The sharp fall in the stock markets did not deter individual investors from investing in equity mutual funds through systematic investment plans (SIPs) as inflows hit a record high of Rs 8,641 crore in March as compared with Rs 8,513 crore in February this year. Data from Association of Mutual Funds in India (Amfi) show that SIP inflows were above Rs 8,000 crore for the sixteenth months in a row, and for the first time annual SIP collections touched the Rs 1-lakh crore mark in a financial year to clock Rs 1,00,084 crore in the last financial year.
The total number of SIP folios rose 2.47 lakh to 3.12 crore clearly reflecting there is awareness among investors that an SIP can help them sidestep the behavioural weakness that emerges during volatile market phases and can help them create wealth in a disciplined manner in the long-run. Investing every month ensures that one is invested during the highs and the lows as an SIP will enable an investor to buy units on a given date each month. One of the biggest advantages of an SIP is that the investor doesn’t have to time the market.
SIP ideal when markets are volatile
During markets volatility, SIPs average out the cost. More units are purchased when a scheme’s net asset value (NAV) is low and fewer units are bought when the NAV is high. To be sure, the real benefit of higher number of units is seen when the markets recover and move up. As the 50-share Nifty has crashed nearly a quarter in March, many investors may have thought or may be thinking of stopping the SIPs because of paper loss in portfolio. Experts say that would be a big mistake as these corrections will only help an SIP investor to average the costs. One must continue with the SIPs and if possible increase the SIP amount. In case a particular scheme is under performing for a long time, then the investor must review and switch to a better performing fund or scheme. A research shows that in the past 34 years (since 1986) there have been six major bear markets—fall of around 40% or more—and every time markets have recovered in next two or three years. In fact, in 2008 when the 30-share Sensex crashed to 8,000 levels because of the global financial crises, the benchmark grew more than fourfold over the next decade. So, if an investor does not need money in the next few years, he should hold on to the investments and continue to invest through SIPs for his various financial goals. One of the most important advantages of SIPs is the advantage of compounding. One must start investing at an early age as the longer the investment horizon, the bigger the benefits. If you start out young, equity funds should constitute around 80% of your portfolio, as this asset class has been found to be the best bet for growing money over the long term.
Pause SIP in case of cash flow issues
Most fund houses offer the option to pause the SIP for a limited period of time without charging any fee. If an investor is facing cash flow issues due to pay cuts, layoffs or delay in salary, one can pause the SIP for a period of time ranging from one to six months. This ensures that an investor does not have to prematurely close the account and lose on the returns. Remember, fund houses allow investors to pause an SIP only once during the entire tenure of the investment. However, the duration of the pause will be finally decided by the fund house. After the investor submits the form to the AMC, it will pause the SIP for the period mentioned and resume from the date agreed upon. If the investor has put a bank mandate to the fund house to debit the amount from the bank account through the electronic clearing system, then ensure that the mandate to pause is also given to the bank by the fund house. Always remember to submit the pause form to the fund house a month before the SIP date. This will help the fund house make the necessary changes and activate the instruction.
SIP ideal when markets are volatile
During markets volatility, SIPs average out the cost. More units are purchased when a scheme’s net asset value (NAV) is low and fewer units are bought when the NAV is high. To be sure, the real benefit of higher number of units is seen when the markets recover and move up. As the 50-share Nifty has crashed nearly a quarter in March, many investors may have thought or may be thinking of stopping the SIPs because of paper loss in portfolio. Experts say that would be a big mistake as these corrections will only help an SIP investor to average the costs. One must continue with the SIPs and if possible increase the SIP amount. In case a particular scheme is under performing for a long time, then the investor must review and switch to a better performing fund or scheme. A research shows that in the past 34 years (since 1986) there have been six major bear markets—fall of around 40% or more—and every time markets have recovered in next two or three years. In fact, in 2008 when the 30-share Sensex crashed to 8,000 levels because of the global financial crises, the benchmark grew more than fourfold over the next decade. So, if an investor does not need money in the next few years, he should hold on to the investments and continue to invest through SIPs for his various financial goals. One of the most important advantages of SIPs is the advantage of compounding. One must start investing at an early age as the longer the investment horizon, the bigger the benefits. If you start out young, equity funds should constitute around 80% of your portfolio, as this asset class has been found to be the best bet for growing money over the long term.
