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Five SIP facts you may not be aware of


This story is fitting for a new as well as an intermediate SIP investor. And with SIPs to the tune of Rs 14,000 crore being pumped into the market, we thought the timing was right to know more about SIPs too. So, let’s get started.


1. The best time to start SIP is now


If you have heard this before, skip to Point two. But those who haven’t or are currently in the start-now or start-later confusion, here’s why you should not delay your SIP further: the markets are in constant flux; something or the other keeps happening. If you keep procrastinating, nothing good will come out of it.


On the other hand, SIPs, by design, are meant to help you navigate the ups and downs of the market, thanks to rupee cost averaging.


Rupee cost averaging? Here, your SIPs buy more stocks when they are available at a lower price and buy less when stock prices become expensive. That’s what all investors want, right?



Sure, you will go through a rollercoaster of emotions, as seen in the table above, but you will come out the other side better than you were before, as seen in the above Sensex chart.


Hence, start your journey now.


2. Never pause or stop your SIPs at a market high


Stopping or pausing your SIPs should be for valid reasons and not because you wish to be clever with your money.


Let’s assume both Mr A and Mr B have been investing in HDFC Flexi Cap Fund with a monthly SIP of ₹10,000 for the last 15 years. Mr A keeps investing irrespective of how the market is performing, whereas Mr B pauses his SIPs for three months whenever the Sensex hits an all-time high. Care to guess who is cleverer? Let’s find out.


Too clever for your own good?
Pausing SIPs at market high may yield marginally higher returns, but at the expense of a smaller corpus


  • Monthly SIP: Rs 10,000 for last 15 years
  • Mr A never stops SIP
  • Mr B pauses SIP for three months during Sensex highs



Mr B earned a mere 0.13 per cent higher returns for being clever. Worse, he invested Rs 4.5 lakh less and ended up with a lower corpus by 11.46 lakh.


Therefore, you win no points for trying to be clever with your SIPs. Just keep at it; stay consistent.


Plus, Mr B will always have to correctly guess the market’s future movement. What if he, like all of us, gets it wrong most of the time? The final returns would be even lower!


3. Don’t try to be tactical with your SIP amount


Let’s say you keep doing an SIP of Rs 10,000 for 10 years. It will not make any meaningful difference whether you increase your SIP to Rs 15,000 when the market crashes or decrease it to Rs 5,000 when the markets rally.


That’s because your SIP amount gets increasingly insignificant compared to the corpus you have accumulated in the long run. See the table below, and you’d observe how the weight of an SIP instalment reduces over time.



4. Be patient with your SIPs. Time in the market is important


The most important factor with your SIPs is time. The more time you invest, the bigger your corpus will get. Let’s see how much wealth you can create by 60 if you start a Rs 10,000 monthly SIP at the age of 25 years, 30 years and 35 years.


The power of time in the market
Start early and witness the magic of compounding in your later years



The numbers in the above box tell you everything. The younger you start, the better it is.


5. It matters when you need the money


Timing matters for SIP investors.


Say, you kept doing your SIPs religiously, and when it was time to withdraw, the market crashed. Your overall returns would be hit too.


But if the markets rally, so would your overall wealth, as seen in the table below.


Climax gone wrong
It can all go wrong if you plan to withdraw when markets crash


SIP: Rs 10,000 per month in HDFC Flexi Cap Fund (Regular)
Duration: 10 years



Fortunately, there’s a solution to ensure your hard-earned investment is not wrecked at the last minute because of the market: Systematic withdrawal plan (SWP) and proper asset allocation .


Source- Valueresearchonline

Mutual funds that still enjoy indexation benefit


Ever since debt funds, international funds and gold funds lost indexation benefits – an inflation-adjusting feature that lowers tax liability – investors, especially conservative ones, have been in the dark about what to do now.


Krishnan V, one of our subscribers, is among them. He contacted us, asking if there’s a mutual fund with a 40-60 equity-debt split that also offers indexation benefits.


We hope the below table answers the question.


