8% to 7.9% (July-Sep 2019), it is unlikely that PPF will give a better return.
ELSS is not only a tax saving instrument; it can also help you to achieve your long-term financial goals such as retirement. It is because you can invest over and above the Rs.1.5 lakh mark and still earn returns on the entire corpus.
If you have just started working or have no exposure in the equity market, you can invest in ELSS funds. Once you are comfortable with ELSS funds, you can start investing in other equity funds to achieve your financial goals.
In case of any queries, please get in touch with a financial advisor. He or she will be able to help you out with the best ELSS funds.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
**info@finoptical.com | www.finoptical.com**
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Personal finance is everything to do with managing your money and saving and investing. We are sharing series of articles where we shall discuss 9 useful personal finance concepts which everyone should know and learn.
In this first part we shall understand Risk.
Risk, word itself creates a sense of fear in mind. We all want to avoid risk, but unfortunately, we cannot. Risk is everywhere. We cannot avoid it and that’s why we must understand the risk and learn the ways to manage it. Being cautious and taking necessary steps to manage risk is better than living in avoidance behavior.
**Inflation Risk:**
All investment products carry risk, even Fixed return products carry risk. Risk of getting negative real return.
**Real Return = Nominal return – Inflation**
In real world the inflation is much higher than the data published by govt agencies. In personal finance, the definition of inflation should be, a rate at which your expenses are growing yearly due to price rise and change in life style. With increase in lifestyle expenses and constantly decreasing interest rates, fixed return products hardly can give any real return after adjusting effect of inflation.
**Market Risk:**
Definition of market risk is ‘Risk of losing money due to market correction or due to falling prices of security bought in portfolio.”
In case of equity as an asset class market risk is less in longer term compared to short period. Probability of Sensex or Nifty going down is more in 1 year compared to 5 years. And it is lower in 10 years compared to 5 years.
**Managing Risk:**
To manage risk in your portfolio you need to adequately diversify your investments in equity and debt.
Your short-term investments should be more towards fixed income category as the risk of inflation will not harm the value of portfolio much in short term. The risk of inflation is much higher in long term as it’s compounding effect can erode the purchasing power of your money considerably in long term.
Your long-term investment should be more towards equity as the market risk is lesser in long term compared to short term. In long term equity can give you much better return compared to debt and save your portfolio from inflation risk.
Remember, He who is not courageous enough to take risks will accomplish nothing in life.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
**info@finoptical.com | www.finoptical.com**
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**Understanding Return**
Calculating return would have been easier, if we had been investing exactly for one year. But that doesn’t happen in practical world. Investment is normally done in staggered manner and each investment is not kept for same period of time. Withdrawal also might happen over a period of time.
To compare the return from various investment plans, it is necessary to have a common parameter which can be used for all types of investments with different investment amounts and different holding period. That common parameter is to assume that all investment returns get compounded annually.
If investment is held for lesser than one year, then we need to calculate the return in percentage terms by assuming that the investment is held for one year.
**CAGR – Compounded Annual Growth Rate**
If you want to calculate the return for one time investment then CAGR (Compounded Annual Growth Rate) is used. But when the investment is done periodically or staggered over a period of time, CAGR is not useful to calculate the return.
In case of staggered investment, either IRR or XIRR can be used.
**IRR – Internal Rate of Return**
If the investment is done in strict periodic manner, you may use IRR to find out the rate of return. For example, if investment is done at fix interval (Monthly/quarterly/yearly) and withdrawal only at the end of the entire tenure, IRR can be used to find out the return.
**XIRR**
If cashflow includes frequent inflow as well as outflow over a period of time, we need to use XIRR for calculating the rate of return. XIRR gives you the flexibility to assign specific dates for each cash flow, making it a much more accurate calculation Though Return is one of the most important criteria but we should also look at other parameters like consistency, portfolio quality, risk, risk adjusted returns etc.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
**info@finoptical.com | www.finoptical.com**
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As the classic proverb says, ’Don’t put all eggs in one basket’, Investor also must diversify his/her portfolio into different asset classes. Why? Reason is very obvious – to reduce the risk.
There are mainly 5 asset classes, namely; Equity, Debt, commodity, real estate and cash. One must allocate his/her savings into different asset classes based on the various parameters and their own risk appetite. Dividing your investment in different asset class based on different parameters, is called asset allocation.
Considering ease of investing and liquidating, we shall focus on two asset classes – Equity & Debt, to understand the process of asset allocation.
**Deciding right Asset Allocation Mix:**
One of the most important criteria while selecting the asset class is time horizon.
∙ Short Term - If you are looking to invest for less than 3 years, your portfolio should consist of mainly Debt investment as equity is very volatile and market risk is higher in short term.
∙ Medium Term - If you are looking to invest for a period of 3 to 5 years, your portfolio should be mix of equity and debt both.
∙ Long Term - In case of investment for longer than 5 years, you can invest more into equity. Equity as an asset class is lesser volatile in long term.
**Rebalancing Asset Allocation:**
Investment horizon keeps on changing over a period of time. So as the years passed by, asset allocation needs to be re adjusted based on the remaining numbers of years till you need to withdraw. So, for example, if you are going to need money in year 2027, you must start shifting money gradually from equity to debt by year 2024.
**Other important Parameters:**
Risk appetite, required rate of return to achieve your financial goals, tax implications etc. are other parameters which are also crucial while deciding the right asset allocation mix.
One must be able to control GREED in bull market and FEAR in bear market to ensure the right asset allocation mix in the portfolio. One must be focused and disciplined to save from the emotional decisions which might deviate himself/herself from the asset allocation.
**“Most important key to successful Investing can be summed up in just two words Asset-Allocation.” Michael LeBoeuf **
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
**info@finoptical.com | www.finoptical.com**
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**Here’s How to Select the Right Type of Mutual Fund**
We all love to have choices in different aspects of our life. Whether it is books, clothes or career, options are essential. Everyone has different inclinations and tastes, and hence, selecting the right choice is utmost vital.
Similar is the case with mutual funds. Mutual funds also come in various shapes and sizes to suit every investor and make their dreams come true. No matter what kind of investor you are or your goals are, there will be a mutual fund for you. But finding the right type of mutual fund may not be easy for a lot of new investors.
Mutual funds can be classified into various categories based on its assets, options etc. In this article, let us try to understand these types of mutual funds that will help you to find out what will suit you the best.
**Based on asset class:**
Equity and debt are two major types of assets where mutual funds invest. They have different objectives. While equities are mostly for capital appreciation in the long term, the aim of the debt is capital protection along with moderate returns.
There are three different types of mutual funds based on the asset classes: equity funds, debt funds and hybrid funds.
The type of fund that will suit you the best will depend on your investment horizon. For example, if you want to buy a house in 15 years, then 15 years is your investment horizon. In another instance, if you are planning for an exotic vacation in less than a year, then one year is your limit.
For long term goals of five years and more, equity fund is the best option. Equity funds tend to be volatile in the short run, and the risks are evened out in the long run. Debt funds are good investment options for short term goals of around three years or less. For your financial goals of 3 to 5 years horizon, hybrid funds can be the ideal category.
**Open-ended and close-ended funds:**
A fund remains open for initial subscription for a limited number of days during its launch. It is the new fund offer (NFO) period. In close-ended funds, investors can only invest during the NFO period. Close-ended funds come with a specific period of say three years. Also, investors do not have the option to invest more or exit during the period. After the period is over, investors have to redeem the mutual fund units. Also, systematic investment plan (SIP) is not available for close-ended funds.
Open-ended funds do not have these limitations. These funds remain open for entry and exit, making it an ideal choice for goal planning. It helps you to adjust your goals according to your life stage. It allows prioritizing your goals. For example, buying a home is your priority; you can invest more and increase your SIP regularly. Once, you reach your target amount, you can easily redeem your units. You do not have to wait for the maturity date. Hence, an open-ended fund is a better option than a close-ended fund.
Growth and dividend options
**Fund houses also offer two options:**
growth and dividend option. In the growth option, the fund reinvests the profits back in the fund. As a result, the net asset value (NAV) of the fund keeps on rising as the scheme gains. This helps you to take advantage of the power of compounding. In the case of dividend option, investors get the profits declared by the fund. Hence, the NAV comes down as and when the dividends are declared.
The growth option is better to build wealth over time and fulfil your financial goals. And if you're looking for a regular income source, then you can choose a
systematic withdrawal plan (SWP) instead of dividend option. In the case of SWP, you receive a fixed sum of money regularly, and the remaining corpus in the fund will continue to grow.
Hence, go for growth option to fulfil your financial goals.
**Conclusion:** We have seen that the category and type of fund that you need to select depending on your financial goals. Moreover, the growth option in open ended funds is a better option for investors. It gives the benefits of compounding, along with liquidity.
To know more, consult your financial advisor.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
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**The three systematic ways to manage mange your investment and withdrawal:** Raise your hand if you have ever heard about SIP? However, do you know everything that you should know about SIP? In this article, we will dig deep to understand how SIP works. Also, there are other systematic plans like STP and SWP that can help you to plan your finances in the long run.
Let’s go one by one in detail:
**Systematic Investment Plan (SIP)**
Most people assume that systematic investment Plan or SIP is different from mutual funds. It is common to hear people say that they have invested in SIP and not mutual funds because SIPs are less risky.
There are two ways to invest in mutual funds: one-time investment (Lump sum) or staggered automatic investment at regular intervals (SIP). SIP is just a way to invest in mutual funds. The underlying risk, stocks or securities remain the same.
Systematic Investment is an effective investment option for salaried people. Once you set up a SIP, whether it is monthly, quarterly etc., the SIP amount will be automatically debited at the pre-defined intervals from your savings account.
One of the most important advantages of SIP is the benefit of rupee cost averaging. Rupee cost averaging helps to take advantage of rising markets as well as falling markets. As the monthly investment is fixed, the fund house will allot you fund units according to your investment amount. When the market is up, the price of a mutual fund unit will also go up. In this scenario, you will be allotted lesser units. And, when the market is down, you will be allotted more units. This helps you to gain more when the market gains.
**Systematic Transfer Plan (STP)**
Imagine you find yourself with tons of cash. It may be your fixed deposits maturity amount, a gift from relatives, or a bonus etc. You want to invest but don’t want to invest the entire amount of money at one go. In this scenario, a systematic transfer plan (STP) will help you. Here, you park your money in a low-risk fund, e.g., a liquid fund from which a certain amount will be transferred to another fund, say equity fund periodically. (Daily/Weekly or Monthly)
You can set up an STP for the amount that you like and set a period. STP works similarly to SIP and gives you the benefit of rupee cost averaging. Also, another advantage of STP is that the amount lying in the liquid fund will also give you returns and the value of the liquid fund will increase as well.
**Systematic Withdrawal Plan (SWP)**
Just like you can systematically invest in a fund, you can withdraw from a fund as well. This facility is called the Systematic Withdrawal Plan (SWP). With the help of this facility, you can withdraw a fixed amount of money from a fund at regular intervals say every month. The number of units that will be redeemed will be as per your withdrawal amount. Also, the corpus in the fund will keep on growing.
SWP helps to plan for your retired life. After investing regularly throughout your working years through SIP, you can set a monthly withdrawal plan which will help you to take care of your day-to-day expenses. Once you are near retirement, you can shift your retirement corpus to a less volatile fund, say debt fund and set up the SWP.
**Conclusion:** SIP, STP and SWP are three systematic ways to manage your money. The facility that you need to choose depends on your requirements. If you have further queries, you can get in touch with your financial advisor.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
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Capital safety, the rate of returns, lock-in period and taxation are some of the key features those can help you select between debt mutual fund and fixed deposits.
When it comes to investing, for many of us safety comes first and returns come second. After all, no one wants to play gamble with his or her much hard-earned money. Hence, fixed deposits and gold became our favorite investment options. In this craze of safe investment options, we forget that fixed deposits may not be the most ideal investment option.
However, for investors whose priority is capital safety along with inflation-beating returns can look at debt mutual funds. Debt mutual funds is a category of mutual fund that invests in fixed income securities issued by the various companies and governments.
Now, let us understand the difference between debt mutual funds and fixed deposits that can help you to compare the two investment options and choose your pick accordingly.
**Interest rate/Rate of returns:**
Return from Fixed deposits are fixed and are in the range of 7% to 7.5% currently. While interest rates remain the same during the fixed tenure but it may change through the years. Hence, when you want to reinvest the fixed deposit’s maturity amount, interest rates might be different at that time. With the interest rates moving south, banks may trim the interest rates on deposits going forward.
On the other hand, the returns on debt mutual funds are not assured and are linked to the debt market. Debt mutual funds have the potential to deliver higher returns than fixed deposits as fund managers make investment decisions based on the current debt market scenarios and select papers based on credit ratings and internal research. The expected returns from debt mutual funds are normally the Yield to Maturity minus expense ratio, if one remains invested till the duration of the fund keeping all other parameters same. Also, debt funds stand to gain from the lowering of interest rates as the price of a mutual fund unit i.e. net asset value rises when the interest rate falls.
