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Best mutual funds for beginners: Your first equity investment!

 

If you are planning to invest and see your wealth grow, equity is the best option. Yes, you are right in thinking that equity is volatile and goes up and down daily, but that’s just half the story. If you look at the historical data, equity has been able to beat inflation in the long-term. ‘Long-term’ is the key word here.

 

In fact, equity is the only asset class that can generate inflation-beating returns. This is why one should invest in equities. If you want to know the importance of earning returns that are higher than inflation, this is a must read for you.

 

So, how does one start investing in equities?

 

Option #1: Direct stocks

 

While terms like trading, BSE, bulls, Sensex, etc., are seductive, this form of investing should be ignored by beginners. Direct stocks can be very overwhelming if you are new to investing. You need to know what stocks to buy, when to buy, when to sell, etc…too many things to learn at the beginning.

 

Option #2: Mutual funds

 

So, what is a mutual fund? This type of investment simplifies the task of investing in equities.

 

Why? Because they reduce your risk by diversifying your portfolio. Secondly, every mutual fund has an expert who will manage your money on your behalf and ensure you receive healthy returns. This is why it is highly desirable to start your equity investment with mutual funds.

 

How to start mutual fund investment

A first-time investor should look out for low-risk schemes that provide a decent amount of return. Only once you get a taste for mutual fund investing should you explore other investments. Sounds boring but it is always better to walk before you run.

 

Hence, there are two specific types of mutual funds that are suitable for a beginner.

 

#1 Aggressive hybrid funds

 

These funds invest about 65 per cent in equities and 35 per cent in debt. Debt instruments include bonds that are issued by a government or a company. They earn a fixed income and don’t depend on the stock market performance.

 

Therefore, this is how aggressive hybrid funds help in containing the equity volatility and are better-placed to provide more consistent returns as compared to pure equity funds.

 

Why is this good for you? Softening the risk is what is necessary for new investors so that you are psychologically strong to stay the course and do not end up exiting the fund in panic.

 

#2 Tax-saving funds

 

Also known as equity-linked savings scheme or ELSS, this type of mutual fund in India majorly invests in relatively-safer large-cap stocks.

 

Why are these funds good for you?

 

These funds help you save tax. Under Section 80C of the Income Tax Act, you can claim a tax deduction of up to Rs 1.5 lakh in a financial year.

 

One caveat of this scheme is that there is a lock-in period of three years. This means that once invested, you can only take your money out after three years. However, this works as an advantage for new investors who can’t handle the market volatility and also helps one have a long-term view which is the holy grail of equity investing.

 

Source- Valueresearchonline

 

Mutual fund investment in children’s name: New SEBI rule comes into effect today

 

Parents or legal guardians will be able to invest from their own bank accounts in mutual fund schemes for their children, starting today i.e. June 15. The Securities and Exchange Board of India (SEBI) has revised its 2019 circular which prescribed the uniform process to be followed across Asset Management Companies (AMCs) in respect of investments made in the name of a minor through a guardian.

 

Earlier, Sebi only allowed payment for investment from the bank account of the minor or from a joint account of the minor with the guardian. The new rule will streamline this investment process for mutual fund investors who invest on behalf of minors.

 

Decoding the rule

 

Under the new rule, payment for investment in mutual funds by any mode will be accepted from the bank account of the minor, parent or legal guardian of the minor, or a joint account of the minor with parent or legal guardian.

 

They will no longer need to open joint accounts or open the account of minor children for this purpose.
 

What happens to existing folios?

 

For existing mutual fund folios, the AMCs will have to insist upon a change of pay-out bank mandate before redemption is processed.

 

Irrespective of the source of payment for the subscription, all redemption proceeds will be credited only to the verified bank account of the minor, which he or she can hold with the parent/ legal guardian, Sebi said.

 

Source- cnbctv18

SGB: Sovereign Gold Bond Scheme 2023-24 Series I issue price announced; check details

The latest Sovereign Gold Bond (SGB) tranche will open for subscription on June 19 and will close on June 23, 2023. The Reserve Bank of India (RBI) has kept the settlement date of this tranche of Sovereign Gold Bond Scheme 2023-24 Series as June 27, 2023

 

Sovereign Gold Bond Scheme 2023-24 Series I – Issue Price

 

The issue price of the SGB Series I during the subscription period will be Rs 5,926 per gram, according to an RBI press release issued on June 16, 2023.

 

How is price calculated?