As you can see, balanced hybrid, multi-asset and dynamic asset allocation funds still retain indexation benefits. Let’s look at them at a glance.


Balanced hybrid funds

The equity allocation in these funds usually fluctuates between 40 and 60 per cent, activating indexation perks.


That said, there are no balanced hybrid funds currently in the market. Instead, what you have are a few solution-oriented funds. A few examples of these funds are UTI’s children’s career savings funds and retirement benefit pension funds.


Multi-asset funds

These funds invest in at least three asset classes, with a minimum allocation of 10 per cent in each.


The asset classes include equities, debt, real estate, international securities and commodities like gold and silver.


However, the equity allocation in these funds can vary widely, and the indexation benefit depends on this equity allocation. The fund receives indexation benefits only if the equity allocation lies within the 35 per cent to 65 per cent range.


So, keep a close eye on the fund’s asset allocation to ensure it qualifies for the indexation benefit.


Moreover, these fund’s decision to invest in commodities and real estate do not sit well with us. We have, for long, believed that they are not great investments in the long run.


Dynamic asset allocation (AKA balanced advantage funds)

Technically speaking, these funds can choose to have a 35 to 65 per cent allocation in equities and the remaining in debt. That said, quite a few of them have a higher equity allocation, thereby limiting the choice of conservative investors and retirees.


What got us thinking now is whether it makes sense to do a 40-60 equity-debt allocation yourself.


There are two reasons why:


  • There are very few mutual funds in the 40-60 equity-debt space.
  • We also wanted to see if the do-it-yourself (DIY) method is tax efficient.


So, we pitted UTI Children’s Career Fund – Savings Plan with a DIY allocation, and here’s what we found:


Although the DIY asset allocation option has a marginally higher tax liability, its post-tax returns are considerably higher, as shown in the above table.


There are two reasons why:


  • The DIY investment (40 per cent in a flexi-cap fund and the remaining 60 per cent in a short-duration debt fund) generated 9.2 per cent as against the UTI fund’s 8.35 per cent
  • The DIY tax liability was not too high compared to the UTI fund because flexi-cap fund gains up to Rs 1 lakh are exempt from tax.


The last word

Clearly, the DIY route makes more sense for retirees or conservative investors looking at a 40 per cent exposure to equities.


However, don’t dive into it headlong. Opt for the DIY option only if you have the knowledge and time to monitor and adjust your portfolio.


Source- Valueresearchonline

Mutual Fund Investment in India As An NRI


It is now common for many people to relocate abroad for work or study. In a few months, they settle down there and become NRIs (Non-Resident Indians). If you, too, are one of those people, a question might arise in your mind. What happens to your stocks and mutual funds investments if you leave the country?


Mutual Fund Investment For NRI


You can continue to invest in domestic mutual funds once your residency status switches to NRI (Non-Resident Indian). However, according to the Foreign Exchange Management Act (FEMA) of the Reserve Bank of India, you must modify your residential status in your bank accounts and other assets, like mutual fund schemes. While NRI mutual funds investment is not restricted in India, you must update your residential status and bank account information.


Things You Need To Keep In Mind After Becoming NRI


Even though there is not much difference between investing as a resident or as an NRI, there are some things that you need to keep in mind as an NRI while investing in mutual funds in India, such as:


Open an NRI bank account- You cannot maintain your regular account if your residential status switches to NRI, according to FEMA (Foreign Exchange Management Act) standards. Furthermore, Asset Management Companies (AMCs) in India cannot take foreign currency investments. As a result, you must open an NRE bank account or convert your ordinary account to an NRO account.


NRE and NRO account- You can save your foreign profits in an RBI-registered bank in India by opening an NRE (Non-Resident External) bank account. You can also open an NRO (Non-Resident Ordinary Account) account to deposit your Indian earnings, such as a pension, dividends, rental income, etc.


Update your Residential Area- After becoming a Non-resident of India, you must update your current residential address in your KYC (Know Your customer). You also need to inform the mutual fund house where you have invested. You can do it by submitting some documents like your PAN card, passport or address proof.