Debt mutual funds have potential to generate higher real returns. Real returns are the returns given by an investment option above the inflation rate. E.g. if the average rate of inflation in that year was 5% and the interest rate on fixed deposits was 7%, the real rate of return is 2%. A higher real return helps in fulfilling financial goals.
**Capital safety:**
When it comes to capital protection, bank fixed deposits have an edge over debt mutual funds. However, fund houses cannot guarantee capital safety. In the case of FDs, capital protection differs from the issuer of the fixed deposits. Non-banking financial companies give higher returns on fixed deposits but it also comes with higher risk than a bank deposit. Though capital erosion risk is very less in debt funds as the portfolio consist of well researched securities and also due to diversification.
**Liquidity:**
Fixed deposits have a maturity period and you have to pay penalties if you want to redeem your fixed deposits before the maturity date. However, you can redeem from your debt funds anytime you want. However, a few debt funds may have exit loads if you redeem within the specific time frame. Hence, debt funds are more liquid than fixed deposits.
**Taxation:** The taxation structure of debt funds is better than fixed deposits as it comes with indexation benefits. There are two types of taxation on debt mutual fund i.e. short-term capital gains and long-term capital gains. Short-term capital gains are applicable if the units are redeemed before three years and gains are taxed as per the income slab. If you stay invested for more than three years, you are eligible for long-term capital taxation at 20% with indexation. Indexation is nothing but accounting for the rise in inflation. In this case, you only pay tax on gains if the rate of returns is higher than the inflation rate. However, in the case of FD, the entire gains are taxed according to the tax bracket of investor.
**Conclusion:** Debt mutual funds are a good investment option if you are looking for a relatively stable investment option along with inflation-beating returns Investors who are in the higher tax brackets can also look at debt mutual funds for tax
efficient returns.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
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Recently the data published in one of the new websites said that 'New SIP growth falls 61% from April to December.' What does it mean? Does it mean that investment through Sips is no longer attractive? Does it mean that Investors are moving away from SIPs?
There could be only two reasons for fall in Net SIP growth. Number of New SIP registration is slowing down and another reason may be that some investors are stopping their existing SIPs.
Historically it is observed that people start SIPs when the past performance looks good. When market is in bull run people start an SIP expecting the similar return in future. But market can never go up in linear fashion. There are going to be ups and down. Volatility is the part of stock market. So, when market corrects and return in portfolio is negative or not as per expectation people stops the SIP and book the loss.
Remember! In long run correction is temporary and growth is permanent. But when you press the panic button and stop your SIP your temporary loss gets converted into permanent one.
Creation of wealth through SIP requires two elements in place; first good financial advice and second discipline. Returns from SIP is never going to be proportional every year. There would be few volatile years before you create a wealth. Those are the years where Investors needs to stay disciplined and stay invested. In fact, if you want to become even smarter investor you need to increase your SIP amount or add more money in your existing SIP folios. That would help you to accumulate more units and when market recovers your portfolio would grow even faster.
If you had started an SIP of Rs 10000/month in September 2010 in large cap fund (There were 43 Large Cap funds available), value of your investment of Rs 3,60,000 after three years would have been Rs 3,48,896. Many investors were in panic and stopping their SIPs due to this negative return. But those investors who continued their SIP for even one more year, the value of their investment or Rs 4,80,000 was Rs 6,99,858/- after fourth Year.
Market is always going to test your patience. If you lose your patience, you shall not be able to create wealth. Remember what legendary Warren Buffett has said when you are losing your patience, "Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can't produce a baby in one month by getting nine women pregnant."
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
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**Confused between paying off debt and investing? Here’s how to do it**
All of us have financial goals. While some want to buy a house, few would want to travel the world. And there are broadly two ways through which you can fulfil these goals i.e. taking debt and investing.
Taking debt provides instant gratification while in case of investing, you need to wait for some time before it bears fruit.
Debt can eat up a major portion of our monthly salary, leaving us with almost no money to invest for our retirement and other financial goals. Do you find yourself in the same scenario and are you confused about whether you should pay your debt and invest? This is a major confusion that arises in most people’s lives.
Here we will show you steps that will help you to navigate between paying your debts and investing.
**Step 1: Have an emergency fund in place.**
Before you tackle debt or start investing, an emergency fund should be the first step. Think of the emergency fund as a cushion. It will help you to take care if anything unfortunate takes place. E.g., in case of a job loss, you may have a hard time paying your EMIs and managing your family. Hence, in such scenarios, an emergency fund comes handy. Typically, one should have at least three to six months of expenses in the emergency fund.
**Step 2: Check the interest rate of your debt and the expected returns of the investment option.**
As a rule of thumb, you should ideally go with the highest interest or expected returns. If the interest charged on the debt is more than the expected returns from an investment option, then you should look at clearing the debt first. For example, if the interest charged on the credit card debt is 25%, it is less likely that there any investment option that can fetch 25% in the long run. So, in this case, paying off the credit card debt first is a good option.
**Step 3: Does the loan come with any tax benefits**
Loans like student loans and education loan come with low-interest rate along with tax benefits. In this scenario, the effective interest rate of the loan will be lower. Hence, you can check if the investment option gives you the same or more rate of returns. E.g., if the expected average rate of return of 14% over the long run, the interest charged on your home loan is 11%, then opting for investment will help you to grow your wealth.
**Step 4: Decide what you can live with and what you cannot**
There is no one straight solution when it comes to handling money. The kind of debt that one can live with varies greatly. Few may be okay with a home or car loan, but few may cringe on the idea of living under debt. For the latter category of people, paying off debt as fast as possible is the need of the hour. While paying off debt may help to breathe easy, paying off completely may take many years. Hence, if it is going to take a long time, you can look into investing a small proportion.
You can keep a 60-40 allocation towards paying off your debt and investing. If you can manage Rs.10,000 per month, Rs.6,000 can go in paying off your debt and the rest in investment avenues.
It may be a cumbersome process or bank may not be willing to take prepayment every month or for a small amount of money. In this case, you can park this amount in a liquid fund or make a recurring account for six months or so. Once, the amount becomes sizeable, you can use it to prepay your loan. For the rest Rs.4,000, you can set up a systematic investment plan in a diversified equity fund. This help to build a retirement corpus or fulfil other long term financial goals.
To know more about equity funds, consult your financial advisor today.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
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**What’s your retirement plan?**
Let’s play a small game.
Pick the odd one out:
Home
Vacation
Car
Retirement
Education
Dream Wedding
Could you figure the odd one out?
**It is retirement**. You can take a loan for everything else but retirement. Hence, planning for retirement should be on everyone’s top of mind. Starting to plan for retirement as early as possible is the best way as you don’t have to stress about investing a considerable sum of money in the later part of your life.
Everyone’s retirement plan and needs are different. The size of the retirement corpus will not just depend on how much you save and invest, but also how you want to spend after retirement. If you're going to live a frugal life, you may need to accumulate less than someone who wants to pursue expensive hobbies or go on world tours after retirement.
As retirement is a long-term goal, knowing how much to invest in the different phases of your life and how much you should have invested until now are crucial steps in retirement planning. There are various ways to find out how much you should have saved for retirement. One method is the 80% rule. According to this rule, you need to have 80% of your annual salary before retirement for each year. According to another method, you should have saved 50% of your annual income towards retirement by the time you hit 30, two times your salary by 40 years and four times by 50 years.
While these methods can help us to have an idea on how much we need to accumulate as per our life stage, a better way to do so would be to invest a proportion of the monthly income consistently.
**The FOMO generation and millennials**
For the people who are fresh graduates, may feel that retirement is in the distant past. Today, young people believe in having experiences and have a ‘You Live Only Once’ attitude. Many don’t want to invest for their retirement as they think it is a waste of money and the entire invested amount will go down the gutters if they don’t survive till 60. But what if you live?
People in the mid-20s to early 30s can start accumulating their retirement corpus by investing 5% of the monthly income regularly. Investors can start investing regularly in a midcap fund or ELSS funds through Systematic Investment Plan (SIP). Equity funds are recommended as they give higher returns in the long run. As investors in this stage have just started working, their earning potential may be limited. And if they are staying alone in a big city, essential expenses such as rent and food constitute a large chunk of their income. Hence, taking baby steps will go a long way in accumulating the desired retirement corpus.
**The middle-aged people**
In the late 30s and 40s, the earning capacity of individuals increases. By this time, many individuals would have stopped job switching. They are also likely to have one or two kids. While their earning capacity increases, so does their burden of financial responsibilities. Whether it is taking care of their children’s education, paying loan EMIs and insurance premiums, and vacations, all these responsibilities constitute a large proportion of their income. Hence, individuals
who are in this stage should aim to save at least 10% of their income for retirement. Also, one has to keep in mind to top up their investment amount as and when they get an increment.
**Almost near retirement**
In this stage, many of the responsibilities would have been over. It is the time that your kids are most likely to be in college, and they are on the verse to becoming financially independent. Loans are most likely to be out of the picture by this time. With the decrease in responsibilities, you can increase your investment to 15% of your income or more. As an individual approaches retirement, say 55 years, investors can shift their investments to a debt fund. The objective of the debt funds is to protect capital. They can continue their regular investments in the debt fund. This will help individuals to set up a systematic withdrawal plan (SWP) in the debt fund and redeem a monthly sum of money to take care of the day-to-day expenses after retirement.
To summaries, one can gradually increase their investment in retirement. The key here is to start investing as early as
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
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If you want to go around the earth and start with 100 meters on first day and double the distance every day, how long do you think it will take?
1 year?
10 Year?
Let’s find out, within 19 days you would have covered 39,321 Kilometers, while the equatorial circumference of Earth is about 40,075 km. you would have travelled around the world in less than 20 Days.
But What if you stop after 10 days? You would have hardly covered a little less than 77 km.
This is the power of compounding. Power of compounding can help you to create a great wealth as well.
How to leverage the power of compounding for maximum benefit to create a wealth!
**Start Early & Invest Regularly**
Key ingredient to avail the benefit of power of compounding is TIME. You need to keep investing regularly for long term. The sooner you start investing in your life, more wealth you will be able to create.
For Example,
Nisha invests 5000 rupees every month since the age of 25, while Nilesh invests 7000 rupees every month since the age of 35. Both of them kept investing till the age of 60 years with the objective of creating a corpus of retirement.
By the age of 60 both would have invested 21 Lac rupees. Assuming a return of 12%,
How much wealth both of them would have created for their retirement?
Nisha will accumulate 2.75 Crore rupees, while Nilesh will get only 1.19 Cr rupees, which is 59% lesser than Nisha’s corpus.
This is why starting early is important.
**Challenge:**
"I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times.” Bruce Lee
One requires a lot of discipline in doing the same things again and again for long term, though it is the most proven method to create a great result in any area.
To avail the benefit of power of compounding the biggest challenge is to keep investing every month with discipline. And as a human being, most of us lack discipline, when it comes to follow same routine with the absence of instant gratification. For creating a wealth in long term, one needs a lot of discipline to start early and keep investing regularly.
**Solution:**
Start an SIP (systematic investment plan) in Equity Mutual Fund for long term to automate the process of investing. You need to exercise your will power just once to decide the amount and tenure to start your SIP. The biggest benefit of investing in mutual fund through SIP is that it helps you in investing with discipline regularly. You need not do paperwork or pay every month manually. This automation makes this long-term powerful process of wealth creation easier for you.
So remember, to avail the power of compounding starting early and remaining invested for long term is the Key.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
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**Know how the power of compounding works**
Imagine a snowball rolling down a mountain. What will you see? As the snowball rolls down the mountain, it gathers snow and becomes a bigger ball. Compound interest does the same thing to our money. Compounding is a simple way that will help you to grow your money at an exponential rate over a period of time.
**What is compound interest?**
Compounding is said to take place when the returns or interest generated on the principal in the first period (a year or a quarter) is added back to the principal amount to calculate the interest for the next period. The process continues until you stay invested. Simply put, compounding means receiving interest on the interest earned in the previous periods.
**Why is compounding important?**
We all work hard to earn money. But is the money working hard for us?
There are two types of interest or returns given by financial products: simple interest and compound interest. Your money will work hard for you if you invest in financial products that work on compounding. Mutual funds and equities help you to compound your investment amount. On the other hand, the interest rate given by your bank on a savings account is simple interest.
Let us see how your initial investment of Rs.50,000 would grow in 5 years at 8% simple interest rate and compound interest.
**Simple Interest Compound Interest**
Initial investment Rs.50,000 Rs.50,000
Years 5 years 5 years
Rate of return 8% 8%
Accumulated corpus Rs.70,000 Rs.73,466.40
Difference Rs.3,466
Hence, we see that through compounding, you can earn more interest and accumulate higher corpus.
**How does compounding work?**
The most crucial factor in compounding is time. It is because as your investments start generating returns, it will help to increase your corpus at a faster rate. The longer you stay invested, the higher will be the effect of compounding.