 

The bond’s nominal value is based on the simple average of the closing price [published by the India Bullion and Jewellers Association Ltd (IBJA)] for gold of 999 purity on the last three working days of the week preceding the subscription period, namely June 14, June 15, and June 16, 2023, which works out to 5,926/- (Rupees Five thousand nine hundred and twenty six only) per gram of gold.


Discount on subscription

In collaboration with the Reserve Bank of India, the Government of India has agreed to offer a discount of Rs 50 per gram on the issue price to investors who apply online and pay in digital manner.
The issue price of a Gold Bond for such investors will be Rs 5,876 per gram of gold.


Payment option

Payment to buy SGB can be made in cash up to Rs 20, 000 for higher amounts in draft, cheque or electronic banking
 

Where can investors buy SGB

SGBs will be sold through the following channels

  1. Scheduled Commercial banks (except Small Finance Banks, Payment Banks and Regional Rural Banks), Stock Holding Corporation of India Limited (SHCIL),
  2. Clearing Corporation of India Limited (CCIL),
  3. Designated post offices (as may be notified) and
  4. Recognized stock exchanges either directly or through agents.

 

SGB interest

The investors will be paid at a fixed rate of 2.50 percent per annum payable semi-annually on the nominal value.

 

Tax treatment

According to the provisions of the Income Tax Act of 1961 (43 of 1961), interest on SGBs will be taxed. The capital gains tax arising on redemption of SGB to an individual is exempted. Long-term capital gains resulting from the transfer of SGBs will be eligible for the indexation benefits.

 

Source- Economictimes

A practical guide to choose the ‘right’ mutual fund

 

In the intricate tapestry of India’s mutual fund market, choosing the best mutual fund might feel like navigating a maze. Amid the myriad of options available, Amit is determined to select the ideal mutual fund tailored to his financial goals.

 

Equipped with a clear understanding of his investment objectives, risk appetite, and time horizon, Amit opts to use the ‘Fund Selector’ on the homepage of ‘Value Research Online’ to identify the right fund.

 

So, let’s join Amit on this exciting expedition.

 

Select the right category of mutual funds

Amit wants to build wealth for retirement, and recognizes the need for a reliable and relatively-safe type of mutual fund.

 

After thorough research and introspection, he decides to focus on the large-cap fund category. Why? Because he prefers stability, lower volatility, and consistent returns – something that large-cap funds typically offer.

 

What you should know

In the vast expanse of India’s mutual fund landscape, selecting the right category is crucial. Investors encounter a variety of equity funds, each with a unique approach. Choices span from large-cap to small-cap, multi-cap, sector-specific, and thematic funds.

 

The challenge lies in identifying the category that matches your financial goals, risk appetite, and investment horizon. For instance, let’s assume you were looking for a more aggressive option and had a five-year investment horizon, we’d suggest looking at a flexi-cap fund.

 

Check the star rating of the mutual funds

Amit discovers there are approximately 152 large-cap funds available in the ‘direct’ category. (For the uninitiated, if you are buying funds on your own, opt for direct plans. Here’s why).

 

Coming back to Amit, he is clearly frustrated. For good reason too. It’s not easy to choose a fund when there are multiple options.

 

This is where ‘Value Research Ratings’ comes to his rescue. (By now, you must be smiling at our blatant pitch, but it’s true. In fact, our mutual fund ratings are used by leading media outlets and fintechs).

 

Amit uses the ‘VR Ratings’ to remove all funds that are rated 2 stars and below. By doing this, he narrows down his options to a more manageable 42 funds.

 

Also, by eliminating the poor funds, he now has access to funds with a proven track record of strong performance, solid management, and robust portfolio composition.

 

What you should know

‘Value Research Ratings’ evaluates funds based on quantitative factors.

 

Compare returns of funds

Having successfully narrowed down his large-cap fund options to 42 high-rated contenders, Amit compares their returns to make an informed investment decision. As a long-term investor, he is keen to know which funds are more consistent in the long run.

 

To accomplish this, Amit selects ‘Long-term’ in the ‘Returns’ tab, focusing on the five-year performance of each fund.

 

With the five-year returns data at his disposal, Amit makes a list of the ten best large-cap funds!

 

What you should know

Past performance is not a guaranteed indicator of future results. But it does tell you each fund’s long-term track record, which is important.

 

Check expense ratio and exit load

Amit, now armed with a shortlist of 10 promising mutual funds, delves deeper into the ‘Fees and Details’ section to examine the expense ratio and exit load. This is a smart move because why should he pay unnecessary fees to a mutual fund.

