‘Are mutual funds meant only for long term equity investing? Or Where should I invest my money for secure and steady returns?’
These are a few questions that many investors seek answers to. A quick search online for the right fund to invest can make things a bit worse. The presence of numerous categories and funds to choose from can be overwhelming for new investors or sometimes even the seasoned ones. So where should you invest for the short haul?
Have you heard about Investing in Liquid Funds? What are they?
Liquid funds are open-ended mutual fund schemes that invest in debt market instruments with maturities up to 90 days. Liquid funds are usually associated with lower risks and thus deliver relatively safer returns. Liquid funds primarily invest in instruments such as Treasury bills, commercial papers, government securities and so on.
Liquid funds India has a slightly different NAV calculation structure when compared with other mutual funds. The NAV or the net asset value of liquid funds is calculated for 365 days at the same time. Unlike other debt funds where the NAV is calculated at the end of a business day. There is no lock-in period in liquid funds.
As is the case with any other mutual funds, you can place a request to redeem NAVs of liquid funds at any point in time. The order to redeem the units will be placed by 2 pm on the current day or the next business day if you miss the time slot. In such cases, the NAV for the previous business day would be considered.
Why you should invest in liquid funds?
Liquid funds have one of the lowest risks associated as compared to other mutual fund schemes. This makes them ideal for investors who are not willing to take a lot of risks on their investments. And unlike some other funds, liquid funds do not have any exit loads.
Even if you invest in the best liquid funds, you may not receive returns like the equity mutual funds. Instead, you will receive a steady stream of income without taking many risks. Liquid funds are ideal for individuals who have some spare cash and are looking for a way to park it.
Redemption of mutual fund NAVs usually takes 24 hours to process. If you were to place an order to redeem your units, the earliest it would be done is the next business day.
The best performing liquid funds can offer returns anywhere between 6% - 8%, which is much higher than the standard interest rates that banks offer. The low-risk factor along with comparatively handsome returns is what makes liquid funds an interesting proposition.
Liquid funds in India
As an investor, you must carry out your due diligence before investing in any mutual fund for that matter. The following are some of the parameters that you must consider before investing in liquid funds.
- Fund Objectives
Most of the instruments that are a part of liquid funds mature within 60 to 90 days. This ensures that there isn’t much fluctuation when it comes to the NAVs. This also prevents major variations in the NAVs. If a rating agency down rates a company, the NAV of even the best liquid funds can take a beating. Though they are not risk-averse, when compared to other mutual funds, you can rely on their stability.
- Potential returns
Knowing the kind of returns that you can expect will help you decide with more conviction whether you want to invest in liquid funds India or not. When you consider historic data, liquid funds are known to return between 6% - 8% annually. Now if you look at the interest rates on offer by banks (on an average 4% annually) the liquid funds perform quite well. Though one cannot guarantee returns in mutual funds, in most cases you will be able to redeem your units in the green.
How should one evaluate liquid funds?
It should not come as a surprise that you would need to do some background work to get your hands on the best performing liquid funds. The following parameters should help you zero down on the top performing liquid funds.
- Fund expense ratio
Mutual funds also require administrative work to be completed in the background. Asset management companies usually charge them via expense ratios. In other words, it shows the operating efficiency of a fund. A lower expense ratio ensures that you will walk away with a higher return percentage.
- Returns of the fund
It must be noted that the past performance of even the top performing liquid funds is in no way an indication of the future returns. However, looking into history will help you better assess a fund.
Top 8 Liquid funds for 2019
The following is a list of the best liquid funds to invest in 2019. Here is a glimpse of the funds and their details briefly.
The above list contains some of the best liquid funds 2019 has on offer. You can consider the above funds and take a final call on which fund suits your investment profile.
There are a few strong reasons why liquid funds have garnered so much interest in recent years and a place in the portfolio of various investors. Their shorter maturity dates ensure that fund managers are not in a constant tussle to manage redemptions.
If you are considering parking your money for a short period, then just take a pick from the best liquid funds. It would offer you stable returns while allowing you to forget about the fund, until any short-term goal demands your attention. The low risk and steady returns make liquid funds, an ideal investment for short to mid-term goals.
Investors who have been in the habit of investing in fixed deposits and savings accounts will find the best liquid funds an interesting option to invest in. If you were to receive any dividends on these funds, you need not worry about taxes, since they are tax-free in your hands.