Let us take an example where Rs. 1 lakh is the principal amount and rate of return is 10%. Let’s see the effect of compounding from a 30-year time horizon.
Years Corpus Growth
5 ₹ 1,61,051.00 ₹ 61,051.00
10 ₹ 2,59,374.25 ₹ 98,323.25
15 ₹ 4,17,724.82 ₹ 1,58,350.57
20 ₹ 6,72,749.99 ₹ 2,55,025.18
25 ₹ 10,83,470.59 ₹ 4,10,720.60
30 ₹ 17,44,940.23 ₹ 6,61,469.63
From the above table, we can see that Rs. 1 lakh grows to Rs. 1.61 lakh at the end of fifth year i.e. gain of Rs.61,000. Later, we see the growth in every five years is higher than the previous period. From 25th year to 30th year, the corpus grows by more than Rs.6.61 lakh in just five years. At the end of 30 years, Rs. 1 lakh becomes 17.44 lakhs, i.e. it has increased by more than Rs.17 lakhs in 30 years.
**How to harness the power of compounding**
We have seen that compounding makes our money work hard and help us achieve corpus. While most of us know the benefit of compounding, we are not able to harness the power of compounding. Here are three steps that can help us make the most of compounding:
**1. Starting Early**
Start as soon as possible. Delaying your investments by even a year will cost you. Hence, it is ideal to start investing when you begin your work life. In this way, you can grow your wealth faster and achieve your financial goals.
**2. Discipline**
When you start investing, it is easy to panic over short-term news or get tempted by a hot stock. This calls for discipline. You need to focus on your financial goals and ignore the noise.
**3. Be patient**
Most of us start investing for quick bucks. But investment is a long-term endeavor. You should not lose your patience if your investments are not growing fast. Some things work best when left undisturbed.
This was all about the power of compounding. To know more, get in touch with your advisor.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
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While investing for any specific goal, we always assume some rate of return from the investment based on some rationale. Actual return may vary time to time from assume return, so it becomes very important to check whether we are getting that return or not. We also need to check how various asset class and schemes are performing in our portfolio. This exercise is known as review and it should be done on periodic bases. Ideally once in a year, you must review your portfolio.
Reviewing doesn’t necessary means frequent buying and selling based on performance. The return which we assume is for the CAGR return for entire period of investment and need not to be equal to assumed CAGR every year.
**How to review your mutual fund schemes:**
You can review the performance of your scheme and compare it with the performance of benchmark. Apart from benchmark you can also compare it with peer group performance.
Performance of good scheme also may lag in some times, so short term performance should not be given too much of weight while doing the review of the portfolio. Rather than short term performance, you must consider long term return and consistency in performance.
Apart from return you also need to compare your portfolio on other parameters like risk, risk adjusted return and quality of portfolio while reviewing the scheme.
If scheme underperforms on all the above parameters, you should exit the same and invest in some other scheme.
But, remember review doesn’t necessary means buying and selling every time while you review. The decision of exiting should not be based on short term underperformance noticed during review. You need to adapt holistic approach of reviewing the scheme by taking in consideration of other important parameters also apart from short term return.
Once you know where you are going by setting appropriate investment objectives, your portfolio review will help you reach your destination. How? By identifying problems and
mistakes that you can correct midcourse. Much like a pilot, your job is to stay on course so that you can reach your destination safely and in a timely manner.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
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**Investing as a newbie**
After one land in a job, the first thing that most parents will tell is to save money. Saving money, especially for someone who is in their first job and living alone in a big city, may not be easy. But it is also not difficult. Saving is necessary as it will help you to tide over emergencies and fulfil your financial goals. Here are a few essential steps that you can take as a beginner.
**Your salary is less than what you get**
We always think that we will start investing once we have enough money. But it is never going to work out this way. One way to change this habit is to imagine that you get less than your take-home salary. For, e.g., You can imagine that your salary is Rs.30,000 if your actual salary is Rs.35,000. Thinking in this manner will help you to save a little amount of money every month.
**How much should I save/invest?**
Knowing how much to save is on everyone’s mind, but there is no easy answer to this question. It is because the lifestyle and needs of different individuals varies. While it may be easy for someone who stays with their parents to save 95% of their income, it may not be the same for someone living alone in a city. As a rule of thumb, it is advised to save at least 20% of your income for your future goals. If you can’t start at 20%, start at 10% and gradually increase your allocation. The main point is to start somewhere.
**What to do with the savings?**
The next question that must have automatically come to your mind would be what to do with the savings. It is better to invest in your financial goals. However, it is most likely that you still haven’t figured out a financial goal. If you don’t have a financial goal in sight, the easiest way to save money would be to set up a one-year recurring deposit.
Investing in an RD is extremely safe and very easy to open. Nowadays you don’t have to fill documents or visit the bank branch. You can create an RD in just two minutes through your bank app. All you have to do is add the tenure, the date on which money will be debited from your savings account, and the sum of money that you want to save every month. Remember to set the date within the first week of the month.
Instead of RD you may also look at Liquid Mutual funds where you get the convenience of withdrawing at any time just like you saving bank account and also get a chance to earn better return than savings account.
Once your financial goals are decided you can channelize your RD money or Liquid fund money into Mutual funds.
**How to invest in mutual funds?**
Mutual funds are an effortless and popular way of investing. Mutual funds invest in a pool of stocks and securities, and a dedicated fund manager manages it. It is especially useful for individuals who do not have the time and expertise to select stocks. To invest in mutual funds, every investor needs to complete the KYC process. The KYC is a one
time procedure. Your financial advisor will be able to help with the process. After the required processes are in place, it is time to select mutual funds. There are many categories of mutual funds for different goals and different types of investors. You should discuss your financial goas and requirements in detail with your financial advisor so that he/she can help you to choose the right product for you.
For e.g., if you want to save money for a vacation that is six months away, taking high risk and investing in equities won’t be the right way to go forward. A liquid fund can help you to save for your vacation. Similarly, for your financial goals that are 15 years away, a small-cap fund may be a good investment option. Ultimately, your financial advisor analyses your requirement, your risk appetite and your financial goals to ensure that you get right schemes in your portfolio suitable to your profile.
There are two ways to invest in mutual funds: lumpsum and through Systematic Investment Plan (SIP). SIP is one of the easiest and convenient to start investing in mutual funds, especially for salaried individuals. In a SIP, a fixed sum of money is deducted every month automatically from your savings account. SIP helps form financial discipline, which allows you to achieve your financial goals. If you have lumpsum amount at hand, you can invest lumpsum in the mutual fund of your choice. You can also invest lumpsum in the fund where you have set up a SIP. This will help you to reach your financial goals faster.
While it is reasonable to have the temptation to spend, it is crucial to save and invest money for the future as well. Investing should be appropriately planned, and mutual funds are one of the best ways to invest your hard-earned money and achieve your financial goals. If you are confused about which mutual funds to invest or how to go about it, a financial advisor can help you in your journey.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
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**6 steps to financial freedom**
Freedom sounds sweet. While we have achieved political freedom way back in 1947, many still struggle with financial freedom. Everyone wants to be financially free and it is not something that is exclusive for just a few people. Having said that, financial freedom is not a child’s play. It is a series of steps.
So, here are some of the steps that you need to take towards financial freedom:
**Set your goal:** Having a goal gives a sense of direction and purpose. You will also be able to track your progress. In this aspect, it is essential to understand what financial freedom means to you. Many associate financial freedoms with early retirement. Here are some of the other instances of how financial freedom may look like:
∙ Freedom to choose a career without worrying about money ∙ Freedom to go on frequent vacations without straining your budget ∙ Freedom to take care of the needs and wants of other people the way you want
∙ Freedom to retire early
**Have an emergency corpus:**
The second step in this journey is having an emergency fund. It is a crucial step, as it will help you to tide over emergencies. No one can predict crises and hence, it is always better to be prepared. Emergencies can include job loss, car repairs, house repairs etc. Without an emergency corpus, you may have to dip into your savings, which may adversely delay your goals. Or worse, take a loan.
Hence, one needs to have an emergency corpus with 3 to 6 months of expenses. The best way to park in an emergency corpus is in a liquid fund. It is crucial to keep in a different account, out of your sight so that you are not tempted to use it.
**Budget**
Having a budget is a crucial part. And this is one step that requires trial and error. A simple yet effective thumb rule is the 50-30-20 rule. According to this thumb rule, you may allocate 50% of your income towards needs, 30% for wants and save the rest 20%. You can also tweak it according to your convenience. However, it is better to have a higher allocation of investment and savings in the budget.
Secondly, you can also identify your monthly expenses based on the past six months. Later divide your expenses into essential, non-essentials and junk. Use this list to priorities and cut whatever possible. You can also use budget apps to track your expenses. Also, invite every family member to share their concerns regarding the budget.
**Pay yourself first**
If you read financial blogs and books, you must have come across the concept of paying yourself first. Even before we receive our salary, many of us start planning ways to spend it. If you want to be free, you should consider paying yourself first. By this, we mean that you should earmark a certain amount of money for investing. You can also automate your investments. Set up a systematic investment plan (SIP), and you can see your money grow over time.
Another way to pay yourself is by investing in yourself through reading books, going to workshops etc. This will help you to increase your earning potential and to build a second source of income.
**Say bye to debt**
While people like to segregate debt into good or bad, there is nothing good about debt. There are harmful debt and less harmful debt. Having debt is one of the most significant impediments in financial independence. If you have many loans, look at reducing loans that don’t carry tax benefits. Otherwise, look at repaying the debt with the smallest principal. Once you can repay the smallest loan, you will be more charged up to clear your other debts.
**Get a financial advisor**
Last but not at least, having a financial advisor can immensely help you in this journey of financial independence. Everything you need to know about finance is available online. But, can you be sure that you will remain disciplined even when the market tumbles or when you are tempted to buy an expensive car to show off to your neighbor instead focusing on early retirement? Let’s face it that controlling our emotions are a lot harder. And that is why you need a financial advisor.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
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**Are You Financially Compatible with Your Partner?**
The wedding season is in full swing. Indian marriages are not just the marriage of two individuals but the entire family. While we tend to focus on the annual package and family’s financial situation, financial compatibility takes the backseat.
Financial compatibility, just like emotional compatibility, can help couples to live a fulfilling life with each other. Financial compatibility does not mean that both partners should have equal bank balance, but it is about how they see money and what money means to them. To understand financial compatibility, one needs to know the other’s attitude towards money. Some of the basic questions can be framed around outstanding debt, savings and spending habits.
Having a common point of view on money can help to keep money related issues at bay. After all, majority of fights after marriage tends to revolve around money.
However, no two people can be alike. Even though, financial compatibility in your relationship may not be great, you should not lose heart. Financial compatibility can be enhanced by following certain steps which will also deepen the bond with your partner.
**Know what money means to your partner**
The value or attitude of money differs from person to person. Hence, it is important to know what money means to your partner. While some people love to spend money on goods that bring instant gratification, others may want to keep it safely for emergencies and other purposes. It is easy to blame the other person for not sharing the same attitude on money, but the key lies in understanding the reason or factors behind their mindset. Some of the factors may include their family’s financial background and their spending habits.
**Have conversations around money**
After both the partners are aware of what money means to them, the next step would be to make money a regular topic of conversations. Communication is the key to any successful marriage. Income, spending pattern, saving and investing are some of the topics that can be included in these conversations. Maintaining a budget is a cornerstone to keep the finances in place. As the budget will include spending on necessary and luxury items along with investments, it becomes important to dedicate a certain percentage of the income to these aspects. It may require tracking bank accounts and money spent under various heads.
Couples can schedule a day every month on a weekend to go over the bank accounts to understand and fix the problem areas.
**Arrive at a common ground**
While going through the bank statements or the money manager apps, it is most likely that one person will not be happy with the way the other person is spending money or the other person may feel that their partner is saving and investing more money than required.
In this scenario, both the partners should arrive at a consensus i.e. a middle ground when it comes to spending and saving money. If you are unable to arrive at a common ground, you can take the help of a common friend or a financial advisor. Write it down on a notebook so that it is easy for both of you to consult it later.
**Make the other person accountable**
After you and your partner arrive at a middle ground, it is important to keep your partner accountable. It will ensure that both of you are on the right track. The common ground will act as a yardstick. Tracking expenses and proper communication plays an important role in this aspect.
**Conclusion:** Don’t let financial incompatibility ruin your relationship. Understanding how your partner sees money, having proper communication around money, coming to a middle ground and making each other accountable for the decisions are some of the ways that can help to increase financial compatibility.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
**info@finoptical.com | www.finoptical.com**
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**Steps to Plan for your Child’s Future**
Financial planning for the child’s future has become an indispensable part of financial planning. Earlier, public education took care of the educational needs. Times have changed and getting quality education requires a lot of money. Starting from kindergarten to postgraduate degree, getting the right education is a costly affair and it is going to increase in the future. So, instead of making ad-hoc financial investments, have a financial plan in place for your child’s future.
Financial planning for children is not just limited for people with kids but it will also help couples and singles who want to have children in the future.
