Types of mutual funds

Posted by Mehul Kothari | Published on 14 Mar 2019
Image
Types of mutual funds

Mutual funds are versatile and can fit into any investing style. That’s because there are different types of mutual funds in the market. Each mutual fund serves a different purpose. These funds vary in their investment objective, risks, returns as well as taxation. The wide range of mutual funds, therefore, helps you invest in the right fund. Therefore, it is important you understand the different types of mutual funds. It can help you make the right decision. So, let’s enlist the different types of funds for a better understanding of the mutual fund market.


Mutual fund categories

On a broader level, mutual funds are categorized as equity and debt funds. A mix of the two is known as a hybrid fund.


▪ Equity funds

Equity funds mainly invest in stocks of companies. There are various types of equity funds available in the market. They are:

✓ Diversified equity funds: Diversified equity mutual funds are pure equity funds which spreads your invested money across various sectors and companies regardless of their market capitalization.

These are multicap funds and are suitable for a moderate risk-taker. Staying invested for five to six years may deliver potential returns. However, study the fund’s past returns and its objective before investing.

✓ Sector funds: Such funds invest in one particular sector. For example, Banking and Financial Service Fund invests in banking and financial services sector only.

Sector funds can be a good choice for long-term investing. However, this entails higher risk. So, before you invest, it is important to study the sector and analyse how it may outperform the market in future.

✓ Equity-linked savings schemes(ELSS): These are the tax-saving mutual funds that qualify for deduction under Section 80C of the Income Tax Act. Although ELSS funds come with a lock-in period of three years, using the SIP route can make such investment affordable.

✓ Hybrid funds: These are balanced funds that invest in both stocks and bonds. They are considered equity-oriented funds as they invest at least 65% of total money in equity. These are good investment options for beginners.



▪ Debt funds

Debt funds are mutual funds that principally invest in debt instruments like bonds, treasury bills and other fixed income investments. These funds can be further categorized:

✓ Income funds: These funds majorly invest in fixed-income instruments like bonds, government securities and corporate debentures etc. The major focus is on income generation.

It’s important to consider the interest rate. That’s because interest rate volatility has an impact on these funds. Investing during a falling interest rate scenario and exiting when rates tend to rise can benefit you in such funds. If you have one to three years’ time frame in mind, these funds can be a good option.

✓ GILT funds: These funds majorly invest in government securities. Generally, these funds are safe since there is no default risk. However, gilt funds are subjected to interest rate risk. For example, if the interest rate moves up, the yield of a GILT fund goes down as it becomes less attractive and vice versa. Thus, you need to keep a track on the interest rate movements.

✓ Short-term funds: These funds primarily invest in money market instruments like treasury bills and certificate of deposits. The average maturity of such papers are low and the investment is thus suitable for a short-term horizon like three to six months.

✓ Monthly income plans (MIPs): These are debt-oriented hybrid funds with a small allocation in equity and a majority of the investment in debt. MIPs usually pay a monthly dividend. Investors with low to moderate risk profile can consider this as an option in order to receive a regular income. But do remember that the monthly dividend is not a guarantee.

✓ Liquid funds: These invest in short-term debt instruments like commercial papers, treasury bills and corporate deposits. These are a good short-term option.


Now that you know how different mutual funds work, you can choose to invest based on your needs.

 

 

Disclaimer: Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.

