Skip to main content

Investment based on Mutual Fund Statement

Invest Mutual Funds Online

Download Mutual Fund Application Forms

 

THERE is a possibility of making a wrong decision while investing in mutual funds if the factors considered for the decision are not properly understood. If there are any doubts, then it's better to seek clarifications, rather than make some assumptions on your own. Here is a common mistake that can prove to be costly.


Dividend reinvestment option: In this option offered by mutual funds, there is a dividend earned by the investor who has put money into the fund. This dividend, unlike the dividend payout option, is not paid to the investor in cash, but, it is reinvested back in the fund, and the investor is allotted additional units for the value of the dividend that is earned.

This ensures that the investor is able to reinvest the amounts and, hence, grow the investments over a period of time. A common problem is not understanding the cost of the investment. The fund statement is likely to show the original investment plus the value of the dividend reinvested as the total cost.


Critical situation: Most investors, before evaluating the performance of their fund, have a habit of looking at two factors. The first is the cost of holding and the second is the present value of the investment.


However, there are several additional points that need to be considered for making a right decision.

When it comes to the dividend reinvestment option, the net asset value (NAV) of the investment will fall after payment of dividend. On the cost side, it is likely that the figure mentioned in the account statement, which includes the dividend already reinvested, is higher than the present value of the investment.

This might seem to suggest that the investment is not doing too well. Technically, the cost aspect mentioned is appropriate because it represents the cost of the existing units that are bought into the fund and will be useful for making tax calculations.

Factual understanding: When it comes to the actual position on the returns front, the investor needs to take a careful look at what the cost figure represents for them. If they really want to see the kind of returns that they have made or earned, then, they should not just look at the cost mentioned in the account statement, but also, look at some of the workings.

The first thing required is information about the initial investment or total investment in the fund over the entire time period.

This becomes the cost against which the present value has to be compared.

The earnings that are generated by the fund is paid out in the form of dividend, so this is something that needs to be taken into consideration and for the investor, the dividend is just a part of the returns figure. There is a need to separate return calculations from tax workings that the investor needs to calculate and this will not tally with the cost that is shown in the account statement. So, in many cases, when the account statement shows a cost greater than the present value, this might actually not be the case.

--------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

 

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

 

Some of the Top performing Mutual Funds are

  1. HDFC Top 200 Fund
  2. ICICI Prudential Dynamic Plan
  3. DSP BlackRock Top 100 Fund
  4. Birla Sun Life Front Line Equity Fund
  5. Reliance Equity Opportunities Fund
  6. IDFC Premier Equity Fund
  7. SBI Magnum Contra Fund
  8. Sundaram Select Midcap
  9. UTI Dividend Yield Fund

Popular posts from this blog

Tata Mutual Fund

Being a part of the Tata group, the fund has the backing of a very trusted brand name with strong retail connect. While the current CEO has done an excellent job in leveraging the Tata brand name to AMC's advantage, it is ironic that this was just not capitalised on at the start. Incorporated in 1995, Tata Mutual Fund remained an 'also-ran' fund house for around eight years. Till March 2003, it had a little over Rs 1,000 crore in assets and 19 AMCs were ahead of it. But soon after that the equation changed. It was the fastest growing fund house in 2004 and 2005. During these two years, it aggressively launched six equity funds, two debt funds and one MIP. The fund house as of now stands at No. 8 in terms of asset size. This fund house has a lot to offer by way of choice. And, it also has a number of well performing schemes. Tata Pure Equity, Tata Equity PE and Tata Infrastructure are all good funds. It also has quite a few good debt funds. The funds of Tata AMC are known to...

UTI Mutual Fund

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network. As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come. UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its inf...

Salary planning Article

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...

8 Investing Strategy

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...

Debt Funds - Check The Expiry Date

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...
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