Balanced Mutual Funds – Why You should Invest in Balanced Mutual Funds

Mehul Kothari द्वारा पोस्ट | 03 Jun 2019 को प्रकाशित |
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Balanced Mutual Funds – Why You should Invest in Balanced Mutual Funds

Why you should invest in balanced mutual fund?

One of the ways to grow your savings is to invest in the stock market. Historically, investments made in the stock market have given a higher rate of return as compared to investments in fixed income products over the medium to long term.

But investing in equity is highly risky since the performance of the equity shares oftentimes depends on market conditions as well as performance of the company. Choosing a company to invest in takes a fair bit of research which may not be possible for everyone. The next best alternative is to invest in an equity mutual fund, which too is highly risky for people who don’t have a higher risk appetite.

The correct alternative for such investors would be to invest in balanced mutual funds.


What are balanced mutual funds?

A balanced mutual fund or a hybrid mutual fund invests its corpus in a mix of equity and debt. There are two types of balanced mutual funds:

• Aggressive hybrid fund (More than 60% in equity and balance in debt instruments)
• Conservative hybrid fund (More than 60% in debt instruments and balance in equity)

A balanced mutual fund gives the investor the high growth that equity does and also the stability of a debt instrument. For investors looking to begin investing in equity, choosing a balanced mutual fund is a good way to start.


What does a balanced mutual fund invest in?

Balanced mutual funds divide their corpus between equity and debt instruments. When it comes to equity, the investments depend on whether the fund is aggressive or conservative. Aggressive funds may also invest in mid cap stocks and small cap stocks. Conservative funds invest a majority of their resources in large cap stocks which may not grow as fast, but are a stable form of growth.

When it comes to debt instruments, the best balanced mutual funds invest in a range of instruments such as:

• Government of India bonds
• State Government bonds
• Certificate of Deposits
• Non Convertible Debentures
• Treasury Bills
• Commercial Paper
• Company issued debentures and bonds

It is possible to find out the portfolio on the mutual fund house’s website or on other finance websites. The debt portfolio is split up based on instruments and the risk level of the securities. Generally, hybrid mutual funds tend to invest in low risk securities.

Before you pick one of these funds to invest in, it is better to analyze balanced mutual fund advantages and disadvantages so that you know whether this type of investment is the right one for you.


Here are some reasons why to invest in balanced mutual funds:

1. Diversification of risk:
Balanced mutual funds provide an excellent way to diversify portfolio risk. By investing in equities, they provide higher returns, however, since some portion of funds get invested in debt, they also stabilize the overall risk of the portfolio. For investors who are conservative, investing in a balanced mutual fund can provide a slightly riskier outlet with a higher rate of capital growth. On the other hand, for aggressive investors, diverting some portion to a balanced mutual fund can reduce the overall portfolio risk.

2. Higher returns:
When it comes to balanced mutual funds India offers many alternatives to all types of investors. Conservative investors can put their funds in conservative hybrid funds that put a majority of their resources in low risk debt instruments and the balance in equity. This provides higher returns as compared to investing in pure fixed income instruments. For aggressive investors, these funds provide a fixed return which is useful in case of market downturns.

3. Tax advantages:
Investing in an aggressive hybrid fund (more than 60% in equities) will give tax benefits since this gets classified as an equity fund. The gains on this will be taxed like an equity mutual fund with a holding period of 1 year for the gains to become long term. This provides significant advantages to the investor. On the other hand, conservative hybrid funds are classified as debt funds with a holding period of 36 months for gains to be long term.

4. Dividend:
There are monthly dividend paying balanced mutual funds which provide dividend to their investors. Putting resources in these funds provides a regular return in the form of dividends as well as capital growth through equity investments.

5. Automatic portfolio rebalancing
Occasionally, the balance between the equity markets and the stock markets is tipped to one side. Either of the market can be overvalued. In such situations, you may want to invest more in one of the two markets. However, in other funds, this may not be possible as the funds may be restricted due to the SEBI rules. However, when it comes to balance funds, the fund manager has the leeway to move between the two asset classes.

Now that you have understood what are balanced mutual funds, where they invest and why to invest in balanced mutual funds, are you looking at making investments in balanced mutual funds? Here are some IndiaNivesh recommended balanced mutual funds which have given good returns to the investors.