PREVIOUS STORY

Myths about fixed income investments

Posted by Mehul Kothari | Published on 14 Mar 2019

Fixed income investments are a popular investment choice for many risk-averse investors. Fixed income investments provide stability by offering an assured income along with capital protection. However, there are certain myths that surround these investment options. It is pertinent you pick the right bones before you invest. Separating the wheat from the chaff is of key essence here. So, let’s look at some of the fixed income investments myths that bog fixed income instruments down. In the myth busting pointers below we help clear the air for you.Myth 1. Fixed income investments are risk-freeReality: Fixed income instruments are considered as risk-free. However, they do carry a certain degree of risk. For example, bonds and debt funds are subjected to credit risk and interest rate risk. Corporate deposits are subject to liquidity risk. Hence, it’s important to consider various things like consistency in returns, debt-equity ratio and credit ratings of the issuer when assessing fixed income investments. Also, if you are investing in debt funds, take a look at underlying instruments of that fund. If the fund manager invests in debt instruments that have poor ratings, getting out of the fund during an emergency could get difficult.Myth 2. Fixed income investments are solely for income generationReality: Along with income generation, fixed income investments also offer an opportunity for growth. For example, convertible bonds have an equity component for growth. There are other products like debt mutual funds and convertible bonds as part of fixed income investments in India that provide growth opportunity as well. Myth 3. Increasing interest rates are bad for bondsReality: Generally, bond prices go down with a rise in interest rates. And this is what makes people assume that rising interest rates are bad for bonds. But, the rising interest rate scenario could work in favour of some bond investors. The impact of rising rates depends on the investor’s time horizon or how long an investor wants to hold the particular bond investment.For example, you invest in a bond fund for the long-term. Over the period of time, value of the bond fund can recover even in if the interest rate rises. That’s because your fund manager rebalances the portfolio on a regular basis. Myth 4. Fixed income investments are for retirees or those nearing retirementReality: Debt-oriented options should be a part of your portfolio. That’s because it helps diversify the investments you have. For example, if your equity investment doesn’t do well, you can rely on your debt investment to help you out. Debt investment is needed to stabilize and balance the overall investment portfolio.Thus, it is the combination of equity and debt investments that is vital for building a healthy investment portfolio for fulfilling long-term financial goals. In addition, tax free fixed income investments such as ELSS can also ensure you build wealth while at the same time you also receive tax exemptions.Fixed income instruments can be an excellent way of receiving almost-assured steady income, and securing your capital. However, like every financial investment, a lot of data out there could be bad and inaccurate as much as there is genuine information. Based on the kind of fixed income assets you are evaluating, you could be working on misconceptions and that could cost your hard earned money. As the above mentioned points show, every fixed income investments is unique. Each one has its set of risks and opportunities that you need to consider. Look into your goals and time frame to invest in the exact type of fixed income investment for your future.   Disclaimer: Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.

read more

NEXT STORY

Why start investing in mutual funds

Posted by Mehul Kothari | Published on 14 Mar 2019

