AMCs are launching free life cover with SIP investments. Should you opt for it?

Fund houses, namely ICICI Prudential AMC, Reliance Mutual Fund and Birla Sun Life Mutual Fund, have launched an add-on feature, which is providing life insurance cover to the investors. The life insurance cover provided is available to investors of select schemes of these fund houses and is directly proportional to the monthly SIP investments being made by the investor. This feature provides coverage against the uncertainties of life besides enabling investors to accumulate wealth.

  • Invest in mutual fund schemes from leading AMCs
  • Easy, paperless, hassle-free sign up
  • Free life insurance cover of up to ₹1.5 crores based on value and term of SIP
  • Insurance cover exists even after termination of SIP*

*Only if termination of SIP is after 3 years

The cover provided is a term insurance policy, where the insurance company will pay out money only in case of death of the investor.
1. Some mutual fund companies provide a complimentary life insurance cover to their SIP investors investing in certain schemes.
2. The cover provided is a term insurance policy, where the insurance company will pay out money only in case of death of the investor.
3. The investor has to have investment tenure of at least of three years to be eligible for this facility. Cover ceases if SIP is discontinued before the completion of three years.
4. Maximum sum assured is about 10 times the SIP installment in year one, about 50 times in year two and about 100 times in year three.
5. The cover will continue till the investor reaches the age of 50-55 as mentioned at signup even if the SIP stops after completing three years
“Just don’t do an SIP only for the free insurance cover. Ensure that it suits your objectives as this is an additional cover and not a substitute for your term plan,”
The feature is an add-on optional one and that too at no additional cost. The premium for such insurance cover is funded by the fund houses.
Age criteria of investors to be eligible for add-on feature
Investors aged above 18 years and not more than 51 years at the time of the first investment are eligible to opt for the insurance cover. Further, the cover ceases as the investor crosses the maximum age as prescribed by the fund house.

How does it work?

In order to be eligible for the insurance cover, the SIP registered should be for a period of three years and above. The cover is 10 times the monthly SIP installment in the first year, which increases to 50 times in the second year and then 100 times third year onwards. There are caps to maximum cover by these AMCs. The following table gives an idea of how this life cover feature works:

What if an investor exits mid-way / stops SIPs / withdraws partially?

If the investor discontinues the monthly investment before three years, the insurance cover stops immediately.

However, in case the SIP with insurance is discontinued after three years, the insurance cover is available equivalent to the value of SIP units so allotted as per the valuation on the first business day of the month in which renewal confirmation is given.


One of the key advantages of SIP with insurance cover is that the scheme provides a free group insurance cover to the investor without any extra cost. This insurance coverage shall continue to pay the SIP amount in case of premature death of the investor to achieve his investment goals.


This add-on insurance feature is not available under all schemes and therefore it provides limited choice to the investor in terms of selecting the funds. The insurance coverage is provided to only the first unit holder and is not extended to joint/ second unit holder.

Mutual fund investments are subject to market risk. Insurance coverage has to be settled with AMC or though group insurance provider. Please read the offer documents before making any investment decision.

Arabinda Kundu


Courtesy : Economics times, money control.

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admin August 12, 2019 0 Comments

Top Reasons ELSS are Better Than Other Tax Saving Investments

The introduction or rather reintroduction of long term capital gains taxes on equity mutual funds including ELSS(equity linked savings schemes) has made some novice investors a bit jittery. A lot has already been written and said about long term equity gains taxes on equity schemes. In short, considering the potentially high returns, Rs. 1 lakh annual gains taxation threshold and the grandfathering of returns till 31 st  January 2018, equity schemes still hold the edge over competing investments. This also holds true for ELSS funds that investors choose for making tax saving investments. In case you are still on the fence regarding if there are any benefits of opting for tax saving mutual funds over traditional tax saving investments, the following are seven top reasons to choose ELSS.

1. Short Lock-in:

All tax-saving investments feature a lock-in period which currently varies from 3 years to 15 years. During this lock-in period you are not allowed to redeem your investment or make withdrawals except for some specific emergencies. As per existing rules, among the available tax saver investments in India, ELSS i.e. tax saver mutual funds have the shortest lock-in period of 3 years. This allows you the ability to shift to a different investment option within a relatively shorter period of time in case your chosen investment is not performing as per your expectations. Obviously in case of tax saver schemes with longer lock-in period, you do not receive the same flexibility.

2. Flexibility to Choose Investment tenure:

The flexibility of mutual fund schemes is unmatched even in case of tax saver investments as you have the option to choose your investment tenure beyond the 3 year lock-in. In case of most other tax saving investments you have to invest in blocks of 5 years or more beyond the initial lock-in period. This is not the case with ELSS schemes – you can stay invested for a day or even for decades after completion of the initial three year lock-in period. Typically staying invested in a top rated ELSS mutual fund for a longer period offers you greater compounding benefits.

3. Potentially Higher Market Linked Returns:

ELSS are market-linked diversified equity schemes, this gives them an edge over fixed return investments that offer tax benefits. The main problem that fixed rate tax saving schemes such as PPF have is that inflation reduces the actual returns generated by these investments over time. Fortunately being market-linked, tax saver mutual funds can provide potentially higher returns that can beat the adverse impact of inflation in the long term. This is the key reason why many individuals who make investments with the intention of planning for retirement or other future expenses have moved away from old school options such as fixed deposits and PPF to mutual
funds and ELSS instead.

