Tax Saving Options - 4 Tax Saving Investment Options for Risk Takers

Tax Saving Options - 4 Tax Saving Investment Options for Risk Takers

Section 80C of the Income Tax Act allows a deduction up to a sum of Rs. 1.5 lakhs on certain tax saving investment options. These tax-saving investment plans include Life Insurance Premium, 5-Year Tax Deposits, Public Provident Fund, National Savings Certificate, and so on. This is the key reason Section 80C is a sought-after section when we talk about tax planning.

However, instead of investing in an ad hoc way, if you choose the tax-saving investment options as per your risk profile, it can prove to be more beneficial. It may even help you to achieve your financial goals in a better way.

In this article, we discuss 4 best tax saving investment options offering market-linked returns that can help you create long-term wealth.

1. Equity Linked Savings Schemes (ELSS)

Commonly known as Tax Saving Fund, ELSS is a diversified equity mutual fund offering tax-saving benefits. This tax-saving investment option has a mandatory lock-in period of 3 years. The minimum application amount is as little as Rs. 500 and there is no upper limit to the amount you can invest.

The investments can be made either in lumpsum or by SIPs (Systematic Investment Plans). SIPs are regarded as the better way of investing in ELSS as they provide the advantage of compounding and rupee cost averaging.

While selecting this tax saving investment scheme, look for funds which have a consistent performance record and follow robust investment processes. If you choose the right scheme, ELSS has the potential to offer attractive inflation-adjusted returns. The investment style could be value, growth or a combination of the two based on the investment mandate of the scheme.

2. Pension Funds

Pension funds offered by Mutual funds, are one of the preferred tax saving investment options in India. They are effective investment tools for retirement planning and tax planning. Most of the pension funds are hybrid in nature i.e. they invest in equity as well as debt. The returns on pension funds depend on the proportion in which the scheme invests in equity and debt. It also depends on how efficiently the scheme has been managed across the market conditions.

Pension funds have a 5 year lock-in period and an exit load which can extend up to retirement. At the vesting age, you can systematically redeem the units held in the folio/account by opting for a regular pension. This is the reason most people opt for pension funds for tax saving investment options in India.

3. Unit-linked Insurance Plans (ULIPs)

Typically, these tax saving investment options are insurance cum investment plans. They enable you to invest in equity and/or debt instruments. You can simply select the allocation option as offered by ULIPs. Fund options are classified as aggressive, moderate and conservative. Aggressive funds invest only in equity, moderate funds invest in a mix of equity and debt whereas conservative funds invest purely in debt instruments.

ULIPs not only offer investment returns that are market-linked but also provide insurance cover which is generally 10 times the insurance premium you pay. To enable you to track the performance of the fund, this tax saving investment option declares its Net Asset Value at regular intervals.

ULIPs come with a compulsory lock-in period of 5 years and also have a minimum premium paying term. The overall term of the policy differs from one product to the other. However, if you want to claim the tax benefit, the policy should remain active for a minimum of 5 years. In the case of eventualities, the fund value or the sum assured (whichever is higher) is paid to the beneficiary.

An important point to consider is while ULIPs may serve as a great tax saving investment option you must handle your investment and insurance needs separately. This helps you to pick the right investment instrument for long-term wealth creation and also have optimum insurance coverage.

4. National Pension System (NPS)

Erstwhile available only to the government employees, NPS is a trusted tax saving investment scheme which was introduced to the private sector in 2009. If you are between 18 years of age to 60 years and belong to the unorganised (private) sector you are eligible for NPS. The contributions towards this tax saving investment plan are voluntary.

You can invest in any of the following two accounts:

• Tier-I Account

This is a mandatory account where the minimum investment required is Rs. 500 per contribution and Rs. 1,000 per year. The account is frozen if you fail to pay the yearly minimum contribution. In order to unfreeze this account, you must contribute the total sum of contributions missed along with a penalty of Rs. 100 per year.

