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