4. Compounding Benefit:

Compounding is what makes today’s investments more valuable in the long term and equity linked savings schemes can potentially deliver superior compounding benefit when compared to traditional tax saving investments. This is because the returns offered by traditional instruments such as tax saver fixed deposits and PPF tend to offer a lower rate of return than the average ELSS. This causes the compounding of the initial investments to grow slowly and reduces the overall benefit of compounding for you in the long term. In case of mutual funds such as ELSS, the potential returns being higher, these compounding benefits tend to add up faster for investors. It must however be pointed out that ELSS returns do not have a fixed ROI, hence during some periods, returns will be considerably higher than during other periods with historic long term average returns of equity schemes recorded at 12% per annum.

5. Option of SIP Investment:

SIP or systematic investment plans are akin to recurring deposits for ELSS investments and currently this route has emerged as the key driver of equity mutual fund investments in India. For starters, a SIP allows you to invest over the long term in small installments so you do not need to worry regarding upsetting your monthly or annual budget. SIP is also suitable for individuals
who tend to have trouble saving as the amount gets debited automatically from your bank account. This way you will end up saving money for the future instead of spending it all. Last but not the least, SIP also provides the benefit of rupee cost averaging to investors. The NAV of an ELSS fund changes daily and investing via SIP eliminates the need for investors to time their entry into the market by providing an average value of units (rupee cost averaging) over the chosen investment tenure.

6. High Levels of Transparency:

Mutual fund houses i.e. asset management companies (AMCs) who manage ELSS and other mutual fund schemes are regulated by SEBI (Securities and Exchange Board of India). As per SEBI guidelines, AMCs have to make periodic disclosures regarding key information of all schemes managed by them. Information provided through these mandatory disclosures include net asset value (NAV), assets under management (AUM), scheme returns over different periods, total expense ratio (TER), current asset allocation, etc. While some of these have to be
reported daily, others need to be reported as per a monthly or quarterly schedule. As of now, no tax saver investment in India features a higher degree of transparency than ELSS. Hence tax saver mutual funds ensure that you always have the latest information regarding the status of your investments.

7. Ease of Investment:

The advent of Internet and related technology has significantly eased the pains related to making tax saving investments. However many traditional tax saving schemes such as PPF still require you to physically queue up at a designated bank or post office so that you can subscribe to the chosen instruments. Not in case of tax saver mutual funds. After having adopted Aadhaar-based eKYC, the industry as a whole allows investors to start investing online without having to leave the comfort of their home or office. You can of course still complete an in-person biometric KYC at designated RTA locations, but the advantage of a completely-online cKYC for tax saving investments is currently only available to mutual fund investors.

Courtesy: Paisabazaar
July 10, 2018

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admin August 12, 2019 0 Comments

This children’s day learn the ABCD’s of child plans

Children’s day is round the corner and it is the right time to start thinking about our children’s future. November 14, the birthday of our first Prime Minister Jawaharlal Nehru is celebrated as children’s day as he always loved children and took measures for their growth and development.

Children play completely different and the most important role in our lives. For some, they act as an emotional support system; they are the most precious gifts anyone can have. All of us want our kids to do something different, better and beautiful. But what is our responsibility as a parent?

It’s we who play a major role in shaping our kid’s life. So how we support them at each and every phase of life both emotionally and financially is very important supporting your kid financially even before they are born is something that is in your hands. There are a lot of children’s gift plans available in the industry.

What is children’s gift plan?

Children’s gift plan is a mutual fund type. It is a hybrid mutual fund (solution oriented).The objective of these funds is to generate wealth for kid’s future goals like education, higher studies, marriage, etc. These funds are best suited for long term investors.

Features of children’s gift fund:

  1. These funds are long term investment plans.
  2. They can have a lock- in period of 5 years or till the kid turns 18 years
  3. No tax benefit is given.
  4. As the intention is to achieve long term goals like education or marriage and discourage early withdrawals, these funds have higher exit load as compared to other mutual funds.
  5. The exit load may range from 3 to 4%
  6. Grandparents can also investin the name of their grandchildren.
  7. At the time of redemption, money is sent to the beneficiary’s account only. (kid’s account)

How is children’s gift fund different from normal mutual funds?

These funds are designed specifically for the above theme, however, the choice of securities or portfolio composition is like any other hybrid or equity fund. The performance of these funds varies as per the market too. The functioning is like any other normal equity fund.

There are certain limitations as well.

If you invest your money in such theme based funds, and the performances over medium to long term are not favorable, there are lesser chances of redemption because of lock in period in some mutual funds.

Also even after the lock in, there is no tax benefit. There is nothing in these funds which is not available in plain vanilla equity or hybrid fund. In the latter, you always have a choice to change your investment pattern and align your investment strategy as per the changes in the market. The only thing you have to focus more is being disciplined in terms of investment and not redeeming before you achieve your goal.

Have a look at the performance of children’s gift funds available in the market.