Under this account, premature withdrawals are not permitted before you attain the age of 60 years. However, they can be allowed only in the form of repayable advance if you have completed 15 years. In addition, such withdrawals are permitted only in case of emergency or critical illness. This is because the main aim of this account is to build a retirement corpus and buy a life annuity. This account can be operated anywhere in the country irrespective of the job location and employer.

• Tier-II Account

Unlike the Tier-I account, Tier-II account is a voluntary account. You first need to have a Tier-I account to open a Tier-II account. It can be opened with a minimum contribution of Rs. 1,000. From Tier-II account, you can withdraw as and when you wish to. The withdrawals do not attract a penalty of any sorts. So, this account serves just like your savings account.

There are two investment choices while investing money in NPS – Active or Auto. Under ‘Active', your money is invested in various asset classes. You can decide your asset allocation into the specific asset classes such as ECG. E stands for Equity and C denotes credit risk-bearing fixed income instruments other than government securities. G represents the central government and state government bonds.

Under ‘Auto’, money automatically gets invested according to your age profile. If you do not choose an option out of the two, the default option is always ‘Auto Choice’.

These are the best tax saving investment options that can be ideal for risk takers. ELSS is the most liquid option but to reap more benefits it is best to stay invested in it for at least 5 years. Pension Funds and NPS are good investment avenues for tax planning as well as retirement planning. As far as ULIPs are concerned, remember to deal with your investment and insurance needs separately. You can contact IndiaNivesh Ltd. if you need assistance with tax planning and investment guidance.


Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.