Balanced Mutual Fund Schemes May 2019

 


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

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Know How to Invest Risk Free & Best Investment Plan with High Returns

Posted by Mehul Kothari | Published on 30 May 2019

With the ever rising cost of living and increasing expenses, you must be looking to invest your money in avenues which can fetch you high returns. While you take an investment decision, it is vital to consider the risk factor because losing hard earned money is something you cannot afford.  Striking a balance between the risk and the returns is an art. It often creates a lot of confusion regarding where to invest, which are the best investment plan with high returns in India, are there any short term investment plans with high returns and so on. In this article, we will try to solve all your confusion about the best investment plan with high returns. Firstly, you need to understand what is risk free investing? What Is Risk Free Investing? In simple language, risk free investing is a way of investing where there is almost no risk of loss of capital and there are assured returns. Investors always look for the best investment plan with high returns. Now let us learn about the different types of risks that are associated with investment instruments. Different Types of Risks •Interest Rate Risk This type of risk is associated with fixed income instruments. The risk involves loss in the value of instrument due to change in the interest rate.    •Political Risk Political risk leads to a loss in the value of investments due to certain political developments or political changes in the country.   •Market Risk Market risk is associated with equity and fixed income instruments. This risk can lead to a loss in the market value of the instruments.   •Liquidity Risk Liquidity risk is when the fixed income instruments or real estate is not able to get its equitable price in the market because of less or no buyers.   •Taxation Risk Taxation risk is the one where the return on capital would decline due to an increase in taxes.    •Purchasing Power Risk Purchasing power risk applies to fixed income investments. Under this risk, the purchasing power of the investment declines due to inflation.   •Reinvestment Risk This risk is applicable to fixed income instruments. Here the risk involves reinvestment of the investment at a lower rate of interest upon maturity.   •Legislative Risk This risk is applicable to all investment avenues. In this type of risk, the investment looses its value or other advantages due to a change in legislative. Whether you are looking to invest in monthly investment plan with high returns or short term investment plans with high returns or any other investment plans in India with high returns, the above risks shall be applicable to all. Since you are now aware of the different types of risks related to investments, you must also know the spectrum of risk associated with the different investment options.  Spectrum of Risk This means the quantum of risk associated with any type of investment. The various types of risks on investments can be broken down in the following manner: •Very Low Risk and Very Low Return: Insured municipal bonds and fixed deposits.   •Safe and Low Returns: Life insurance, saving bonds, treasury securities, fixed deposits, etc.   •Low Return and Low Risk: Corporate bonds and uninsured municipal bonds.   •Moderate Risk and Moderate Return: Selected equity stocks and mutual funds.   •Medium Risk and Medium Return: Equity stocks of blue-chip companies, equity mutual funds and real estate.   •High Risk and High Return: Stocks of small cap and mid cap companies, equity small cap mutual funds and mutual funds that invest in particular sectors of the economy.   •Aggressive Returns:  Commodities, small or penny stocks, derivatives, limited partnerships and oil and gas investments. After understanding the spectrum of risk, let us now learn about the ways through which you can make a monthly investment plan with high returns or short term investment plans with high returns or long term best investment plan with high returns in India.  