Mutual funds now are a household name and building a mutual fund portfolio is synonymous with wealth creation. As the mutual fund industry continues to grow leaps and bounds, SIPs are considered one of the key growth drivers for this industry.
SIPs help the investors to invest in a systematic and disciplined manners.
Online SIP investments starting with Rs 500 per month (for few schemes min SIP amount is as low as Rs. 100 per month); digital distribution and hassle-free onboarding of investors, all have resulted in making an investment for SIPs most favoured investment option.
To stay relevant with times and improvise their offerings, AMCs now offer many different types of SIP so that investors can choose the most suitable type of SIP for investment best suited to their individual needs and profile. Here are the different types of SIP investment available for investors-
1. Regular SIP
One of the simplest and easiest forms of SIP investment is a regular SIP, wherein you invest a fixed amount at regular intervals. The time interval can be monthly, bi-monthly, quarterly or semi-annually. You can also choose daily or weekly SIPs, though it is not recommended in most cases. When you make your first SIP payment, you are required to choose your desired time interval, amount of the SIP and the tenure of the SIP. In a regular SIP, you cannot change the amount during the tenure of the investment.
If you are a salaried employee, choosing a monthly SIP, usually in the first ten days of the month, once your salary is credited to your bank account is highly recommended.
2. Step-up SIP
Without a doubt, SIPs help brings about financial discipline in your life. Over time, as your earnings increase, it is important to increase your investments as well so as to keep them aligned with your income level and financial goals. A step-up SIP, also termed as a top-up SIP, is an automated solution to increase your SIP contribution either by a fixed amount or a fixed percentage after a specific time. Using Step-up SIPs will help you reach achieve your goals faster and also help in long-term wealth creation.
3. Flexible SIP
For investors with irregular income, even after being well aware of the benefits of SIPs, the biggest reason for not starting a SIP is not being able to keep up with the fixed periodic investments. A flexible SIP is a perfect solution for such investors as it gives the flexibility to start, pause, decrease or increase your SIP. Depending on your flow of funds, you can change the SIP amount seven days before the SIP date. In case, there is no intimation of change, then the default amount entered is deducted for the SIP.
4. Perpetual SIP
Normally, when you choose a regular SIP, it has a fixed tenure, with a starting date and an end date. But, if you are unsure about how long you want to continue the SIP, you can opt for a perpetual SIP. In case of a perpetual SIP, you leave the end date column blank and you can redeem your SIP once you have reached your financial goal. If you opt for a perpetual SIP, then it is important that you monitor the returns of your investment, to keep a track of the fund’s performance over time.
5. Trigger SIP
A trigger SIP is for seasoned investors, who have sound knowledge of the financial markets and are accustomed to tracking the market performance daily. Using a trigger SIP, an investor can choose an index level, a particular event or NAV to start the SIP. An investor can set trigger points for upside and downside conditions and can redeem the amount on achieving the pre-specified target. Investors can oscillate their investments between debt and equity schemes within the same fund house. A trigger SIP is recommended only for investors who have a thorough understanding of financial markets.
6. SIP with Insurance
Insurance is an important part of financial planning. In order to make mutual fund offerings more lucrative, certain fund houses offer free insurance cover if you opt for SIPs with a longer duration. The initial cover is usually ten times the first SIP and gradually increases over time. This feature is only for equity mutual fund schemes. The term insurance offered is just an add-on feature and does not impact the performance of the fund.
7. Multi SIP
The multi-SIP enables starting SIP investment in multiple schemes of a fund house through a single instrument. This facility can help investors to build a diversified portfolio. Investors can start SIP in various schemes using a single form and payment instruction, thereby reducing the paperwork involved.
Over the last few years, SIP returns have earned investor confidence and are the most preferred investment option of retail investors. If you are unsure on how to choose the right SIP for you and want correct guidance, then consult our expert financial advisors at IndiaNivesh for best-suited SIPs for investments.
Value Investing - What is Value Investing & its Fundamentals
Value investing is the dark horse of stock markets. And this dark horse has created huge wealth for none other than Warren Buffet. Read on to know what value investing is, and what are the critical factors in this strategy. All that glitters is not gold and all that is gold does not always glitter. This holds true for investment decisions as well and forms the core principle of value investing. What is Value Investing? The value investment strategy was popularised by Benjamin Graham along with David Dodd after successfully surviving the period of the great depression. It involves proactively identifying stocks which are trading at a significantly lower value than their intrinsic value. Intrinsic Value refers to the true value of a stock. The two factors behind value investing are market price and value. Price is the amount you pay, and the value is what you get in return. Value investing believes that the stock market does not always remain in an efficient or balanced state. It sometimes overreacts to events such as political announcements, organisational restructuring, economic conditions and results in stock price fluctuations which do not correspond to the company’s actual worth or long-term fundamentals. Hence, there is a good probability that there are undervalued or overvalued stocks in the market. Value Investing and Behavioral Finance Value Investing and Behavioral Finance are two sides of the same coin. Value investing aims to exploit irrational or impulsive behaviour of investors. Emotions heavily influence investment-related decisions. Greed, fear, peer-pressure lead to poor investment decisions. This creates a huge potential for dispassionate or objective investors. Value investors do not get carried away by market sentiments or herd mentality, instead, they look at the real value of a stock in the long run. They also do not fall into a “growth trap” without actually understanding the history or behaviour of stocks. Fundamentals of Value Investing1. Find the intrinsic value Investors who follow value investing strategy are more interested in a stock’s intrinsic value and not just the current market price. There are multiple ways and valuation methods that are used to identify the intrinsic or true value of a stock. Such as discounted cash flow analysis, dividend discount model, Earning per Share valuation, etc. There is also a formula coined by Benjamin Graham to arrive at the true value of a stock. It is: Intrinsic Value = Earnings Per Share (EPS) multiplied by (8.5+ Twice the growth rate of the company in the coming 7-10 years). This formula has been now tweaked to reflect the current market conditions correctly. It is now: Intrinsic Value = [Earnings Per Share (EPS) multiplied by (8.5+ Twice the growth rate of the company in the coming 7-10 years) multiplied by 4.4] divided by current corporate bond (AAA) yield. 