admin No Comments

Invest In Liquid Funds – Start Earning More!

dbfsliquid

You work really hard to earn your money. But your money is having a good time in your bank account. Does it not have to work hard for you?  We are talking about saving your money in the banks.

Even though it is more than two years since the Reserve Bank of India deregulated interest rates on savings deposits, most banks still offer around 4 per cent. Some banks offer higher interest rates on savings accounts but ask for a higher minimum deposit. Still, we park a significant proportion of our spare cash in these low-yielding savings accounts, earning much lower rates than the inflation rate.

Liquid funds can help us earn much higher rates than what the savings deposits offer without compromising too much on how quickly we can get our hands on the cash.

What is a liquid fund?

Liquid fund is a category of mutual fund which invests primarily in money market instruments like certificate of deposits, treasury bills, commercial papers and term deposits. Lower maturity period of these underlying assets helps a fund manager in meeting the redemption demand from investors.

But these are plain technical jargon. To a layman, it is utterly confusing. You simply need the answers to the following three questions that concern you the most.

1.Will my money be safe in liquid mutual funds?

2.Why Liquid funds are better than savings account?

3.Does it give me better Returns on Investment than storing my money away in a bank fixed deposit?

Here are the answers to your questions-

ANS1. Will my money be safe in liquid mutual funds?

Your money is primarily invested in short term instruments and the risk is quite less compared to other short term and long term debt funds; this scheme invests in the same paper as your bank would do.

You can have your money back in a working day’s notice and in some cases instantly (upto Rs. 2,00,000/-). All you have to do is pop in a redemption request, and your money is credited to your bank account.

ANS2.  Liquid funds are better than savings account for following reasons-

  1. They provide superior returns over savings account, in general top performing liquid fund can give you anything between 1-2 % higher return
  2. At the same time it is as liquid as Saving account money, money can be credited to you in 24 hours, and does not carry too much risk.
  3. There is no exit load

ANS3. Does it give me better Returns on Investment than storing my money away in a bank fixed deposit?

With a Fixed Deposit account, you can make premature withdrawals in multiples of Rs. 1,000 subject to applicable charges, get a Loan or overdraft up to a certain percentage of your FD amount and choose from monthly or quarterly payouts. But the process with liquid funds is hassle free; you just have to pop a request and you have the money in your account the very next day and in some cases instantly (upto Rs. 200000/-). The best part is that it does not have any exit penalties.

Your liquid fund scheme earns you a return on investment that matches the offerings of the market at the time. Usually, it is more than your bank’s rate of interest, for the last one year it is 7.35%.

So what are you waiting for? Contact Equest Capital to open your liquid funds account now.

Invest in mutual funds save more.

 

 

 

admin No Comments

SIP- Invest Regularly and Invest for Long Term

What is a Systematic Investment Plan (SIP)?

Reliance-Systematic-Investment-Plans

A Systematic Investment Plan or SIP is a tool to invest money in mutual funds on a regular basis.

Why Systematic Investment Plan (SIP)?

Systematic Investment Plans helps you to inculcate the habit of saving and building wealth for the future. It is an ideal path for someone to plan for the goals and invest regularly to meet those goals.

What are the benefits of Systematic Investment Plan (SIP)?

  • Rupee cost averaging- No need to worry about timing the market and when to invest, how to invest etc as systematic investing reduces the risk of market volatility significantly.
  • A systematic investment plan (SIP) is an effective means to beat market volatility and benefit from the enormous power of compounding over time.

SIP-Vs-One-Time 

What is the frequency of Investment?

SIP allows you to invest a pre-determined amount at a regular interval; Weekly, monthly, quarterly or yearly.

Which frequency is the best?

Monthly, the problem with other frequencies is that such frequencies do not capture the market movements adequately.

How much can I invest?

You can invest as low as Rs. 1000/- on a monthly basis.  Typically one should diversify into 2-3 mutual funds schemes based on the RISK PROFILE and TIME HORIZON

SIP-LP

How much tenure should I go for?

Though the minimum tenure in most cases is 6 months to reap maximum benefits out of SIPs; Investors should ideally invest via SIPs over at least 3-5 years.

