Skip to main content

How to overcome Mutual Fund Risks

All mutual funds come with varying degrees of risks, but that doesn't mean you should not invest in them. The thumb rule of building wealth is: if you want returns, you have to take a bit of risk. The trick is to know the tricks to beat the risks.

Volatility
Equity mutual funds, or for that matter all equity investments, are prone to volatility. In 2016, the S&P BSE Sensex returned 1.95%. In 2017, it gave 28% returns. So far in 2018, Sensex has returned 4.8%. Mid-cap and small-cap indices-and by extension, the funds that invest in such companies-swing more wildly.


How to beat it: Two steps; if investing in equities, then avoid investing for the short run. Invest for the long term. By extending your investment tenure, you can cut out the effects of short-term volatility, which is typically severe. We recommend a minimum tenure of 5 years. The second step is to invest through a systematic investment plan (SIP). In this method, you buy less units when markets go up, but more units automatically, when markets go down.


Credit risk
When the underlying investments of debt funds fail to repay their interest and principal amounts-and worse, when their credit rating is downgraded-debt funds suffer. We have seen some such accidents in the past 3 years. The erstwhile JP Morgan Asset Management (India) Ltd suffered on account of its investments in Amtek Auto Ltd, and Taurus Asset Management Co. Ltd took a hit on some of its debt funds due to a credit ratings downgrade of one of its underlying investments.


The reality is that a credit rating downgrade (which leads to a fall in the net asset value of a mutual fund scheme) can happen swiftly, sometimes in a matter of months.


How to beat it: Earlier, it was tough for you to know which debt funds would take on credit risk, and which ones would avoid them. Now, the capital market regulator, Securities and Exchange Board of India (Sebi), has made it easier to identify such funds. Thanks to the ongoing scheme reclassification exercise that Sebi started in 2017, credit funds will now be called credit risk funds, and it has specified that such funds will invest at least 65% of their assets in securities rated AA and below. Corporate bond funds will no longer be allowed to take credit risks beyond a point; these shall invest at least 80% of assets in securities rated AA+ and above.


Uncertain Market
The future is uncertain, but we all have financial goals that must be met. What's worse is to see our portfolio grow over time, but one big bout of volatility in the final year (or the year in which we plan to withdraw) erasing a lifetime's worth of gains.


How to beat it: Practise asset allocation in the portfolio. Ascertain your risk profile; these days many financial advisers and distributors have sophisticated tools to capture this information. Based on your results, allocate your money in equity and debt instruments and then adhere to that allocation.


Review your risk profile and tolerance once in a year or two and keep tracking your asset allocation. That's another way to beat volatility.



SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Popular posts from this blog

Birla SunLife Manufacturing Equity Fund

The Make in India program was launched by Prime Minister Naredra Modi in September 2014 as part of a wider set of nation-building initiatives. It was devised to transform India into a global design and manufacturing hub. The primary motive of the campaign is to encourage multinational as well domestic companies to manufacture their products in India. This would create more job opportunities, bring high-quality standards and attract capital along with technological investment to bring more foreign direct investment (FDI) in the country.   Why India as the next manufacturing destination?   The rising demand in India along with the multinational's desire to diversify their production to include low-cost plants in countries other than China, can help India's manufacturing sector to grow and create millions of jobs. In the words of our Honourable Prime Minister- Mr. Narendra Modi, India offers the 3 'Ds' for business to thrive— democracy,...
Read more

Total Returns Index brings out real Equity Funds Performers

From February, equity mutual funds have to change their benchmarks to account for dividend payments. Until now, funds used price-based benchmarks alone. TRI or total return indices assume that dividend payouts are reinvested back into the index. What this does is lift the overall index returns, because dividends get compounded. For example, the Sensex TRI index will consider dividend payouts of its constituent companies while the Nifty50 TRI index will consider dividends of its constituents. Using TRI indices as benchmarks comes on the argument that an equity funds earn dividends on the stocks in its portfolio, which they use to buy more stocks. Therefore, using an index that also considers dividend reinvestment would be a more appropriate benchmark. Shrinking outperformance With a stiffer benchmark, it is obvious that the margin by which an equity fund outperforms the benchmark would shrink. Rolling one-year returns from 2013 onwards, the average margin by which largecap funds out...
Read more

How to generate a UAN Online

Best SIP Funds Online   In order to make Employees' Provident Fund (EPF) accounts portable, the Employees' Provident Fund Organisation (EPFO) had launched the facility of Universal Account Number (UAN ) in 2014. Having a UAN is now mandatory if you have an EPF account and are contributing to it. So far, you got this number from your employer and every time you changed jobs, you had to furnish this number to the new employer.  However, in order to make it easier for you to get a UAN , and without your employer's intervention, the EPFO now allows you to go online and generate a UAN on your own. This facility can be used by freshers, or new employees, who are joining the workforce as well as by employees who have older EPF accounts but do not have a UAN as yet. As a new employee, you can simply generate a UAN and provide the number to your employer at the time of joining, when you need to fill up forms for your EPF contribution. As per a circula...
Read more

Stock Review: Havells

HAVELLS India's stock performance has been muted in the past three months, in line with the weak broader market. But, given the turnaround in its overseas subsidiary and the launch of new products in its consumer durable business, the company's stock may undergo a re-rating.    Havells is India's leading consumer electrical goods company, with consolidated sales of . 5,527 crore in the past four quarters. Its wholly-owned subsidiary Sylvania, which makes lighting and fixtures, has established brands in European, Latin American and Asian markets. Sylvania repre sented nearly half of the company's consolidated revenues in the first half of FY11.    Sylvania's poor financials hit Havells' consolidated performance in FY10. But, this has changed in the cur rent fiscal. Havells has reduced fixed costs of Sylvania by exiting from unprofitable businesses and outsourcing manufacturing to low-cost locations such as India and China. In the September 2010 quarter, Sylv...
Read more

Mutual Fund Review: Reliance Regular Savings Equity

    Despite high churn, Reliance Regular Savings Equity has managed to fetch good returns   In its short history, this one has made its mark. Though its annual and trailing returns are amazing, the fund started off on a lousy note (last two quarters of 2005). It managed to impress in 2006 and was turning out to be pretty average in 2007, till Omprakash Kuckian took over in November 2007 and wasted no time in changing the complexion of the portfolio. Exposure to Construction shot up to 28 per cent with almost 21 per cent cornered by Pratibha Industries and Madhucon Projects . Exposure to Engineering was yanked up (18.50%) while Financial Services lost its prime slot (dropped to 6.69%) and Auto was dumped. That quarter (December 2007), he delivered 54.66 per cent (category average: 25.70%).   When the market collapsed in 2008, thankfully the fund did not plummet abysmally. But even its high cash allocations could not cushion the fall which hovered around the category average. ...
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