We are all familiar with investing in mutual funds. But, did you know that you can also invest in mutual funds in the name of a minor (child under 18 years of age). While we will get into the merits and demerits of investing in the name of a minor later, it is first essential to understand how the entire process works.


How to go about investing in MFs in the name of a minor?
The parent / guardian will have to open a mutual fund folio in the name of the minor child. Remember, the minor ‘s investment in the mutual fund cannot be held in joint names. It has to be necessarily held in the name of the minor only. Since the minor is not permitted to take financial decisions in her own name, there will have to be a designated parent or guardian who will be the custodian of the account. While the minor will be the first and sole holder, the guardian can be either of the parents or any legally appointed guardian.

Interestingly, if you are planning for the long term, you can also do a systematic investment plan (SIP) in the name of the minor. The debits for the SIP can either come from the parent ‘s designated bank account or it can come from the child’s minor account, which is under the designated guardianship. One thing is important here. All minor SIPs will automatically cease to exist on the minor attaining majority (age of 18). From that point, she becomes the investor and will have to go through KYC in the proper format.

What are the documents required for investing in the name of a minor..
For opening a minor’s mutual fund folio, there are 2 key documents required.

Firstly, the proof of age and date of birth of the minor is required. This can be either provided in the form of the birth certificate issued by the municipal authorities or a passport.

The second document is required to establish the relationship between the minor and the guardian. In case of parents, the birth certificate or the passport mentioning the name of the parent is sufficient. In case of a legal guardian, a copy of the court order will be required.

In addition, the parent or the guardian to whom the minor is attached will have to be KYC-compliant as per the extant SEBI regulations. As stated earlier, the SIP will be valid only till the minor attains the age of 18 and automatically cease after that. Post that date, the minor turned adult will have to go through the entire KYC process in her own name. There are also cases when the guardian may have to change. In that case, a no-objection-certificate (NOC) will be required from the current guardian. Also the court order appointing the new guardian will be required. Needless to say, the new guardian will also have to be KYC compliant before becoming guardian to a minor.

What about dividends and capital gains on funds held by minor
As per the existing provisions of the Income Tax Act, all income of the minor will be clubbed with that of the parent or the designated guardian. Any such income will be taxable in the hands of the parent or guardian with whom the minor’s income is being clubbed. Of course, dividends are tax-free in the hands of the investor and so are long term capital gains, when held beyond a period of 1 year. But in case the minor’s fund is sold before the completion of one year, it will be treated as short term capital gains and included in the total income of the parent or guardian and taxed at their peak applicable tax rate.

Is it a good idea to buy MFs in the name of a minor?
There are actually two ways to look at it. Firstly, when you are planning for your child’s future, it always makes investment sense to demarcate the investments for your child’s future separately. Otherwise, investments are fungible and such funds tend to get used for other allied purposes. To that extent it instills discipline in the financial planning process. There are also child plans of mutual funds that you can select from, but that comes with a lock-in period and hence may not suit your requirements.

The argument against investing in the name of minors is that it takes away your flexibility. The day the minor turns 18 and attains majority, you will have no control over how she wants to use her funds. That is something you need to keep in mind. Another way will be to invest in your own and designate the child as the specific nominee for that particular investment. That will ensure discipline in investment; at the same time giving you adequate flexibility. The choice is entirely yours!

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admin August 8, 2019 0 Comments

Millennial’s almost half of new mutual fund investors in FY19

  • Cams data shows that 1.7 million of its 3.6 million new investors were millennials
  • Hand-holding first-time investors and encouraging them to continue investing is important

NEW DELHI: More and more millennials are taking to mutual fund investing and are letting their corpuses grow by holding them over long terms. According to data from Computer Age Management Services (Cams), a transfer agency which services 68% of MFs in India, of the 3.6 million new MF investors it onboarded in FY18-19, 47% (1.7 million) were millennials (between 20 and 35 years). Cams shared the data exclusively with Mint along with its observations.

“Good performance of the stock market in 2017 where they were up about 28% amid declining interest rates on fixed deposits and savings accounts made MFs attractive for millennials,” said Ankur Choudhary, co-founder and chief investment officer, Goalwise, an online mutual funds platform. Choudhary said equity-linked savings schemes (ELSS) has become popular for saving tax because these products have the shortest lock-in period (three years) compared to other products covered under Section 80C of the Income-tax Act.

Experts believe that industry body Association of Mutual Funds of India’s (Amfi) Mutual Funds Sahi Hai campaign and personal finance blogs, specifically targeted at millennials, have helped increase awareness about MFs.

Trend in numbers

Women investors: Cams data shows that women make for 24% of the 1.7 lakh millennial investors, indicating increased financial independence and participation of women in money-related decisions. “More and more women are investing in assets other than gold and real estate. This goes to show women are turning into investors. About time,” said Shweta Jain, certified financial planner, chief executive officer and founder, Investography Pvt. Ltd. Sanjiv Singhal, founder, Scripbox, an online MF aggregator, said this reflects a convergence of two trends—more women with independent incomes and simplification of retail investing. “This is converting women from savers to investors,” he said.