Planning for children’s future as early as possible will help you to plan for their education and marriage easily and reap the benefits of the power of compounding.
To carry out financial planning for your kid’s future, it is important to note the different stages that require financial planning.
Before the kid enters formal education: Expenses related to a kid starts before the kid joins the formal education system. The medical expenses such as hospital bills and vaccination are some of the costs that parents have to incur.
**School admissions:** School admissions are no longer the same. Admission in a reputed international school requires a lot of money in the form of donations, school fees, tuition fees, books, co-curricular activities etc.
**Higher education:** The cost of quality higher education is rising at a faster pace. Education inflation is higher than overall inflation in the economy. Financial planning for college education is not limited to tuition fees. The cost of living in a different city including hostel fees, rent, food and transportation cost also needs to be considered.
**Child Marriage:** Your child’s marriage is another area that requires financial planning. Now, that you are aware of the ‘whys’, let's shift our focus to the ‘how’s’.
The first step is to find out the current cost of the course at the institution
Second, add the rate of inflation to the present cost. Rather than taking the inflation rate of the economy or education inflation, it will help to figure out the rate of inflation in the field of their choice. You can use a future value calculator available online to arrive at the future cost of your goal.
The overall education inflation is considered to be around 10-12%. E.g., if the current cost of a course is Rs. 15 lakhs, the course may cost approximately Rs.1 crore after 20 years with 10% rate of inflation.
The third step is to consider the time horizon i.e. knowing when you will need the money. For e.g., if you recently became a parent, your kid’s school admission may be a short-term goal and their marriage plan is most likely to be a long-term goal.
The fourth step is to invest according to the time horizon of these goals. Different saving and investing options can help to fulfil your goals. Mutual funds are one such financial instrument can help you to plan for your children’s future goals.
For short-term goals with a time horizon of one year to three years, parents can invest in short term debt mutual funds. These funds invest in debt instruments that aim to protect your capital and give higher returns than traditional instruments such as fixed deposits. Hybrid funds can help to plan for your medium-term goals with a time horizon of around five years. Equity funds such as large cap funds make the best option for long
term goals.
Systematic Investment Plan (SIP) is a facility through which you can invest a certain sum of money every month in a mutual fund of our choice. Investors can also increase their SIP amount and make one time or lump sum investments that will aid in reaching their goals faster.
To gain clarity or to know how to plane for your child’s future, you can take help from a financial advisor.
Conclusion: With the rising cost, planning for a child’s future has become an important part of financial planning. Money should not come in between your child’s goals and proper planning will ensure that they have the luxury to opt for the college and course of their choice. So, give your child the opportunity to spread their wings and fly. A financial advisor can help to make it a reality. Get in touch with your financial advisor today.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
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**Are you chasing returns? Focus on goals instead**
Tell anyone that you have invested in mutual funds, and the first question that they are most likely to ask is how they are performing, i.e. what are the returns. Returns are the first and probably the last thing on many investor’s minds.
Chasing mutual funds returns
But chasing returns is not a healthy option. Investing in a fund because it tops the charts of one-year returns is a wrong way to look at investing in general. It is seen that many investors keep jumping from one fund to another based on one year’s return. While they may presume that it will help them to build greater wealth, but in reality, it is detrimental to their financial health. Investors forget to take into account the cost and taxation associated with exiting from one fund and investing in another. Also, the ranking of the top-performing funds keeps on changing regularly.
**Chasing top-performing asset class**
The scenario is not just limited to mutual fund investment. Investors also look at the current top-performing asset classes. These asset classes may include gold, real estate etc. Thinking that they will miss a rally, investors invest in a specific asset. But they are most likely to get the timing wrong and invest when the prices are at the highest. Stagnant or falling prices disappoint investors, and soon, they exit the asset class and invest in another investment product.
As a result, investors fail to build wealth over time. The right approach would be to focus on financial goals rather than chasing after returns. It may not sound exciting, but investing is not supposed to be exciting.
**Focus on the goals**
Staying focused on your goals can help you to achieve your goals. Whether it short term goals or long term goals, it is essential to stay focused. Knowing the timeline of your goals and investing in appropriate funds will help you to stay focused and achieve your goals with ease. E.g. if you have a goal of buying a house in 10 years, then chasing the funds based on the current returns is not the right approach. Also, if your goal is to save for a vacation in 6 months, looking at the 1-year return will still not make sense. It is because, in this case, your objective should be to protect your capital rather than focusing on returns. Hence, the importance of focusing on goals far outweigh the compulsive tendency to look for better returns.
Moreover, in the case of equity funds, one-year returns are not adequate to judge the performance of the funds. One should only invest in equity funds if they have a time horizon of five years or more.
Our financial goals are similar to our career goals. To achieve our goal of working in our dream company or setting up a business requires discipline. The image of the end goal is what keeps us motivated, and distractions do not stand a chance. Investing is no different. It is the discipline and focus that count and makes dreams a reality.
∙ Investing in a fund because of its one year is not healthy.
∙ Investors typically invest in an asset class at its peak.
∙ Investors should focus on their goals.
∙ Financial goals are similar to career goals.
∙ Investing in a fund because of its one year is not healthy.
∙ Investors typically invest in an asset class at its peak.
∙ Investors should focus on their goals.
∙ Financial goals are similar to career goals.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
**info@finoptical.com | www.finoptical.com**
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By now your organization must have handed out the bonus and increment. If you are one of the few lucky people to receive an increment and bonus or at least one of the two, it is crucial that you use it wisely and don’t squander it. Planning your increment and bonus money can help you to achieve your financial goals and be debt free.
You may have got a single digit percentage hike or double digit; the percentage of your hike is not of much significance. The essential part is that you plan your finances according to your bonus and salary hike. There is no wrong in splurging once in a while but planning for it will help you to avoid burning a hole in your pocket or regretting about your decision later.
Choosing the right way to handle your bonus and increment is comfortable with these simple steps.
**Build an emergency fund:** If you haven’t yet built an emergency fund, now will be the right time to do so. It is recommended that you keep at least three months’ worth of expenses in your emergency fund. The emergency fund can help you to tide over any unfortunate scenarios such as job loss or minor accidents. You can use your bonus to create an emergency fund. It is essential to have funds earmarked for emergencies as with emergency fund in place; you will not be tempted to dip into your long-term investments.
While building an emergency fund, it is essential to park it in a product with the highest liquidity. Savings account and the liquid fund have the highest liquidity and individuals can redeem money within minutes. You can keep one-third of the emergency fund in a savings account for easy access and the rest in a liquid fund. Liquid fund is a category of debt mutual fund with the lowest risk. Also, liquid funds give a higher rate of returns than savings accounts.
**Start Investing or Increase your SIP amount:**
If you always waited for the right time to start investing or have enough money to start investing, this is the right time for you. If you don’t have the technical knowledge of
investing directly in stocks, mutual funds would be the best option for you. There are different types and categories of mutual funds to suit and cater to the various kinds of investors. No matter how many days or years you want to invest, what kind of risk-taking capability you have, there is at least one mutual fund for you.
Typically, before investing, you need to list your financial goals and time horizon. Your financial advisor can help you through this investment journey. You can invest the bonus amount as a lump sum investment, and you can set up a systematic investment plan (SIP) with your monthly increment. It is advisable that at least 20% of your take home salary should be invested.
If you already have SIPs running, you can step up your SIP as per your increment percentage. Stepping up your SIP amount regularly can help you to reach your financial goals faster. If you invested Rs.5,000 per month for ten years at a 12% rate of return, your corpus at the end of the ten years would be RS. 11.6 lakh. On the other hand, if you had increased your SIP by 10% per year, your corpus would be grown to Rs.15.36 lakh.
You can also invest your bonus in that fund. You can segregate the bonus equally between the different funds, or you can invest in a financial goal that you want to achieve at the earliest.
**Lessen your debt obligations:**
No one likes to live debt, especially when the loan attracts a high-interest rate. If you are in a journey to cut your debts, repaying your loans with your bonus can be a move in the right direction. You can start by paying off your credit card debts and personal loans as it carries a high interest rate and gives you no tax benefit. Once you pay off these debt obligations, you can move to the vehicle and home loans.
You can also invest a portion of your increment towards repaying of the loan. However, before you do that, it is vital to check the prepayment charges as many banks charge prepayment charges for foreclosing the loans.
**To summaries**, knowing how to maximize your increment and bonus can go a long way in helping you achieve your financial goals. Thanks to technology, various facilities such as step up SIP among others can automatically increase your SIP amount every year by a certain predetermined percentage. Use your increment and bonus wisely so that your future you will thank you.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
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**Combination of EMI and SIP can save you lot of money**
What if your home loan tenure is reduced without increasing EMI, even if the interest rate remains the same? Sounds interesting? Read it.
In year 2010, I bought the flat into the Ahmedabad for which I took the home loan of Rs 48 Lacs from one bank. At that time the interest rates were around 10.5%. So, I decided to take the loan for the maximum tenure available, i.e. 20 years as I could afford the EMI of Rs. 47922/-.
The bank RM came to my office for completing the paperwork. While filling the forms he asked me about the tenure which I would like to go for. I told him to go for maximum tenure i.e. 20 years. Bank’s RM told me, “Sir maximum limit is not 20 years it is 25 years”. According to my calculation I was ready for paying Rs 47992/, an EMI amount for 20 years of tenure considering 10.5% interest and Loan of Rs 48 Lacs.
So, if I chose to go for 25 years, EMI would be lesser. I tried to do the exact calculation and ended up with some unique Idea which I am sharing through this article. The EMI for the 25 years tenure was worked out to be Rs 45302/, resulting into the saving of Rs 2600/ per month into the EMI. So, I decided to go for the longer tenure i.e. 25 years.
Now financially and mentally, I was ready to pay for Rs 47992/ of EMI per month. So, I decided to start an SIP of this Rs 2600/- (saving in EMI due to increased term) and to use the amount accumulated through this particular SIP to repay the Loan into the future. I did some calculation in excel to check with the help of this combination of reduced EMI and SIP, how would it affect my loan repayment schedule.
My older SIPs were giving me some 18% kind of a CAGR, while doing the calculation I assumed that my future SIP would generate 15% CAGR. I found out that with this combination and assumed return of 15% CAGR from SIP, I can repay the loan in just 18 years and 2 months.
Sounds interesting?
Let me explain,
Case 1: 20 years loan – Outflow (EMI – 47992)
Case 2: 25 years loan + SIP of saving into the EMI (EMI 45302 + SIP 2600 = Total 47992)
In both the above cases my monthly outflow is same, only difference is into the methodology. In first case I am only paying EMI in second case by increasing tenure I am making saving into the EMI and doing the SIP of that saving, making my monthly outflow same as that in case 1.
After 18 years and 2 months, the value of my SIP of Rs 2600/- per month assuming the 15% CAGR* would be approximately Rs 26.29 Lacs, which I can use to fully repay the Home Loan outstanding. In other words, the outstanding loan principal amount would equal to the Fund Value of SIP after 18 years and 2 months.
In the whole process I would pay 22 EMIs less compared to Case one, making an absolute saving into the EMI worth Rs 10.54 Lacs. Though Bank charged me 10.5% interest but for me the effective interest worked out to be only 10.03%.
If you are planning to buy the home loan and if you have decided to take the loan for shorter period then you can use the above idea to save some EMIs. So, if you have decided to go for 15 years of tenure and your bank is ready to provide you maximum tenure of 25 years, I suggest you to go for the higher tenure and utilize the monthly saving into EMI due to increased tenure to start an SIP into some good diversified equity mutual fund.
If you have already taken the loan, you can still utilize the above idea by asking bank to increase the tenure or you can also transfer your loan from one bank to another and while doing so, go for the maximum tenure.
I transferred the above said loan to some nationalized bank at the time 22 years of tenure was pending in earlier bank. I opted for 30 years of tenure in my second bank where I transferred my loan, further reducing my EMI. I added that saving also into the SIP and that would again save few more EMIs.
Thus, by selecting the maximum tenure and doing the SIP can help you repay your loan earlier. The return assumed into the above calculation is not the guaranteed return but I can safely assume that kind of return from SIP into my portfolio. My current portfolio has a CAGR of around 18%, while in calculation I have assumed 15% CAGR only.
*The return showcased is the assumed return and is not to be treated as any assurance or guarantee.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
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**All about familiarity bias**
“Investor’s chief problem and his worst enemy is likely to be himself.” – Benjamin Graham
We like to believe we make rational decisions. Not just that, we also believe that your feelings and emotions don’t play a role in your decisions.
Investing is no different. It is assumed that investment decisions are perfectly rational decisions. But, in reality, investment decisions are influenced by various behavioral bias. Familiarity bias is one such bias.
Familiarity bias is evident in the day-to-day life. Sticking to a few dishes on the menu, going to the same shopping Centre, or taking the same route to office are some of the examples of familiarity bias. Familiarity bias is the preference to stay in comfort zones. Our minds want us to stay in the comfort zone and hates a change in scenario.