Taxation Policy For NRI’s


The mutual fund taxation rules for NRIs and residents of India are similar.


If the investment is made for a short period of time, such as one year or less, the tax rate will be 15% under the short-term capital gains taxation rules.


But if the investment is for more than one year or for the long term, then the tax charges will be 10% according to the long-term capital gains tax rules. If the gains reach Rs. 1 lakh, short-term capital gains are taxed at 15% and long-term capital gains at 10%.


However, If the NRI’s country of residence has not signed the DTAA (Double Tax Avoidance Agreement), the NRI has to pay taxes in both countries, the country of residence and India.


To Sum Up


In conclusion, as an NRI, investing in mutual funds in India is not significantly different from investing as a resident. However, understanding the taxation policy for NRIs is important, including the difference in tax rates for short-term and long-term investments and the impact of DTAA agreements. By considering these factors and investing wisely, NRIs can make safe and profitable mutual fund investments in India.


Source – Shoonya

Should I allocate over half of my portfolio to small and mid-cap funds?


Is it advisable to build a core equity portfolio (50-60 per cent) in mid and small caps, considering an SIP tenure for 10 plus years? – Anonymous


When it comes to long-term investing, a time horizon of 10 years or more is well-suited for equity investments. However, it’s important to avoid over-concentrating in one type of fund or solely investing in mid and small-cap funds. For example, building a core equity portfolio where 50-60 per cent is allocated to mid and small-cap funds is not recommended.


Instead, a diversified approach to equity via flexi-cap funds is recommended, as they invest across large, mid, and small-cap stocks. By investing in a flexi-cap fund, around 25-30 per cent of your portfolio is exposed to mid and small-cap stocks, while large-caps make up about 70 per cent. When building a portfolio, it’s best to focus on stocks that provide growth with stability, which large-caps tend to offer. Riskier assets should only be allocated a small portion of the portfolio.


While mid and small-cap funds may provide higher returns than flexi-cap funds in the long run, they may fluctuate more in the short run and are generally considered riskier. Having a higher exposure of 50-60 per cent to mid and small-cap funds can make your portfolio much more volatile, which is not advisable.


In conclusion, if you’re willing to accept higher risk and volatility for higher returns, you can add a mid or small-cap fund along with a flexi-cap fund. This way your portfolio allocation to mid- and small-caps would be slightly higher. However, it’s not advisable to make them the core of your portfolio.


Source- Valueresearchonline

Is it good to have four mutual funds in your portfolio?


You recommend four or five funds for a portfolio. Does it include both debt fund and equity fund or does it depend on the amount invested or you refer four or five equity funds only? – Hemant Bhatt


There is no rigid rule to recommend a certain number of funds. Also, there is no one scientifically derived precise number of funds that one can have. The rationale for investing in more funds is to diversify. This helps in offsetting the risk of some of the investments turning bad or performing poorly.


But there is no merit in continuing to add more funds in your portfolio beyond a certain point when you don’t get much benefit out of diversification.


How much is too much?

Four or five funds are good enough for diversification. This is as per an elaborate study which we did sometime back. The study suggested that beyond four or five funds, typically in the case of equity, you don’t get any meaningful benefit out of diversification in terms of reduced volatility.


Having said that, we’d suggest that you think of this aspect from the lens of your goals. As long as you have reasonable diversity in the number of funds for different goals, it is good enough.


Let’s understand with an example

Let’s say a person has three different goals to be achieved in the next one year, next two-three years and next 15 years. Such goals with different time frames would require a very different set of investments. Therefore if this person has 10-12 funds, they may not be too many considering all the three goals.


In contrast, if someone has three different goals, all to be achieved over the long term, say, in the next five years (single time frame), then a portfolio of more than 10 funds would be too many.


In conclusion
Your goal will have an important role to play in determining the number of funds that are good enough for your portfolio. So, have a goal-based investing mindset, and you’ll probably be able to make a better sense of diversification.