 

What you should know

Expense ratio and exit loads are fees charged by a mutual fund for various reasons. Hence, the lower the better.

 

But please remember that though this is an important factor, you should not base your fund-selection decision on this criterion alone.

 

Final check

To complete his selection process, Amit refers to the ‘VR Opinion’ available in the ‘Snapshot’ tab.

 

These opinions, provided by Value Research’s analysts, assess mutual funds based on several parameters, including risk-adjusted performance, portfolio diversification, and fund manager’s track record.

 

Backed by expert insights, he finds The One large-cap fund that suits him best!

 

By following these four steps on our platform, Amit has laid a solid foundation for his investment journey, increasing the likelihood of achieving his long-term financial goals.

 

The last word

Selecting the right mutual fund is no rocket science, as you just saw for yourself.

 

All you need to do is explore our platform to find the right fund for you. You can Get Started now.

 

Source – Valueresearchonline

 

What’s best for STP?

 

Ram, one of our subscribers, recently contacted us, saying he had received Rs 50 lakh from a property sale and wanted to invest in a hybrid fund to build a sizable retirement kitty.

 

But since Ram knows he should not put the entire money in a mutual fund in one go, he is wondering if stashing the money in an arbitrage fund and then setting up an STP to a hybrid fund over the next three years would be the better option.

 

That way, he’d be able to spread his Rs 50 lakh investment in a hybrid fund over three years, and at the same time, the money that would lie in the arbitrage fund would earn acceptable returns.

 

His proposed idea got the number-crunchers working in our dark, damp dungeon excited, now that they had a new project of finding out if there were better options than an arbitrage fund.

 

But before we lay out the numbers, let’s take a step back and understand what on earth an STP is and its benefits for the larger audience.

 

What is STP

 

Full name: Systematic transfer plan.

 

Role: It allows investors to transfer a specific amount from one fund to another at regular intervals.

 

Benefits: Markets are generally volatile over short periods. Therefore, putting all your money in a mutual fund in one shot is not ideal, as it can fall in value over the short term.

This is where an STP comes in.

 

It ensures your large sum of money – Rs 50 lakh in Ram’s case – is protected from market volatility, while earning acceptable returns that match or beat inflation at least.

 

Last but not least is the STP’s ability to provide the benefits of rupee-cost averaging. In layperson’s terms, spreading your investment helps avoid catching the market high. Instead, you invest more when the markets are depressed, and less when markets are expensive. (This is a strategy investors dream of, to be honest).

 

Now that we know what an STP is, let us tackle Ram’s question of whether he should put his Rs 50 lakh in an arbitrage fund and then start an STP to a hybrid fund.

 

Tackling Ram’s question

Arbitrage funds have competition in this space. Besides them, Ram can also think of stashing his Rs 50 lakh in the following options:

  • Fixed deposits (FDs)
  • Short-term debt funds
  • Bank savings account

 

Let’s tackle arbitrage funds first. Over the last 12 months to five years, these funds have generated 3.9-5.19 per cent on average, and their tax outgo is 15 per cent in the first year and 10 per cent after that.

 

Short-term debt funds. They have delivered 5.68-6.51 per cent returns on average in the last 12 months to five years, and the tax outgo depends on which tax bracket you fall under. For instance, if you earn over Rs 10 lakh per annum and are in the old tax regime, your gains from these funds will be taxed at 30 per cent.

 

Fixed deposits. FDs have delivered assured returns in the 6-7 per cent range in recent years, but you can be taxed up to 30 per cent on the interest earned. Worse, you’ll need to pay tax yearly, unlike short-term debt funds where you pay tax only when you withdraw your money.

 

Even worse is that FDs aren’t very STP-friendly. Here, you need to manually withdraw your money each month to get the STP going. Hence the reason it’s not recommended.

 

Savings account. The humble savings account in your bank offers assured interest of around 3 per cent. (There are a few small banks that provide 6 per cent interest as well).

 

But even in their case, you can be taxed up to 30 per cent on the interest earned, though interest up to Rs 10,000 is tax-exempted if you are below 60.

 

What should Ram or you do

There is no clear winner here. Different options have different strengths (and weaknesses).

 

From a tax perspective, arbitrage funds emerge victorious.

 

From a returns perspective, they are all closely bunched together. Perhaps, short-term debt funds eke out slightly higher post-tax returns than the other three options. Looking ahead, these funds will provide higher returns as yields of bonds have risen in the last few months. By that logic, returns of arbitrage funds will rise too, as some portion of their portfolio is invested in debt.

