Skip to main content

Diversify portfolio to reduce risk

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

Diversify portfolio to reduce risk

 





Most of us use the term saving and in vesting interchangeably. However if you want your money to work for you, it is important to understand the difference between the two. Saving is a passive decision, investing is active. So, if you ear n Rs 1,000 and spend Rs 800, you save Rs 200.


This Rs 200 accumulates in your savings account by default, or you may route it into a recurring deposit, fixed deposit or a money market fund. People who save do not want to take any risk with their money. They certainly do not want Rs 200 to drop to Rs 190. They expect capital to be secure, even if returns are low.

Investing is a different ball game. When you invest, you expect to take some risk and hence be compensated for the additional risks. You want to generate returns that are higher than inflation, so you can plan for your long term goals such as children's higher education or retirement. Clearly savings will not help you meet long term goals, since the post-tax returns from such investments barely beat inflation. Savings are meant to meet short term goals or expenses. You do not want to hold on to too much savings because the opportunity for this money to grow is limited.

It is important to have the right mix of products in your portfolio so that they beat inflation and enable you to get wealthy over time. Your age is a good indicator or the amount of safe investments you need in your portfolio. If you are 40, then have 40% bonds or other risk-free instruments in your portfolio.


The remaining 60% can be invested in riskier investments which have the potential to deliver higher returns over time. These could be stocks, equity mutual funds, exchange traded funds and maybe some real estate. Such investments must align with your goals, time horizon and risk appetite. This is important since investing is usually for the long term. Investing for the short term may cause liquidity issues or force you to exit an investment at a loss.

With inflation hovering between 8% and 10%, we need to make our money stretch more than inflation so that we can move forward toward our goals and not run on a treadmill where we're trying hard to remain in the same place.


So, say, you are a 30-year old and your current expenses are about Rs 3.6 lakh a year. Assuming your expense patterns don't change throughout your life, you will be spending Rs 36 lakh for the same set of expenses when you are 60, assuming inflation is at 8%, and when you are 90 you would be spending Rs 3.6 crore.

Many of us are risk averse and are comfortable investing in traditional risk-free investments such as savings deposits, FDs and bonds like NSC, Kisan Vikas Patra etc. Even though some of these instruments offer around 8 1 0 % i n t e re s t , the interest is taxable.


Post tax, the yield can come down to as low as 6-6.5%.


With inflation in the 8-10% range, these instruments deliver negative real returns.
Sometimes the biggest risk to financial independence is not taking a risk at all.

There are several instruments that offer returns that beat inflation. Good equity funds can earn you annualized returns of between 14%18%, thereby comfortably beating inflation. Capital gains are also tax-free after a year. Earning an income through systematic withdrawal plans of mutual funds can be a much more tax efficient way of generating income. These plans are flexible, so you can stop them when you want. You can also increase the withdrawals each month if inflation catches up with you.

To bring safety to your portfolio, you can invest in good debt funds. Contrary to popular opinion, there is more money invested in debt funds than in equity funds. This is mostly due to the tax break you get in mutual funds, compared to bank accounts and fixed deposits. If the investments are held for more than a year, fixed maturity plans or other debt mutual funds are a more tax efficient way of generating better returns than fixed deposits. Liquid funds offer the ability to plan for an emergency, vacation or any short term goal by generating far superior returns compared to a savings account.

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

Leave a missed Call on 94 8300 8300

Leave your comment with mail ID and we will answer them

OR

You can write back to us at

PrajnaCapital [at] Gmail [dot] Com

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

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

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

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Franklin India Bluechip
      4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
      4. Birla Sun Life Front Line Equity Fund
      5. Franklin India Prima

C. Mid and SmallCap Funds Invest Online

      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
      5. Birla Sun Life Dividend Yield Plus
      6. SBI Emerging Businesses Fund
      7. HDFC Mid-Cap Opportunities Fund
      8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
      2. Franklin India Smaller Companies

E. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
      3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

      1. DSP BlackRock Tax Saver Fund
      2. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund
      4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF

Popular posts from this blog

Am you Required to E-file Tax Return?

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   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...
Read more

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
Read more

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...
Read more

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...
Read more

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...
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