Ways of Investing in Best Investment Plan with High Returns •Invest Regularly If you are starting with an investment plan, make sure you invest regularly in it. Like for example, mutual fund SIP must be made in all the phases of the market. The disciplined approach towards investing helps you in creating good wealth for the future.   •Debt Plan What makes debt plans attractive is the fact that they guarantee fixed returns. There is no risk involved and the returns are assured. As an investor, you are at peace because it is not risky. As a beginner, you must make your first investment in debt plans.   •Timing Market When you are looking for the best investment plan with high returns in India, you must never try to time the market. Just be regular towards investing and that will help you reap long term benefits.    •High Return Options After making an investment in various less risky options, you may invest some part of the money in high return options. Here you must analyse various risks that are associated and accordingly make an investment decision. You can invest in any of the pre-decided investment options like stock exchange, derivatives, etc.   By following the above mentioned points, you can become a disciplined investor and create wealth for the future. Since you are now aware of how to invest risk free, let us now learn about some of the popular investment options available to the investors which have very low to moderate risks. Popular Investment Options Carrying Low To Moderate Risks •Value Stocks Investing in the stocks of blue-chip companies is one of the best investment plans in India with high returns. You need to prepare a list of 10-12 stocks in which you would like to invest. The list must be prepared only after a thorough analysis of the companies. Always compare the current price of the stock versus the intrinsic value of the stock. Whenever the price of the stock falls below its intrinsic value, it is the best time to invest.   •Sectoral Funds One of the best investment plan with high returns comprises of sectoral mutual fund units. By investing in the mutual funds that invest in specific sectors of the economy can give incredible returns. Investing in sectoral funds can be done in the form of SIP. Here you have to pick mutual funds having a good track record. This type of investment must be done in that sector which has underperformed over the years. This is because when recovery will happen, the value of sectoral funds will rise quickly. These funds can give up to 12% return per annum.   •Dividend Paying Stocks Dividend paying stocks are those stocks in which the company shares its part of profits with the shareholders. By investing in stocks which pay dividend on a consistent basis, you earn a regular source of income. You must carefully pick the stocks that pay high dividends. The time of purchase for such stocks is very important. You must look to add them at every 10% fall from a preferred price. Apart from income from dividend, the share price appreciation further increases the returns.   •Fixed Deposits One of the best investment plan with high returns and no risk is fixed deposits in the bank. The fixed deposits give an assured return on your investment. You can invest any amount in the fixed deposits and hold it for the long term.   •Real Estate Investment Investing in the real estate or property is another safe and high return investment option. You can invest in a property at a strategic location and hold it for the long term for appreciation in the value. Furthermore, you can even rent out the property which can give you good returns on a consistent basis. The above mentioned points suggest some of the best investment plan with high returns in India. If you are a beginner at investing or need some assistance regarding investment, you can contact IndiaNivesh Ltd..  Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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Bond Market in India - Meaning, Types & How to Invest in Bonds