Portfolio Management - What is Portfolio Management, Objectives, Types & Process

Portfolio ManagementIndia today is home to many successful businessmen and high salaried corporate individuals. With increasing income levels, there is a need for lucrative investment avenues for high net worth individuals to earn good returns on their investment corpus. High-income individuals especially those with limited financial knowledge turn to portfolio managers to manage their investments more profitably. Now, what is portfolio management? Portfolio management involves prudently managing one’s investments, ensuring the right mix of investments which are regularly monitored and adjusted to earn a maximum return. Portfolio management services involve the application of investment strategies by expert fund managers to the investment portfolio of its client with the intent of maximizing returns within the acceptable risk level. Portfolio managers earn a commission which can be in the range of 3 to 5% of the portfolio value for undertaking these services. In India, portfolio management services are mostly opted for by HNIs as portfolio managers require a minimum investment commitment of INR 25 lakhs.The key to portfolio management services is that the entire responsibility of investment portfolio management is handed over to the portfolio manager. The portfolio manager, generally a domain expert undertakes all the required stock research and continuously monitors the investments. The portfolio managers take investment decisions in line with the investor’s goal and keep them updated about the developments in their portfolio. Objectives of Portfolio Management ServicesThe major objectives of Portfolio Management can be listed as below.o Customization of the investment portfolio of the HNI client, which is not possible for other investment options like mutual fundso The flexibility of choosing your own stocks as compared to mutual funds, which depends on the fund manager's discretiono Transparency of the costs and the fees along with the charges for the portfolio management servicesNeed for Portfolio Management ServicesAfter knowing about portfolio management meaning, let us have a look at why portfolio management is important in investments. o Extensive Research & ExpertisePortfolio management services are provided by professional and expert portfolio managers. Backed with years of expertise and detailed research on the market and specific stocks, they are in a better position to optimize the mix of stocks. This level of expertise is unlikely to be available to an individual and thus it can be more beneficial. o Continuous monitoringPortfolio managers are entrusted with the responsibility of the investor’s portfolio and are dedicated to growing the investor’s corpus. They continuously monitor the market trends as well as its impact on the investor’s portfolio and take timely decisions to maximize returns or minimize losses. This type of dedicated monitoring is difficult to achieve at an individual level. o Provides a customized portfolio for high net worth individualsPortfolio managers do not have a ‘one size fits all’ approach. They consider the specific investment goals of each investor and tailor make the portfolio mix to suit the investor. Investor’s need not worry about whether their portfolio is aligned with their goals as portfolio management services take care of this aspect. o Generation of better returnsThe cumulative effect of the above factors results in portfolio management services having a greater potential to earn higher returns as compared to what an inexperienced individual investor may be able to achieve on his own.Understanding Portfolio Management ServicesWe covered earlier about the portfolio management meaning. Now, the main objective of portfolio management is to design investment strategies that give maximum returns at a nominal risk level. Now, let's look at the portfolio management process. The portfolio management process is a continuous