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

Group Health Insurance

Buy Group Health Insurance Online   For Human Resources, the biggest challenge today is to decide whether medical benefits should be offered to employees or not, what type of plans should be offered, what will be the cost and how will the cost be split between employees and employer. Well, most of these are subjective and would depend on a lot of factors including company size, average employee salary, etc. However, this article will give you a fair idea on how you should go about deciding these factors: 1. Why offer group health insurance benefit to employees : Studies have proved that retention rates among employers offering GHI are much higher than the ones who are not offering. Moreover, the cost of providing this benefit as a percentage of salary is very low as compared to the perceived value. As an example, say if average salary of an employee in your organization is 4 LPA. If you decide to offer a health insurance benefit to him for a Sum insured of ...

ICICI Prudential Dynamic Plan Invest Online

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   ICICI Prudential Dynamic Plan             Invest Online This fund does remarkably well during falling markets, but fails to show the same prowess during a rising market. The fund sticks to its mandate to adapt to the dynamic nature of the market by shuttling between debt and equity. It takes aggressive asset calls in equity when the market surges by investing in quality mid-cap stocks. At the same time, it adopts a defensive strategy by investing in debt and cash when markets get overvalued, making it a good long-term choice.     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 ...

Birla Sun Life MIP II Savings 5

  Birla Sun Life MIP II Savings 5 - Invest Online   Have you traditionally been a debt investor but now wish to test waters in equities? Then, debt-oriented funds such as Birla Sun Life MIP II Savings 5 (Birla Savings 5), which have limited exposure to equities, may fit your requirement. With a five year return of 10.5 per cent compounded annually, the fund managed a good 3-3.5 percentage points more than its benchmark Crisil MIP Blended Index, as well as its category average. The fund appears well poised to capitalise on a falling interest rate scenario and has increased the average portfolio duration of its debt instruments in recent times. Suitability Birla Savings 5 is suitable only for conservative investors. If you want to make a beginning in equities and cannot take any short-term declines in your stride, then this fund will suit you. If you are already an equity investor and want to use a debt-oriented fund merely as a diversifier, then you may prefer peers from the HDFC and Re...

Lump Sum or SIP?

Invest Mutual Fund Online     You have a lump sum in hand and you wish to invest in equity funds. However, you have heard a lot of talk about investing in equity funds through Systematic Investment Plans (SIPs) because they help average costs, ensure you do not ill-time the market, and help you invest in small sums, besides giving you many other advantages. So, should you invest the money you have in hand in one go, or let it remain in your bank account and then do an SIP? There is no harm in investing a lump sum amount. For all you know, compounding, over the long term, could work better with lump sum. However, make sure you fulfill all of these three criteria if you want to invest in one go. Else, SIP is the way to go. #1: You invest for the long term According to past data, ideally, if you have a time frame of 12 years or more, you can consider lump sum investing (provided you satisfy the other two conditions that follow). So, what is the sanctity behind 12 years? Is it because only...

Mutual Fund Review: Reliance Regular Savings Balanced

Reliance Regular Savings Balanced fund has shown great resilience during market crash After a shaky start, this fund has established itself as a strong contender in this space. In the past three years it has ridden the market well by not only delivering during the market run-ups but also displaying resilience during the crash. In 2008, it witnessed the second lowest fall among its category and last year it was amongst the top three performers with a return of 76 per cent (category average: 61%).   The poor underperformance in 2006 can well be credited to the low equity allocation of the fund, which stood at just over 10 per cent for only four months that year. Though the fund has the leeway to go up to 75 per cent in equity, it has never touched that limit. In fact, it has exceeded 70 per cent in just five months in its entire history. During the crash of 2008, the fund managers had no problem going right down to 54 per cent (equity exposure). Fund managers Omprakash Kukian and A...
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