Useful Articles for Mutual Fund Investors

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2011-09-19T00:58:00.000-07:00

Useful Articles for Mutual Fund Investors

2011-09-19T00:57:00.000-07:00

Useful Articles for Mutual Fund Investors:

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2011-09-19T00:23:00.000-07:00

IncreasingSIP

Are youinterested to fulfill your Financial Goal in future? But what if your goal isbig and if you think it is not achievable with small SIP? Don’t worry there isa solution for this problem.

The solution is increasing SIP

When wethink about SIP (Systematic Investment Plan), we generally means constant SIP,which does not increase year after year. If you think that your futurefinancial goal is very high to achieve the same you will have to start withlarge amount of SIP, which is not realistic. The solutionn for this, which is used by most of the financial plannersis called as “Increasing SIP”, where one starts with lower amount of SIP andthen increase the same year after year. Yes, it is realistic as your income andability to invest is also increasing every year.

Let me explain you with anexample: Sujay who is 25 years young chap wish to accumulate Rs.5,00,00,000(Rupees Five Crores) at his age of 50 i.e. after 25 years. If he choose theoption of constant SIP he will have to contribute Rs.31,000/- per month (@ 12%compounded returns from equity scheme of mutual fund). But since Sujay’spresent monthly income does not permit him to save Rs.31,000/- per month, buthe expecting his yearly income to grow by 20% and hence he can increase hissaving by 8% annually. In this case he can start SIP with Rs.13,500/- permonth, right now and increase the same by 8% annually. Now what will happen, inthe initial year SIP amount will be Rs.13,500/- which will increase every yearby 8% and at 25^th year SIP amount will reach to Rs.85,000/- permonth, which might look very big in numbers, but after 25 years from now, itwill not look as big as it is now because one’s purchasing power as well asincome is also increasing every year. Twenty years back salary of primaryteacher was about Rs.5000 but now he is earning salary of Rs.35000/- plus. Sodon’t get surprise by size of amount in future.

Increasing SIP vs Constant SIP – Which is better ?

At thefirst instance general conclusion comes into mind is that increasing SIP isbetter than constant SIP because is it much realistic and convenient aslogically investment should rise as the income increases. Let us look twoimportant points relating to this.

1. Investment required in case of Increasing and Constant SIP

The most important thing one has to decide inboth the situation is the amount of regular saving needed. If we take the example elaborated as above,one will be comfortable to start SIP of Rs.31000/- to accumulate Rs.5 Crores innext 25 years @ 12% compounded returns, as he is not confident of increasinghis income, year after year. Whereasother one will be comfortable with initial SIP of Rs.13500/- and then increasethe same by 8% per annum. But in this increasing SIP scenario, his SIP amountwill reach Rs.50000/- in the 18^th year and Rs.85,000/- in 25^thyear. It might look very big innumbers, but after 25 years from now, it will not look as big as it is nowbecause one’s purchasing power as well as income is also increasing every year.

So you have to decide yourself which scenario iscomfortable to you.

If you are thinking that your income is going toincrease every year and if you believe on the theory of diminishing rupee valueand increasing purchasing power you should opt for increasing SIP. In this caseyou will have to be disciplined investor and will have to increase your SIPamount gradually every year when your income increases. But if you want freedomof spending in future life with limited financial goal you should prefer toinvest with constant SIP amount. The table given below shows the increasing andconstant SIP amount required for the example discussed earlier and also showsthe ratio of increasing and constant SIP.

Conclusion

One should start his SIP at the early age toachieve his financial goal for constant SIP amount, if you are late starterthen your SIP amount will be very high and will look unrealistic, in this caseyou must choose increasing SIP option. In my personal opinion increasing SIP isbetter option even for youngsters, so that they can plan their future betterway.

2. How the corpus will grow in case of Increasing andConstant SIP

Now wewill have to consider the corpus factor in Increasing SIP and Constant SIP. Inboth the forms final corpus will be the same, but in constant SIP overallcorpus will be more than increasing SIP because one is investing same amountfor longer time and hence getting benefit of compounding. The following chartshows the difference between two and also final outcome.

Followingtable will show you how your corpus will grow in Constant SIP and IncreasingSIP. Since you are starting with small amount in Increasing SIP the final corpusmay be less than constant SIP, but since you are making your financial goalaccording to availability of funds, option of increasing SIP is alwaysbetter. It will help you to makediscipline savings from your increasing income.

Above charts and examples are based on theassumption that SIP tenure is 25 years in diversified equity scheme of mutualfund. While making calculations returns are considered @ 12% compounded perannum. Actual results will differ depending on market returns. But history of mutual funds shows that goodperforming schemes of diversified mutual fund schemes have delivered annualizedreturns of over 20% for the tenure of 25 years. Make your investment decisionsafter having consultation with your financial advisor. You are also advised togo through the offer documents of the scheme.

