Skip to main content

Common Mistakes in Choosig the investment products

Invest Mutual Funds Online

Call 0 94 8300 8300 (India)
SEVERAL investors associate financial products with specific time frames. An investment decision is typically defined in terms of how much to invest over what time frame, and when the money would come back. This probably stems from purchase of traditional products such as bank term deposits and saving certificates. This mindset of investors tends to foster few sharp practices among sellers of financial products. Investors should guard against them in their own interest.

The first set of products comes with a lock-in period. The lock-in period is imposed on products where a tax-concession is available. The intention is to defer taxes. If the withdrawal happens into retirement, when income levels are lower, the investor is able to provide for along-term goal using the tax concession, while earning and paying a higher tax. This benefit is loss of several investors, who look upon any investment with a lock-in period, as one that has to be redeemed at the end of the period. A three-year lock-in in an equity-linked saving scheme is typically redeemed at the end of the period. A three-year period is too short to realise the benefits of equity investing. Over longer horizons, the product is likely to generate a good level of capital appreciation, riding through at least one bull cycle in the equity markets.

The second product where investors have an erroneous holding period view is the unit linked investment plan (Ulip). Here, the minimum contribution period of five years is mistaken for the maximum contribution period for the payment of premium. Eager to save taxes, investors commit to high premium, pay it with difficulty over the minimum period, and hope to get the money back after that period. Later, they realise that much of the premium they paid has gone into paying commissions and costs, and the investment is not worth a lot. The truth is that Ulip is a long-term product that needs to be held for 10-15 years, to derive any benefit at all.

The third common error is using a fixed-time period as the frame in choosing investments with low rates of return. Investors routinely invest in products such as endowment plans of insurance companies, since they believe that the discipline of regular investing is good. They do not check whether the return is adequate.

They are happy to receive a lump sum at the end of the investment period, which can be deployed to meet large expenses. The focus is on putting money aside and getting it back, with little attention to whether the money has grown at a reasonable rate over time. Investors buying into gold-saving schemes of jewellers also fall into the same trap. They invest small amounts for a fixed period, happy to be able to buy gold with the money accumulated at the end of the period. What they fail to ask is whether the money they part with has earned a market rate of return, which it should. Else, they are providing cheap funding to the jeweller.

The fourth and the more serious error in judgment is when investors buy into spurious schemes, only because there is a fixed schedule of investment and return presented to them. From the days of teak farms and finance companies, there have been conmen, who have created products with fixed contributions by investors and a promise to return a fixed amount years later. The credibility of the proposition is enhanced by making risky ventures look certain, in a neat table of cost and benefits.
 
It is important to see that fixed holding periods are a thing of the past. Investors today can decide on any investment horizon they like, and choose from flexible investment options that enable entry and exit at their convenience.

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 Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual 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. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. 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
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver Mutual  Funds  Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

 

Popular posts from this blog

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...
Read more

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...
Read more

WEALTH TAX

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 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...
Read more

How to Pick Top Performing Mutual Fund Schemes

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   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...
Read more

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...
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