4.4 in the above formula referred to the minimum rate of return in the USA in the year 1962. For the purpose of valuation of Indian stocks, 4.4 should be replaced by the corporate bond yield in the same year in India. When the stock’s market value goes below the calculated intrinsic value, investors purchase those stocks. Then they sit back and relax till the time the market corrects itself and the stock price reaches its actual value. 2. Margin of Safety Margin of Safety enables value investors to manage risks and avoid losses. It is also the key element which distinguishes value investing from mere speculation. It refers to the difference between the stock’s current market price and its intrinsic value. Higher the gap, greater is the safety margin. By investing in a stock with an adequate security margin, investors know that any negative event or volatility will not adversely impact the value of the investment. 3. Don’t follow the crowd Value investing is not for those who like to follow the herd. Value investors focus on stocks which are overlooked or avoided by others because of their low valuations but are inherently solid stocks. Are there risks in Value Investing? Yes. Just like all the other things in our life, there are risks involved in Value Investing as well. One of the biggest risks is falling into Value Traps. All cheap stocks do not translate into good investment decisions. Value traps are stocks which seem to cheap due to low PE multiple or cash flows, but never go up in value. It is important to do full due- diligence before investing. This includes not just financial metrics, but also qualitative aspects such as quality of management, stability, competition, etc. Final Words Value investing is a proven strategy for wealth appreciation in the long run. But it can be an intimidating way of investing without the right support. A partner like IndiaNivesh can make the process smooth and more fruitful for investors. IndiaNivesh is a reputable financial service provider which offers a wide range of services related to Broking, Institutional equities, strategic investments, wealth management, investment banking and corporate finance. With their in-depth understanding of the Indian markets, the organisational experience of three centuries and cutting-edge technological tools, they help investors make well-informed and profitable decisions.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."
ELSS Funds – Best ELSS (Tax Saver) Mutual Funds to invest in 2020
As another financial year is coming to an end, most of you would be busy with tax planning and looking for the most tax-efficient investment avenues. Though there are many tax saving options available for investments, Equity Linked Savings Scheme (ELSS) is one of the best options, as it has the potential to offer higher returns along with tax savings. Under Section 80C of the Income Tax Act, the maximum limit for tax benefit is Rs 1.5 lakh per year so that investors can invest up to Rs. 1.5 lakh in ELSS funds for tax exemption. ELSS is an open-ended diversified equity fund that invests more than 80% of the corpus in equities, and they come with a mandatory lock-in period of 3 years. Compared to other tax saving investment options, ELSS funds have the shortest lock-in period, and they also have the potential of higher returns as ELSS invest in equities, which can generate higher returns over the long-term. In short, ELSS offers dual benefits of tax exemption and also capital appreciation. Investments in ELSS funds can be done either in lump-sum or by starting a SIP. You can start a SIP with a minimum amount of Rs 500 per month. Even though the tax-exemption is only for Rs 1.5 lakh, there is no maximum limit for investment, which can be made in ELSS. Advantages of investing in ELSS, tax-saving mutual funds Amongst all the investment options available under Section 80C, ELSS mutual funds have the shortest lock-in period of 3 years As these funds are invested in equities, they have the potential to generate higher returns as compared to other instruments like PPF, NSC, etc There is no upper limit for investment Experts professionally manage the funds so investors need not have to worry about gaining expertise of equity markets Some of the essential points to consider at the time of choosing the best ELSS funds are: Past performance of the fund At the time of investing in ELSS mutual funds, it is vital to take into account the past performance of the scheme. However, at the time of seeing the past performance, you should go for schemes that have consistently given higher returns and beaten the benchmark and its peers over the longer-term. So, instead of looking for the performance over 1 or 2 years, choose funds with consistent returns. Ratings of Fund It is essential to look at the ratings of the funds, but a 5-star fund may not always be the best fund to invest as ratings change over time depending on any changes in the scheme's portfolio, and it may not provide the desired returns. Diversification Equities give the best returns if you stay invested for a longer-term. As ELSS is an equity scheme, you should invest your money in well-diversified schemes that invest their corpus across different industries and sectors for best returns. The expense ratio of the fund It is the cost of managing the fund and has a significant impact on the overall returns of the fund. A lower expense ratio translates into a higher return. So, it is essential to choose a fund with a lower expense ratio along with returns. The time horizon for investment for tax-saving funds The lock-in period for ELSS mutual funds is three years, which is the shortest as compared to other tax-saving options. However, staying invested in equities for a longer-term fetches the best possible returns. So, even though it has a lock-in period, you can remain invested in them and let your investment grow and if need be, you can withdraw your units partially or fully after three years. To invest lump-sum or through SIP ELSS mutual funds give you the flexibility to plan your tax-saving investment either in a lump-sum amount or through SIPs. SIP route is recommended for someone who carries out his tax planning all through the year. Top 10 tax-saving mutual funds to invest in 2020 Here is the list of top 10 ELSS funds which experts at IndiaNivesh recommend for investment in 2020 Source: Moneycontrol. (Data as on Feb 2020) ELSS investments are important for your tax planning and also for wealth creation in the long term. Open a Demat account with IndiaNivesh and get our expert advice and guidance for all your investment needs. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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