Advisory: Despite increased digitisation and simplified know your customer (KYC) process, 86% of the millennials prefer being advised by intermediaries such as banks and distributors. “Sometimes intermediaries ignore the larger picture and focus on short-term interests and recommend products that may not be good for you,” said Jain.

A startling revelation from the data was that even millennials prefer paper-based account-opening. Investors who were helped by intermediaries took to paper-based and electronic modes of transaction, according to Cams. Greater preference for digital was given by DIY millennial investors who make for 14% of the total new investors.

Preference for equity: Another trend that the data highlighted was millennials’ preference for equity. As much as 1.5 million millennials started their MF investments with equity, but 3% subsequently invested in non-equity schemes. The remaining 150,000 investors started off with non-equity mutual funds but 33% of them subsequently moved to investing in equity.

Choudhary said equity funds are more attractive because they have the potential to give higher returns compared to debt funds or fixed instruments like FDs. “They also have the potential to lose money in the short or medium term. It is, thus, important to balance equity funds with non-equity debt funds according to your risk profile. The lower your risk appetite, the lower should be your exposure to equity,” said Choudhary.

SIP route: With an average ticket size of ₹2,118, over 1 million millennial investors preferred the systematic investment plan (SIP) route to enter equity mutual funds. Of the 620,000 outstanding investors, 490,000 invested lump sum in equity funds with an average investment size of ₹58,000 and the remaining 130,000 invested lump sum in non-equity schemes with an average investment value of ₹1.6 lakh. Choudhary said millennials prefer SIPs because the route aligns well with how one earns and saves money. “The benefit of SIP is that it is more affordable, it helps average out your purchase price, and it builds investing discipline,” he said.

“Millennials need to allocate a part of their income towards goal achievement before they allocate it to other areas which are non-urgent and unimportant,” said Pravin Jadhav, director, Paytm Money, an online MF aggregator, 80% of whose investors have chosen the SIP route. When investing in lump sum, Choudhary said it’s advisable to spread it across a few months in order to avoid getting unlucky with the purchase price.


Key takeaway

Hand-holding first-time investors and encouraging them to continue investing is an important take away from the data, which shows 260,000 SIPs got cancelled and redeemed within the same financial year, while 7,000 redeemed their lump sum investments.

Vishal Dhawan, certified financial planner and founder, Plan Ahead Wealth Advisors, said the main reason for this is investors looking at short-term returns instead of long-term performance. Cash flow challenges, overspending and job changes could be the other reasons. “Be clear about why you are saving and your investment time horizon. It’s important to stay disciplined with your investment strategy and understand that past performance may not be indicative of future returns and never compare your investment strategy with your peers,” said Dhawan.

Jain likens MF investments with the growth of a bamboo tree. “Do your bit! A bamboo tree doesn’t grow much for the first few (five) years, it then shoots up dramatically; don’t kill your investments at least in the first three years. Give your money time, it’ll give you the returns,” said Jain.

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Disha Sangvi August 8, 2019 0 Comments

Goal Based Investment

Our goals can only be reached through a vehicle called Plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.” —Pablo Picasso

If you are investing without a goal in mind, then you are not saving enough for your future needs. Having a goal-based investment plan is both very important as well as useful.

What is a goal?

A lot of us think that dreaming about a house or a car is a goal. But the actual goal is where your name few things very clear in mind.

  • What is my goal? – give a name to your goal
  • When do I want to achieve this? – decide a time horizon
  • How much money do I need to achieve this goal?-Decide the monetary value of your goal

Once you have the above 3 things in your clear conscious, you are all set to take the next steps.

Mistakes to avoid while doing goal-based investment:

Not having target amount in mind: All of us want to more and more returns, but having a target amount in mind will help you to make decisions like how much do you need to invest, till when to hold and when to sell your investment. It will act as a balance between savings and expense.

Not considering inflation: The prominent reason we save and invest is to beat inflation so we can still buy the same things and live the same lifestyle even after 10 years. Always consider inflation while deciding your target amount. Calculate the future value of your goals. There are lots of calculators available in the market which can help you to do so.

Not saving enough: The most common mistake done at the time of doing goal-based investment is we overestimate our savings. Once you have determined the future value of your goal or inflation-adjusted value now it’s time to do a backward calculation and figure out how much money has to be invested regularly.

Steps to follow for a goal based investment.

Step 1 – Asses your financial situation

Whether you are looking to action a specific need or simply want the peace of mind that your finances are in good shape the financial health check will do the job. The free financial health check service is a review with one of our highly trained Wealth Coaches, over the phone or face to face.


Step 2 – Decide Goal

  • Decide the priority of the goals
  • Determine how much can you save and how much saving is needed for your goal
  • Start investment
  • Review and rebalance your past investments
  • Once you follow the above steps to decide your goal and defined how much amount you will need for it and in how many years.

Step 3– Decide the priority of the goals: There are few things we have to focus on while prioritizing.

It can be done based on time left for the goal. Like 6 months, 1 year, 10 years

Another way can be based on criticality- This means how important the goal is, can you compromise on the monetary terms etc.

For example – Goal like kids education can neither be postponed nor be compromised in terms of money requirement. So this goal should have higher priority. Whereas going for a world tour can be delayed by a few months and there is a possibility to compromise in budget requirements too, so this can be a nonfatal priority.