In investing parlance, familiarity bias dissuades us from investing in other assets or investment options that we are not familiar with. As a result, our portfolios are not diversified and we miss out investing in options that could have been higher returns.
A typical example of familiarity bias is the over-allocation of debt assets such as fixed deposits, PPF etc. and almost no exposure in the equity market. Investors continue to save through these instruments as they have seen their parents and grandparents do the same.
**What causes Familiarity Bias?**
Loss aversion bias is one of the main reasons behind familiarity bias. Investors want to avoid losses and this attitude makes them confined within their comfort zones.
It is also influenced by the decisions taken by the people around them. The tendency to follow the herd mentality prevents investors to take the right decisions. While one investment strategy may be good for them, it may not be good for you.
Availability bias also affects as we have more information about the options that we are familiar with.
**Effects of Familiarity Bias**
**Lose out on higher returns:** Familiarity bias is one of the main reasons why most investors lose the opportunity to earn higher returns. E.g., people who park all their hard-earned money in fixed deposits are losing out the potential to earn higher returns in the long run by investing in equities. Such individuals overlook higher returns as they avoid risks.
**Inadequate diversification:** A diversified portfolio helps to reduce the risk of the overall portfolio and deliver better returns as well. The adequate diversification will differ from people to peoples it will depend on their age and financial goals. Due to familiarity bias, investors stick to familiar asset classes and stocks that increase the risk associated with the portfolio.
Investing without proper research: While investing in familiar products or stocks, investors may not undertake adequate research. This may result in losses as investors may believe that they don’t need to research and study about these stocks. Hence, familiarity does not equate to profits.
**How to Overcome the Familiarity Bias?**
Knowing the causes behind familiarity bias is not enough. The most important part is knowing how to overcome the familiarity bias.
Evaluating the investment decisions on a regular basis will help to keep a check on the familiarity bias affecting your portfolio. The portfolio should have the right asset allocation and diversification.
Evaluating your portfolio from a distance will help you to take the right course correction approach which may include reducing your allocation to underperforming stocks or investing in a new investment option to diversify your portfolio.
Moving out of the comfort zone is not easy. To keep familiarity bias at bay, it is important to seek investment options that we are not familiar and reduce the exposure to familiar investment options. The portfolio rebalancing should be done objectively.
Knowing how to avoid irrational decisions will help investors to stay away from such behavioral biases.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
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Equity Investments are just like growing Chinese bamboo. Both requires lot of patience and time to grow.
Unlike other trees, growing Chinese bamboo requires lots of time and more of passion. It takes 5 years and 3 months (almost 63 months) for Chinese bamboo to grow to the height of 80 feet. So, what’s so unique about this tree?
At 80 feet, not just the height to which Chinese bamboo tree grows is unusual, but the way it grows is even more so. For almost 5 years, you keep watering the place where you have planted the seed of Chinese bamboo on a daily basis without fail, but you don’t even see a shoot growing out of the soil. 5 years of watering and passion!!! Huh!!! That’s long time. Still during all this time, you see nothing but just a small sprout coming out of land which can be measured to couple of inches if you are lucky. In many cases nothing’s visible above the ground for 5 years. After 5 years you can see the first sight of the small green bamboo trying hard to coming out of soil, and that small bamboo which gave its first appearance after watering the soil for 5 years, grows to 80 feet in less than 90 days. Yes, it’s true.
Sometimes the waiting period fluctuates from 4 to 6 years, but the sure thing about the Chinese bamboo is, it’s definitely going to start growing and once it starts growing the speed is definitely going to be unusual. It definitely will reach the height of 80 feet from ground zero, which is equal to an 8-storey building, in the short period of 6 weeks to 12 weeks.
There are great chances of person quitting the idea of growing Chinese bamboo due to the long waiting period. Everyone can find the soil and plant the seeds and also can start watering it, but when it comes to waiting, sooner or later many drop the idea. Only few who keep watering the soil consistently with full faith, can get the 80 feet high bamboo tree.
Equity investment is also like growing Chinese bamboo tree. One should have passion after planting the seeds. Now we all know that the Chinese bamboo tree takes a time to start growing but once it starts, it grows rapidly to 80 feet. The same way, in case of
equity investment also we all know that after investing you should wait for long time but in practical world very few have got that patience to wait it out.
You to be very disciplined in watering the plant i.e. in regular investments. In the beginning, neither the market nor your investments could be moving anywhere. In fact, they could start falling and eating away the value of your money. You still wait... And wait.
Year one is over and you are entering the second year. You are still watering but started becoming a little bit of skeptical about the power of your investment seed to grow. Anyway, you have heard about so many other success stories about many successful people who also invested in the same market and made their fortune. so, you kept on watering the seeds by regularly investing in it.
Now, it has been three years and you started wavering and doubting about your choice of investment seed. Some voice inside of you has started telling you that you are a special fool to believe in something which was too farfetched. You start thinking about other possible seed which you might have planted instead of equity. You wonder why you had to pick up an equity investment only. You start losing sight of your purpose and your faith starts to diminish…You decided to re-commit yourself for the entire third year.
Now you’re entering into the fourth year. You are becoming more disillusioned and are experiencing a deeper sense of doubt, regret, frustration and anger. You started wondering,
“Is it when I invested was a wrong time?” or
“Perhaps, I am not Lucky.”
You were going crazy, because you’ve already spent a lot of time and invested a lot of money. So, after the years of lot of dedication and effort toward this investment, you have decided to give it a chance for one last more year.
Finally, it is 5 years and you feel they were wasted because you kept on regular watering by investing in it every month, but alas! Nothing happened. So, you decided to QUIT and withdrew your money with no or little profit, perhaps less than the interest of bank fixed deposit.
They day your quit, the equity market starts taking small upward leaps, and you wonder what’s happening. Within couple of years the bamboo (equity category) starts growing rapidly and grows to newer heights but unfortunately you couldn’t get anything out of it.
Equity is just like the Chinese bamboo, it’s possible that it doesn’t give you any return for years but then in very small period of time it starts growing with the unusual and unbelievable speed which eventually compensate you and your client for all your dedication, passion and faith.
Always remember that equity will never deliver the returns in linear fashion. Your equity investment might take a time to grow, but once they grow, they grow like a Chinese bamboo.
Be faithful and keep watering your Chinese bamboo tree (Your Mutual Fund investments).
Mutual Fund Investments are subject to market risk, please read all scheme related documents before investing.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
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**Direct Stocks vs Equity Mutual Funds:**
**Which is Better?**
If you ask anyone if they have invested in equities, the most common response that you will get from them is, ‘no baba; it is very risky. I am happy with my fixed deposits.’ Their response stems from what they have seen in their friend circle or what they have experienced. While everyone knows that equities give the highest return on a long-term basis, the risk associated with it deters many investors from investing in equities.
However, what many people do not know that there is another smooth way to take equity exposure, and that is through mutual funds.
Mutual funds pool money from many investors and expert fund managers manage it. While you can pick up the stock of your choice when you are directly investing in equities, the fund manager takes the investment calls in a mutual fund.
**Here’s some of the difference between Mutual Funds and Direct Stocks that will help you to figure out the right option for you.**
**You don’t need to be an expert to invest in mutual funds**
When you invest in equities through mutual funds, you don’t need to be an expert in stock picking. Fund managers pick up stocks that they expect will be the best for their investors according to their investment objectives. In the case of direct equities, you will have to do the research and pick up stocks. In many cases, it is seen that many people invest in stocks as per their friend’s suggestion, and this is where they go wrong and end up with sour memories. Investing in direct stocks requires expertise. If you are new to the world of investing, investing in mutual funds will be the better option for you.
**The risk in mutual funds is lesser than investing directly in stocks**
The risk associated with direct stocks is higher than investing in mutual funds. Mutual funds have a diversified portfolio, and fund managers invest on an average of 30 stocks across different sectors and market capitalization. This reduces the risk associated with an individual stock. E.g., if stock A is not performing well due to some sector-specific problem, the underperformance of the stock will be offset by the other stocks in the portfolio.
Moreover, the market regulator has capped the investment in a single listed stock at 10%. That means that if the total assets of the fund is say Rs.100, then the total investment in one stock can’t be more than Rs.10. This reduces the risk when compared to investing in direct stocks, where the total allocation to a single stock in your portfolio would be higher.
**Equity mutual funds are for the long run**
Equities tend to be volatile in the short term, but in the long term, the returns tend to average out and give attractive returns than other asset classes. Direct stocks can be for trading and investing purposes. However, equity mutual funds are only for the long term. Equity funds may give attractive returns if you stay invested for more than five years.
**Fulfil your goals through SIPs in equity mutual funds**
One of the most important parts of investing is discipline. Having a disciplined approach will make sure that you can meet your goals. Mutual funds have a facility through which you can invest a fixed sum of money periodically called as a systematic investment plan (SIP). By investing in equity mutual funds through SIP, you will be investing in a fixed amount of money irrespective of the market levels. Rupee cost averaging is one of the most important benefits of SIP. Through SIPs, you will be allotted lesser units when the market is going up and more units when the market is low. Once the SIP mandate is set, the investment amount will be automatically debited from your bank account. This gives you the best of both worlds. However, in the case of direct stocks, you do not have the option to automate your investments and pay a certain amount of money every month.
**Conclusion:**
When choosing whether to go for direct equities or through mutual funds, you need to ask yourself what kind of investor are you. Do you have the market knowledge or the time to do extensive market research to pick the right stocks for yourself? Can you bear the risk associated with investing in just a few stocks? If the answer to these questions is a resounding NO, then investing in equities through mutual fund may be the best option for you.
If you want to know more investing in mutual funds, get in touch with a financial advisor. He or she will be able to guide you and clear all your doubts. Happy Investing!
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
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**A Primer on the Different types of Debt Mutual Funds**
Are you scared of investing in mutual funds because it invests in the equity markets? Most of us assume that investing in mutual funds is akin to investing in the stock market. However, that is not the case. There are mutual funds that do not invest in equities. Debt mutual fund, a category of mutual fund invests in the debt securities issued by the government and various companies.
Debt is an asset class which is less volatile than equities. Government bonds, state development loans, treasury bills, corporate bonds are some of the types of debt instruments. These debt instruments come with different maturities and risk.
Debt mutual funds invest in these securities according to the scheme’s investment objectives. Based on the underlying securities, debt funds can be segregated into a few categories. Depending on the time horizon, investors can choose the debt funds based on the maturity periods of the papers held by these funds.
**Different debt funds are meant for different investors.**
**Here are some of the main types of debt funds:**
**Liquid Fund:** Liquid Fund carries the lowest risk among the different mutual fund categories. It has the lowest risk as it invests in high-quality debt papers that mature within 91 days.
The main objective of liquid funds is to provide liquidity. It helps investors to park surplus cash for certain period and receive better returns than savings account. Unlike fixed deposits, liquid funds do not have any maturity period. You can also redeem money from liquid funds instantly. Currently, investors can redeem up to Rs.50,000 or 90% of the total amount, whichever is lower, instantly.
Also, in view of the series of downgrades and defaults, the market regulator has laid down stricter norms for liquid funds. According to the new guidelines, liquid funds have
to invest at least 20% of their portfolio in liquid assets such as cash, government securities, treasury bills and repo instruments. Moreover, liquid funds can now invest only up to 20% in a single sector and not more than 10 per cent in housing finance companies.
Liquid Funds are good investment option for your short-term goals such as planning for a vacation or saving money for a new laptop.
**Overnight Funds:** As the name suggests, these debt funds will invest in overnight securities that mature in one day. It can be a good investment option for individuals who want to park their money for a day or two.
**Money Market Funds:** Money Market funds will invest in money market instruments with a maturity period of within 1 year.
**Duration Funds:** These debt funds invest in debt securities with a maturity period. Ultra short duration funds, low duration fund, short-duration fund, medium duration funds, medium to long-duration funds and long duration funds are the different categories of duration funds. Ultra-short duration fund will invest in debt securities with a maturity between three months to six months. Low duration fund, short duration fund, medium duration funds, medium to long duration funds and long duration funds will invest in papers maturing six to12 months, one year to three years, three years to four years, four to seven years and greater than seven years respectively.
Duration funds will help you to invest in a fund based on your time horizon. E.g., if you are planning for a vacation in the next six to 12 months, you can invest in a low duration fund.
**Dynamic Bond Funds**
While the duration funds invest in papers with a fixed maturity period, dynamic bond funds can invest in papers maturing at different time periods. The average maturity of the papers of these funds will depend on the interest rate scenarios. If the fund manager believes that the interest rate is likely to inch lower, they will increase the allocation of the long-term bonds such as government bonds and vice versa.
**Corporate Bond Funds**
Corporate bond funds primarily invest in high rated corporate bonds. Corporate bonds are issued by various companies. According to the recent SEBI guidelines, corporate bond funds have to invest nearly 80% of their portfolio in AAA-rated corporate bond
funds. Corporate bond funds carry higher risk than ultra-short and short-term funds and hence it is suitable for investors who can take higher risk.