process and not a one-time act. Let us have a look at the steps involved in the Portfolio Management Process. o Security AnalysisThis is the primary stage of the process. Here, the major task is to identify the risk factors and the returns expected from the securities. These should match up with the investor’s long term financial goals and their risk enduring capability. o Analysis of the PortfolioOnce the risks and securities are identified, a large number of portfolios can be created. These portfolios are known as feasible portfolios. o Portfolio SelectionOut of all those feasible portfolios that are created, the portfolio manager will select the ones which are the most suitable for the investors. o Portfolio RevisionAfter portfolio selection is done, the portfolio manager and his team will keep a close eye always on the selected portfolio to make sure that no opportunity for obtaining a maximum return for the investor is missed. o Evaluation of portfolioHere, in this phase, the portfolio is assessed periodically to find out the return that has been obtained from the portfolio against the risk that is involved. Here, if there is a necessity for making some changes into the portfolio, it is implemented to minimize risk and optimize return.The Key elements of Portfolio ManagementLet us have a look at the key elements of portfolio management. One of the major key elements of investment portfolio management is customization. Those investors who are not very aggressive can add more stable investments into their portfolio. On the contrary, investors having an aggressive profile can add up volatile investments into their portfolio Portfolio management requires fundamental analysis. This analysis helps to identify the selection of stocks that can meet the investment goal. Fundamental analysis involves assessing the financial position of the company Portfolio management also involves undertaking market research and determining risk factors that have an impact on the market and the stocks in the portfolio. Being updated with changes in these risk factors and managing the portfolio to mitigate these on time is key Successful investment portfolio management necessitates continuous monitoring of the market and performance of the portfolio relative to the market. A pro-active approach in this regard can help make timely decisions to maximize profits in a bullish market and minimize losses in a bearish market While these are some of the standard elements and steps involved in portfolio management process, it may vary from one company to another.Types of Portfolio ManagementPortfolio Management can be further classified into Discretionary Portfolio Management and Non-discretionary portfolio management. In discretionary portfolio management, the portfolio manager has the complete authority to take all decisions on behalf of the client. The Portfolio Manager is responsible for taking care of the financial objectives of the client, carrying out documentation and filing tasks as well. Non-discretionary portfolio management is somewhat different from discretionary portfolio management in terms of discretionary powers. Here, the portfolio manager can give suggestions and advice to the investor on investment strategies. However, the final decision is taken by the investor himself. Portfolio Management brings a lot of benefits to the investors but at the same time has certain pitfalls as well. If you select to opt for portfolio management for your investments, then it is inevitable that you keep your investment goals and level of risk exposure clear with the portfolio managers. This will be the main factor influencing your returns and your investment strategy. Experts at IndiaNivesh will provide the right advice keeping your risk-taking ability and goals in mind and thus, giving you a well-balanced portfolio.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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SIP Investment - Why Should You Increase Your SIP Every Year