Based on the criticality and time left for the goal, the portions of savings should be allocated to it accordingly.

Step 4: Determine how much can you save and how much saving is needed for your goal

It’s always advisable to save at least 25% of your total monthly income; this can be dependent on your goals too. Another factor which you have to look at is your debit or credit card outstanding.

While designing a savings and investment plan, focus primarily on your debts and design a plan to clear them too. Debts take away a big portion of our savings in terms of interest. Understand and use your credit cards wisely.

Step 5: Start investment:

This is another very critical step which will need a lot of attention and precision. Always take professional help if you don’t understand financial products. Choosing a right product is very important.

  • Choose a product which suits your risk profile.
  • Don’t overestimate returns from any product especially if you are investing in equity related instrument.
  • Always diversify your investments, keep your portfolio a mixture of debt and equity products
  • Always keep some portion aside for emergencies too so any contingency won’t disturb your investment.
  • Design an effective tax plan too.

Step 6: Review and rebalance your past investments:

Once you start investing always keep a track of your investment and add or remove investment only if it is very important, don’t freak out if the short term fluctuation is not favoring your investment. Stay invested in the longer term.

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admin August 8, 2019 0 Comments

Are regular plans bad?

Life should be clutter free and investments should be kept as simple as we can.

With stock market going through ups and downs every day, mutual funds have become a very attractive option for investment today. There are more than 1000 schemes available in the mutual fund industry which allows us to choose funds as per our needs and risk profile. The ultimate motive of the investment is to make every penny work so it takes you nearer to you goals and dreams.

Tough time call for tough choices and pinching every penny, in this scenario when the market we get very worried about losing our money in commission and expenses ratio.

It’s true that regular funds have some commission included as a part of expenses ratio, however if you look towards the benefits of investing in regular funds, you can easily compromise on the charges part.

Why Retail Investor should avoid Direct Plan of Mutual Fund?

Records of Investment

It was quite shocking for me that none of the financial planners touch upon this point in their post on Direct Plans. Today if i invest in 8-10 mutual fund schemes of 5 fund houses then i need to remember and store details of all the direct schemes separately. If god forbids and something happens to me then my wife has to search & trace all the details. We forgot one imp point that approx 22000 Cr. investor’s wealth is lying unclaimed in various financial instruments. The only reason is either the investor forgot about investment or legal heirs of investor could not trace any record of the investment.

The basic thumb rule of personal finance says that all the investments should be consolidated, concentrated and preferably centralized. If i have single unified mutual fund account with bank or distributor then my wife can easily access all the details through single window.  Remembering password of 10 different accounts is a big hassle.

Now you must be wondering what about single consolidated statement generated by CAMS etc. for all mutual investments. Answer is that you cannot rely on same. The day i registered my email id, i stopped receiving physical statement. My wife may not have access to my Email account.


Documentation is major hassle in direct plan for both online and offline investors. For each investment, you have to complete separate set of documentation. If you are active investor then its a nightmare. Today, i have mutual fund account with one of the leading private banks. I can place order / redeem mutual fund units with 2 mins flat without any additional documentation for each investment.

Operational Hassle

For investors who are not comfortable with online operation, it will be operational nightmare. For every transaction they have to visit the branch of fund house. In case of agents / distributors, they provide pick up service to regular investors. Also the agents / distributors have wide network of branches compared to branches of a fund house. In a city, you will find 1 branch of fund house but there will be 10-15 branches of popular agents/distributors.

Review and rebalance – Specially when the market is going against our expectation, we need someone who and hold our hands in these tough times and help us to safeguard our portfolio from market volatility, At Saffollya …, we provide you an investment advisor who help you to review and rebalance your portfolio as the need arises. It has been observed that with review and re-balances; there are higher chances of keeping you on track with your financial goals.

All funds under one umbrella -At Saffollya …, we provide you a platform, where you can purchase funds from any AMC with one account, no paper work, and no hassle to remember numerous passwords, just one login and you can perform all the transactions. You can even purchase NFOs online. The basic thumb rule of personal finance says that all the investments should be consolidated, concentrated and preferably centralized. If i have single unified mutual fund account with bank or distributor then my wife can easily access all the details through single window.  Remembering password of 10 different accounts is a big hassle.

Detailed comparison – Compare two or more funds from the same category to make smart investment choices.

Amazing customer support– Customer support is the back bone of regular funds; we are just 1 call away to provide you any guidance related to your investment. Our customer support specialist not only helps you in picking the right fund but also, they assist you for every query related to redemptions, switch or anything related to mutual funds.

Wealth Coach : Our advisor – “Wealth Coaches” are highly trained on managing personal finance and assigned to work towards clients goals with consideration of Insurance need, individual taxation etc.  Moreover, through technology support we take care our client’s interest on faster way.

No bias– The funds offered are not biased towards any single AMC, choose you funds depending on your needs and risk profile or ask for an advisor.

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Arabinda Kundu August 8, 2019 0 Comments

Why should Mid Cap Funds be a part of your portfolio?