Posted by Mehul Kothari | Published on 03 Jun 2019

Bond market in India Investments are classified in two types to put it simply: • Fixed return investments• Variable return investments Investments with a fixed return provide a guaranteed return in exchange for the capital invested. These investments generally have a lock in period with low liquidity. Variable return investments are subject to market forces where the exact return on the investment is not guaranteed till the time the investor exits from the investment. Equities, mutual funds, gold, real estate are variable return investments. One of the most popular types of fixed return investments are investment bonds. What are bonds? Bonds are instruments issued by a borrower to raise capital from investors or the public at large. Bonds are like loans which mature on a fixed date. In return, the borrower pays interest. Depending on the terms and conditions of the bond, the interest can be paid either at specified intervals or on maturity (deep discount bond) What are the different types of bonds? Bonds in India are generally issued by Government bodies. Having a government backing to the bonds provides security to the investor that these bonds will be repaid on maturity. However, other private institutions also issue bonds depending on their need. These are the different types of bonds available for investment in India: 1. Central Government bonds:These bonds are issued by the Central Government to raise funds. These bonds are issued by the RBI on behalf of the Government. The primary purpose of these bonds is to finance fiscal deficit and meet the shortfall of revenue in the Government budget. These bonds are the safest bonds to invest in, since they are backed by the Government and will be repaid on maturity. 2. State Government bonds:These bonds are issued by the State Government to meet their fiscal deficits. These bonds are listed on the stock exchange. These bonds are also backed by the Government, making them low risk investments. 3. Municipal and Local authority bonds:A municipal corporation or a local authority may raise finance to meet funding for specific goals such as constructing infrastructure, public water works etc. These bonds are also rated by credit rating agencies and it is best to go by the rating and past records before investing. 4. Corporate bonds:These are highly risky bonds since the maturity depends on the track record of the company. Before investing in such bonds, you must do a complete study into the company and its performance. 5. Public Sector bonds:These bonds are issued by highly rated public sector companies for meeting their growth and expansion needs. These bonds are relatively less risky since PSUs are under the Government. Generally, these bonds are issued by companies where the Central Government is the majority shareholder. 6. Tax free bonds:Companies such as the National Highways Association of India (NHAI), Indian Railways Finance Corporation, HUDCO, Rural Electrification Corporation (REC) issue these bonds. The interest earned on these bonds is completely tax free in the hands of the investor. Types of bond markets: 1. Primary market:This is the market where the borrower approaches investors to raise capital. The issue price of the bonds and the coupon rate is fixed at the time of raising capital. 2. Secondary market:Most of the bonds are traded in the stock market. They can be sold depending on when the investor wishes to exit from the bond. However, it is to be noted that the price for the bonds depends on how close the bond is to interest payment. As the bond nears the interest payment date, the price goes up. The price and coupon rate of the bond move inversely i.e if the price goes up, the interest rate goes down. This is because the net return to the investor stays the same as when the bond was issued in the primary market. For example, if the bond is issued at Rs. 1,000 with a coupon rate of 8%, the interest will be Rs. 80. However, if the price goes up to Rs. 1,250, the interest rate goes down to 6.4%. However, the interest payment to the investor remains the same. How to invest in bonds: It is possible to invest in bonds in India using your demat account. Since these bonds open for subscription in the primary market, it is possible to apply for them online. If you do your trades through an offline broker, it is possible to fill up a form and submit it offline to your broker as well. The application will then be submitted into the issue. Once the allotments are made, you will come to know how many bonds you are allotted. The process is similar to equity shares. Bonds have a minimum issue price and you can invest in bonds in India in multiples of the specified number. For example, a corporate bond may have an issue price of Rs. 1,000 and can be purchased in multiples of 5. This means the minimum issue is for 5 x Rs. 1,000 or Rs. 5,000. Further investments can be made in multiples of 5 i.e 10,20,35 etc. Investing in the primary market is extremely simple and can also be done wholly online through the demat account. It is also possible to exit your bond investment online as well since these bonds are traded in the market. Bonds in India are listed on the stock exchange. Even though the price discovery for bonds is restricted, it offers low liquidity, which means the investor can exit these bonds ahead of their maturity should he wish. Generally, the price of bonds goes up as it nears the coupon payment date. The ideal exit strategy would be to sell bonds as it comes close to the interest payment date to get more than the payment price. However, in case of deep discount bonds, the funds may be locked in till maturity depending on terms and conditions of the bond. A deep discount bond is a bond where no interest is paid but a higher amount is paid on maturity. For example, a deep discount bond may be issued for Rs. 20,000 and maturity price may be Rs. 95,000 after 10 years. No interest will be paid in these 10 years and the maturity amount will directly be credited to the investor’s account on maturity. Deep discount bonds are available for investment through the demat account or through a broker. Another way to invest in bonds indirectly is to purchase debt mutual funds that primarily invest in bonds. These can be found out by analyzing the portfolio of the respective mutual funds. The bond market in India does not have many players. It is dominated by Government bonds and entities. This provides safety and security of capital. The bond market however is very nascent and still growing. With increasing investor interest, bonds in India can turn out to be a fast growing market.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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  • Share Buyback – Meaning & Upcoming Buyback of Shares
    Posted by Mehul Kothari | Published on 14 Nov 2019

