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info@moneycareinvest.comMutual funds allow investors to pool in their money for a diversified selection of securities, managed by a professional fund manager. It offers an array of innovative products like fund of funds, exchange-traded funds, Fixed Maturity Plans, Sectoral Funds and many more.
Whether the objective is financial gains or convenience, mutual funds offer many benefits to its investors.
This is ideal for investors looking to utilize their surplus funds in short term instruments while awaiting better options. These schemes invest in short-term debt instruments and seek to provide reasonable returns for the investors.
In a debt/income scheme, a major part of the investable fund are channelized towards debentures, government securities, and other debt instruments. This is a relatively low risk-low return investment avenue which is ideal for investors seeing a steady income.
This scheme allows investors to enjoy growth and income at regular intervals. Funds are invested in both equities and fixed income securities; the proportion is pre-determined and disclosed in the scheme related offer document. These are ideal for the cautiously aggressive investors.
Equities are a popular mutual fund category amongst retail investors. Although it could be a high-risk investment in the short term, investors can expect capital appreciation in the long run. If you are at your prime earning stage and looking for long-term benefits, growth schemes could be an ideal investment.
Index schemes is a widely popular concept in the west. These follow a passive investment strategy where your investments replicate the movements of benchmark indices like Nifty, Sensex etc.
Sectoral funds are invested in a specific sector like infrastructure, IT, pharmaceuticals, Banking, FMCG etc. or segments of the capital market like large caps, mid caps, etc. This scheme provides a relatively high risk-high return opportunity within the equity space.
As the name suggests, this scheme offers tax benefits to its investors. The funds are invested in equities thereby offering long-term growth opportunities. Tax saving mutual funds (called Equity Linked Savings Schemes-ELSS) has a 3-year lock-in period.
This scheme allows investors to enjoy growth and income at regular intervals. Funds are invested in both equities and fixed income securities; the proportion is pre-determined and disclosed in the scheme related offer document. These are ideal for the cautiously aggressive investors.
In India, this type of scheme has a stipulated maturity period and investors can invest only during the initial launch period known as the NFO (New Fund Offer) period.
The primary objective of this scheme is to safeguard the principal amount while trying to deliver reasonable returns. These invest in high-quality fixed income securities with marginal exposure to equities and mature along with the maturity period of the scheme.
FMPs, as the name suggests, are mutual fund schemes with a defined maturity period. These schemes normally comprise of debt instruments which mature in line with the maturity of the scheme, thereby earning through the interest component (also called coupons) of the securities in the portfolio. FMPs are normally passively managed, i.e. there is no active trading of debt instruments in the portfolio. The expenses which are charged to the scheme are hence, generally lower than actively managed schemes.
A Systematic Investment Plan or SIP is a smart and hassle free mode for investing money in mutual funds. SIP allows you to invest a certain pre-determined amount at a regular interval (weekly, monthly, quarterly, etc.). A SIP is a planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future.
A SIP is a flexible and easy investment plan. Your money is auto-debited from your bank account and invested into a specific mutual fund scheme. You are allocated certain number of units based on the ongoing market rate (called NAV or net asset value) for the day.
Every time you invest money, additional units of the scheme are purchased at the market rate and added to your account. Hence, units are bought at different rates and investors benefit from Rupee-Cost Averaging and the Power of Compounding.
Investing in SIP enables an investor to take part in the stock markets without actively timing them and he/she can benefit by buying more units when the price falls and less units when the price rises. This scheme helps reduce the average cost per unit of investment through a method called Rupee Cost Averaging.
STP refers to the Systematic Transfer Plan whereby an investor is able to invest lump sum amount in a scheme and regularly transfer a fixed or variable amount into another scheme.
Transfers are usually made from liquid or debt funds to equity funds if the market is doing well and vice versa if the market is not performing well. The STP can be classified based on the amount transferred from the source scheme to the target scheme. If a fixed sum is transferred from the source to the target scheme, then it's called Fixed STP, and if the sum transferred is the profit part of the investment of source scheme, then it’s called Capital Appreciation STP.
SWP refers to Systematic Withdrawal Plan which allows an investor to withdraw a fixed or variable amount from his mutual fund scheme on a preset date every month, quarterly, semi annually or annually as per his needs.
An investor can customize the cash flows as desired; he can either withdraw a fixed amount or just the capital gains on his investments. SWP provides the investor with a regular income and returns on the money that is still invested in the scheme.
A fixed deposit (FD) or term deposit is a type of financial instrument offered by banks or corporate and it allows individuals to deposit sums of money for fixed periods of time, like 1 month, 6 months, 1 year, 5 years etc. In general, fixed deposit accounts offer higher interest rates than savings accounts.
They are considered to be very safe investments.
Some banks may offer additional services to FD holders such as loans against FD certificates at competitive interest rates. It's important to note that banks may offer lesser interest rates under uncertain economic conditions.
Customers can avail loans against FDs up to 80 to 90 percent of the value of deposits. The rate of interest on the loan could be 1 to 2 percent over the rate offered on the deposit.
The income by way of interest on these Bonds is fully exempt from Income Tax and shall not form part of Total Income as per provisions under section 10 (15) (iv) (h) of I.T. Act, 1961. These bonds are generally issued by Government Backed entities and thus have very low default risk.
As per provisions of Income Tax Act, 1961, any long term capital gains arising from transfer of any capital asset would be exempt from tax under section 54EC of the Act if: The entire capital gain realized is invested within 6 months of the date of transfer in eligible bonds. Such investment is held for 3 years.
Non-convertible debentures (NCDs) are debentures which cannot be converted into equities or shares. As the convertibility feature is not attached to these debentures, they usually carry higher interest rates than their convertible counterparts.
For those who are looking for the investment instrument that offers high returns with moderate risk and giving the flexibility of choosing between short and long tenures, NCDs might be the right choice.
An NCD can be secured or unsecured. Secured NCDs are backed by the issuer company's assets to fulfil the debt obligation unlike unsecured NCDs. The NCD issues are rated by credit rating agencies like CRISIL, ICRA, and CARE etc. to ensure the company's ability to service the debt on time & lower default risk.
Benefits:
- As NCD’s are listed on stock exchanges, they provide liquidity to holder
- The tenure of NCDs can be anywhere between 2 years and 20 years
- NCDs are rated by rating agencies such as CRISIL, ICRA
- The debentures are generally offered in four options: monthly, quarterly, annual and cumulative interest