 

That said, returns should not be of paramount importance when you plan to start an STP. You should look at capital preservation instead.

 

In that case, savings account, FD and short-duration debt funds hold up well. But let’s rule out FDs because, as mentioned earlier, they are not well-configured for STPs.

 

Lastly, if you prefer convenience over an extra per cent or two returns, you can simply stash your money in a savings account and start an SIP to a hybrid fund.

Source- Valueresearchonline

 

Compounding in mutual funds: Compounding and its magic!

 

Let’s start with the famous “rice and the chessboard story”. Once upon a time, there lived a king who was a chess enthusiast. He beat every known player. To motivate his opponents, the king would give any reward that they ask for, provided they were successful in beating the king. One day, he was challenged by a travelling sage to a game of chess. The king obliged and asked the sage to name a prize for himself if he wins.

 

The sage asked for one grain of rice on the first square of the chessboard. The king got perplexed and asked, “That’s it?” The sage continued and said, two grains on the next tile, then four grains on the next, and so on, such that each square has double the amount of the previous one.

 

The king was baffled, the sage could have asked for any valuable reward he wanted. Nonetheless, he immediately agreed, as to him it looked like a very small prize. The sage was a brilliant player and defeated the king. Having lost the match and being a man of his word, the king called his treasurer to reward the winner. His officials started putting the rice onto the chessboard.

 

They put one grain on the first square, two grains on the second, four grains on the third, then eight, 16, 32, 64, and so on…The quantity started to look much more than what the king expected to be at the start. It was increasing exponentially with every next tile. By the end of the fourth row, the king needed 2.1 billion grains of rice. He now started becoming anxious and asked his officials to estimate the total rice needed to reward the sage. The answer made him realise that the number of grains required was far beyond the capacity of the chessboard, his palace, and indeed his entire granary!

 

Wondering how much it was?

 

Well, the figure came to a whopping 18,446,744,073,709,600,000 (18 quintillion 446 quadrillion 744 trillion 73 billion 709 million and six hundred thousand) grains of rice! It is 2,300 times more than the entire rice production of India in 2021!!! This is called exponential growth or the power of compounding. Mathematically, it can be calculated as two to the power of 64 (2^64).

 

The same applies to your investments as well because the returns compound over a period of time. For many people, just like the king, this concept of compounding doesn’t occur to their mind and they lose as a result. To understand compound interest, let’s understand simple interest first. Given an amount of principal, simple interest earns the same amount of interest every year. Whereas compound interest adds on top of the previous year’s interest, essentially adding interest over interest. This addition of interest is called compounding.

 

For example, if you invest Rs 1 lakh in an instrument earning 10 per cent per annum, your money will grow to an impressive Rs 17.45 lakh by the end of 30 years. But what’s even more interesting is the way your money would grow over these years.

 

Your money would grow by only Rs 10,000 in the first year. In the following year, you’ll earn Rs 11,000. That’s 10% per cent on the initial Rs 1 lakh plus 10 per cent on Rs 10,000 earned in the first year. As this pattern repeats, your gains in every subsequent year are higher than the previous year. By the 26th year, the amount you earn in a single year would surpass your initial investment itself. That’s how compounding casts its magic over a period.

 

As you can see, compounding works best when you give it lots of time. That’s why you should start investing as early as possible. No matter how small the amount, JUST START!

 

At the beginning, you might feel like nothing is happening. But after a few years, compounding starts to show its magic and your corpus grows exponentially. Another important element to enjoy is to stay invested in the market no matter how difficult it might get at times of sharp market correction. That’s because time and patience are the two most important weapons in your arsenal to take advantage of the power of compounding.

Source – Valueresearchonline

 

Sensex at 100,000 does not look unimaginable, see it going beyond it: Nilesh Shah

 

“Well as most of you will agree, India is a rising story. When you are giving me a low volley, and I was resisting not to hit it, but now I do not have a choice. Just invest in Kotak Mutual Fund, and that is it,” says Nilesh Shah, MD, Kotak AMC.

 

Nikunj Dalmia:How to make money, that is what we all want to know. How to make money and how to invest for a bright future. Nilesh bhai has promised me that in this entire session, he will only use the word tip, not SIP. So, Nilesh bhai, how can one make money by not participating in SIP? Give us a tip.