    “XYZ company announces a buyback of its shares”. You must have seen or read this headline multiple times in the last couple of years. Especially by companies from the IT or technology industry. According to reports, in the financial year 2018, buyback offers worth Rs. 50,000 crores were made in the Indian markets. Have you wondered what is share buyback and what are the technicalities involved with it? Or if you should give up your shares during buyback offers? Then read on and get all your queries resolved. What is share buyback? Buyback of Shares – Meaning:       A share buyback is a process through which a listed company uses its money and repurchases its own shares from the market. It is the opposite of an IPO (Initial Public Offer). Stock repurchase is also seen as a way for the company to re-invest in itself. Once        the stock buyback is complete, they are absorbed and cease to exist. There are two ways in which stock buyback can take place: Tender Offer: In this buyback channel, the company offers to buy back a certain number of stock at a quoted price. The buyback is done directly from the shareholders. Open Market: The open market buyback takes place through the secondary market (stock exchange). The resolution (special or board) needs to specify the maximum price for the buyback.       2. Buyback of Shares – Regulations:       SEBI has laid down the following guidelines for buyback of shares: It cannot be more than 25% of the total paid-up capital value and free reserves held by the company. It needs to be approved by the shareholders through a special resolution. If the buyback value does not exceed 10% of the total paid-up capital value and free reserves held by the company, it necessitates only a board resolution. Why do companies offer stock buyback schemes?1. Surplus cash but lack of investible projects This is one of the primary reasons behind stock repurchase by companies. Idle cash reserves come with a cost. Matured businesses do not need to invest exorbitantly in research, development or other such aspects. Also, holding on to unused equity funding results in ownership dilution without any good reason. Hence, companies prefer to buy-back their own shares.2. Tax-efficiencies Buybacks usually happen at a premium as compared to the market price. Companies prefer this route to reward shareholders rather than paying our dividends due to the tax implications. Dividends attract 15% DDT (Dividend Distribution Tax) for the companies as well as 10% tax in the hands of shareholders if the dividend income exceeds Rs. 10 Lakhs. Hence, earnings through buyback become more tax efficient for both the parties, even after considering the taxes applicable.3. Enhanced valuations Buybacks are associated with enhanced share valuations as a result of an improved PE multiple. Stock repurchase leads to a reduction in the number of outstanding shares and hence, capital base. This, in turn, improves the value of EPS (Earning per Share) as the same amount of dividend is now divided between lesser shareholders. The ROE (Return on Equity) also goes up as the cash assets on the Balance Sheets come down.4. Signal to the market Stock buybacks are also used to send indicators to the market. It signals that the company has great confidence in itself. Hence it is ready to repurchase its own shares (mostly at a premium) as it feels that the company is undervalued currently in the market. For instance, when the company management is highly optimistic about the future prospects but the stock price still reflects bearish sentiments based on past performance only.  In some cases, promoters can also use the buyback channel to tighten their hold on the company. This is especially true when the shareholding is highly diluted or is in the hands of individuals or investors who do not have the best interest of the company in mind. How to evaluate stock buyback offers? Now you know what is share buyback and the reasons why companies offer them. But the fundamental question remains – what should be your stance in case of buyback offers? Should you hold your stock or give them up? These pointers can help you take the final decision:1. Offer Price and buyback quantum Buybacks are lucrative only when they are offered at a significant premium amount. The offer price must be substantially above the current market price to make it worthwhile for the investor. Also, the quantum of the share repurchase amount should be substantial.  2. Look at the tax implications Till recently, shareholders had to pay capital gains tax on their buyback earnings. However, with the introduction of buyback tax for listed companies, investors are now exempted from the same. Companies will now have to pay 20% buyback tax. This move has been done as the Government observed that more companies were distributing their profits through the buyback channel rather than dividend as the latter attracted DDT (Dividend Distribution Tax). Note: The buyback tax is not applicable to companies who had announced their buyback schemes prior to 5th July 2019.3. Promoter Participation Promoters cannot participate in the buyback process if it is being done through the open market. However, they are allowed in case of tender offer. In case of participation by the promoter, there is usually a positive movement for the stock price in the long-term.    Final Words Buyback can be rewarding for both parties (company as well as investors). As an investor, it is important for you to understand the implications of each buyback offer and decide wisely. You should keep an eye out for the upcoming buyback of shares in 2019 and corporate news around the same. In case you feel that you are not able to decide on your own, you can always reach out to an expert like IndiaNivesh. Indiaivesh has been providing excellent financial solutions to investors since the last 11 years. It offers a wide range of products – broking, distribution, equities, strategic investments, investment banking as well as wealth management. With its “client-first” approach, skilled and experienced team members and state-of-the-art research and technological capabilities, you can be rest assured that your financial interests are in safe hands.  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 vs. RD - Systematic Investment Plan (SIP) Vs Recurring Deposit (RD)
    Posted by Mehul Kothari | Published on 18 Oct 2019