Pause SIP in case of cash flow issues
Most fund houses offer the option to pause the SIP for a limited period of time without charging any fee. If an investor is facing cash flow issues due to pay cuts, layoffs or delay in salary, one can pause the SIP for a period of time ranging from one to six months. This ensures that an investor does not have to prematurely close the account and lose on the returns. Remember, fund houses allow investors to pause an SIP only once during the entire tenure of the investment. However, the duration of the pause will be finally decided by the fund house. After the investor submits the form to the AMC, it will pause the SIP for the period mentioned and resume from the date agreed upon. If the investor has put a bank mandate to the fund house to debit the amount from the bank account through the electronic clearing system, then ensure that the mandate to pause is also given to the bank by the fund house. Always remember to submit the pause form to the fund house a month before the SIP date. This will help the fund house make the necessary changes and activate the instruction.
If you have kids, saving up for retirement, so that you can lead a financially independent life post-retirement, may not be enough. You need an education fund as well. We’ll tell you why.
If you’re in your late twenties and plan on having a child, or if you already have one, saving up for a retirement corpus that will help you lead a financially independent life cannot be your only financial goal.
With the cost of education spiraling today, pooling a portion of your savings or income into an education fund for your child is essential. We’re going to tell you how to go about it using Mutual Funds.
Thirty years ago, when our parents focused on creating a corpus for our education or marriage, they depended on investment options like Fixed Deposits, Public Provident Fund (PPF) or physical gold to meet these goals. While these are perfectly safe, long-term investment options, the returns on these are as low as 6-7%. So, while the education fund is safe, the money doesn’t multiply.
With the cost of education spiraling at more than 20% per year, parents need to explore investment instruments that will yield considerable returns over a span of time and meet their financial goals. Mutual Funds, in this respect, is one of the most viable options to create wealth for the long term.
Equity Mutual Funds are a compelling investment option for two reasons:
Here are some benefits of investing in Mutual Funds:
To start investing in Mutual Funds, parents can either create a portfolio exclusively for the purpose of funding their children’s education or to invest in specific children’s plans offered by fund houses.Here are the steps to set up and maintain an education fund using Mutual Funds:
If you’re in your late twenties and plan on having a child, or if you already have one, saving up for a retirement corpus that will help you lead a financially independent life cannot be your only financial goal.
With the cost of education spiraling today, pooling a portion of your savings or income into an education fund for your child is essential. We’re going to tell you how to go about it using Mutual Funds.
Thirty years ago, when our parents focused on creating a corpus for our education or marriage, they depended on investment options like Fixed Deposits, Public Provident Fund (PPF) or physical gold to meet these goals. While these are perfectly safe, long-term investment options, the returns on these are as low as 6-7%. So, while the education fund is safe, the money doesn’t multiply.
With the cost of education spiraling at more than 20% per year, parents need to explore investment instruments that will yield considerable returns over a span of time and meet their financial goals. Mutual Funds, in this respect, is one of the most viable options to create wealth for the long term.
Equity Mutual Funds are a compelling investment option for two reasons:
- Capital gains on the sale of equities with a holding period exceeding one year are tax-free
- The approximate dividend yield on equities is 1-1.5% annually. Opposed to what is commonly believed, you don’t need to be a financial wizard to taste success with Mutual Funds. Mutual Funds are managed by professionals who have the expertise and foresight to invest in the right kind of stocks. Your money also gets evenly distributed across risky and safe stocks and sectors.
Here are some benefits of investing in Mutual Funds:
- Investments are made by seasoned fund managers on behalf of investors after discussion, research, and analysis.
- Mutual Fund portfolios are well-diversified. The risk is thus spread over various types of stocks.
- An education fund needs flexibility, which is possible with Mutual Funds.
- Despite short-term volatility, long-term Mutual Funds are ideal as they generate the highest returns.
- The minimum dividend yield on a pure equity Mutual Fund investment is around 10-12%.
To start investing in Mutual Funds, parents can either create a portfolio exclusively for the purpose of funding their children’s education or to invest in specific children’s plans offered by fund houses.Here are the steps to set up and maintain an education fund using Mutual Funds:
- Open a minor account that can be operated jointly by both parents.
- Set up SIPs for amounts that can be comfortably borne by the both of you.
- Review SIP contributions every year and try to step them up every year.