**Credit Risk Funds**
Credit Risk Funds mainly invests in debt securities that are rated AA by various agencies. Fund managers invest in lower-rated papers that are likely to be upgraded in the future, which increases the value of the paper. As it invests in lower than AAA-rated papers, credit risk funds also have the potential to give higher returns than other debt funds. However, it also comes with higher risk as well.
**Gilt funds**
Gilt funds only invest in government securities of different maturities. Gilt funds perform well when the interest rate is moving south Investors who want to invest for the long run can invest in these funds. It also comes with higher risk than short term debt funds.
**Conclusion:**
If you are looking for a tax-efficient investment option that carries lower risk, debt funds can be a good investment option. However, as discussed above, different categories of debt funds carry different risks. So, research is highly recommended before investing in debt funds. In case of further queries, you can always reach out to your financial advisor.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
**info@finoptical.com | www.finoptical.com**
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**Worried about investing in debt funds? Debt funds are now safer**
In the last few months, there has been a lot of volatility in the debt market. For many investors, investing in debt mutual funds was riskier than equity funds. In all started with the IL&FS fiasco in September 2018 when the group companies defaulted on their payments. Many mutual fund houses had invested in these companies. Essel Group and other similar episodes followed. In short, it has been a wild ride of debt fund investors who had invested in liquid funds and other debt funds with the notion that debt funds are completely safe.
To safeguard the interest of the mutual fund investors, the market regulator, Securities and Exchange Board of India (SEBI) has laid down guidelines that will govern debt funds.
**Here are some of the changes laid down by SEBI are as follows:**
**Infographics**
Liquid funds to hold at least 20 per cent of assets in liquid assets
This move aims to enhance the liquidity of liquid funds. Mutual funds have to keep 20% of their assets in liquid and safe instruments such as cash, government securities, treasury bills and repo instruments. It will make sure that the fund houses will be able to manage large-scale redemption requests without adversely affecting the unit price (net asset value) of the liquid funds.
**Cap on the maximum exposure to one sector**
Liquid funds will now not be able to invest more than 20% in a single sector. The earlier limit was at 25%. This aims to reduce the risks associated with a single sector. Also, the exposure of liquid funds in housing finance companies cannot be more than 10%, down from 15% earlier. This is over and above the 20% limit on each sector.
**Penalty for withdrawing before seven days**
Liquid funds do not have any exit loads, and as a result, many large investors used to redeem from the funds within a day or so. As large investors such as institutions have the lion's share in liquid fund compared to retail investors, the question of stability of liquid funds had sprung up. Now, mutual funds can impose graded exit load on investors withdrawing before seven days. It means investors who redeem after a day will have to pay a higher exit load than the investors who redeem later, say on the sixth day.
**All papers to be valued on mark-to-market**:
Securities that mature over 30 days will now have to be marked according to the market rate, i.e. on a mark-to-market basis. Earlier, securities that matured after 60 days had to be mark-to-market. With this new change, NAVs of liquid funds will reflect a realistic value of the fund. However, it is also likely that the rate of fluctuation in NAV may also go up.
**Debt funds to invest only in listed NCDs and CPs**
Many companies raise nonconvertible debentures (corporate bonds) and commercial papers through private placements. Now, funds can only invest in listed securities, and no private placements will be allowed. As a result, it will increase the transparency of the quality of the papers, as listed securities have to adhere to the regulations and disclose accordingly.
**Tighter lending norms:**
Mutual funds can now only lend to corporate against pledged equity shares with a cover of at least four times. Simply put, if a mutual fund lends Rs. 100 to a group company, the company would have to pledge shares worth Rs.400 with the mutual fund. If the share prices fall, the company would have to make up for the loss by paying cash to the fund. If that does not take place, the fund house can sell the shares to recover the money and to protect itself against a further fall in share prices of the borrower company. With this new regulation in place, fund houses have no choice but sell the pledged shares if the company’s share price fall to recover the money from promoters.
These were some of the crucial steps taken by SEBI to make debt funds safer for investors like you and me. So, leave your worries behind and start investing in debt funds. Understanding debt funds may be hard, and this is where a mutual fund advisor comes into the picture. He will be able to guide you better and clarify all your doubts regarding debt funds.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
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**The Right Fund v/s Best Mutual Fund**
Every one of us wants the best things in the world. The best clothes, shoes, cars and the list go on. Seeking the best things is fine in all the other areas but not when it comes to selecting a mutual fund to invest.
It is easy to get swayed by the best mutual fund that is giving eyeball popping returns in the last six months. But is it a good option to go for this best mutual fund? The answer is, it depends.
It depends on whether this best fund is also the right fund for you. The right fund will vary from individual to individual. There are a number of factors that need to be considered to arrive at the right fund. By the right fund, we mean the most appropriate fund for a particular investor. The appropriate fund for someone who wants to stay invested for 10 years will vary from a person who wants to stay invested for just 10 months.
The investment horizon, risk-taking capacity, age, urgency of the goal are some of the factors that will help to decide whether the fund is right for you or not.
So, let’s understand what will be the right fund for you based on these factors:
**Investment horizon:** Investment horizon is the time that you would want to remain invested. Also, your investment horizon for your different goals will be different. You may want to stay invested for 10 years to buy a house, which may not be the same for a short-term goal. If your investment horizon is short, then you can invest in a mutual fund that carries low risk. Liquid fund to short term debt funds is ideal investment options if your investment horizon is less than three years.
**Risk-taking capacity:** Not everyone can take the same level of risk. A young professional who has recently started working may not be willing to take a higher risk as the person may have no prior experience in investing in equities. On the other hand, a person who has been investing in equities will have a higher risk-taking capacity as he/she understands the risk associated with investing in equities. The person will be better emotionally prepared to handle the volatility in the stock market, than someone who hasn't invested in equities.
**Age:** Age is also a crucial factor which helps to decide the right fund. The financial needs of individuals belonging to different age groups will be different. A person in their 20s has a goal of buying a bike or travelling the world, while a person in their late 50s may want to create a sustainable monthly source of income. Hence, the route taken by the two individuals will be different. For the person in 20s, equity funds may be the best option to fulfil their long-term financial goals. On the other hand, the person who is going to be retired, setting up a Systematic Withdrawal Plan from a debt fund with extremely low risk will help him to take care of his needs after retirement.
**The urgency of the goal:** We may have a lot of financial goals but there are a few goals that we can’t compromise. These goals are most likely to be short term goals. Planning for these goals will be different than the goals that are not very urgent. A higher allocation of the investment corpus may go towards fulfilling the urgent goals. Also, to make sure that you earn higher returns with moderate risk, you may have to invest in two or more mutual fund schemes. Depending on the time horizon of your goals, it may be a mix of equity and debt funds. Your financial advisor will be able to help you out with the detailed planning.
**Conclusion:** The factors such as time horizon, risk taking capacity, age and urgency of the goal should not be considered in silos. These factors are dependent on each other. It is always prudent to seat and discuss all these criteria with your financial advisor, who considering all these can help you to choose the right scheme for you.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
**info@finoptical.com | www.finoptical.com**
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**Different Benefits of Mutual Funds**
Mutual funds are on everyone's lips. Mutual funds have become a hot topic of discussion among friends and colleagues. You might be aware of what is mutual funds, however, are you aware of the various benefits that mutual funds have to offer?
In this article, we will dive deep into the various benefits of investing in mutual funds. However, if you are not aware of mutual funds or you are not quite sure, here’s a quick refresher.
A mutual fund is an investment option that pools money from different investors which are invested in different securities such as bonds and stocks as per the scheme objective. Mutual funds come in different shapes and sizes. Based on the asset class, mutual funds can be broadly classified into three categories: equity funds, debt funds and hybrid funds. Equity funds predominately invest in the stock market, debt funds in government bonds, commercial papers etc, and hybrid funds invest in both equity and debt market.
**Here are some of the benefits of investing in mutual funds**:
**Experts manage Mutual funds**
Expert fund managers manage mutual funds. Their job is to invest in securities as per the scheme’s objective and earn higher returns than the benchmark. Benchmark is the index against which the performance of the fund is measured.
With mutual funds, you don't have to take any investment calls as the fund manager decides what to buy and sell on your behalf. Moreover, a research team or analysts assist the fund manager make the right investment decision.
**Helps in diversification:**
A mutual fund scheme invests in different securities across different maturities and sectors. Diversification helps to manage risk. As the funds invest in several securities, the investment risk in the mutual fund significantly lower than investment in a few stocks.
**Mutual funds invest in different asset classes:**
Not all mutual funds invest in the stock market. There are different categories of mutual funds such as debt mutual funds that invest in debt market securities such as government bonds and commercial papers etc. These instruments are relatively less volatile than equities. Hybrid mutual funds invest in equities and debt instruments.
So, there are mutual funds for all types of investors as different funds have different risk tolerance level and time horizon.
**Cost-effective:**
Mutual funds are one of the cheapest investment options available to individual investors. The expense ratio is the cost charged by the fund houses from investors and is a percentage of the overall assets. The market regulator, Securities & Exchange Board of India (SEBI) fixes an upper limit on the expenses that can be charged by the fund houses. As investors pool their money in mutual funds, the cost is equally borne by the different individuals. As a result, mutual funds are one of the cost-effective investment options.
Secondly, investors can invest Rs.500 per month and get exposure to a diversified portfolio that is cheaper than directly investing in equities or bonds.
**Different ways to invest in mutual funds:**
Lumpsum investment or one-time investment or systematic investment plan (SIP) are the two ways to invest in mutual funds. Lumpsum investment and SIP have different benefits. As the name suggests, in lumpsum investment, investors make a single investment at a time and there are no recurring payments.
SIP is a great investment tool for salaried people as it helps them to invest a certain amount of money regularly. While investments can be made on a quarterly, monthly, weekly basis, monthly SIP is the most popular.
One can start investing with as little as Rs.100 per month. Investors can also step up their SIP amount every year. You can also make lumpsum investments in the fund which will help you to build a bigger corpus and reach your financial goals faster.
**Mutual Fund industry is highly regulated:**
As SEBI regulates the mutual fund industry, fund houses have to disclose certain data related to investments, returns, expense ratio etc related to regularly.
Fund houses also have to disclose the net asset value of funds regularly. Fund houses publish factsheet every month where different aspects of the fund such as the securities held by the fund, fund manager, the returns delivered by the fund are published.
**Tax benefits:**
Investing in mutual funds can also help you to save tax. Investing in equity-linked savings schemes (ELSS), a category of equity mutual funds can help you to save tax by investing up to Rs.1.5 lakhs in a financial year. These ELSS funds not only help you to save tax but also help you to build wealth over the long term.
**Conclusion:** Mutual funds have different benefits and it is one of the best investment options for individual investors. To know more about mutual funds and to start investing in mutual funds, consult your financial advisor today.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
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Emergencies come unannounced. No one can predict when it is going strike. The only thing that we can do is to prepare ourselves for any unforeseen circumstance. Having an emergency fund will help you to tide over emergencies like accidents, job loss etc. Hence, building an emergency fund should be the first thing on your mind before you start investing for your financial goals.
So, here’s everything you need to know about emergency funds.
**What are emergency funds?**
An emergency fund is like a cushion that helps you to sleep soundly at night. It is money that you put aside against life’s unexpected events. It is not to be used for planned purchases such as buying a house or new car or your child’s higher education.
An emergency fund helps you to be prepared with anything that life throws at you. These emergencies can be accidents, immediate house repairs and job loss as well. Sorry, the late-night pizza cravings is an emergency.
Ideally, an emergency fund should be in liquid investments such as liquid funds or savings account. Liquidity is the essential feature when it comes to emergency funds, as you would need the money at short notice. You should park two-thirds of your emergency corpus in liquid funds and the rest in a savings account. In case of short-term emergencies such as house repairs, you can withdraw money from your savings accounts. The liquid fund can help you save for significant emergencies like job loss.
**How much should you have and how to build your emergency fund?**
You should have at least three to six months of expenses in the emergency fund. E.g., if you are earning Rs.50,000 per month and around Rs.30,000 goes in meeting your expenses, then you should have at least Rs.1 lakh in your emergency fund.
This amount is likely to cover most unpleasant surprises like a big car repair or house repair. Keeping aside three months’ worth of expenses is the bare minimum. The more you can save in your emergency fund, the better. However, you may want to consider what would happen in case of your job loss or non-payment of salary. It is because job loss is a big emergency. If you are in a field or position where finding a new job is tough, it is advisable that you save up to a year’s expense.
Let us take the recent Jet Airways fiasco to highlight the importance of saving money in case of a job loss. Jet Airways employees were not paid salary for a couple of months, and now many of them are staring at a bleak future. An emergency fund can help you to overcome such challenging scenarios.
The amount in your emergency fund also depends on your responsibilities. A person in their forties with kids and elderly parents will have higher responsibilities than someone in their 25s who recently joined the workforce and does not have any financial obligations.