    Financial planning plays an important role in today’s time. For your money to grow into wealth, it is required that you invest it in good avenues. Many individuals set aside a fixed amount every month for investment purpose. The two most popular investment avenues for investing a fixed sum of money every month are Systematic Investment Program (SIP) in Mutual Funds and Recurring Deposits (RD). In this article, you will learn about the difference between RD and SIP. Let us begin by learning the meaning of the two terms. What is SIP? Systematic Investment Plan or SIP is an investment scheme where you can invest a fixed sum of money on a monthly or quarterly basis. It is a disciplined approach of investing your money because you set aside a fixed amount of money for investment purposes. You can start SIP by selecting a mutual fund scheme. The best part of SIP is that you can start it with an amount as low as Rs. 500. Let us now learn the meaning of recurring deposit. What is Recurring Deposit? Recurring Deposit or RD is a term deposit scheme offered by the banks. In this scheme, you have to select the duration of time and amount of monthly deposit. Upon the start of the plan, you have to deposit a fixed amount of money every month during the tenure of the scheme. In general, the duration of the scheme is minimum 6 months and on completion, 3 months of addition can be made up to maximum tenure of 10 years. Recurring deposit schemes are easy on the pocket because in this scheme you get the option to select the amount and tenure for which you want to continue the scheme. Let us now learn about the SIP vs. RD. Scheme of Investment SIP is about investing in mutual fund plans where you have the option to select between debt or equity funds on the basis of your risk-taking capability. Whereas, RD is a deposit scheme that can give you a fixed rate of returns. If you are looking for more flexibility than you can opt for a flexible recurring deposit scheme.  Frequency of Investment SIP can be started with a small amount. It is your choice to invest in SIP on a weekly, monthly and quarterly basis. In the case of recurring deposits, you can invest a fixed amount on a monthly basis. Choice of Investment SIP gives you the option to invest as per your risk appetite. Based on your risk-taking capability you can invest in different mutual fund schemes like equity, debt, hybrid, etc. On the other hand, a recurring deposit has no investment options. To earn a fixed return, you have to invest a fixed amount of money on a monthly basis. Tenure You can opt for SIP investment for any tenure or duration of time. The minimum period of investment is 6 months. Whereas, in the case of recurring deposits, they have a fixed maturity date. The minimum period of investment is for 6 months and the maximum period up to which you can do a recurring deposit is 10 years. Return The rate of return in SIP is not fixed because their performance is linked to the market. In general, over the past 10 years, the equity mutual funds have given return of 12% to 14% per annum and debt mutual funds have given a return of 8% to 9% per annum. On the other hand, when you start investing in RD, the rate of return is already known to you. Liquidity SIP is highly liquid in nature i.e. they can be withdrawn whenever you want. However, you must remember that you would be charged an exit load on redeeming within 1 year of investment. Just like SIP, RD is also liquid in nature. RD attracts pre-withdrawal charges in case you make a withdrawal before the end of the tenure. Risk Investing in mutual funds is risky because the performance of the fund is dependent on market performance. Poor market performance can even lead to capital erosion. However, in comparison to the equity mutual funds, the debt mutual funds are less risky. On the other hand, RD is a safe investment option. This is because the funds are directly deposited into the bank and they have a fixed rate of return. Hence there is no risk of capital loss in RD. Tax Benefit The SIP investments and returns generated on it are exempt from tax only if the investment is made in Equity Linked Savings Scheme (ELSS) funds. Whereas, an investment made in the form of recurring deposit or interest earned on it is not exempt from tax. Investment Goal SIP acts as a one-stop solution to all types of investment goals. In SIP, depending on the frequency of your investment and funds selected, you can invest for short, medium or long term. On the other hand, RD investment, in general, is done for short term purposes. It cannot generate wealth like SIP. The above mentioned are a few differences between the SIP vs. RD scheme. Now the next important question that would arise in your mind is, SIP or RD which is better? Well, the answer to it is very subjective and will vary from person to person. Both the investment schemes are very different from each other and have their own benefits. Depending upon your risk appetite and tenure of the investment, you can select the right scheme for you. You can also refer to the difference between the two schemes and understand which investment option is ideal for you. The beginners or inexperienced investors often find it difficult to take the investment decisions on their own. To assist them in financial planning, IndiaNivesh Ltd. is always at their assistance. We understand your financial goals and risk appetite before suggesting you any investment plan or scheme. We provide our clients with innovative and customised financial solutions. Our aim is to exceed the expectation of client in all our endeavours. You can even open a demat account with us and trade or invest in the stock market on the basis of our regular research reports.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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  • Gold Exchange Traded Funds (Gold ETFs) - Overview & how to invest in it
    Posted by Mehul Kothari | Published on 16 Oct 2019