- Review investment performance and asset allocation at regular intervals (about once a year). If a fund has been under-performing for a year then there’s no reason to panic. Consider terminating the SIP in the fund only if the under-performance continues for 3 years.
- You can move the funds to a liquid fund a few months prior to pay out
A few things to note: The amount you will have to save every month would depend on how near in the future you would need to use those funds for your child’s education. When it comes to investing, the sooner you start the better. Remember, a delayed start will not only leave you with an insufficient corpus but will also put at risk your other financial goals. If you start saving for your child’s education well into your 40s, you may fall short of the required amount.
No matter what age you are, SIPs can help you build a sizeable retirement corpus from small investments over time
The very thought of retirement evokes pleasant memories. Most of us see retirement as a phase of life when work-related worries are over and one can lead one's life as per one's will. While retirement is indeed a period free from work-related worries, it is not necessarily a period free from 'money-related' worries. For most of us, the regular income from our jobs is likely to stop post retirement. Thus, in order to enjoy retirement, saving for it is indispensable.
Gone are the days when most people worked for the government and were paid pensions. These days, even in government jobs, one has to invest towards building one's nest egg. With increasing life expectancy, it's even more important to plan for retirement. The retired life can be as long as 30 to 40 years and with diminishing capability to engage in active work, your accumulated corpus gets even more crucial.
Retirement savings for all
SIP is simply the power of compounding and discipline. While your equity fund does the compounding for you, SIPs, short for systematic investment plans, bring discipline to your investing. They help you build a large corpus from small investments over a period. Naturally, the earlier you start, the smaller the investment you will need to reach your estimated retirement corpus. For a middle-aged person who hasn't started investing yet, a larger SIP is needed to reach the same goal amount. For most of us, doing SIPs in a tax-saving fund up to the tax-exempt limit (which is currently Rs 1.5 lakh yearly) can help build a retirement corpus while also saving tax. Beyond Rs 1.5 lakh, a couple of good multi-cap equity funds can do the job. What about those who are nearing retirement and already have accumulated a corpus in some traditional savings instrument such as the Public Provident Fund? After taking care of regular income through instruments like Senior Citizens Savings Scheme, such people can move their remaining retirement corpus to a debt fund. From this debt fund, they can systematically transfer the amount to a good balanced fund over the next several months. This 'SIP' from one fund to another is called STP, systematic transfer plan. The growth in a balanced fund will help retirees grow their corpus to counter the effect of inflation.
The very thought of retirement evokes pleasant memories. Most of us see retirement as a phase of life when work-related worries are over and one can lead one's life as per one's will. While retirement is indeed a period free from work-related worries, it is not necessarily a period free from 'money-related' worries. For most of us, the regular income from our jobs is likely to stop post retirement. Thus, in order to enjoy retirement, saving for it is indispensable.
Gone are the days when most people worked for the government and were paid pensions. These days, even in government jobs, one has to invest towards building one's nest egg. With increasing life expectancy, it's even more important to plan for retirement. The retired life can be as long as 30 to 40 years and with diminishing capability to engage in active work, your accumulated corpus gets even more crucial.
Retirement savings for all
SIP is simply the power of compounding and discipline. While your equity fund does the compounding for you, SIPs, short for systematic investment plans, bring discipline to your investing. They help you build a large corpus from small investments over a period. Naturally, the earlier you start, the smaller the investment you will need to reach your estimated retirement corpus. For a middle-aged person who hasn't started investing yet, a larger SIP is needed to reach the same goal amount. For most of us, doing SIPs in a tax-saving fund up to the tax-exempt limit (which is currently Rs 1.5 lakh yearly) can help build a retirement corpus while also saving tax. Beyond Rs 1.5 lakh, a couple of good multi-cap equity funds can do the job. What about those who are nearing retirement and already have accumulated a corpus in some traditional savings instrument such as the Public Provident Fund? After taking care of regular income through instruments like Senior Citizens Savings Scheme, such people can move their remaining retirement corpus to a debt fund. From this debt fund, they can systematically transfer the amount to a good balanced fund over the next several months. This 'SIP' from one fund to another is called STP, systematic transfer plan. The growth in a balanced fund will help retirees grow their corpus to counter the effect of inflation.
