Skip to main content

Risk taking ability should decide exposure to equity

Invest Mutual Funds Online

Download Mutual Fund Application Forms

ARE mutual funds among the most convenient vehicles to invest in equity markets? Not necessarily! Age is one of the primary criterions for investing in mutual funds. What matters more is your ability to understand what level of risk you can comfortably take at different times in your life. And finding a mutual fund that aligns with that level of risk hence, becomes more critical.

Today, mutual funds are able to serve the needs of both, an investor who is very conservative and wants minimal risk, and also who can take risk aggressively.


Of course, like with anything in life, the likelihood of higher returns is greater when you take higher risk and vice-versa.

For the very conservative investor, one can even start by investing in money-market funds which are less volatile and tends to offer better liquidity, compared with traditional investment option. On the other end of the risk spectrum are pure equity funds, that may be volatile in the short-term, but tend to offer much better returns over a longer investment horizon, compared with money-market funds.

So how do you decide what share of your investments should be in equity funds? There is an old thumb rule of investing which says that 100-minusyour-age can be your percentage allocation to equity mutual funds. The rest can be in funds with lower risk such as money market and debt funds.

However, with average life expectancy in India growing rapidly to 66 years in 2010, compared with 58 just 20 years ago, this rule of thumb now often gets challenged. In over two decades that I have been associated with advising clients, I have seen investors at the age of 70 feeling comfortable investing a greater share of their assets in equity funds, and seen young investors in their 30s favour lower-risk debt funds. In either case, one can argue that both investor types challenged traditional wisdom that the younger you are, greater the risks you can take.

What it implies is that both investors had a more developed appreciation of their respective financial goals taking into account the time they can stay invested, their experience with mutual funds as a category, the return they need on their capital and the risk they were willing to take to achieve their goals. All of the above, when combined, aims to make a comprehensive and confident investment decision.

It is also well known globally that mutual funds are amongst the most convenient vehicles to invest in equity markets.


The Indian regulator is keen to enable increased ownership of mutual funds beyond just the metros to the common man right across the length and breadth of India. This will not only help develop the Indian capital markets, but equally aims to give a more direct route to participate in the growth of corporate India and the Indian economy at large, thereby growing their wealth.

Regardless of their age, in my career, I have met investors who have never in vested in mutual funds, to those who actively invest in them. The former often hesitate because they do not know how to choose a fund from over 2000 choices that exist today, while the latter is often hassled with the administrative burden of keeping track of the performance of funds, filling subscription and redemptions forms, writing cheques and reconciling their bank statements.

To address both their needs, a new category of mutual funds has now begun to se are what are called multi manager funds. These researched funds aim to invest in the best of breed funds across the industry, thereby, eliminating the burden of selecting funds for the investors. To sum it up, age is but just one factor to take into account when investing in mutual funds. And there is never a substitute for gaining firsthand experience.

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

Invest Mutual Funds Online

Transact Mutual Fund Online

 

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

 

Best Performing Mutual Funds

    1. Largecap Funds:
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    3. Mid and SmallCap Funds
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    4. Small and MicroCap Funds
      1. DSP BlackRock MicroCap Fund
    5. Sector Funds
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    6. Gold Mutual Funds
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

 

Popular posts from this blog

ICICI Prudential Balanced Fund

 ICICI Prudential Balanced Fund scheme seeks to generate long-term capital appreciation and current income by investing in a portfolio that is investing in equities and related securities as well as fixed income and money market securities. The approximate allocation to equity would be in the range of 60-80 per cent with a minimum of 51 per cent, and the approximate debt allocation is 40-49 per cent, with a minimum of 20 per cent. An impressive show in the last couple of years has propelled this fund from a three-star to a four-star rating. The fund has traditionally featured a high equity allocation, hovering at well over 70 per cent, which is higher than the allocations of the peers. But in the last one year, the allocation has been moderated from 78-79 per cent levels to 66-67 per cent of the portfolio. ICICI Prudential Balanced Fund appears to practise some degree of tactical allocation based on market valuations. Within equities, well over two-thirds of the allocation is parked i...
Read more

TDS Rate and Personal Account Number(PAN)

    The TDS rate doubles to 20% from 10% if you fail to mention your Personal Account Number   IF you run a glance through your pay slip, you will come across something called TDS, which is tax deduction at source. In most cases, the employer deducts this amount at the time of payment of salary itself and pays the total tax amount to the government on behalf of all the employees. If you are a self- employed or practicing professional s, you have to pay this amount yourself.    Tax deducted at source is one of the modes of income tax collection by the government. Under the income-tax laws, income tax at specified rates is required to be deducted while making certain payments.    The rate of deduction of tax at source on interest and rent payment is 10%. For salary payments, the employers deduct income tax at source on a monthly basis after computing income tax liability on estimated annual taxable income of the employee. Tax benefits on housing loan, investments, etc are consid...
Read more

L&T Tax Advantage

Best SIP Funds to Invest Online   The fund follows a growth approach to investing in quality stocks that have a large-cap tilt This large-cap tilted ELSS has fared consistently and fared better than its benchmark by posting a higher margin of outperformance. The fund follows a growth approach to investing in quality stocks that have a large-cap tilt, which is evident in its portfolio. The portfolio is further well diversified across market capitalisation and sectors with over 60 stocks finding a place in it. The upside with this fund is the fact that it has witnessed both down and up cycles of the market to come across as a winner in the long run. Do not doubt the fund based on its size and a few mediocre years of performance, because when analysing its rolling three year returns, the fund's performance stands out to qualify as a must have ELSS in one's portfolio. Stay invested through the lock-in and there are chances of benefiting from returns as well as tax savings will prov...
Read more

Tax Planning: Income tax and Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:   Provident Fund (PF) & Voluntary Provident Fund (VPF) Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free. Public Provident Fund (PPF) An account can be opened wi...
Read more

Fortis Mutual Fund

Fortis Mutual Fund, a relatively new player, it is still to prove its case and define its position in the industry. In September 2004, it came onto the scene with a bang - three debt schemes, one MIP and one diversified equity scheme. And investors flocked to it. Going by the standards at that time, it had a great start in terms of garnering money. Mopping up over Rs 2,000 crore in five schemes was not bad at all. The fund house has not been too successful in the equity arena, in terms of assets. Though it has seven equity schemes, it is debt and cash funds that corner the major portion of the assets. Most of the schemes are pretty new, and the two that have been around for a while have a 3-star rating each. The last two were Fortis Sustainable Development (April 2007), which received a rather poor response, and Fortis China India (October 2007). Fortis Flexi Debt has been one of the better performing funds, after a dismal performance in 2005. It currently has a 5-star rating. None ...
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