Mutual funds have been shining brighter by the year in the country. But you may wonder why invest in mutual funds? The answer is simple: they are considered to be the ideal investment option for people not well-versed with the world of finance. You don’t need deep pockets to invest in them either. In this article, we look why invest in mutual funds makes sense. To start investing in mutual funds you need to know the reasons in detail as to why mutual funds can be an ideal option, especially if finance is not your forte.✓ Convenient It’s easy to get started with mutual funds. There are many fund houses that offer online facility to invest. Unlike demat accounts for stocks, there is not much paperwork involved in mutual fund investments. Systematic investment plan (SIP) by mutual funds is a convenient investing option for beginners. In systematic investment plan, money will be directly debited from your account on a monthly basis towards fund investment. It’s that simple. Along with offering convenience, it also inculcates a habit of investing. ✓ Affordable There are many investors who step away from stock markets because they lack capital. However, mutual funds are affordable. You can start with as little as Rs.500 a month. The best part is that it gives you an opportunity to invest in a wide variety of stocks at a minimum account. Unlike direct equities, mutual funds offer you a maximum exposure at a minimal cost. ✓ Diversification Mutual funds can help diversify your investment across various asset classes like equity and debts. Unlike individual stocks which are risky, equity mutual funds diversify the risk by investing in stocks of various companies across various sectors. For example, a balanced fund invests your money in both equity and debt instruments. This means that even if your equity investment isn’t doing too well, you can rely on your debt investment to get a return on investment. Therefore, diversification can help reduce risk along with optimizing returns. ✓ Liquidity Mutual funds are highly liquid, meaning they can be bought or sold easily. Except tax saving schemes like ELSS (Equity Linked Savings Scheme), mutual funds don’t have a lock-in period. Further, mutual funds also offer liquidity by providing facilities like systematic withdrawal plans (SWPs) and systematic transfer plans (STPs). While STPs afford you the flexibility to move from existing fund to better performing fund, SWPs allow you to withdraw a fixed amount from your invested fund at fixed intervals. ✓ Professional management Mutual funds are managed by professional managers and experts who are in tune with the world of finance. Unlike with direct stocks, which needs you to do a lot of research, mutual funds reduce your burden by leaving this job in the hands of fund managers. Stock picking, tracking their performance and rebalancing if needed are done by fund managers. ✓ Competitive returns Above all, mutual funds can offer ‘higher returns’ when compared to many other investment options. After all, everyone’s objective is to maximize their income. For example, debt funds have consistently delivered better returns than traditional bank deposits. ✓ Transparency Mutual funds provide operational transparency. Net asset value of funds are declared and published on a daily basis. Mutual fund houses issue monthly fund factsheets that provide you details of portfolio holdings along with its performance. ✓ Regulated industry The mutual fund industry is regulated by the Securities and Exchange Board of India (SEBI), a non-statutory body that oversees securities market in India. As mutual fund houses operates under well-regulated structure, it focuses on protecting the interest of investors.To sum up, it now makes sense to know why start investing in mutual funds. Armed with a variety of options like growth funds, income funds, sector funds and ELSS funds etc., there is a fund for every need and investment objective. You investment decision will have a significant impact on the growth of your hard earned money. Invest smartly!What’s next?Now that we know how to start investing in mutual funds online in India and the reasons, it’s important to be aware of certain misconceptions that shroud mutual funds. That’s because clarity can help you take rational decisions. Speak to a financial expert to know where to start investing in mutual funds that aligns with your goals and risk appetite.     Disclaimer: Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.