Investing in liquid or accrual funds could be a source of generating extra income for investor
Most earner, salaried or businessmen, work hard to earn money for the family and the self. However, not all these people, after they have earned money, also make their money work hard to generate some extra income. There are quite a few options which people could use to earn some extra income. Two of those routes are putting a small part of your hard earned money into Liquid Funds and/or accrual funds. Investing in these funds could also help retired people to earn some extra income. And if they are already getting pension, earnings from these funds could work as a source for a second income for them.
WHAT ARE Liquid Funds AND ACCRUAL FUNDS?
Liquid Funds are those mutual fund schemes which are ideal for putting money for a very short period of time, preferably not more than three months. Since these funds invest in extremely short term Debt papers, they come with very low volatility and risks. Accrual funds are those funds which invest in Debt papers of short and medium tenures to generate interest income. These funds usually do not take any interest rate/credit risk but stick to earning interest.
INVESTING IN ACCRUAL FUNDS
According to financial planners and advisors, retired people could invest in Debt accrual funds for higher post-tax income. These funds are more useful to those retired people who are in the higher income tax bracket (20% and 30%). For those who are in the 10% tax bracket, and also those who do not have to pay any taxes, bank fixed deposits are equally good, they say.
This is how the people who are in the 20% and 30% tax bracket can generate another stream of income by investing in accrual funds: The investor will invest in the fund and subsequently should also set up a systematic withdrawal plan (SWP) for the same scheme. The SWP will be set up in such a way that only the gains from the fund are transferred to the investor's bank account, at regular intervals, while the principal remains untouched. So, in effect the investor enjoys a steady flow of regular income, but pays lower tax compared to if he had invested in bank fixed deposits. This is because as per tax rules, only the gains are taxed. While investing in accrual funds, the investment option should be growth and not dividend, financial planner and investors say.
INVESTING IN Liquid Funds
Investing in Liquid Funds could generate annual returns of nearly 7%. With banks cutting interest in savings account, Liquid Funds, which are almost a perfectly substitute product for SB accounts, could turn more attractive in terms of return.
At 6% annual rate of interest, even if the fund house has to pay a dividend distribution tax of about 28.3%, the post-tax return works out to about 4.3%. In case the fund manager can generate a bit higher return in the fund, the returns to the investors in the fund could also be proportionately higher.
Most earner, salaried or businessmen, work hard to earn money for the family and the self. However, not all these people, after they have earned money, also make their money work hard to generate some extra income. There are quite a few options which people could use to earn some extra income. Two of those routes are putting a small part of your hard earned money into Liquid Funds and/or accrual funds. Investing in these funds could also help retired people to earn some extra income. And if they are already getting pension, earnings from these funds could work as a source for a second income for them.
WHAT ARE Liquid Funds AND ACCRUAL FUNDS?
Liquid Funds are those mutual fund schemes which are ideal for putting money for a very short period of time, preferably not more than three months. Since these funds invest in extremely short term Debt papers, they come with very low volatility and risks. Accrual funds are those funds which invest in Debt papers of short and medium tenures to generate interest income. These funds usually do not take any interest rate/credit risk but stick to earning interest.
INVESTING IN ACCRUAL FUNDS
According to financial planners and advisors, retired people could invest in Debt accrual funds for higher post-tax income. These funds are more useful to those retired people who are in the higher income tax bracket (20% and 30%). For those who are in the 10% tax bracket, and also those who do not have to pay any taxes, bank fixed deposits are equally good, they say.
This is how the people who are in the 20% and 30% tax bracket can generate another stream of income by investing in accrual funds: The investor will invest in the fund and subsequently should also set up a systematic withdrawal plan (SWP) for the same scheme. The SWP will be set up in such a way that only the gains from the fund are transferred to the investor's bank account, at regular intervals, while the principal remains untouched. So, in effect the investor enjoys a steady flow of regular income, but pays lower tax compared to if he had invested in bank fixed deposits. This is because as per tax rules, only the gains are taxed. While investing in accrual funds, the investment option should be growth and not dividend, financial planner and investors say.
INVESTING IN Liquid Funds
Investing in Liquid Funds could generate annual returns of nearly 7%. With banks cutting interest in savings account, Liquid Funds, which are almost a perfectly substitute product for SB accounts, could turn more attractive in terms of return.
At 6% annual rate of interest, even if the fund house has to pay a dividend distribution tax of about 28.3%, the post-tax return works out to about 4.3%. In case the fund manager can generate a bit higher return in the fund, the returns to the investors in the fund could also be proportionately higher.