Mutual Fund investments are subject to marketrisk.

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2011-09-19T00:16:00.001-07:00

Q 1 : FROM MY SAVING BANK A/C, I CAN WITHDRAW MONEY ANY TIME AS WELL I AM EARNING 4% INTEREST ON IT ALSO, I WISH TO EARN SOME MORE INCOME FROM IT, KINDLY GUIDE ME PLEASE?

Ans : TWO OPTIONS ARE AVAILABLE BEFORE YOU;

Without taking more risk if you wish to earn some more income along with facility to withdraw money any time, just use you Net Banking facility and park funds online into Mutual Fund’s LIQUID/MONEY MARKET schemes. For withdrawal of funds, submit Redemption instruction ONLINE, the funds will be credited into your bank till 12 p.m. next working day. Through Parking of funds into liquid schemes you may earn approx. 6% to 10% appreciation, difference between the Purchase and Redemption NAV. If you are a first time investor, do not forget to make a TIK MARK on iPIN. Minimum investment under the schemes is Rs. 10,000/-.

1. Just think of Mutual Fund’s Liquid Schemes. Park your surplus funds in Liquid fund units, which are very short term nature and earn approx. 6% to 10%, the appreciation is difference between Purchase and Redemption NAV. You may invest in Liquid fund units by availing Net Banking facility provided by your Banker. Withdrawal from the units is so easy, so as to get your bank a/c credited till 12 noon, next day. Minimum investment under the scheme is Rs. 10000/- . If you are a first time investor, do not forget to make a TIK MARK on iPIN.

2. If you are ready to accept risk of Equity Share market as well wait for some period, but don’t have knowledge of Equity Share market then you are advised to invest into Equity Schemes of Mutual Fund. Here you are advised that instead of investing all funds once a time, get a benefit of ups & downs of market. At every down trend of market invest some amount, if you feel at upward movement you are about to receive your expected income just submit online redemption request, on fifth working day, mutual funds will credit the funds into your bank. E.g. If your saving bank a/c have investable balance of Rs. 25000/-, at 2 o’clock you are observing, index is down by 200 points, opportunistically invest Rs. 5000/-, at next down trend invest more Rs .5000/- & so on. When market is in Bull Run and you observed that the market value of investment is increased upto your expectation, submit redemption request. You may do so regularly and earn some more income. But if you do wish a long term investment then think to invest SIP by SIP every month for 15 to 20 years consistently.

Q 2 : I am a Businessman / Professional, having Current A/c in Bank. I am not receiving any types of interest on it. Also at Week end day’s idle amount, I do not get interest too. How do I earn income on this balance amount?

Ans : You have asked Very Good and Important question. Thank you!!! On Friday (or before any Bank holiday) before 2 p.m., transfer your Current a/c balance into Mutual Fund Liquid scheme units by availing Net Banking facility provided by your Banker. The NAV applicable will be of THRUSDAY, if you are submitting redemption request on Friday itself before 3 pm, your current account will be credited with appreciation till 12 pm on Monday, by redeeming your units as per Sunday’s NAV. It means you are receiving appreciation from NAV difference between Thursday and Sunday. You may earn approx 6% to 10% more income from the transaction. In a year, total 104 Saturday, Sunday’s + 15 Bank holiday’s = 119 days more income may be earned by doing such like transactions. E.g. Approximately, if you are transacting Rs. 10 lacs and availing this facility, this year your income will be exceeded to Rs. 19500 to Rs. 32000/-. To complete the transaction needs to spend only 5 to 10 minutes only. Do you need some more information about and tax details and how to do it? Do not hesitate or waist your time rather to contact me immediately. Your call is welcome on my cell 9422430302.

Q 3 : What is the risk involved in Liquid Fund?

Ans : The corpus of the Liquid Fund is invested in Money Market Instrument & Debt Securities which carries specific interest rate depending on Interest rate scenario. Risk Involved: Rate of Interest & Credit rating. Hence it is very low risk product.

Q 4 : What is the alternative product in Mutual Fund for Bank’s FD (Fixed Deposits) and what is the benefit of the same?

Ans : Alternative for Bank FD is FMP (Fixed Maturity Plans) which are mutual funds schemes with a pre-specified tenure. This product has very less risk of capital loss since the amount is invested in debt and money market instruments. FMP's score over fixed deposits because of their tax efficiencies both in the short term as well in the long term. When you put money in a fixed deposit, the interest gets added to your income. In FMPs longer than a year, if you elect to take all your gains as capital appreciation, the taxation is merely 10 per cent with indexation benefit or 20 percent with indexation.

More for information and investment please call on my cell 9422430302