read more

Are you Investment ready?

*All fields are mandatory

related stories view all

  • What is NCD (Non Convertible Debentures)? – Meaning & Features| IndiaNivesh
    Posted by Mehul Kothari | Published on 23 Sep 2019

    What is NCD (Non Convertible Debentures) Investors are continually looking for new investment avenues, especially in a market where conventional investment instruments and sometimes falter in a volatile market. One such attractive proposition that can help you manage liquidity and risks while offering significant profits are nonconvertible debentures (NCDs).What is NCD?Nonconvertible debentures meaning, NCDs are financial vehicles issued by reputed companies for a specified period of time with a guarantee of a fixed interest to investors. Unlike standard debentures, nonconvertible debentures cannot be transformed into equities or company shares. The company that issues the NCD decides on the interest rates. On maturity, investors receive the principal amount and the interest together. Nonconvertible debentures can be held by individual investors, banking institutions, primary dealers, unincorporated establishments, registered corporate bodies and other bodies incorporated in India. Companies issuing upcoming non convertible debentures in the market, do so to raise funds from the public. These NCDs can be secured or unsecured. Secured nonconvertible debentures are supported by the issuing company's assets to accomplish the debt responsibility. Hence, if the company fails to pay its investors, they can claim the payment by liquidating the company's assets. On the other hand, unsecured NCDs are ones that are not supported by the company's assets. Thus they hold far higher risk than secured NCDs.Features of nonconvertible debentures:Interest rates Typically, the interest rate of NCDs overs between 10 to 12%. Fixed deposits on the other hands could offer a maximum of 8% returns. Hence, compared to most investment options, NCDs can be lucrative due to its high-interest rates. However, how credit rating agencies grade a company’s NCD can be inversely proportional to the interest, it provides. For instance, a highly rated NCD could provide low-interest rates. But compared to corporate fixed deposits, bank fixed deposits and government bonds that give a maximum of 8% returns; nonconvertible debentures offer returns up to 11%, which makes it an attractive investment instrument.Pay out options If you are looking to invest in nonconvertible debentures, you can benefit from a variety of interest pay out options such as on a monthly basis, quarterly, six-monthly or annual basis. Typically, NCDs could mature from 90 days to 20 years. Hence, you have the opportunity and flexibility of choosing short and long-term tenures depending on your investment objectives.Liquidity Non convertible debentures are listed on stock exchanges and offer secure withdrawal options. Redeeming your investment from NCDs can be easier than bank fixed deposits, and hence, can be considered as providing better liquidity than FDs.IssuanceA company that offers nonconvertible debentures through open issues can be purchased within a specified timeframe. Similarly, NCDs can also be purchased from the stock market. To understand what is ncd in stock market, you may want to look into the open stock market and exchanges for easily tradable NCD options.Stringent credit ratingNCDs are only authorised to be issued by companies that have good credit ratings. Credit rating agencies rate NCDs and revise ratings regularly.Things to consider before investing in non convertible debenturesIt is critical to understand how NCDs can be vulnerable to risks. These risks could be related to how a company's business is handled and how it utilises its funds. An NCD’s credit rating could take a hit if the company's turnover is impacted negatively. To address the impact, companies then borrow additional funds from banks and lending institutions. This is why it is critical to consider a few points before investing in nonconvertible debentures. These include:Issuer's credit ratingOpt for a company that has a credit rating of AA and above. The score is a crucial indicator of the company's potential to raise funds from external and internal operations. The rating is also evidence of the company’s sustainability. Credit rating is a valid parameter that can expose the financial position of the company.Debt levelsIt is essential that you conduct background checks on the asset quality of the organisation if you are considering to invest in its nonconvertible debentures. If a company is allocating more than 50% of its entire assets in unsecured loans, it can be a sign to stay away from such companies.Understanding CARCapital Adequacy Ratio or CAR looks into the company's capital and calculates if it has adequate funding to outlive potential losses. It can be an excellent idea to look into the company you plan on investing to see if it has at least 15% CAR. Alternately, you must also ensure that the company has historically maintained the CAR over a period of time.Looking to NPAsA company issuing NCDs must set aside at least 50% of their assets towards Non-Performing Assets or NPAs. This can be an optimistic indicator of the company's asset quality. In the event that the company's quality declines due to bad debts, you may want to take it as a warning.Gauging ICRA company's ability to settle the interest on any of its debts at any given time can be witnessed in its Interest Coverage Ratio or ICR. The ICR of a company reveals how it can handle potential non-payments.Tax bracketIf you belong in the 10% and 20% tax plan, you may find nonconvertible debentures as a lucrative investment option. This is because, if your tax bracket is low you stand to earn more from NCDs.ConclusionThere is a marked difference between fixed deposits and non convertible debentures. It can be an excellent idea to look into specific factors before selecting an NCD as an investment option. Consider the company's financial health and how it employs its funds if you notice a diversion from its core business; it can be a sign to stay away from the said company. Going through the credit rating of companies can also give you a fair idea of how your investment is secured. For instance, you may want to steer clear from companies that have low ratings but temptingly attractive, high returns. Such propositions could be risky in the long run, especially if the overall financial health of the company is not stable.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

    read more
  • Mutual Funds KYC - Know about How to do KYC for Mutual Funds
    Posted by Mehul Kothari | Published on 19 Sep 2019