There are two ways to calculate your expenses. The first way is to figure out the essentials that are utmost necessary such as bills, groceries, and in the second way, you also take the luxuries such as eating out and movies into account. It is always better to have a conversion with your spouse before considering the total amount that you need to save for your emergencies.
Once you know how much you need to save towards your emergency fund, the next step would be to build the emergency fund. Just like investing for any financial goal, building an emergency corpus also takes time. Keep aside a specific sum of money every month in a different bank account or a liquid fund. Building an emergency fund should be your priority. Hence, it is okay if you have to cut your investments. You can also do so by cutting back your expenses on luxury items or sell things that you do not use.
To summarize, emergency funds is the first step in financial planning. Use an emergency fund calculator or talk to your financial advisor to know how much you have to save in your emergency fund. Your financial advisor will be able to help in this entire process. So, start saving for your emergencies today.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
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**Things you always wanted to know about asset allocation**
Imagine that you have a pizza in front of you. But the pizza has six different types of toppings with different crusts. Would not that be awesome?
Now think that the pizza is your investment portfolio with different assets. This is called asset allocation, which describes where you have put your money. Although there is a high probability that you will like all the different pizza slices, in case of investment, you need to be sure about where you have put your money and in what proportion. We don’t want you to invest blindly in different assets just because your colleague suggested you.
Asset allocation is essential as it helps to reduce the risks associated with an investment option through diversification. Different asset classes such as equities, debt or commodities react differently to a particular event. While one asset may outperform during a specific time frame, other assets may underperform.
Here are some of the questions that you need to ask yourself to come to the right asset allocation.
**When are going to need the money?**
This question will determine which asset class you should put in money. If you are likely to need the money within 2 to 3 years, you can invest in conservative investment options such as debt mutual funds. It will be better to stay away from equities as the equity market can be volatile in the short run. But it has been historically seen that equity markets give attractive returns in the long term. Hence, if you won’t need this money for five years or more, investing a higher proportion in equities would be the right approach.
**What are your financial goals?**
In addition to your timeline, your financial goals are also essential to determine your ideal asset allocation. For your short-term financial goals, debt mutual funds such as liquid funds, ultra-short term and short-term fund are good investment options. Invest in pure equity funds for your long-term financial goals.
**How much risk can you take?**
What will be your reaction if your investment value drops by 15% in a single day? If you are okay seeing your portfolio swing from one extreme to another, you can digest volatility; equities will be a better investment option. However, you can minimize the risks associated with equities by taking the mutual fund approach. High-risk investment options have the potential to give higher returns.
Now, that you have answered the questions, you begin thinking about allocating your money among the different asset classes. According to a thumb rule, your equity allocation should be 100 minus your age. E.g., if you are 25, 75% of your portfolio should be in equities. The younger you are, the higher should be your equity proportion. As you grow older, you can add more debt instruments or cut your equity proportion. It is because as you get older, your risk-taking capacity also decreases.
It is also important to keep a specific proportion of your investment proportion (at least three months) as liquid cash for emergency purposes.
These were a few basics of asset allocation. But asset allocation does not stop with equity, debt or cash. Sophisticated or seasoned investors can include alternative investment funds in their portfolio. It is becoming a popular asset class among HNI and UHNIs. It has the potential to deliver higher risk-adjusted returns. Alternative investment funds include start-ups, private companies and hedge funds among others.
Among precious metals, gold is used as a hedging instrument. Gold performs better when the equity markets are in red. Geopolitical tensions and continuous rupee depreciation has made gold one of the must-haves in the investment portfolio of HNIs. However, ideally, gold should not constitute more than 5% of the investment portfolio.
Real estate is another asset that investors can look at to diversify their portfolio. Besides investing in real estate, investors can now invest in real estate investment trust (REIT). Through REITs, investors can invest in high-end commercial real estate.
**Conclusion:** Coming up with the optimal asset allocation may not be an easy task as there are various factors at play. Prudent asset allocation can help you to achieve your financial goals, fetch maximum returns, minimize risks and have sufficient liquidity. If you not sure where to begin or need further clarity, your financial advisor will be able to help you out.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
**info@finoptical.com | www.finoptical.com**
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**Active funds vs passive funds: Which one should you choose?**
Mutual funds have become a hot topic of discussion among everyone. The general curiosity among people about mutual funds have increased, especially after the ‘Mutual Fund Sahi Hai’ campaign that went live a few years ago. Mutual funds come in different shapes and sizes, and they can be classified into various segments. Mutual funds can be broadly classified into active and passive funds.
**Active Funds**
Actively managed funds are the most common category of mutual fund. In an actively managed fund, the fund manager is responsible for stock picking based on the scheme’s objectives. His objective is to beat the fund’s benchmark. This leads us to the concept of the benchmark. To gauge the performance of the fund, every fund tracks a specific benchmark. The benchmark is typically the broad market indices such as Nifty 50 TRI or BSE 200 TRI. The benchmark of the fund depends on the category of the fund. E.g., if the fund is a small cap equity fund, then its benchmark is most likely to be Nifty 500 TRI than Nifty 50 TRI.
**Passive Funds**
Passive Funds mirror the benchmark. That means that the fund will invest in stocks as per the index. The goal of the passive fund is not to beat the index but deliver the same returns as the index. The extent to which the fund does not track the index is called the Tracking Error. Tracking error is an essential determining factor in passive investment. Tracking error is the percentage of deviation from the index. E.g., if the index has gained 5% in a month and the returns given by the index fund is 4.5%, then the tracking error of the fund is 0.5%. In the second scenario, if the index fund has given a return of 5.5%, then the tracking error of the fund is still 0.5%.
There are two main reasons behind tracking error in index funds.
The constituents and the proportion of the different companies in the index keep on changing. If there is any such significant change such as addition and removal of stocks in the index, the fund will show a higher tracking error till the fund manager can align the portfolio as per the new changes. Large scale redemption pressures from investors is another reason behind the tracking error. If the redemption requests are more than inflows, the fund manager has to sell shares to honor the redemption requests. It will lead to a higher tracking error as the fund won’t be in sync with the index.
**Objective:** The objective or the goal of the active funds is to beat the benchmark. The higher the outperformance, the better is the fund. On the other hand, passive funds seek to give index returns. The lower the deviation from the underlying index, the better is the
fund.
Returns: Active funds have the potential to deliver high returns as the experienced fund managers manage these funds. During a phase of falling markets, active funds tend to fall lower than the broader market.
Fund manager’s role: In active funds, fund managers play an active role in stock picking. However, there is no role of the fund manager in passive funds. The fund manager has to increase or decrease allocation to a specific stock as per as the underlying index.
Expenses: Active funds charge a higher expense ratio than passive as the fund managers play an active role in stock selection, which is not the case in passive funds.
**Which one is best for you?**
Passive investment is still in nascent stages in India. Many top fund managers have beaten the benchmark by a higher margin. As the Indian market is still growing, fund managers have ample opportunity to identify growth stocks with their strong research team and beat the benchmark. Thus, investors tend to earn higher returns by investing in active funds.
Volatility is part and parcel of the Indian market as geo-economic factors like trade wars and internal factors like elections and politics play a significant role in the Indian market. Hence, by taking the active route, you can be assured that the fund will give better returns or fall less than the overall market.
One of the drawbacks of the active funds that has been a constant topic of discussion is the higher costs. However, the market regulator has addressed this issue by cutting the expense ratio of equity funds to 2.25% from 2.5% and debt funds to 2% of their daily net assets.
To summaries, in the current scenario, investors may be better off by investing in active funds as it has the potential to earn higher returns.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
**info@finoptical.com | www.finoptical.com**
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**7 Mutual Funds Myths**
Do you want to invest in mutual funds? But you don’t have enough understanding about it or do you think that mutual funds are not for you based on what others have said? Well, don’t worry. We are here to bust some of the myths associated with mutual funds.
**Myth #1 – SIP Is An Investment Product**
Nowadays, a lot of people assume that the Systematic Investment Plan (SIP) is a different investment product, unrelated to mutual funds. However, it is not true. SIP is just another way to invest in mutual funds. There are two main ways to invest in mutual funds: lumpsum or one-time investment and SIP or regular purchases. In SIP, investors can regularly invest in a fund of their choice. Once the SIP mandate is set up, a predefined amount is automatically deducted from your savings account on a pre-defined date.
For example, if you have a SIP of Rs 1,000 in Fund A on 10th of every month, then on 10th of each month, Rs 1,000 will be deducted from your bank account and will get invested automatically.
**Myth #2 – You Need A Lot Of Money To Invest In Mutual Funds**
There is a general misconception that mutual funds are only for people who have a six-figure income and business class people. However, it is entirely false. Many fund houses have made it easier to invest in mutual funds by reducing the minimum investment amount made through lumpsum and the SIP route. You need Rs.100 to invest through SIP and Rs.1,000 for additional investments.
**Myth # 3: Investing in Mutual Funds Means Investing in Stock Market**
Mutual funds invest in stock markets. However, there are other categories of mutual funds that don’t invest in the equity markets. Debt mutual funds invest in the bond market (corporate bonds and government bonds) and money market instruments (treasury bills, commercial papers, certificate of deposit, collateral borrowing & lending obligation (CBLO)). The objective of these funds is to protect capital along with stable returns.
**Myth #4: You Need to Be an Expert in Mutual Funds**
While direct equities are meant for experts, mutual funds meant for everyone. You don’t need to be an expert or have investment knowledge to invest in mutual funds. It is because expert fund managers manage these funds. A strong research and investment team back the fund managers. It is an inexpensive way to get professionals to manage your money.
**Myth #5: You Should Only Invest in Mutual Funds If You Have a Long-Term View**
If you want to invest in equity mutual funds, then you need to take a long-term view of more than five years. It is not applicable for all the types of mutual funds. Debt funds especially overnight funds, liquid funds and ultra-short-term funds allow you to park your money for a short period from a day to three months. You can invest in different types of mutual funds based on your investment horizon and objective.
**Myth #6: Investing In A Top-Rated Mutual Fund Ensures Better Future Returns**
Relying solely on the star rating of a mutual fund is a wrong way to predict future returns. The ratings are dynamic and are likely to change. If a fund is rated five stars by various organizations, it does not mean that the fund will deliver better returns than other funds. There have been instances where the value of five-star funds have tumbled due to credit defaults of the invested company.
The best way to track the performance of the fund should be against its benchmark. Evaluate the performance of the mutual funds periodically against
the benchmark and other funds in the category to decide whether you should stay invested or not.
**Myth #7: It Is Better to Invest In A Fund With A Low Net Asset Value (NAV)**
Many investors believe in this myth that investing in a fund with a low unit price (NAV) is better as the appreciation will be more in a fund with low NAV. It is irrelevant because it only represents the market value of the securities held the fund and inflows from investors. The capital appreciation will depend on the increase in the value of the underlying securities.
**A Friend, “Your Financial Life Partner”
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
**info@finoptical.com | www.finoptical.com**
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There is no denying to the fact that parents want the best for their children and help them in every possible way to make them better individuals. While children receive formal education from educational institutes, the traditional education system teaches them almost nothing about money.
Hence, the need to teach money lessons or help children form good money habits fall on the parents.
On this Children’s Day, we show you some of the easy ways that help your kids to inculcate good money habits.
**1. Explain to them the difference between Needs and Wants:**
It is normal for kids to demand things from their parents. Many things will catch their attention. However, is it required to buy whatever your kid wants? Absolutely not!
Whenever your kid wants a particular thing, ask them why they want it. You can follow up with several other questions such as asking them about other alternatives that they already own. You can explain the concept the need and wants. This may help them to cultivate good spending habits in their later life.
**2. Give them a budget**
Instead of heading to their whims and fancies, give them a specific sum of money on a weekly or a monthly basis. The allowance may vary from time to time.
Also, let them know that they may get over and above their allowances if they help around the house such as getting groceries or doing other household chores. This will help them to understand the value of money.
The value of money is one of the most important money lessons that are going to stay with them for their entire life. The key is to make children realize that everything comes with a cost and they need to plan and work for it.
**3. Help them to cultivate saving habits**
In this age of instant gratification, cultivating savings habits has become the need of the hour. Typically, parents give piggy banks to their kids to help them save their pocket money or the money that they have received as gifts from various relatives.
Gift them a clear glass piggy bank found on various shopping sites. As the amount of money is visible through a glass piggy bank, it may encourage your child to save more and help them to priorities their financial goals over other things.
If they have multiple financial goals, you can give them piggy banks as per their goals. You can also buy some mason jars and ask them to label it with their goals.
**4. Tracking their savings and spendings**
Helping your child to track their savings and spending will result in good money habits as an adult. Before they begin their savings journey, tell them to keep a note of the amount that they are saving in a diary. Once they achieve the required amount, they can open or break their piggy bank.
Also, motivate them to keep a tab on their spending. This will help your kid to keep a track of their pocket money or save more if they wish to.