Whenever people begin their investment journey, they secretly wish to become millionaires, almost overnight. However, to effectively create wealth you need years of consistent investing at a gradual pace. Investments need time and also a boost from time to time to grow. Mutual funds are an effective investment tool to build a corpus. When it comes to investing in mutual funds, Systematic Investment Plans (SIPs) are a convenient option. In this article, we look at SIP investments and how increasing your online SIP investment every year can be beneficial to you.What Are SIP Investments? Many investors think of SIPs and mutual fund schemes as synonyms, however, that is not the case. SIPs are merely tools that allow you to invest in a mutual fund scheme over a period of time. It can be monthly, quarterly or semi-annually depending on your financial goals. It acts as a convenient option for salaried individuals to regularly invest in mutual funds. The money can get deducted from their account automatically thereby engraining a financial discipline. Most mutual fund managers advise investing through SIP investment plans rather than lumpsum investments. This is because SIPs help you to average your purchase cost and maximise returns. Since you invest regularly over a period irrespective of how the market conditions are, you automatically end up buying fewer units when the market is high and vice versa. This helps to average out the purchase cost of your mutual fund units.How To Start SIP Investment? You can start an SIP with a minimum amount of Rs. 500. Here is how to start SIP investment if you wish to buy mutual funds. • Basic InformationThe first step of SIP investment requires you to provide all your basic personal information in an online form such as your name, date of birth, address, mobile number, etc. • Upload DocumentsIn the next step, you are required to upload a scanned copy of your PAN card and address proof. • Video CallNext, you are required to complete the IPV or In-Person Verification by selecting a time slot which is convenient for you. This requires confirming your physical existence through a webcam video call. It is advised to keep your address proof and original PAN card handy as you will be asked to show it during the video call. • Aadhar Based eKYCThe above procedure for SIP investment can be simplified if you have an Aadhar card. You have to enter your Aadhar number and authenticate it with a One-Time Password (OTP). This will pre-populate the online form with all your basic information details available in the UIDAI database. IPV through a video call is not required if you complete the eKYC procedure through Aadhar as the UIDAI database already has your biometric information. However, there is a statutory limit which will not allow you to invest more than Rs. 50,000 per fund house in a financial year if PAN card details are not submitted by you. You can submit your PAN card and enhance this limit. • The Final StepLastly, visit the website of IndiaNivesh Ltd. and register for a new account. Keep your phone and cheque book near you as you would be required to verify your account through OTP and enter your bank details. Once the account is created, you can log in and choose the mutual fund scheme you are interested in. Choose the SIP date and submit your request.Benefits of Increasing Your Online SIP Investment Every Year Here are some advantages of increasing your SIP every year.• Builds A Bigger CorpusWhen your income and surplus increase every year, it makes sense to increase your SIP investment too. It adds to the power of compounding and helps accumulate greater wealth by building a bigger corpus. Even a small 5% to 20% increase in the SIP investment plan at the end of 10, 15 or 20 years can make a big difference. In addition, you can avoid increased documentation as it will reduce the necessity of creating and tracking multiple stocks. • Counters InflationWhile investing, the return adjusted for inflation is a significant factor to be considered. As inflation increases every year, the amount you find substantial today may not have the same worth some years down the line. Hence, if you do not increase your SIP investment amount every year, you ignore inflation which erodes the purchasing power of your hard-earned money. • Achieve Your Financial Goals FasterSuppose you start a SIP investment plan of Rs. 5,000 per month. Assume an annual return rate of 12%. After 10 years, your corpus would grow to be Rs. 11.6 lakhs. However, if you decided to increase your SIP contributions by 10% every year, after 10 years your corpus would grow to be Rs. 16.8 lakhs. That is a difference of over Rs. 5 lakhs. As the years multiply, the difference would be a lot more.How To Increase Your Online SIP Investment? Here are three simple ways by which you can increase your online SIP investment.• Select The Right SchemeIf you are interested in SIP investment plans that allow step-up option where you can enhance the amount regularly, ensure that it matches your risk profile. For example, if you are an aggressive investor, you can opt for a mid-cap equity fund. Or, if you are a conservative investor, you can look at balanced funds. • Determine The FrequencyYou can choose the frequency and the amount by which you want to increase your SIPs. It can be semi-annual or annual. An appraisal or bonus is the best time to start increasing your SIPs. It is always a wise decision to align your additional earnings to existing financial goals. • Identify Your Investment CapYou can decide to put a cap on the maximum amount of money you wish to invest every month in SIPs. When you choose this option, your SIPs can keep increasing till they hit the ceiling amount set by you. Once this maximum limit has been hit, the SIP then acts as a regular SIP with the same investment amount every month. SIPs allow you to invest periodically and help your wealth grow. You can achieve your long-term financial goals with regular small investments and gradually increase your SIPs every year to achieve your financial goals sooner. You can either increase your SIPs by a fixed amount or a certain percentage, depending upon your financial goals. You may contact IndiaNivesh Ltd. if you wish to start a SIP investment plan. We can help you choose the right mutual fund schemes based on your financial goals, risk tolerance and investment horizon. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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  • Commodity Market – Different Types of Commodity Market in India