Every investor has short-term goals and long-term goals. For the short-term goals, one can consider debt mutual funds, but for longer term goals (3+ years) equity is the asset class you need. There are multiple categories of equity funds and one must consider investing in them based on one’s investment horizon and risk profile. One important category is the Mid Cap Fund. Let us try and understand why one should be investing in this category.

Mid Cap funds invest in companies that are at an early stage of their business cycle and have higher growth potential than other companies. Adding a mid-cap fund to your portfolio for longer term goals gives your investment the opportunity to benefit from the growth cycles of these companies. Not just that, it adds to portfolio diversification too.

Things to keep in mind when investing in mid cap funds

  • Don’t get swayed by market volatility – stay invested, keep investing
  • Invest for the long term (5+ years)

Don’t get swayed by market volatility – stay investedkeep investing 

Mid cap funds are to be invested for achieving your goals. If you have defined financial goals, you should continue your investments in line with those goals regardless of the market movements. Don’t focus on returns and keep pausing your SIPs. When you stop or pause your SIPs, your investment is lower and hence your wealth shrinks. An SIP of over 8-10 years goes through several cycles of bull and bearish phases. Continuing to invest during the downturn only helps to make good gains from mid-cap funds.

Consider the period from January 2005 to December 2012 and a monthly SIP of Rs 1000 in the BSE Mid Cap Index. Assuming, from Feb 2008 to May 2009 as it was a bear phase, you had paused your SIP and started it again from June 2009. This means you would have missed SIP for 16 months, hence your total investment would be  16,000 lesser.  Though, you had missed investing  16,000, the value lost is close to  60,500

Amount invested for the entire tenure Value as of Apr 2019 Annualised Return Amount invested after pausing  Value as of Apr 2019 Annualised Return Difference in the growth value
96,000 2,71,252 10.3% 80,000 2,10,785 9.6% 60,467

Data as of 30th April, 2019

Invest for the long term (5+ years)

  • Mid cap funds are volatile but not risky

If you are an investor with an investment time frame of 5 years, mid cap fund is a must for wealth creation. These funds add to the incremental returns in your portfolio. Mid Cap funds go through high volatility, but at the end of the day who has remained a long-term investor will accumulate considerable wealth. If you stay invested for longer periods, the probability that you make any negative returns diminishes. You need to have discipline, patience, understand risk and holding period when investing in mid cap funds.

BSE Mid Cap Index – 5 Year Average Rolling Returns

Minimum Return 4.1%
Maximum Return 25.4%
Average Return 14.5%
% of Negative Returns NIL

Data as of 30th April, 2019

  • Mid cap Funds have the potential to become large caps tomorrow

Mid cap companies tend to be less researched and therefore there is always a valuation gap between the market price and its intrinsic value. They are not tracked as vastly as large cap stocks. Investing in mid cap stocks is all about individual stock picking. Long term success in small and mid cap stocks is based on identifying them early and having the conviction to invest in them at an early stage of their growth. One needs to also hold them for a longer period of time irrespective of market volatility to benefit from their growth.

Performance BSE Mid Cap Index

Last 1 year Last 3 years Last 5 years
BSE Mid Cap Index -12.5% 10.5% 15.2%

Data as of 30th April, 2019

When it comes to long term investing, no other asset class can beat inflation. Have an investment goal of at least five years while investing in mid cap funds. Stock market corrections should not push you away from equities. Focus on your goals and investment horizon when choosing your funds.

Contact your investment advisor to select the right mid cap fund for you. Look at it’s past track record and it’s consistency of performance and invest!

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Vidhya S July 24, 2019 0 Comments

Why add Monthly Income Plans in your portfolio?

Capital appreciation and income are two primary investment goals. Mutual funds provide a multitude of investment solutions for both these objectives for different risk profiles. However, in India mutual funds are mostly associated with capital appreciation. A retail investor’s faith in mutual funds for wealth creation has been well-rewarded, with good equity mutual funds giving multiple times returns over a sufficiently long investment period.

The main purpose of investing, for many investors, is capital appreciation or wealth creation; investing for regular income is not an important consideration for majority of investors, except senior citizens. Most mutual fund investors in India belong to the salaried class and they depend almost entirely on their salary for meeting their regular expenses. Be that as it may, monthly income, whether from salary or investments, is the most important financial need for all of us.

Let us take a typical salaried person in his mid to late thirties or early forties in the upper middle income group. Consider his regular monthly expenses – home loan EMIs, fees for school going children, utility bills, fuel bills, grocery bills, salaries of household staff etc. Most of these expenses are fixed expenses and you simply cannot wish them away. Let us now ask the very uncomfortable question. What if he does not get his salary next month? He may have enough balance in his savings account to take care of his monthly expenses for a few months.

Eventually he would have run out of liquidity and have started redeeming his investments (fixed deposits, mutual funds, etc.) If unfortunately the market crashes at the same time (bad luck often strikes on multiple fronts), then he will be selling his mutual funds at a low price or even at a loss. He could find a new job, but until then his investments may have depleted considerably and it may take the investor a very long time to return to comfortable levels of savings/ investments, not to mention the severe mental stress, the investor and his family had to go through.