To sum up, if you are someone who wants to make their money work hard, then you should definitely not let go of the Liquid Fund option. Our team at IndiaNivesh constantly encourages customers to take advantage of this instrument. Our expert yet friendly team can hand-hold you to getting started and suggest you the best liquid funds to consider.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Difference between Equity shares and Preference shares
The financial world consists of both the debt market as well as the equity market and every corporate needs to raise capital by issuing shares, which could be in the form of equity shares, preference shares, etc. However, the prime reason for one to invest in the volatile share market over its debt counterparts is the sheer joy of overperformance.So, when you consider long-term investment, equity investments turn out to be one of the most profitable ones. Sure, there is the risk of prices going high enough to bring an ear-to-ear smile and low enough to make you regret your decisions at times. But over a considerable period, you could walk away with good returns.When we discuss shares, there are two types of shares that one can choose between, equity shares and preference shares. But before you can start investing, the most obvious question to ask would be what are equity shares and preference shares.The DefinitionEquity shares and preference shares are quite similar, yet different in the way they function and offer you returns. When you own equity shares of a company, the dividends are subject to how the company is performing. And at times, you might not even receive any dividends. This is one major difference between equity shares and preference shares. With preference shares, the company is bound to pay you dividends, since the amount is fixed but not with equity shares. - Equity SharesWhen you hear the word shares, people almost always refer to equity shares or ordinary shares. With equity shares, a company offers you partial ownership and thus, involves a lot of business risk. The members, who own equity shares, also acquire the right to vote for critical decisions in the company. These decisions may include electing a new leader, acquisition, merger, etc. And they play a crucial role in raising capital for the company. Equity capital forms the basic foundation of the company and its creditworthiness. The dividends or payouts to equity shareholders predominantly depend on the earnings of the company. Once the company has settled all other claims and expenses, it will pay its equity shareholders.- Preference SharesBetween equity shares and preference shares, it is the latter that offers a certain source of income. With preference shares, a company promises its shareholders a fixed amount as dividend. And the preference shares take precedence over ordinary shares or equity shares.They also have an edge over equity shareholders when it comes to repaying of capital. Since the rate of dividends is fixed, it is usually compared with debentures. Salient Differences between equity shares and preference sharesNow that we are aware of the definition of equity shares and preference shares, we can delve into the major differences. Here are some of the key differences when it comes down to equity shares vs preference shares.- Preference shares have specific rights over ordinary shares or equity shares of a company. - Preference shareholders do not have any rights when it comes to voting, whereas equity shareholders do. However, under a few circumstances, preference shareholders can gain the right to vote. For instance, if there hasn’t been dividend payment in over two years. - Preference shareholders do not reserve any claims to bonus shares, while one of the biggest merits of equity shares includes them having access to bonuses. - Preference shareholders have the right to receive dividends, but equity shareholders do not have any such rights. A dividend is paid out only if the company makes a profit to distribute. - Also, in a given year, if a dividend is not paid out to preference shareholders, the same would be accumulated and needs to be paid out later. However, the same is not true for equity shareholders. If a dividend is not declared for equity shareholders, the same does not accrue. - One of the limitations of preference shares is that shareholders do not have any claims in the management of the company, whereas equity shareholders do. - Preference shareholders can convert their shares to equity shares, but the reverse is not possible.Other than the salient differences, there is some outright difference between equity shares and preference shares which are worth mentioning. Here are some additional equity shares vs preference shares pointers that you should be aware of.- The basic descriptionOne crucial equity shares and preference shares’ difference is that equity shares are the foundation of a company, while preference shares give shareholders an edge over ordinary shares. It is offered to banks or large corporates when the company needs funds.It is one of the biggest merits of preference shares that a company receives funds whenever additional capital is required.- The rate of dividendThe dividend paying rates of equity shares and preference shares may differ a bit. While there isn’t any fixed rate for paying dividends to equity shareholders, preference shareholders do receive dividends at a fixed rate, which is predefined and can be a nominal value of the share price.The rate of dividend for equity shareholders is decided by the Board of Directors after evaluating the company’s performance in the previous financial year.- Issuance of sharesIt is mandatory to issue equity shares of a company to go public while issuing preference shares is not mandatory under the Company’s Act 2013.- TradingYou can easily trade equity shares in the capital market, whereas you cannot trade preference shares. This makes them less liquid as compared to equity shares. Thus, the preference shares do not see any price appreciation or depreciation as the equity shares do. Investors do have the option to sell back the preference shares to the company.- CategoriesAnother equity shares and preference shares difference come in the form of types. Since equity shares do not have any type, they are normally known as ordinary shares. On the other hand, the different types of Preference Shares include non-participatory or participatory, cumulative or non-cumulative, convertible or non-convertible and so on.- CostThe low cost of the equity shares makes them accessible by small investors. On the contrary, the higher price tags on the preference shares make them ideal for medium to large investors.