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

Term insurance

Term insurance may not be the most-marketed product by life cos, but it’s a must-have in today’s risk-prone lifestyle WHEN was the last time your insurance agent sold a term plan to you? It’s not a very popular policy among agents, as their commission in absolute terms is low because of the low-premium. Just as agents have their self interests in mind while selling, you need to make your own decision about your insurance needs, which are unique to your family. COST ADVANTAGE A term plan is pure protection. It is the cheapest type of life insurance policy. But what you see might not be what you get, most insurers have a range of health parameters for standard rates. If any of your health parameters — weight, blood pressure for instance fall outside this range, you will pay more. For some companies, the standard range is very narrow. EARLY BIRD GAINS A 30-year-old will pay 15% more premium than a 25-year-old. At 40, the premium is double of what is applicable for a 25-year old, points...

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...

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...

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...

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...
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