    The commodity market in India has seen a sharp increase in the volumes over the past few years. Commodities are just another asset class like the bond and equity market. Commodities come from the earth and act as raw material for all types of manufacturing businesses. There are many types of commodities that can be traded in the market. In this article, you will learn about commodity trading in India, types of commodity market and other aspects of the commodity market in India. Let us begin by understanding the meaning of commodity. Meaning of Commodity A commodity is a group of goods or assets that are used in our day to day lives such as metals, agriculture, energy, etc. A commodity can be categorised as movable good that can be purchased and sold, except for money and actionable claims. There are various types of commodities that are traded in India. Let us look at the types of commodities. Types of Commodities Traded In India Agriculture: Wheat, Cotton, Rice, Corn, etc. Metals: Copper, Zinc, Gold, Silver, etc. Energy: Natural Gas, Crude Oil, Heating Oil, etc. Meat and Livestock: Cattle, Egg, etc. Let us now learn how you can invest in the commodity market in India. How to Invest in Commodity Market in India? You can commence commodity trading in India in any of the six major commodity trading exchanges as listed below; Indian Commodity Exchange – ICEX Ace Derivatives Exchange – ACE National Multi Commodity Exchange – NMCE The Universal Commodity Exchange – UCX Multi Commodity Exchange – MCX National Commodity and Derivatives Exchange – NCDEX From the above MCX and NCDEX are the most popular exchanges. List of Commodities Traded on Multi Commodity Exchange (MCX) Metals: Aluminium, Brass, Copper, Zinc, Lead, Nickel. Bullion: Gold, Silver. Agri Commodities: Rubber, Black Pepper, Mentha Oil, Crude Palm Oil, Palmolien, Cardamom, Cotton, Castor Seed. Energy: Natural Gas, Crude Oil. List of Commodities Traded on National Commodity and Derivatives Exchange (NCDEX) Fibres: Cotton, Guar Gum, Guar Seed, Kappa’s Oil and Oilseeds: Crude Palm Oil, Cotton Seed Oil Cake, Castor Seed, Mustard Seed, Refined Soy Oil, Soybean Soft: Sugar Cereals and pulses: Wheat, Barley, Paddy, Chana, Maize Rabi, Maize Kharif / South Spices: Jeera, Turmeric, Coriander, Pepper. Let us now learn about the commodities that are most traded. Most Traded Commodities Natural gas, crude oil, gold, silver, cotton, corn, wheat are among the most traded commodities globally. Crude oil and gold are among the most favourite commodities among the traders and investors community. Crude oil is used for producing diesel, petroleum, etc. It is very volatile during global tensions. OPEC is the consortium of oil-producing nations that determine the supply of crude oil. The main oil-producing nations are Russia, US, Saudi Arabia, etc. Just like crude, gold is among the most popular commodity Indian people invest in. The price of gold has an inverse relationship with the US dollar. When the price of the US dollar falls, the prices of gold increase and when the price of the US dollar increases, the prices of gold falls. Let us now learn about the participants in the commodity market. Participants of Commodity Market Speculators Speculators are traders that constantly monitor the price of commodities and predict the future price movement. If the speculators expect the prices of the commodity to move higher, they purchase commodity contract and sell them when the price goes up. Similarly, when they expect the price to go low, they sell commodity contracts and purchase back when the price falls. Thus, the intention of speculators is to make a profit in any type of market. Hedgers Hedgers are the producers, manufacturers, etc. who safeguard their risk by using the commodity futures market. Like for example, if a cotton farmer expects price fluctuation during crop harvesting, he can hedge his position. To hedge the risk, the farmer enters into a futures contract. If the price of the crop falls in the local market, the farmer can compensate for the loss by making profits in the future market. Similarly, if there is an increase in the price during crop harvesting, the farmer can book loss in the futures market and compensate it by selling his crop at a higher price in the local market. Let us now learn about the benefits of trading in the commodity market. Benefits of Trading in the Commodity Market Management of Risk The Securities and Exchange Board of India (SEBI) ensures that the exchanges have proper risk management procedures in place to protect the investors. Therefore, trading in commodities is regarded as very safe. Transparency Trading on the commodity exchanges is very transparent and the buyers or sellers cannot manipulate the price. The price discovery is done without any manipulation and orders are executed only when there is a match between a buyer’s and seller’s order. The margins in commodity markets are low, therefore traders use this market to hedge their position and for higher leverage. There are many benefits of trading in the commodity market. However, there are some important things that you must know while trading in such a market. Things to Know While Trading in Commodity Market The demand and supply chain determines the prices of commodity and you must have a clear idea about it. The prices of commodities depend on various factors and your strategies must be framed after understanding those factors. As a beginner, it is always advisable to take the help of experts before starting commodity trading. The risk in commodity trading is higher because you get higher leverage. The above mentioned are a few things that one must know before indulging in commodity trading in India. As a beginner or seasoned investor, you can contact IndiaNivesh for any assistance relating to the Indian commodity market. Our experts and professionals can help you in finding the best commodity to trade in India according to your risk-taking ability and financial goals. Our aim is to exceed the client’s expectation in all endeavours and we will be glad to serve you.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