Safeguarding from loss of income

How can investors safeguard themselves from such a situation? In the developed countries like USA, Canada, UK etc. there are general insurance products which can provide income replacement if the insured loses his or her job, but unfortunately at present there are no unemployment insurance products in India. Investors should therefore, look for investment solutions for regular income. Fixed deposits paying monthly interest and Post Office Monthly Income Schemes were traditional investment choices for income in India. However, interest rates of these traditional fixed income products have fallen over the last 2 years and as such these products may not be able to generate sufficient income for your needs. Investors need to look at alternate income investing solutions and mutual funds provide such a solution to investors.

Before we discuss income investing solutions, it is important to understand that income producing assets are low or moderately low risk assets and therefore, investors should not expect very high returns from these investments. Further, since the income yield is not very high, it may take a considerable amount of assets to generate sufficient income to replace your monthly salary. But investing in income producing assets is a step towards financial independence. If your investment income can meet, say 20% of your fixed monthly expenses, pressure on your other assets will be considerably lesser during periods of no salaries.

Who should invest in income generating assets?

There is a misconception that only retired people should invest in income generating assets. Even if you are working, you should invest in income generating assets. You should ask yourself, how much flexibility you have in expenses – a very large part of the expenses of most families are inflexible. Such families should therefore, invest in income generating assets. You should look at your financial liabilities like home loans, car loans etc. You should also look at your family obligations – school going children, dependent parents etc. The higher your financial liabilities and other obligations are, the more you should invest in income generating assets.

Mutual fund income solutions

Mutual Fund Monthly Income Plans are excellent investment choices for investors looking for income and also some capital appreciation over a sufficiently long investment period. Monthly Income Plans are debt oriented hybrid mutual fund schemes where debt allocation can range from 75 to 95% and the equity allocation can range from 5 to 25%. You can choose between lower and higher equity allocations based on your risk appetite. For example, younger investors can opt for higher equity exposure, while older investors canopt for lower equity exposure.

The primary objective of Monthly Income Plans is to provide regular income to investors along with some capital appreciation over a sufficiently long investment tenure. The capital appreciation can help investors beat inflation in the long term. The debt component of Monthly Income Plans lowers the volatility, provides stability and generates income for investors. The equity portion provides a kicker to returns over a sufficiently long investment horizon and can help investors beat inflation.

Both Growth and Dividend options are available in Monthly Income Plans. Unless you have immediate income needs, you should invest in the Growth option so that you can benefit from compounding. When you need income from your investments, you can switch from Growth to Dividend and start receiving regular monthly payouts. Investors should understand that, though Monthly Income Plans aim to payout regular dividends to investors, mutual fund dividends are not assured.

Difference between Monthly Income Plans and Balanced Funds paying monthly dividends

Both Monthly Income Plans and Balanced Funds of many AMCs are paying monthly dividends for the last few years. The monthly dividend payout rates of Balanced Funds have been a few percentage points higher than that of Monthly Income Plans. However, you should understand that the risk profiles of these two types of mutual funds are very different. Balanced funds have at least 65% exposure to equities and the rest in fixed income. Monthly Income Plans, on the other hand, have only 5 to 25% exposure to equities. Lower equity exposure makes Monthly Income Plans much less volatile compared to Balanced Funds.

Let us also understand how Monthly Income Plans and Balanced Funds pay regular dividends. Monthly Income Plans ideally aim to pay dividends from income accrued by investments, e.g. interest earned from debt securities. Balanced Funds on the other hand are paying monthly dividends from their accumulated profits earned through portfolio churning, i.e. buying and selling stocks and bonds. Over the years, the older Balanced Funds have paid out only a portion of their profits as dividends, keeping the rest of the profits in reserve to be paid out on rainy days. But you should understand that Balanced Funds are more affected by stock market volatility and their ability to pay dividends has market dependency. Monthly Income Plans, on the other hand, get their income primarily from debt securities and therefore, provide much greater income stability.

Dividend taxation

One of the main reasons of higher dividend payout rates by Balanced Funds is because of the tax advantage these funds enjoy over Monthly Income Plans. Balanced Funds are taxed as equity funds and dividends paid out will be taxed at 10% by way of dividend distribution tax (DDT). Dividends paid by Monthly Income Plans, which are treated as debt funds, are subject to DDT of 28.8%. These rates are exclusive of surcharge and health and education cess.

Capital Gains Tax in Monthly Income Plans

Short term capital gains (investment holding period of less than 3 years) in Monthly Income Plans are taxed as per the income tax rate of the investor; long term capital gains (investment holding period of less than 3 years) are taxed at 20% after indexation. Indexation benefits can reduce the effective tax rate of the investors substantially.

Long term capital gains tax advantage makes Systematic Withdrawal Plan (SWP) in Monthly Income Plans more tax efficient than monthly dividends. However, the SWP rate should not be more than the long term average rate of return of the fund; otherwise you may end up depleting your investment and this will defeat the purpose of income investing. Top performing Monthly Income Plans have given nearly double digit returns over the past 5 to 10 years, but in our view you should limit your withdrawal to 8% per annum. Once your corpus grows, you can then increase your withdrawal rate.


