Tuesday, March 29, 2011

Basic funda on Liquid funds

Beginners’ introduction to mutual Fund investment

• What is a liquid fund?

In financial terms, “Liquid” means asset which is as good as hard cash. Liquid Funds are a kind of debt - mutual fund which invests in money market instruments, (Money market – Market for short term lending and borrowing – Commmercial papers, Company bonds, treasury bills etc.) with maturity less than a year. This fund can be redeemed in as less as 24 hours.

• Why would you invest in liquid funds?

o No entry/ No Exit load (if not withdrawn within the lock-in period )
o Annual fee 0.30 to 0.70%
o Better tax benefits than FDs (Interest is taxable according to the tax bracket of the investor) [In the dividend option returns are tax free at the hand of investor]
o An average/ approx 8% p.a. return on liquid funds
o Maximum of 10 per cent or less mark-to-market component, indicating a lower interest rate risk

• How do you invest?
You can invest in these funds through online or normal offline procedures.

Liquid funds are good way to get introduced to the mutual funds - for the first timers

Monday, March 7, 2011

How about considering mutual funds in the portfolio to build the retirement kitty!!

Invest some! Spend some! Balance it with intelligent investment decisions

Retirement is the time when you would like to do things that you like most. Hence planning for it with care and a long-term vision is most important.
Planning through equity mutual funds is a viable option to explore, given the facts that non-government employees cannot be a part of NPS (national Pension system) and life insurance companies cannot offer higher returns now after the imposition of a regulatory guaranteed return in pension plans.

The life expectancy is increasing in our country considerably, naturally people are living longer retired life. To ensure the retired life is happy and a desirable one, it is important to ensure good health and wealth for a long run. India is a fast emerging country which is known worldwide for its saving habits. But India is also known to be a conservative investor. This results in saving in instruments that guaranteed safe returns, but not high enough to be able to enjoy a good life in future. Most Indians shy away from saving in instruments that may involve a little risk, but yield better returns. In fact they end up protecting their hard- earned money in a few instruments that also yield minimum returns, rather than creating wealth.

However the ensuing circumstances are expected to pan out differently from the way they panned out for our parents and grandparents. The inflationary pressure on life and longer retired life are expected to go up. In the old age we wouldn’t want to compromise on the lifestyle we lived so far. We will travel abroad, invest in art and music, might grow an interest in photography too!! These are good reasons for most of us to create wealth in a systematic way and enough to ensure that we lead a happy and a better-managed retired life.

Employer Provident fund (EPF) and Public Provident fund (PPF) are good options which not only saves tax but also provides compounded interest of 8-9% year-on-year and have a long lock in period. These options are no-risk- free as well as tax-free on maturity. One should definitely have an exposure to these options. But as the inflation is rising high at 6-7% year-on-year, the corpus built through these funds yield lower return on investment. Hence investing in these instruments is important but would not be enough to take care of your future financial needs.

Lets beat inflation worries and create long term wealth


1. Start early and think for a long term. The earlier you start, the better are your chances of enjoying the benefit of compounding

2. A happy retirement can be planned with systematically investing a fixed amount every month for post-retirement years. A small amount saved every month for a longtime will create a sizable corpus, overtime. Rs.3,000/- pm invested in MF Schemes (yielding 12% pa ) over the working years ( assumed as 30 ), will yield tax free return of handsome Rs.1.05 crore at the age of 60 years! That’s the power of compounding at work.

3. There is no tax on long-term gains for equity investments, although debt investment like fixed- deposits and other similar instruments do attract tax on long- term gains.

4. Do consider the future healthcare cost; it would be a wise decision to make a separate kitty for your future healthcare requirements else it can cause erosion in the other expenses.

5. Diversify your investment to minimize risk and maximize returns. Put your money in different asset class to minimize risk - Debt, Equity and Hybrid.

6. Disciplined investment habit for a long term has a proven history of returns


Equity is one of the investment tools for long-term wealth creation. If we consider Indian equity market, it has seen an average annualised growth of 15% over the last 20 years. So, if somebody had made a Rs. 100,000 investment in Sensex stocks in 1990, in 20 years as on 2010 the return would have been Rs. 1 crore 63 lakhs (tax free).
However, the volatility of markets, wrong advises and fear of loosing money almost at the same rate as you would have gained in equity could deter you from taking the risk. All of us have seen this only too closely that making money in the equity market is easy; losing it is easier. Relying on tips and recommendations is like kissing your money a friendly goodbye, rather knowingly. If we buy a stock directly, it has to be something that we have done our homework on, but we won’t really know how to manage the diverse portfolio or miss out on an interesting opportunity. A better overall policy would be to use mutual funds way. In mutual funds, these nerdy fund managers invest into diverse companies and sectors. The fund management teams comprise of highly educated and experienced team of analysts who thoroughly research on companies, thus minimizing your risk and maximizing returns.

Things to remember while planning for retirement

1. Decide how much income you require to live comfortably in your post-retirement years. Consider aspects like increased medical costs, vacations but reduce costs like children's education and rent, if you own your home. Map this income based on your current lifestyle.

2. Determine how much you need to save regularly, starting today, to have the right amount. Start allocating funds towards your retirement kitty.

3. Select a set of investment instruments that will help you meet your post-retirement requirements.


Start saving early has amazing benefits!!

Wish you all cool and rocking retired life!!

Please share if you like