- LiquidationIn the event of liquidation, the preference shareholders will have the first right to receive any kind of payment after the company’s creditors are paid. While equity shareholders have rights on the assets of the company once all the pending payments are complete. - RepaymentOne of the limitations of equity shares is that a company is not liable to repay the equity shares to its holders, whereas they must repay their preference shareholders.As discussed in the beginning, equity shares and preference shares are similar yet quite different. Equity shares and preference shares both allow you to own a piece of the company but in various other aspects. So, preference shares are a mix of equity shares and debentures.The crux of the story is that there are many choices available to invest. However, investing should be done after understanding the instruments and, as per your goals. At IndiaNivesh, we use extensive research to help you achieve your financial goals. Equity investing requires in-depth understanding, analysis, and periodic reviewing. Our team uses one of the best proprietary equity research to make your investment a fruitful one. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Benefits of Mutual Funds Investment in India
Mutual funds have emerged as one of the most popular investment avenues for all kinds of investors. Its popularity can be understood from the fact that most of the investors now wish to participate in the equity market via mutual funds. In fact, the mutual fund returns over the past few years have outperformed most of the other investment avenues. Apart from the consistent returns, there are many other benefits of investing in mutual funds. In this article, we will walk you through the key benefits of mutual funds. What Are The Benefits Of Mutual Funds? • Professional ManagementMutual funds collect money from multiple investors and invest them across various asset classes with the help of professional management. The fund managers of the mutual fund companies are highly qualified and have years of experience in investing money. Another advantage of mutual funds is that the fund manager has a team of experts who extract information from every corner of the market. This kind of expertise generates faith and assurance among the investors that their money is in the safe hands. • DiversificationDiversification is always important to build a good portfolio. Mutual funds invest the funds collected from various investors in different investment avenues. By spreading the money across a wider spectrum, the risk levels decline considerably. The mutual fund unit holders do not have to depend on the growth of a particular sector or stock when the portfolio is diversified. Thus, diversification is another benefit of mutual funds. • Smaller Capital OutlayAnother advantage of mutual funds is that it requires smaller capital outlay. To build a diversified portfolio, a large investment is required in general. But in the case of mutual funds, the money from multiple investors is pooled together and invested in a diversified portfolio. Thus, an individual investor investing in the mutual fund gets the benefit of the diversified portfolio even with a smaller capital outlay. • Economies of ScaleMutual funds purchase and sell securities in large volumes. This makes the transaction cost much lower than what a normal retail investor would pay if he purchases or sells it through the stock broker. • Easy to InvestThe biggest benefit of mutual funds in India is that it is easy to invest in them. You can start investing in mutual funds once you know your investment objective. Investment in mutual funds can be made depending on the schemes that suit your need and time duration. There are many types of mutual funds in the market and you can invest easily in any of them. Moreover, after investing you are not required to pay any further charges. • Liquid in NatureOne of the benefits of mutual funds is that they are liquid in nature. The open-ended funds can be redeemed at any time. In liquid funds and debt funds, the redemption money is transferred into your bank account in T+1 days. In the case of equity funds, the redemption money is transferred into your bank account in maximum T+3 days. This makes mutual funds very popular because you have the funds available at your disposal whenever you need them. • Invest as Per Your NeedsThere are various types of mutual funds available in the market and you can invest in any of them based on your needs. Select the mutual fund that suits your risk appetite and financial goals. Various products of mutual funds have different advantages and you must analyse each one of them to select the best for yourself. Also, you can make an investment in the mutual fund of any amount you like by way of an SIP or lump sum. The amount of SIP can be as low as Rs. 500 per month. • Disciplined InvestingThe main benefit of investing in mutual funds is that it makes you a disciplined investor. With SIP in mutual funds, you invest in every phase of the market and avoid taking the wrong decisions during panic situations in the market. Systematic Investment Plans help the investors in achieving their long term financial goals successfully. If a disciplined investing approach is not followed then you might end up spending on things that do not hold much utility. In addition, SIP is the best way to cut expenses and eradicate emotions from the investment process. • Various Modes of Investment and WithdrawalAnother benefit of mutual funds is that there are various modes to invest and withdraw the money. Investment in mutual fund schemes can be made in a lump sum or Systematic Investment Plan, systematic transfer plan of transferring money from one mutual fund scheme to another, etc. There are also many ways to withdraw money from mutual funds like lump sum withdrawal, systematic withdrawal plans, etc. Therefore, the choices available to invest and withdraw money is a big benefit of investing in mutual funds in India. • Helps You Save TaxesOne of the benefits of mutual funds in India is that they help you save a considerable amount of tax. Equity-Linked Savings Schemes (ELSS) are diversified equity mutual funds that qualify for tax benefit up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act. Moreover, long-term capital gains made below Rs. 1 lakh in a single financial year are also tax-exempt. The above mentioned are a few of the benefits of mutual funds. As a beginner or a seasoned investor, one must aim to invest in the mutual funds for the long term. Mutual funds have rewarded the long term investors handsomely. With the increasing popularity of mutual funds, expect many more types of mutual funds to hit the market. If you need any assistance for investing in the mutual fund market, you may contact IndiaNivesh Ltd. We suggest the right mutual fund for you after understanding your financial goals and tenure of investment. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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