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  • Systematic Withdrawal Plans – How to use SWP?

    Mutual Funds are to financial markets what star kids are to Bollywood – the talk of the town. Campaigns like “Mutual Funds Sahi Hain” have helped to spread awareness about the benefits of mutual funds to the masses. One of the most commonly used MF terms is SIP or Systematic Investment Plans. However, not much is known or talked about its better half – Systematic Withdrawal Plans or SWP. SWPs are considered as the opposite of SIP. Read on to know more about SWPs and how it can be beneficial for you. SWP – Meaning in Mutual Fund parlance Systematic Withdrawal Plan is a facility which allows investors to take out a pre-decided amount from their existing Mutual Fund investments at pre-determined time durations. The frequency of withdrawal can be chosen by the investors basis their requirements. It can be monthly, quarterly, bi-annually or annually. Basis the amount withdrawn in SWP, the equivalent units (as per the NAV on the day of withdrawal) are redeemed. Key features of SWP in Mutual Funds: It generates a regular stream of cash inflows Offers flexibility to investors in terms of withdrawal amount and frequency Can be started at the time of starting investment in a Mutual Fund scheme or can be activated at a later date in an existing scheme. Many investors prefer the SWP route to dividends. This is because dividends attract DDT (Dividend Distribution Tax) while long-term capital gains (till Rs. 1 Lakh) under SWP are exempt from tax. There is an option in SWP to customize the withdrawals: Fixed Withdrawal Option - You can decide to take out a specific amount on a periodic basis. Appreciation Withdrawal Option- If you want to preserve your capital, you can decide to withdraw only the amount of capital gains.  Setting up a Systematic Withdrawal Plan is a simple process. All you need to do is fill up the SWP Form (with the details like the amount to be withdrawn, periodicity etc.) and submit to the fund house or your distributor. Benefits of Systematic Withdrawal Plan Mutual Funds:1. A fixed source of income Systematic Withdrawal Plans become a fixed source of income for investors. For working individuals, it helps to supplement salary or business income. It can also be used as a steady source of income post-retirement.2. Discipline Just like Systematic Investment Plans, SWPs also help to instil a sense of disciplined investing. In SIP you need to invest a fixed sum of money on a regular basis. SWPs automatically redeem pre-determined units of mutual funds, irrespective of market levels. One can plan their monthly expenses as per the SWP amount, which will help them to remain within the budget. Secondly, the fixed withdrawal limit protects you from impulse sell or buy decisions in case of market fluctuations.3. Rupee Cost Averaging Rupee Cost Averaging enables investors to eliminate the need to time their market related decisions. Mutual Fund’s Net Asset Value(NAV) keeps on changing from time to time. Through SWP, investors get the average NAV of the MF over a long duration of time. Hence, it protects them from market fluctuations and ensures that investors do not become dependent on any particular NAV.4. Tax efficiencies From a tax perspective, each withdrawal under SWP is treated the same as equity or debt mutual funds. As the tax is applied only on the amount redeemed, SWP becomes a more tax-efficient alternative as compared to Fixed Deposits or lump sum withdrawals. They are preferred to Dividend Plans too for the same reason. Dividend payouts attract DDT (Dividend Distribution Tax) which is deducted by the AMC before the payout. SWP allows  optimising the tax on capital gains by holding the investments for a longer tenure and splitting the income over multiple time periods. How to use SWPs effectively? All investors can benefit from SWP in Mutual Funds. Here are some examples in which you can include them effectively in your financial planning- Retirement Planning SWP is a great strategy to fund financial needs post-retirement. This facility is especially handy for retirees who do not have a pension or other such regular source of income. Supplement salary income Salaried individuals can use SWP as a second source of income. It can help them fund specific financial goals such as children’s education, purchase of consumer goods, paying off loans, etc. Freelancers The biggest challenge faced by freelancers or self-employed professionals is lack of a steady or fixed income. There may be months where they would be minting money but there could be some dry spells as well. In such cases SWPs help to bring stability to one’s financial life. Nearing your financial goals Many investors use SWP in an extremely smart manner, especially when the markets are doing well. They invest in an equity mutual fund as they have the potential to generate higher returns. Once they reach their desired corpus, they can opt for an SWP. Through this facility, they move the funds from the equity investments to a relatively safer/ non-volatile option such as Bank Deposits, etc.   Final Words Systematic Withdrawal Plans help to cultivate a sense of financial discipline. It can be effectively used as a means to fund your monthly expenses or finance your (or your parent’s) retired life. Not only does it offer regular income but also ensures a controlled and budgeted approach to spending. However, you should try to withdraw only the interest part and keep the capital amount intact. In case you are unable to decide how much is too much, it is best to seek the help of an expert like IndiaNivesh. The team at IndiaNivesh can help you choose the right Mutual Fund scheme and the correct SWP amount basis your financial needs and investment tenure. They also offer a wide range of financial solutions related to broking and distribution, institutional equities, strategic investments, investment banking and wealth management. You can read all about them on "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