What is the mode of Investment?

Your money is auto-debited from your bank account and invested in a specific mutual fund scheme. You are allocated a certain number of units based on the ongoing market rate (called NAV or net asset value) for the day.

Is SIPs flexible?

Yes, there is no compulsion. Investors can discontinue the plan at any time. One can also increase/ decrease the amount being invested.

When should I start?

shutterstock_302075342_5705_356

The rule for compounding is simple – the sooner you start investing, the more time your money has to grow and earn profits.

We all have various dreams that we want to realise from owning a car to going on a vacation. Besides these, we also need to plan for Children’s Education, their Marriage, and our Retirement. SIPs are the best way of investment to turn your dreams into reality.

‘Mutual Fund investments are subject to market risk. Please read the offer document carefully before investing’

For more details on SIPs drop an email on info@equestcapital.com! Equest capital is there for you for all your investment needs. #JoinOurCircle #EquestCapital

admin No Comments

Making your first mutual investment? Keep this in mind!

download

As markets make a new high due to the UP election results there is a sense of euphoria and also a sense of déjà vu.  Once bitten twice shy! This goes for a lot of first time and pro risk investors, who started investing in equity mutual funds at the peak of the market in late 2007 or early 2008. Within a year, as stock markets fell, their investments were reduced to half or even less.

Timing the market and chasing the hot theme is perhaps simplest thing to do because when the markets are on a rise as no one would like to miss out as even the neighbours and novice investors are entering and making a killing in the market.  So what should first-time investors do follow them and try to make a quick buck!
What should be your first mutual fund investment? The answer is different for different investors and depends on their age, financial goals, risk-taking capacity, time horizon etc.

confusion-question-shutterstock

Let’s discuss some fund categories which can be good options for the first-time investor

BALANCED FUNDS: These are hybrid funds which invest in both equity and debt. The equity and debt portions are diversified (in terms of sectors and companies) to avoid concentration of risk. Balanced funds are a good starting point for most first-time investors because of the pre-defined equity-debt mix.

LARGE-CAP FUNDS: A diversified portfolio of top 50-100 companies in terms of market capitalization makes them safer for first-time investors. Large-cap schemes usually invest 80 percent or more funds in large companies. This gives stability as stocks of large companies are usually less volatile than that of mid- and small-cap companies. The upside potential of these funds is lower too.

INDEX FUNDS: These funds are passively managed, which means fund managers do not take any call to increase or decrease holdings. So, there is no fund manager risk. Most index funds track either the Nifty or the Sensex and hence by default are large-cap, diversified funds.

MID AND SMALL CAP FUNDS: These funds invest in a mix of small and mid-cap companies. These funds are positioned on a higher risk-return tradeoff compared to a large cap fund. These are suitable for seasoned and pro risk investors.

SIP-Returns
TAX-SAVING FUNDS: Also known as equity-linked saving schemes (ELSS), these are the favourites of most retail investors. The reason is that the investment is eligible for tax deduction under Section 80C of the Income Tax Act. These are diversified equity funds with a three-year lock-in and are the first choice of many first-time mutual fund investors.

“More often than not, these funds are chosen to just save tax. Given the three-year lock-in, any non-performance by the scheme can badly hurt first-time investors, who may develop a negative bias for the entire product category.

MONTHLY INCOME PLANS (MIPs): MIPs can be a good option for someone looking to park a part of his/her retirement corpus. MIPs are hybrid schemes with 80-85 per cent funds in debt and 15-20 per cent in equity. Equity helps generate returns higher than what a bank FD gives, but makes the portfolio risky.

The choice of your first mutual fund scheme depends on your investment horizon, existing portfolio and financial goals. Therefore, take a call after assessing your needs. At Equest Capital we follow valuation based advice and our top priority is RETURN OF CAPITAL AND NOT JUST RETURN ON CAPITAL. Join our circle and get a head start on your investments.