Well as most of you will agree, India is a rising story. When you are giving me a low volley, and I was resisting not to hit it, but now I do not have a choice. Just invest in Kotak Mutual Fund, and that is it.

 

Nikunj Dalmia: Now, notice the word crazily undervalued and that is what I think we should focus on, that it is time to start doing treasure hunting in this kind of a market. So what we are at 18500 on the index, I think Nilesh bhai, is of the view that abhi toh party shuru hui hai. So, Nilesh bhai, party kyun shuru hui hai? Why do you think right now, the best is yet to come for the Indian markets? Because historically, we have seen economy and markets, they do not run together.

So let me give two answers, one lighter way, one serious. There is a small bank in Maharashtra called Shamrao Vithal Bank. There is a big, large bank called Silicon Valley Bank in the US. SVB is the 16th largest bank in America. A day has come when our Shamrao Vithal Bank has to say, when you talk about SVB going into bankruptcy that is that American bank, not the Indian bank. Aisa din aapne kabhi socha tha ki India mein aayega? So that is the lighter way in answer that is why you have to invest here. But on a serious note, the state from where I come, Maharashtra, today Maharashtra has a GDP equivalent to India’s GDP in 2005. In 17 years, Maharashtra has reached where India was yesterday. 2001, UP and Uttarakhand were combined. Today’s UP and Uttarakhand combined is where India was in 2001. And there are three other states, Tamil Nadu, Gujarat and Karnataka, they are today having that GDP which India had in 2000.

 

In about 20 years, these six states have reached where India was yesterday. Now, if all of us continue to work in similar fashion for next 20 years, these six states will create today’s five India. And then there are 20 other states which are also doing something. This is the journey of one India to five India in just six states. This is the journey of one India to multiple India in terms of GDP growth over next 20 years. This is the reason why you should invest.

 

Nikunj Dalmia: So I will ask a very basic question so that the audience can relate to it. Chris Wood on ET Now last week said that Sensex could be one lakh in next four to five years. Do you see that happening, Nilesh?
One thing I’ve learned. Don’t try and predict the market. More often than not, you will be wrong. But today, is one lakh Sensex looking unimaginable answer is no. And my request to this audience will be, just do not think about one lakh Sensex. Beyond that also, there is a much-much longer journey.

 

Nikunj Dalmia: Quick final answer, the most overrated sector and the most underrated sector.
The most underrated thing is management and governance.

 

Underrated sector.
Sir, if you get a good promoter in the sector, it becomes gold. If you did not get, so the most underrated thing is management and governance. People do not really give too much respect for it. They will go and dabble in all kinds of companies where neither they know the management nor they believe there is governance and end up losing money.

If people start respecting management and governance chances of losing money in the stock market is very-very limited. The most overrated thing is to believe that there is a moat in the business. We are living in the world of disruption.

 

We need people who are paranoid. We need management and companies which are always worried about the disruption coming. You have to invest in companies which are disrupting their own business model rather than waiting for their competitor to come and disrupt. Governance disruption, ye do cheez sambhal lo you will make money in stock market.

 

Source – Economictimes

Indexation benefits have not gone from mutual funds completely

 

The Finance Act 2023 has created a third category for taxation in mutual funds. We are all aware that debt funds no longer qualify for LTCG benefits. They will be taxed at marginal rate of taxation irrespective of the holding period.

 

In this context, the Finance Act has defined debt funds as funds having domestic equity exposure of less than 35%. Hence, it includes other categories of funds like gold funds and international FOFs.

 

However, the definition has opened up a new category of mutual funds from the perspective of taxation. This category is funds having exposure to equity between 35% and 65%. These funds will continue to get indexation benefits if the holding period exceeds 36 months. The category of  multi asset fund (at least 10% exposure in three asset classes) may fall under this taxation ambit, depending on the positioning by the AMC. If the equity component of the fund is more than 65%, it will be taxed as equity. If the equity component is between 35% to 65%, it will be eligible for indexation.  Balanced hybrid fund (50% exposure to both equity and debt) fall under this category, but currently there is no balance hybrid fund in the industry.

 

There are couple of multi asset funds in the market answering this description i.e. equity in the range of 35% to 65% and eligible for indexation. Certain fund houses are launching multi asset funds to benefit from this tax arbitrage.

 

Conclusion

 

The extent of indexation benefit for LTCG depends on inflation. However, history shows that post-indexation, the effective LTCG tax rate is less than 10% in most of the years, which is the taxation rate for equity funds.

 

Source: Cafemutual

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