Skip to main content

Investment Planning: RETURNS MATTER Over Cost

One of the many ways in which investors evaluate options is by looking at the costs involved. The investor is in a better position to buy when the cost for to be incurred is low. While there is no doubt that a lower cost is better for the buyer, what is also important is that they also look at other angles to ensure abetter selection.

If there is a comparison between two options that invest in a similar asset class and one charges 23 per cent, while the other asks for 3 per cent. This is evidently a huge difference is charges and could be the main reason in decision making. In many other cases, the difference may not be very significant in terms of cost. A majority of investment choices will fall into such a category.

For example, with options where one has a cost of 2.43 per cent and the other 2.12 per cent, basing your decision just on the lower cost component may not be enough.

RETURNS MATTER

The return generated by any investment product is important in choosing an options. Here, the difference can be significant. For instance, the difference between funds (large-, mid- or smallcap or sectors) in the same category can easily go up to 35-40 per cent a year. This can make a huge difference to the final amount you earn.

So, looking at a 0.2 or 0.3 per cent difference in cost when the return varies by 10-20 per cent would be foolish. In such cases, the ability of the fund to actually keep performing better than peers is important. And paying slightly more for it should not be such a big issue.

LIMITS ON INVESTMENT

The other factor is the limit set by regulatory authorities for a particular investment option. The investor has to check these and know what it is with an understanding of why it is set so. Then look at the features and returns given.

For example, you should not be content with just 1 per cent annual cost to an investment in safe instruments that will generate 6 per cent, when the need is to earn 12 per cent. One might have to pay more for a higher return.

At the same time, you have to figure out how to ensure similar exposure in the market through various alternatives but at a lower cost. So, instead of a balanced fund, one may want to invest directly into bonds and equities to meet the requirement.

NEED-BASED SELECTION

Beyond just cost and return, the decision must also help select an option meeting your goals. So, if you want capital protection at all costs, select an option addressing that need even if it costs higher than one where there could be a chance of losing money.

Or, there could be a need to have a liquid investment accessible anytime . Here, both returns and cost can be sacrificed to ensure that your investment is instruments which costs higher, not give very high returns but is liquid or gives money when required. Ensure the right mix of factors before arriving at a conclusion.

Popular posts from this blog

How to gauge the risk profile of your mutual fund portfolio?

MUTUAL funds are considered to be an investment option for those who do not generally devote a lot of time to monitoring and managing their portfolios. Investors experience both good as well as tough times as far as mutual fund investments are concerned. But while evaluating the portfolio of their equity mutual fund holdings there are a few points that one should check to know about the level of risk that they are facing. Often there are situations where there is a higher risk than what was estimated initially. Here are a few ways to evaluate various risk levels. Individual holding exposure : The portfolio of the equity fund where one has invested or plans to invest needs to be scrutinised to see whether the risk levels are such that could lead to a larger volatility in the holdings. Depending upon this factor and the risk taking ability of the investor the choice about a particular fund as an investment should be made. One key point to watch out is whether there is a large ex...

Tata Fixed Income Portfolio Fund dividend

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)       Tata Mutual Fund has announced dividend under the dividend option of Tata Fixed Income Portfolio Scheme B2 Plan A-DQ, Tata Fixed Income Portfolio Scheme B2 Reg-DQ and Tata Fixed Income Portfolio Scheme B2 Direct-DQ. The record date has been fixed as August 29, 2013. Happy Investing!! We can help. Call 0 94 8300 8300 (India) 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 in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C. Invest Tax Saving Mutual Funds Onlin...

NRIs and direct taxes code (DTC)

DTC Proposes To Do Away With Special Provision That Allows NRIs Liberalised Duration Of Stay In Country      THE new direct taxes code could bring a large number of global Indians under the tax net, as it does away with a provision that allowed individuals to escape tax in any country citing double tax avoidance.    The new legislation, introduced in Parliament on Monday, says an individual shall be a resident of India in any financial year if he is in the country for more than 59 days in that year, and has been has been India for more 365 days in four preceding financial years. A number of Indian industrialists including Vedanta's Anil Agarwal and Essar's Ravi Ruia have acquired non-resident status over the years.    The DTC has only attempted to clean up the provision in line with the laws globally. A phrase "being outside India" in the existing income tax law exempted individuals who stay outside the country for six months from paying taxes. This was prone ...

Stick to Good Fund Manager who Can Multiply Your Investment

A manager may be the difference between the best and worst funds. Here's how you can find the right one    Does a mutual fund manager make a difference to your investment? The answer may not be as easy as you think, since most best-performing mutual funds have moved away from individualistic fund management to process-driven methods, limiting the scope of an individual's role in investment decisions. In fact, many fund managers would speak at length about how the "system" their fund house has in place makes their task of picking stocks easy even though it restricts their freedom. Still, the question is important, especially after recent reports that the Securities and Exchange Board of India ( Sebi ) may ask fund managers to disclose to investors their track record of managing money. Let us take a look at the universe of large-cap funds over the past five years. According to Value Research, an independent mutual fund tracking firm, the topper in the category is DSP...

Health insurance guide - Part I

Insurance, by definition, is morbid. What if I die suddenly? What if my home caught fire? What if I had to undergo expensive medical treatment? What if something that I thought happened only to others befell me? Insurers, who work with large samples, calculate the probability of such an event and, hence, the possibility of them having to pay out a sum of money to mitigate, to the extent possible, the effects of that disaster. However, the possibility of you undergoing some kind of expensive medical treatment during your lifetime is far more likely than you dying suddenly or your house burning down. Given that costs at private healthcare facilities, where you are most likely to land up, is high, and, doubling every four years 10 months or so, the rest of your money life could easily go out of whack if you had to incur such expenses. Just 12 per cent of India's population is covered with some sort of health insurance. Pared to the bone, for a comparatively small price, health insu...
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