For more details on this, you can drop an email on info@equestcapital.com

 

admin No Comments

PPF Vs ELSS: The battle of unequals

Public Provident Fund (PPF) and Equity Linked Savings Schemes (ELSS) are amongst the popular investment options for tax saving. While PPF invests in government bonds, ELSS invests in equities, so the former is almost risk-free (unless the government defaults) while the latter is a market linked investment.  Let’s look at both these options in detail.

PPF

PPF is a  central government backed debt instrument which offers fixed returns*. In this option both the principal investment (up to Rs. 1.5 Lakhs under section 80C) and maturity amount are completely tax exempt making it a safe investment avenue.

* interest rate revision linked to average G-sec yield

PPF Rates

Period PPF Interest Rates
01-Apr-1986  to  14-Jan-2000 12%
15-Jan-2000  to  28-Feb-2001 11%
01-Mar-2001  to  28-Feb-2002 9.50%
01-Mar-2002   to  28-Feb-2003 9%
01-Mar-2003  to  28-Mar-2011 8%
01-Apr-2011  to  31-Mar-2012 8.60%
01-Apr-2012  to  31-Mar-2013 8.80%
01-Apr-2013   to  31-Mar-2016 8.70%
01-Apr-2016 onwards 8.10%

PPF and Inflation

Any investment is typically looked at from returns or tax perspective, but it is also prudent to factor in inflation and evaluate the real returns.

The chart below shows the PPF rates against the average rate of inflation. Starting 2009 and up until 2013, the inflation percentage hovered around double digits in effect making the real return from PPF negative for those 5 years.

 CropperCapture[3]

Source: CPI Average Inflation from Inflation.edu

This shows just how important a factor inflation is and why the decision to pick an investment option should consider the inflation expectation. For example, if you invest in a PPF for your child’s higher education while the inflation expectation as regards education costs is 8% then it is clearly not a wise choice.

ELSS

Equity Linked Savings Schemes are investments made in diversified equity mutual funds with a compulsory lock-in of 3 years. It is one of the most popular products for tax saving as it offers benefits with a lower lock-in period compared to other products in the segment.

PPF Vs. ELSS

The comparison between these two products is a bit like comparing apples to orange considering one is risk-free, and the other is market linked. However, it is fruitful to see how they peg against each other.

PPF ELSS
Type Debt Market Linked

Risk category		 Low High
Tax EEE EEE
Lock-In 15 years 3 years
Withdraw partially from 6th year^ Anytime after 3 years
Returns 8.10% Not Guaranteed

^ Only for medical emergency or higher education with 1% premature penalty

Comparison of historical returns

If Rs. 1 Lakh were invested in BSE Sensex in 2001 the amount would now grow to Rs. 6,71,379 implying a return of 13% while the same amount in a PPF investment would return Rs. 3,49,841 implying a return of 8.41%.

CropperCapture[4]

My View

Any investment decision should consider the risk profile of the investor and time horizon of the investment.  While comparing two different products may serve a theoretical purpose, but as an investor, if you don’t have the risk appetite to invest in a market-linked instrument, then the comparison if of little use to you.  My objective in this article is hence to give you a perspective and help you understand that these two investments have varied risk and return profiles. Given below are a few scenarios to throw some more light on the PPF vs. ELSS debate.

  1. If you already have an existing equity or equity mutual fund portfolio tagged to your goals then, the Asset Allocation strategy should be followed with the aim to achieve your target return. PPF scores high as a part of your core debt portfolio while ELSS offers exposure to equity with a lower lock in period.
  2. If you DO NOT have any equity or equity mutual fund in your portfolio, then for tax benefit purpose it would be prudent to start with ELSS. I would also advise you to understand the basics of inflation and power of compounding to make the most of your investment, because truth be told, investing for only the lock-in period of 3 years and then withdrawing may not yield the desired result.
  3. If you are below 30 and a first-time investor, then ELSS offers the ideal route. The propensity to take risks goes down with age and other commitments, hence this sweet spot should be used for building long-term wealth.
  4. Conversely, if you are someone nearing retirement, then it would be advisable to have a conservative portfolio and ELSS should be added if and only if your remaining portfolio is skewed towards debt or non-equity products.

 

Image Courtesy : Wikipedia / Wikimedia