    How to do KYC for Mutual Funds Recent media accounts reported that mutual fund industry now has over Rs. 23 trillion in Assets Under Management (AUM) in February 2019 alone. This could be considered to be a sign that an increasing number of people are taking financial planning earnestly and are setting distinct financial goals for their future.With regards to secure investment schemes that provide above-average yields, mutual funds beat most other options to stand out as the emerging winner. Given the effortlessness through which one can invest in mutual funds, an upbeat market and a wide variety of mutual fund types make it an attractive investment proposition for new and seasoned investors alike. If you are looking to invest in mutual funds, first and foremost, it is essential to know that you can only invest in mutual funds if you are KYC compliant.Understanding KYC for mutual fundsKnow Your Customer, also known as KYC, enables financial institutions to validate your identity. As a first-time investor, you must undergo the KYC process before transacting in a mutual fund. Because it is a mandatory customer identification process, it is critical to submit your identity details to a mutual fund house, a stock broker like IndiaNivesh or any other financial institutions. This is because, according to the Prevention Of Money Laundering Act, 2002, AMCs must abide by the rules and guidelines established by the Act to implement a Customer Identification Proof. Furthermore, there are specific requirements prescribed by SEBI concerning KYC norms of financial institutions and intermediaries to know their customers. KYC for mutual fund requirements are typically in the form of verifying the customer's identity and address, financial standing, occupation and vital demographic data. These rules and regulations are continually updated by SEBI periodically.Valid from January 1, 2012, every investor regardless of the investment amount in mutual funds must comply with KYC to carry out any transaction. Since money laundering is a major issue worldwide, mandating KYC formalities is regarded as an efficient way of preventing illegal activity. The chief objective of the KYC process is to ensure that a real person or individuals are making investments rather than fictitious names. Every mutual fund investor must adhere to the KYC procedure via a KYC Registration Agency (KRA). This information held by the agency is stored in a single repository for all fund houses and intermediaries to access. Examples of these agencies include NSE, CAMS and KDMS.Documents required for KYCTo initiate your KYC process, you must submit the following documents along with the KYC application form and passport size photograph. Documents include:• Identity proof such as driving license, passport copy, voter ID, Aadhar card, bank photo passbook, or PAN card• Address proof such as recent landline or mobile phone, passport copy, electricity bill copy, voter ID, driving license or Aadhar cardTypes of KYC proceduresTypically, you can complete the mutual fund kyc form either through the off-line or online method. CDSL Ventures Ltd has been nominated and authorised by the mutual fund industry to conduct the Know Your Customer procedure.Off-line method• Visit the CDSL Ventures website and download the KYC application form• Fill in the details• Submit the signed application form through the specified mutual fund authorities or intermediaries• Provide identity proof and address proof and the passport size photograph to go along with KYC form• The duly filled form can be physically submitted at any of the following places. These include the Asset Management Company (AMC) through which you are making the investment or the Registered Transfer Agent  (RTA) such as CAMS.Online Method• Create an individual account on the official website of the KRA. Fill in your credentials to initiate the online kyc for mutual fund• Key in your registered mobile number and enter your Aadhar card number• Verify the details through the OTP sent on your registered mobile number• Upload a self-attested copy of your e-Adhaar• Accept the consent declaration terms for the eKYCAadhar based KYC through biometricsYou can also opt for Aadhar based KYC if you have the Aadhar card. Request the fund house or agency to send their representative or an official to visit you personally and collect the details from you in person. You can submit a copy of your Aadhar card to the representative, and they will enter your biometric information on the scanner and link it to the Aadhar data repository. As your fingerprints get matched to the database, your credentials stored with the Aadhar database will reveal that your KYC has been validated. This process can ensure that you can go ahead with your mutual fund investment.KYC for non-individualsHowever, if the investor is not an individual, the KYC process must be completed in a different manner. For instance, here are some cases on how to complete the KYC based on the following:• Joint applicants. All or both applicants in a joint applicant setting must complete the KYC individually.• Power of attorney. The power of attorney holder and investor must complete the KYC process individually.• NRIs/PIOs. All NRIs and PIOs must complete the KYC formalities individually.• Minors. If a mutual fund investment is being made on behalf of a minor, the parent or legal guardian who wishes to operate the account on behalf of the minor must complete the KYC procedure. When the underage individual attains adulthood, he or she must complete the KYC formalities at the time.It is important to note that if any KYC documents are found incorrect, insufficient or not in order, the investor's compliance status can get cancelled. Under such a situation, the investor is informed of the status by the relevant authority.To know your mutual fund kyc status and the progress of your KYC process, you can check on the following websites. Here, it is important to note that you can visit any of the below sites depending on where you have given the KYC application form:• CDSL Ventures Ltd. CVL - https://www.cvlkra.com/ • NSE (DotEx International) - https://www.nsekra.com/ • NSDL Database Management Ltd (NDML) - https://kra.ndml.in/ • CAMS - https://camskra.com/Home.aspx • Karvy - https://www.karvykra.com/To know more about your mf kyc status, you can visit any of the above sites and enter your PAN number.Conclusion On completing the KYC procedure successfully, you will be able to purchase mutual fund units from your respective AMC or RTA. You can freely invest in a wide variety of mutual funds of your choice and any amount, after completing your KYC formalities.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

    read more
  • What is Intraday Trading?
    Posted by Mehul Kothari | Published on 13 May 2019