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  • Commodity Investment – Reasons to Invest in Commodity Market

    The world of investments has a vast number of financial instruments such as shares, stocks, bonds and many more. Commodities, too, are one such investment option available for investment. Even though the commodity market has grown substantially in the last few years, the participation of retail investors in commodities is still limited. However, the commodity market has huge potential and making the right investments in commodities can help improve the performance of your portfolio. What are commodities? Commodities are tangible goods that are either naturally occurring or can be agriculturally grown.  Commodities are consumed directly or used as raw materials for manufacturing finished goods meant for public consumption. All commodities can be classified under either of the two categories- Soft commodities- Those, that are grown and cannot be stored for an extended period. Examples of soft commodities include agricultural products such as grains, tea, coffee, and livestock. Hard commodities- Those, that are obtained through mining and extraction. Example of hard commodities includes oil, metals and natural gas. Why should you invest in the commodities market? Commodities play an important role in the development process and hence are building blocks of every economy. Commodity investments can help you diversify your portfolio into a different asset class apart from shares and bonds and enhance the overall returns of your investments. For many of you, the general perception is that the commodity market is complex and hence not something that everyone can dabble into. However, commodity investments can fetch you handsome returns.  Here are the top three reasons to invest in commodity markets for all types of investors-1. To diversify your portfolio  One of the key factors that determine the success of your financial planning is diversification. Diversification with regards to investment portfolio means investing in various assets that are not correlated to each other of your portfolio in different asset classes. Most of you would be diversifying your portfolio in five major asset classes which include cash, shares, fixed income securities, real estate, and gold. In times of increased volatility in the markets, you are either holding on to cash or investing in gold. Gold is considered the safest haven for investment in turbulent times and Indians tend to invest in gold because it is considered as a symbol of wealth and has ornamental value. However, in reality, the gold in your portfolio is your investment in commodity and just like all the other commodities the returns from it are independent of the returns generated by stocks and bonds. Just like gold, there are other commodity investments whose returns are not correlated to equities and bond markets. The price of any commodity investment is a function of demand and supply and by doing proper research and analysis you can make profits from commodity market investments.2. To provide a hedge against inflation Inflation is the general rise in the price of goods and services over time. For any investment to be fruitful, it is important that the returns generated beat the rate of inflation.  Higher inflation effectively erodes the real returns generated by your investments in stocks and fixed income securities. However, in the case of commodities, higher inflation relates to the higher price of commodities. So, unlike other investments, your commodity investments will result in a strong performance when inflation is high. Given the current situation when inflation is constantly on the rise, investing in commodities will provide a hedge against inflation.3. To improve potential returns The prices of individual commodities can fluctuate significantly due to several factors such as demand and supply, the impact of natural calamities, exchange rates and the economic health of the nation.  The rise in infrastructure projects in a developing country like ours and also globally has had a positive impact on commodity prices. As the commodity market is still an untapped arena, many of them are trading at a lower price than their actual potential. Proper research and effective implementation of investment strategy in commodities can help investors improve the overall returns on their portfolio. What are the various options to invest in commodities? The commodities market is a very deep market and investors have many investment vehicles to access it.  Let us look at the various options available for investors to buy and sell commodities1) Investing in the physical form Commodities such as gold, silver, etc., are bought by investors in physical form.  However, not all commodities can be bought in physical form as it has its drawbacks of storage and spoilage. Even in the case of precious metals security and insurance increase the cost of your investment. Moreover, most of the time you want to invest in a commodity, not for end-use but to make profits if you anticipate that the price will increase. So, buying a commodity in physical form, except for precious metals, is generally not recommended for retail investors.2) Investment through commodity futures One of the most common ways to trade in commodities is through a commodities futures contract. It is a standardised agreement to buy or sell fixed quantities of the underlying commodity at a predetermined price on a specific date as mentioned in the contract. Also, commodity trades happen electronically through commodity exchanges where investing real-time commodity is possible.  Multi Commodity Exchange of India (MCX), National Commodity and Derivatives Exchange (NCDEX) are two of the many commodity exchanges present in the country which help investors trade in commodities. All the commodity exchanges come under the regulation of the Forward Markets Commission (FMC). 3) Commodity ETFs Commodity ETFs are another popular investment option available for retail investors to diversify their holdings in commodities. Commodity ETFs invest in a single commodity and physically hold and store it, invest in a commodity futures contract or invest in a commodity index that tracks the performance of multiple commodities. Investors can invest in commodity ETFs electronically in their Demat account. 4) Commodity Stocks Investors who are not comfortable with investing in commodity futures or ETFs can diversify their portfolio in commodities is by investing in commodity stocks. Commodity stocks are stocks of those companies which are directly or indirectly related in the manufacturing process of the commodity and hence have a positive correlation with the commodity.  For example, if you feel that the steel prices are going to increase, then you can invest in the stocks of various steel companies listed on the exchange. 5) Mutual funds One of the biggest reasons for an investor to shy away from commodity investment is that commodity investments require a lot of time, knowledge and expertise to make the right investment choices. However, now SEBI has permitted mutual funds to invest in the commodities market through the exchange-traded commodities derivatives (ETCD) route.  Thus, retail investors can now participate in commodity markets in a structured manner through professionally managed mutual funds. Takeaway Commodities are a broad and diversified asset class that offers a great investment opportunity to investors. Given the high inflationary pressure and volatility in the markets, dedicating a small portion of your portfolio to commodities will help enhance the overall performance of your investments. Investing in commodities may look intimidating and you may feel a little hesitant to explore your options, but correct guidance from an experienced financial advisor can help you understand the nuances of commodity markets and make the right investment decisions as per your investment needs. Financial advisors at IndiaNivesh possess the requisite expertise and experience to help and guide you with investments in commodities markets.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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