Skip to main content

Best Practices for Mutual Funds

 

  • Understand your risk profile, read the offer documents to see if the fund objectives match your needs

 

  • Build a strong foundation of funds as the basis of your portfolio before you diversify within growth or sectoral fund

Sectoral funds in India will give you a concentrated exposure to a particular sector, e.g., infrastructure, IT etc. If this kind of fund is the only fund you own, then that can be risky. You should add a sectoral fund in your mutual funds portfolio only if the portfolio is well diversified based on the investor's risk profile and time horizon.

  • Buy and hold equity funds, don't churn

Do not sell funds just because your agent asks you to sell one fund and invest in another fund. Ask them for reasons why you should switch. Churning will make you poor and your agent rich! And you might incur tax consequences as well

  • Avoid NFOs

NFOs or new fund offerings become very popular because they get a lot of marketing publicity when a new fund is launched. NFOs should be avoided for a few reasons:

    • Often you will end up paying higher fees in an NFO
    • NFOs have no track record, so you have no way knowing how well the fund will perform across market cycles, how good the risk management systems are or how good the back office and administration of the fund house is. For instance, if you have to go to a doctor for some trouble in your kidney, would you rather go to a new doctor with no track record, or would you go to a 10 year veteran who has experience and track record in dealing with patients like you.

 

  • Revisit your asset allocation periodically

Due to market movements, you might end up having a higher or lower exposure to certain industries or assets than what you had set out for. Therefore, just like you go for a regular health check, review your asset allocation across your mutual funds periodically. Once every 6-12 months is good period.

  • Avoid investing in too many different funds - preferably not more than 5-7 funds

Over diversification can also be bad for you. So do not duplicate by buying two different infrastructure funds or have too many balanced funds. If you have more than 10 funds, after a while you will realize that you do not have time to manage all the paperwork related to all the funds and you will need a full time assistant just to manage your accounts

 

Popular posts from this blog

L&T Growth

Invest in Mutual Funds Online Download Mutual Fund Application Forms   L&T Growth Fund (LTGF) is open-ended diversified equity fund that invests predominantly in large caps. LTGF follows the growth style of investing and has been in existence for over 10 years now.   Type of scheme Open-ended Category Diversified equity Sub-category Large Cap Style Growth Launch date September 17, 2001 Risk-Return proposition High risk-Average return   Investment Objective and Proposition The fund's primary investment objective is "generate long term capital appreciation income through investments in equity and equity related instruments; the secondary objective is to generate some current income and distribute dividend. However, there is no assurance that the investment objective of the scheme will be achieved." Following large cap ...
Read more

Debt Mutual Fund Dividends are Taxable

DDT is deducted when a non-equity fund declares dividends. Equity and balanced fund dividends are tax-free The AMC is correct to deduct the dividend distribution tax (DDT) as it is mandated by tax laws. DDT in mutual funds is deducted every time a non-equity fund declares dividends. Equity fund and balanced fund dividends are tax-free . It is possible that you have invested in a non-equity fund for the first time or have received the dividend under a non-equity fund for the first time. That is why this is the first occasion when you have come across DDT.   The rate at which non-equity schemes deduct DDT has also gone up after the July 2014 budget. This is due to a change in calculation methodology. Earlier, if the fund has to declare a dividend of R 100, it used to make a provision for R 128.3, paying R 28.3 to the taxman and distributing the balance to the investor. This allowed the investor to bear less tax since the effective tax rate was 22.07 per ce...
Read more

Nomination in Investment

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Nomination in investment   As an investor, you spend most of your precious time in deciding on your investments, their tenure, and the returns that your invested money will fetch practically. Do you know who gets your investment money when you are "no more"? I am sure most of you must have come across the 'nominations' column, while filling any of your financial application form, be it that for a Mutual Fund, or a Demat Account, or simply a Bank Account. More often, people have a tendency to leave the nomination field blank, or fill the same uncertainly, without even understanding the big importance of this little detail. Here, let us try to put forth the significance of a nomination into our financial lives. What is nomination? A person to wh...
Read more

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
Read more

Gold ETFs - Tracking Error

Invest in Mutual Funds Online Download Mutual Fund Application Forms At present, there are 13 gold ETFs and three gold funds of funds OVER the past few years, gold-backed exchange traded funds ( ETFs ) have emerged as preferred investment tools for people who want to take advantage of the price rise in the metal without the hassles of physically buying it and preserving it. Since 2007, when the first gold ETF-benchmark BeES was launched in the country, there has been a steady increase in the investments going into this paper gold. In the past four years, several fund houses launched their gold ETFs and some of them have even launched gold fund of funds, which invest in gold ETFs. At present, there are 13 gold ETFs and three gold fund of funds. Though all these funds have gold as the underlying asset and they closely track the price movement in the commodity, the net asset value (NAV) of a gold ETF does not exactly reflect the value of the physical gold and the return...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now