Your portfolio should comprise of both growth assets (for capital appreciation) and income generating assets. Growth assets will create wealth for you, while income generating assets will provide stability in difficult times. Monthly Income Plans are excellent income generating assets for long term investors. You can invest in Monthly Income Plans either as a lump sum or using Systematic Investment Plans (SIP).

We advocate SIP as a disciplined investing mode for salaried investors. Over a sufficiently long period of time, through SIPs, you can accumulate a sufficiently large asset base, which can take care of a large part of your income needs. Investors should consult with their financial advisors if Monthly Income Plans are suitable for their investment needs.

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Ajit Narasimhan July 24, 2019 0 Comments

When should you withdraw your Mutual Fund?

Investors often take the decision of redeeming their fund in a haste. If the market is uncertain or their fund is underperforming or there is a change in the fund manager, their reflex action is to immediately redeem their fund. This may not be the right thing to do.

Mutual fund investments should always be aligned with financial goals. A correct asset allocation is the key to wealth creation. There are various categories of equity, debt and hybrid mutual funds. Picking the right mutual fund will make the difference to your portfolio. You can also talk to a financial advisor for help with choosing the right fund. Stay invested for the long term to benefit from the power of compounding.

So, when should you withdraw? Here is a checklist:

  • When you reach your financial goals

Goals are what you invest for, isn’t it? So, when you reach your goal, it’s only right you redeem your fund. One strategy to follow is that if you have planned your mutual fund investment for a specific goal and it is one year away, you can switch or do an STP to a liquid fund. By doing this, you can reduce the impact of volatility from an equity fund when you are closer to reaching it.

Read why you need to adopt a goal-based investing strategy here.

  • When there’s an emergency

Your first financial goal should be to build a contingency fund. You should be reasonably prepared to manage your financial emergencies. Ideally, your contingency fund should have at least 6 months of your monthly expenses. You can use liquid funds to park a portion of your contingency fund.

If you don’t have a contingency fund, you may have to redeem from your mutual fund investments.

  • Rebalancing your portfolio

Portfolio rebalancing is important to ensure you remain invested according to your financial goal and risk appetite. It should be done once a year to ensure the portfolio still matches your risk profile and goal requirements. If there is any divergence, you may need to rebalance the portfolio by redeeming some part of your investment and investing in the other asset classes. This rebalancing may also be required in case the fund changes its investment strategy and asset allocation and it isn’t in line with your goals or there is a change in the fund manager or an acquisition by another fund house and your new fund manager does not have the same investment philosophy as the old one.

  • Consistent underperformance

If the fund is underperforming due to short term fluctuations in the market, you should not be redeeming. However, if the underperformance is for a longer period, ask your financial advisor on what course of action to take.

Remember to stick with funds based on your financial goals, asset allocation mix and risk profile.

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Vidhya S July 24, 2019 0 Comments

What is a SIP and what are its benefits?

A Systematic Investment Plan (SIP) is a small, regular investment in mutual funds for a fixed time period.

Suppose you want to have 5,00,000 in 5 years for a car. Just like you’d save little by little to build a corpus to purchase it, you can start a SIP in a mutual fund for it. There are several advantages a SIP gives you over regular savings, the potential to earn higher returns being the foremost.

What are the benefits of a SIP?

  1. SIPs make sure you invest regularly – With a SIP, you set your investing on auto-pilot I.e. a predetermined sum of money is invested on a fixed date for the time frame and period you’ve selected. SIPs on a monthly basis are the most common.
  2. Start small with a SIP– You can start investing with as little as 500. There is no limit on the maximum you can invest. Every small instalment will contribute to your overall corpus.
  3. SIPs give you flexibility– You can choose your SIP amount, date of debit, frequency of SIP and the period until which your SIP should run.
  4. SIPs allow you to average out investment costs– When you purchase units of a mutual fund, you get each unit at the NAV (price per unit). This NAV depends on the performance of the scheme and is subject to change. So, when you invest periodically through a SIP, for the same amount you could be purchasing units at different NAVs, thus averaging out investment costs. When the NAV is low, you’ll get more units for the same amount, and vice versa. Here’s an example:
SIP Date SIP Amount NAV per unit Number of units (SIP amount/ NAV)
1st Oct 2018 1000 10 100
1st Nov 2018 1000 10.5 (increased) 95.238 (lesser units)
1st Dec 2018 1000 9.5 (decreased) 105.26 (more units)
Total 3000 300.49
Average cost per unit (Total amount/total number of units) 9.98
  1. Variety of SIPs– Investors have several options when it comes to setting up SIPs. Apart from the regular SIPs, they can choose from Flexi-SIPs and Step-up SIPs too. A Step-up SIP increases your SIP by an amount you fixed at an interval you fix – say if your current SIP is 1000, you can choose to step this up by another 1000 annually. So, from year two, your SIP amount is 2000, year 3 it is 3000 and so on. With a Flexi-SIP, you invest a fixed amount regularly like a SIP, but can invest more when the markets are falling subject to a maximum limit you choose, lesser when markets are rising subject to the minimum investment value of the fund.

Reaching your financial goals is so much easier with a SIP. Start one today, and march one step at a time to wealth.

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Ajit Narasimhan July 24, 2019 0 Comments