    Gold Exchange Traded Funds (or Gold ETFs) combine the two passions of many investors – stock trading and gold investments. They provide a channel through which you can be a part of the bullion (gold) market. The investor’s funds are invested in gold stocks but there is no physical delivery of the yellow metal. They are often referred to as open-ended Mutual Funds that invest the corpus in gold bullion. Key highlights of Gold ETFs: Gold ETFs in India started in the year 2007. Slowly but steadily they have started gaining momentum. Some of the key benefits offered by Gold Exchange Traded Funds are:1. Transparency: Transparent pricing is one of the USPs of Gold ETF. Like stock prices, information about gold prices are easily available to the general public. You can easily determine the value of their portfolio by checking the gold prices for that time or day.2. Ease of trade: Just like shares, Gold ETFs can be easily traded on the stock exchange. You need to buy a minimum of one gram of gold which is equivalent to one unit of Gold ETF. Investors can invest in Gold ETFs from any location in India. Moreover, the difference in price (due to GST) will not be applicable.3. Cost efficiencies: Unlike many investment avenues, there are no entry or exit loads with Gold ETFs. The only cost involved would be the brokerage fees. 4. Risk: Unlike physical gold, there are no storage hassles or theft fears with Gold ETFs. Additionally, gold prices are not prone to frequent fluctuations. This makes Gold ETFs a relatively safer choice. 5. Tax efficiencies: Gold ETFs do not attract any wealth tax or securities exchange tax. Also, if they are held for a period of more than one year, the gains are treated as long-term capital gains. For anyone interested in holding gold, these ETFs provide a tax-efficient alternative. 6. Diversification: Gold ETF investments can help to bring diversity in the investment portfolio. During volatile market conditions, they can help to stabilise or improve the overall returns for you.7. Collateral: Gold ETFs are accepted as security collaterals for loans or capital borrowings by many financial institutions. Why is investing in Gold ETFs better than traditional forms of gold? You do not need to worry about impurities or adulteration in the metal As ETFs are held in electronic form, there are no storage related issues or costs Easy trading on the stock exchanges and hence high liquidity Real-time tracking of investments No mark-ups costs such as making charges, wear and tear involved The price of Gold ETFs remains the same throughout the country. However, the gold prices can vary from one location to another.  How does Gold Exchange Traded Fund work? The investment is converted into unit of gold basis the cost applicable at the allotment time. For instance, the cost of gold (per gram) on a particular day is Rs. 3000. Ms. X wants to invest Rs. 60,000 in Gold ETFs. Her investment amount will get translated into 20 gold units. At the back-end, physical gold acts as security for these ETFs. For example, if you invest in Gold ETFs, the entity at the back-end purchases gold. They act as the custodian for the investment and also guarantee for the purity of the metal. The stock exchanges assign the responsibility of buying and selling gold to authorised members or participants which in turn can be used to issue ETFs. These are usually large companies. As a result, these authorised members ensure that there is parity between the gold cost and ETFs. How to invest in Gold ETFs? Gold ETF investments are a simple affair.1. Choose a broker or fund manager: Many financial institutions (including banks) offer Gold ETF products. Similar to the online share trading, you would need to reach out to a fund manager or a firm which will trade on behalf of you.2. Demat and Trading Account: In order to invest in Gold ETFs, you need to have a demat account and an online trading. You can apply for these accounts online with the broker or such service provider by providing details like PAN, Identity Proof, residential proof, photograph and a cancelled cheque (for bank account linkage).3. Online Order: Once the accounts are in place, you can select the desired Gold ETF and place the order through the broker’s online portal. You can also opt for Mutual Funds which have an underlying Gold ETF.4. Confirmation: The placed orders are then routed to the stock exchange. The purchase orders are matched with the corresponding sell orders and accordingly executed. A confirmation email or message is sent to you. Who all should invest in Gold ETFs? Gold is a relatively safe and stable investment. Its prices do not fluctuate as much as equities. Hence, Gold ETFs can be a good choice for you, if you do not want to take too much risk. Additionally, since these ETFs are tradeable easily on the stock exchange, they are useful if you are looking for an investment opportunity with high liquidity. Hence, it is a good option for you to diversify your portfolio. So, if you meet the requisite objective of investment, Gold ETF is a good option for you as well. Things to keep in mind while investing in Gold Exchange Traded Funds Here are some tips that you could use while investing in Gold ETFs Gold is generally considered as a stable asset. However, you should not forget that the Net Asset Value (NAV) of Gold ETFs can also fluctuate basis market volatility As an investor, you need to bear brokerage fees or commission charges for Gold Exchange Traded Funds. Hence, you should check these costs while deciding on the broker or fund manager However, you should not make the decision on the basis of price alone. Consider the broker/ fund house’s past track record, services provided, type of clients handled etc. before choosing the service provider Do not over-invest in Gold ETFs. It is usually suggested to restrict investment in these ETFs to 10% of the entire portfolio. Final Words A smart investor knows that all that glitters is not gold. A good fund manager or firm helps choose the best Gold ETF products in India. IndiaNivesh, a well-known financial services company can help in this regard. With their rich experience in the Indian market and in-depth understanding of the financial ecosystem, they have helped numerous customers to grow their wealth and fulfill their financial goals.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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