Source- Valueresearchonline

How to manage asset allocation during the accumulation phase?


I am 32 years old. I have been investing in mutual funds and shares since the last five years. But my question is how should I manage asset allocation during this accumulation phase, or to be specific when should I sell out part of the equity investment and move it to debt? – Anonymous


Great to know that you started investing early. Investing early has several benefits.


Asset allocation is a critical aspect of investing. It involves distributing equity and fixed-income assets in your portfolio, based on your investment horizon, risk tolerance, and investment goals.


Equity allocation based on investment horizon

As a general guideline, your equity allocation should increase with a more extended investment horizon. Equities have the potential to offer higher inflation-adjusted returns than other asset classes over time. However, as you approach the time when you need your funds, you should reduce your equity allocation in your portfolio and allocate more to debt.


If your financial goals are approximately three years away, investing solely in debt/fixed-income instruments is advisable. For goals that are further than three years away, you may choose to allocate a portion of your portfolio to equities.


Allocation guidelines for specific financial goals

For goals that are three to five years away, allocating around 25-30 per cent in equities is preferable. If your goals are five to seven years away, you may allocate 30-50 per cent, or even higher, in equities, depending on your risk tolerance. For goals that are seven or more years away, you may allocate even a higher portion to equities (70-80 per cent) and the remainder to debt or fixed income.


Systematic investment and exit

Additionally, since it is advisable to invest systematically via SIPs, it is equally important to exit in a systematic manner through an STP or SWP. For example, if your long-term goal is only three years away, consider transferring from equity to debt in a staggered manner instead of doing so all at once. This approach can assist you in avoiding market volatility and ensuring a smooth investment experience.


In conclusion, managing asset allocation during the accumulation phase necessitates a thorough understanding of your investment horizon, risk tolerance, and investment goals. By making informed decisions and following a systematic approach, you can create a well-diversified portfolio that can help you achieve your financial goals.


Source- Valueresearchonline

How expense ratio eats into your mutual fund gains


We recently received a question from one of our readers (we urge all of you to share your names) asking how mutual fund houses charge expense ratios.


Before we answer that question, let’s understand what expense ratio is and how it impacts your mutual fund investments.


What is expense ratio


In simple words, it’s an annual fee that fund houses charge their investors. It consists of their annual operating costs, which include management fees, administration fees and even advertising and promotion expenses, among others.


It is important to note that while the expense ratio is an annual fee, it is not charged once every year. Instead, it is subtly deducted daily from the fund’s net asset value (NAV) .


Since the expense ratio is an intrinsic expense, which is automatically deducted from the NAV, you don’t get any receipt on it.


This fee is charged irrespective of the fund’s positive or negative performance.


How expense ratio applies to your investments


Let’s see an example. Suppose you invest Rs 50,000 in a flexi-cap fund and the holding period is one year.


As with any other investment, there are certain charges applicable. One of them is the Securities Transaction Tax (STT), a direct tax payable on the purchase or sale of securities.


Let’s assume the STT to be 0.005 per cent.


This means the total investment amount going into the flexi-cap fund will not be Rs 50,000 but Rs 49,997.5 (Rs 50,000 – Rs 2.5).


Next, let’s say the expense ratio is 1.5 per cent.


If you invest your money for exactly 12 months, you will be charged the 1.5 per cent expense fee.


But if you remain invested for, say, nine months, you will be charged on a pro-rata basis for 273 days instead of 365. In this case, you’d have to cough out an expense ratio of 1.125 per cent.


How expense ratio affects your investment

Essentially, after accounting for the expense ratio, the actual gain from the investment over the course of the year is not 10 per cent but 8.35 per cent.


Things to keep in mind

  • While the daily deduction is small, the expense ratio incrementally reduces your returns.
  • While choosing a fund with a lower expense ratio may be tempting, it should not be the only factor while selecting a fund.
  • Instead, you should also consider the fund’s five-, 10-year returns, the experience of the fund manager, and how well the scheme aligns with your risk tolerance and investment goals.


Source- Valueresearchonline


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

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