**5. Include your child in money conversations**
Many parents make the mistake of leaving out their children from some of the critical money conversations. Include your children when you are drafting the monthly budget, or planning to invest as it will also make them familiar with the different aspects of money managing.
Also, try to bring your children when you meet your financial advisor. While they may not understand most of the things, kids quickly absorb and it helps them to build a perspective.
**6. Be the financial role model**
Kids learn a lot by observing elders. Hence, it is important to become the financial role model that your kids might follow. While parents must make their children understand the value of money, parents should be mindful of the way they are spending money, where they are spending money, and how much are they saving or investing per month. **
**Conclusion:** Habits cultivated at a tender age has a long-lasting impact. Money habits are no different. With the lack of financial education, parents and elders need to help their children form good money habits.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
**info@finoptical.com | www.finoptical.com**
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Category
Mutual Fund
From our childhood, we are taught not to waste money and always go for the
cheapest available option. But not all things that appear to be expensive are bad
for your pocket. Some of the things have far fetching positive impacts, help us
save us a ton of money in the future and boost our wellness.
You can say that these are necessary expenses. Here we would like to talk about
three areas of our lives where we should not think about saving a few pennies.
These areas are physical, mental and financial aspects of our life. After all, you
should not be ‘penny wise and pound foolish’.
**Physical aspect:**
In today’s mad rush of earning more money, we tend to ignore our body. We only
pay attention when we are diagnosed with a particular health disease. The best
way to keep lifestyle-related conditions at bay (and save thousands of rupees)
would be to do any form of physical activity regularly. Studies have shown that
physical activity is not just good for your physical health; it is also essential for
your mental health. But before you take that annual membership in your nearest
gym, it is crucial to understand what kind of physical activity would you like to do.
If you love to dance, then Zumba or other dance classes can be the best fit for you.
If you want to run in a marathon, you can join a marathon-training group.
It is also essential to go for regular health checkups along with your other family
members as it can help to diagnose early signs of any disease. You can
preventively measure and control the disease from blowing out of proportion.
**Mental aspect:**
Mental wellbeing is as important as physical wellbeing. When you are happy, you
can give your best at your work life and increase your productivity leading to
higher increment, bonus and more profits. A contented mind is essential not just
for your work life but your personal life as well. There will be less emotional
stress between the family
members. Being stressed can lead to improper decision making, which can have
serious consequences, especially in your financial life.
One of the best ways to have a calm and happy mind is through mediation.
Meditation can help lower your stress level and clear your negative thoughts.
Doing the things that you love can also lower your stress levels. Many activities
and workshops on various art forms, outdoor activities are held every other
weekend or make plans with your friends and family members. It will also
strengthen the bond.
"People who are more socially connected to family, friends, and community are
happier, healthier, and live longer than people who are less well connected," says
Dr Waldinger, a psychiatrist with Harvard-affiliated Massachusetts General
Hospital. Hence, it is a win situation in every aspect.
Investing in yourself through attending workshops, training programs, and
reading is very vital in today’s world of cutthroat competition. Don’t rely solely on
the training programs provided by your organization and take initiatives to
attend some of the best events within your industry. It will give you an edge over
your colleagues who have not participated. Staying up to date with the latest
happening in your industry and taking courses to upgrade your skills can go a
long way in increasing your income potential. Books, workshops and courses are
just one-time investment, and you can reap the benefits for many more years.
**Financial aspect:**
We have seen how investing your money in your physical and mental aspects can
help you increase your income. But everything will come crumbling down if you
don’t manage your money wisely. A financial advisor can help you do that. We
may think that we can handle our finances, but when we are faced with not-so-
good scenarios, we fail to make the right decisions. Such decisions may be
investing in ULIPs to save tax at the last moment, investing in five ELSS funds,
withdrawing money from your provident fund after the 15-year lock-in and
shuffling between the high performing funds. All these financial mistakes can hurt
your finances. A financial advisor will hand hold you and help you make the right
financial decisions. With the right financial advisor, your life goals are within your
reach.
These are the three aspects of life where being a miser can backfire. Remember to
plan your budget properly so that you can have the best of both worlds.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
**info@finoptical.com | www.finoptical.com**
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Category
Mutual Fund
****Before we understand the importance of financial advisor, answer this one simple
question.
Did you take the help of a CA or a tax consultant to file your ITR returns this year?
While it can be done for free on the income tax department, we still consult our
tax consultant so that we don't go wrong anywhere.
However, when it comes to managing money, most people do not want to take
any help from financial planners or advisors. There are many reasons for this
attitude. Some think it is a waste of money, while others believe that they can
handle their money.
Financial advisors can provide immense value to any individual’s portfolio.
**Here’s why you need a financial advisor:**
**Assess your financial health:**
An advisor examines an individual’s financial situation and health. He may
pinpoint weak points that need strengthening. For example, the advisor may alert
you about wasteful expenditures. He may identify investments that are not giving
optimal returns and accordingly suggest you the right way forward.
**Teach you the basics of investing:**
There are many resources on Google through which you can learn the basics of
investing and personal finance. However, there is a high probability that you get
lost in this maze. Some articles will suggest plan A, while others will tell you to
follow plan B. This can increase the confusion. And as a result, you may postpone
starting your investment at a later date.
When you have a financial advisor, he or she will make sure that you understand
the basics of investing. The world of finance is vast. Hence, it is always better to
know and understand the parts that are important to you.
**Choosing the right products to invest and aligning your investments with
your goals**
Even if you know the basics of investing, choosing the right products to invest
may be uphill for many. It is because there are different types of products in a
particular category. Also, the companies keep on coming up with products, some
of which are too complicated to understand.
A financial advisor will suggest the right financial products for you and ignore the
noise. Financial advisors regularly meet the investment teams of the financial
products to understand their investment rationale. For example, in case of mutual
funds, financial advisors use a lot of ratios and parameters that help them to
collate the list of top funds under the different categories. In addition, they
regularly compare the various financial products with its peers to suggest you the
right product.
Selecting the investment product will not mean much if it is not aligned with your
financial goals. Not just your financial goals, the investment product should also
go with your risk-taking capacity and time horizon. E.g., the best small-cap fund
may not be the right choice if your investment horizon is just three years.
**Help you to stay focused on your goals**
While we may like to believe that personal finance and investing is all about
numbers and selecting the product that has given the highest returns in the
recent past, it is mostly about habits. It has more to do with behavior and
discipline than returns. In this journey, many investors tend to make avoidable
mistakes.
Investors are likely to be carried away by discussions with their colleagues and
friends. They become tempted to follow the footsteps of their friends, even
without knowing if that will be the right approach for them or not.
In this scenario, the financial advisor will handhold you and suggest you the right
steps and make you stay on the course to reach your financial goals. Also,
financial advisors carry out portfolio review at regular intervals to make sure that
you are on the right track to achieve your financial goals.
These were the four main reasons why having a financial advisor is the best that
you can do for your financial health.
**A Friend, “Your Financial Life Partner”**
**97128 63430 – 86553 06591**
**Mutual Fund | PMS | Equity | Derivatives | Commodity | Financial Planning | IPO | FD**
**921, HomelandCity, Opp. J.H. Ambani School, Udhna Magdalla Road, Vesu, Surat. 395007**
**info@finoptical.com | www.finoptical.com**
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Category
Mutual Fund
Financial freedom is a dream for many, where you have the resources and flexibility to live life on your terms. While it may seem like an elusive goal, mutual funds can be a powerful tool to help you achieve this aspiration. In this blog, we will explore how mutual funds can contribute to your journey to financial freedom.
**→ Diversification and Risk Management**
One of the fundamental advantages of mutual funds is their ability to diversify your investments. Diversification means spreading your money across a range of assets, such as stocks, bonds, commodities. By investing in a mutual fund, you become a part of a larger pool of investors, which, in turn, allows the fund manager to diversify your investments effectively. This diversification helps to reduce the impact of poor-performing assets and manage risk.
**→ Professional Management**
Mutual funds are managed by experienced fund managers who make investment decisions on your behalf. These professionals are equipped with the knowledge and expertise to navigate the complex world of financial markets. They conduct research, analyze market trends, and strategically allocate the fund's assets to maximize returns while mitigating risks. This professional management ensures that your investments are in capable hands.
**→ Accessibility**
Unlike some investment options that require substantial initial capital, mutual funds offer accessibility to a wide range of investors. You can start investing with a relatively small amount of money. This accessibility makes mutual funds an attractive choice for individuals at various stages of their financial journey.
**→ Liquidity**
Mutual funds provide liquidity, meaning you can easily buy or sell your units. This flexibility ensures that you have access to your money when you need it. Whether you're saving for short-term goals or maintaining an emergency fund, mutual funds allow you to maintain financial flexibility.
**→ Automatic Investment with SIPs**
Achieving financial freedom often requires discipline and consistent saving. Mutual funds offer a solution through Systematic Investment Plans (SIPs). SIPs allow you to set up automatic, periodic investments, helping you save and invest consistently. Over time, this disciplined approach can significantly increase your wealth.
**→ The Power of Compounding**
Mutual funds harness the power of compounding, which can significantly impact your wealth over time. As your investments generate returns, those returns are reinvested, and your investment base grows. This leads to exponential growth and can be a key driver in achieving your financial goals.
**→ Flexibility**
Mutual funds come in various categories and cater to different investment goals. Whether you're saving for retirement, your child's education, or buying a home, there is likely a mutual fund category that aligns with your specific financial objectives. This flexibility allows you to tailor your investments to meet your unique needs.
**→ Transparency**
Investors receive regular updates on their mutual fund investments, ensuring transparency. You can easily track the performance of your investments and make informed decisions about your portfolio.
**→ Tax Benefits**
Certain mutual funds offer tax advantages. For example, Equity-Linked Savings Schemes (ELSS) can provide tax deductions under Section 80C of the Income Tax Act.
→ Goal-Oriented Investing
Mutual funds can be a vital tool for goal-oriented investing. Choose funds that match your financial goals to help you reach them in an organized way. This approach ensures that you are not just saving money but actively working towards your aspirations.
**Conclusion**
Financial freedom is not a distant dream; it's a tangible goal that you can work towards with the help of mutual funds. Through diversification, professional management, accessibility, liquidity, compound growth, and other advantages, mutual funds provide a path to financial independence. To make the most of this investment option, it's essential to select funds that match your risk tolerance, time horizon, and financial objectives. Regularly reviewing your investments and staying committed to your goals will help you realize your vision of financial freedom. So, start your mutual fund journey today and take the first step towards achieving your financial aspirations.
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Category
Mutual Fund
**How to invest in mutual funds without any prior knowledge about it?**
Investing in mutual funds can be a smart way to grow your wealth, even if you have no prior knowledge of the financial markets. Here's a step-by-step guide on how to start your mutual fund investment journey without any prior expertise.
**1. Educate Yourself:** The first and most crucial step is to educate yourself about mutual funds. A mutual fund is a pool of money collected from many investors which is managed by a professional fund manager. The manager invests the pooled money in a diversified portfolio of stocks, bonds, or other securities.
There are various types of mutual funds, such as equity funds, debt funds, hybrid funds etc. each with its own risk and return profile. Take some time to read articles, watch videos, and gain a basic understanding of these concepts.
**2. Set Clear Financial Goals:** Determine your investment goals. Are you investing for retirement, a major purchase, or simply to grow your wealth? Knowing your objectives will help you choose the right type of mutual fund and develop a strategy.
**3. Seek Professional Guidance:** If you're unsure about where to start, it's highly recommended to seek professional guidance. An expert can assess your financial situation, risk tolerance, and investment goals, and suggest suitable mutual funds thus reducing costly financial mistakes.
**4. Select a Mutual Fund:** Always makes sure that you choose a mutual fund that aligns with your investment goals and risk tolerance.
**5. Open an Investment Account:** To invest in mutual funds, you'll need to open an investment account. The account setup process is typically straightforward and involves providing some personal and financial information. The platform you choose will guide you through the necessary steps.
**6. Start with a Small Investment:** It's a good idea to start with a small amount of money, especially if you're new to investing. Many mutual funds have a minimum investment requirement, which can vary from scheme to scheme and AMC to AMC too. Make sure to check this requirement and ensure that it fits your budget. Starting small helps you understand how investing works without risking a lot of money.
**7. Monitor your investments:** After investing in a mutual fund, it's crucial to review your portfolio. You can track your investments through the online platform where you opened your account. Check the performance of your funds periodically and compare it to your investment goals. Be prepared to make adjustments to your portfolio if your goals change or if a fund consistently underperforms.
**8. Continuous Learning:** Investing is an ongoing process. As you gain more experience, continue to educate yourself about mutual funds and investment strategies. Read books, attend seminars, and stay updated with financial news. The more you learn, the better equipped you'll be to make informed investment decisions.
Investing in mutual funds without knowledge is possible, but it's important to know that all investments have risks. Mutual funds too can fluctuate in value, and it's possible to lose money.
If you ever feel uncomfortable making investment decisions on your own, don't hesitate to seek professional guidance. Education, planning, and expert advice can lead to a successful mutual fund investment journey.
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