    What is Intraday Trading and How to Do It?Stock market offers numerous opportunities to traders. In fact, it is one of the daily sources of income for many people. The reason why stock market trading is popular is because it has potential to generate enormous wealth. Moreover, with the right trading strategy in place, the sky is the limit for making profits. In this article, we will learn about intraday trading meaning and its related concept.Let us first learn about what is intraday trading.What is Intraday Trading?Intraday trading or day trading is buying and selling the stocks or securities on the same day. To put it in simple words, intraday trading is squaring off the transaction on the same day it takes place. The main objective of the trader in intraday trading is to book profits on the same day and not carry any overnight position in the market.As you are now very well aware of the intraday meaning. Let us read about some tips that would help you in becoming a successful intraday trader. The tips for Intraday Trading are as follows;Intraday Trading Tips• Trade in Liquid StockSince intraday trading involves squaring off the transaction on the same day, trading in liquid stocks is recommended. Liquid stocks means the stocks that have higher volume and one can easily find buyers and sellers for these stocks. Intraday trade can be settled only when there are sufficient buyers or sellers to purchase or sell a stock. This is possible only when the trading volume is high in stock. • Follow the NewsAnother important intraday trading tip is following the news regarding stocks. Stocks which are in news are often the most volatile. Intraday traders want to trade in volatile stocks due to big price movement which gives them immense opportunities. Also it is easy to predict the price movement of the stocks that have news inflow. A positive news brings the price up whereas a negative news brings the price down. • Technical ChartsTrading on the basis of technical chart reading is always the best. Charts help in predicting the future price movement. The different patterns on the chart suggest the possible future movement in the stock price. Technical chart reading is possible only after good training. If you want to trade in stocks on the basis of chart reading, you can open a demat account with IndiaNivesh. • Prepare a Trading ListTrading in a particular script or stock gives you a better hold of those stocks. You are able to easily predict the price movement in those stocks and trade accordingly. One can prepare a trading list after detailed analysis and in-depth study of the stocks. • Resistance LevelsAnother important intraday trading tip is trading as per the resistance levels of the stocks. The resistance levels of the stocks is that level beyond which the stock does not move. A trader keeps a watch on the resistance levels of the stock and then takes a trade. When the stock breaks the resistance levels, the trader quickly takes a position in that stock and grabs the advantage of sudden price movement. • Top Gainers and Top LosersTop gaining and losing stocks of the day offer immense opportunity to traders to trade in them and make a good profit. However, the selection of stocks for trading must be done carefully. Blindly following the list of top gainers or losers for intraday trading can lead to heavy losses and wipe out your capital. • Weekly Movement of StocksThe traders often trade in stocks after seeing their weekly price movement. They take the position in the stocks after studying the weekly close of the stock price. A detailed analysis of stocks suggests which stocks are suitable for intraday trading. As you are now aware of the tips for intraday, let us have a look at how to do intraday trading.How To Do Intraday TradingThe first and foremost requirement for Intraday Trading is to open a trading and demat account. The demat account can be opened with any broker who provides these services. Selection of a broker must be done by comparing the brokerage rates and services offered by the different brokers in the market. IndiaNivesh is one such broker that provides hassle-free services at competitive rates. After opening the demat account, the beginners in the stock market must know when they can execute intraday trades and the timings of the market. Timings of the Stock MarketThe stock market in India is open from Monday to Friday. Saturday and Sunday are holidays. The stock markets opens at 9 a.m. and closes at 3.30 p.m. The intraday traders can take positions in the stocks during the above-mentioned time period. It is recommended by the experts to avoid taking any trade position during the first trading hour of the market as during that time the stock market is volatile and taking an intraday position can be a risky strategy.Let us now have a look at the benefits of intraday trading.Benefits of Intraday Trading There is no risk of taking overnight positions in intraday trading. Any adverse event after the closure of the market does not affect the intraday trader. In intraday trading, traders have higher margin in comparison to the investors. The potential of Intraday Trading to generate returns is very high. If right trades are taken, an individual can make fortune out of intraday trading. The brokers often give a discount to the intraday traders and charge lesser brokerage. The goal of the Intraday Trading is to generate higher profits. If you are a beginner in the stock market, you can start intraday trading with lower amounts initially. And when you are well equipped, you can slowly increase the trading amount. All you need to do is trade in the right stock and understand the correct entry and exit points of the stock.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

    read more