Diversification in mutual funds

Diversification in mutual funds

Diversification is one of the most common terms used with respect to investments. Diversification is the ideal method to mitigate risks and allow your portfolio to perform better. In general, if you diversify your investment, it reduce your overall risk of investment. You can reduce this risk by investing across multiple asset classes. These asset classes could be mutual fund, real estate, fixed deposit, recurring deposit etc..
Exm- If you have 3 Lac rs, then you can invest 1 Lac in Mutual fund, 1 Lac in real estate and another in FD.

Now why should you diversify your investment in asset classes ?
The answer is, if one asset class doesn't do well, the others will do well. And so your overall portfolio returns would not affect.
Now come back to mutual funds. Mutual fund is already collection of securities.
In debt funds, it is collection of debt kind of securities. If we talk about equity funds, it is collection of equity stocks. In balaced fund, it is collection of debt as well as equity types of fund. So mutual fund already giving us diversification. There are total of 43 Assets under management (AUMs) of mutual funds in India. (Birla Sun Life Asset Management Company ,HDFC Securities,Reliance Securities etc.. ). And total number of mutual fund schemes is over 2599 in India. Now question is How many mutual funds you should have in your portfolio ?

Lets say, you want to invest in large cap funds. Large cap funds are those that invest at least 80% of their asset in equity oriented large cap stock only. Now what is large cap stock ? Large cap stock is top 100 companies in terms of market capitalisation. So when you invest in more than one large cap fund, you will be having portfolio overlapping. Again if you go for third fund, you again having same stocks invested in. It means 3 funds here doesn't provide you better diversification. One fund per category is enough for good diversification.

It means one or two fund per category will provide you good diversification. If you want to invest in five different funds, then don't select all five funds from small cap or large cap or hybrid. You can choose five funds from 5 different asset classes.(One fund from equity, another from debt, another from balance etc..) The ideal number of funds depends on factors like your investable amount, investment goals and risk profile. Investing in a higher number of funds will impair your capability to monitor the funds effectively. Besides, it may also result in repetition of stocks affecting the very basis of diversification. It is worth remembering that diversification is not about numbers, but investing across a range of companies, sectors and assets classes. Too many funds also make it difficult to track your overall portfolio.

Benefits of SIP

Benefits of SIP

There are many reasons to buy a mutual fund. I narrowed down few reasons that mutual funds can be a good investment choice for you.

1.Disciplined Saving:
Discipline is the key to successful investments. When you invest through SIP, you commit yourself to save regularly. Every investment is a step towards attaining your financial objectives.

2.Mutual Funds are Professionally Managed:
Many investors don’t have the resources or the time to buy individual stocks. Investing in stocks, not only takes resources but a considerable amount of time. By contrast, mutual fund managers and analysts wake up each morning dedicating their professional lives to researching and analyzing current and potential holdings for their mutual fund.

3.Mutual Funds Comes in Many Varieties:
A mutual fund comes in many types and styles. There are equity funds, debt funds, sector funds, balanced funds etc. The availability of different types of mutual funds allows you to build a diversified portfolio at low cost.

4.Start with just Rs 500:
Many mutual fund companies allow investors to get started in a mutual fund with as little as 500 rs.

5.Convenience:
It is simple to invest regularly in a mutual fund. Money can be pulled directly from a bank account and invested directly in the mutual fund. On the other hand, money can be withdrawn from a mutual fund and be deposited into a bank account.

6.Flexibility:
It is advisable to continue SIP investments with a long-term perspective, there is no compulsion. Investors can discontinue the plan at any time. One can also increase/ decrease the amount being invested.

7.Long-Term Gains:
Due to rupee-cost averaging and the power of compounding SIPs have the potential to deliver attractive returns over a long investment horizon.

8.Rupee Cost Averaging:
The equity market is volatile in nature and when you do an SIP investment, you would be buying more number of units during a slump and less number of units in a blooming market.

9.Power of Compounding:
The basic principle of Compound interest implies that small amounts invested over a long period of time would result in a larger return.

10.Acts as an Emergency Fund:
With One-click withdrawal SIP can act as an emergency fund for possible contingencies (like medical problem).

Mutual Fund Taxation

Mutual Fund Taxation

The main aim behind investing in mutual funds is to earn capital gains. But you need to know that these capital gains are taxed by the income tax authorities. The amount of tax to be paid on capital gains depends on the time for which you stay invested in them(holding period), kind of funds you are investing (equity or debt) and capital gain.(More or less than 1 lac)

What is a Capital Gain?
Capital gain is a profit or gain that arise from our investment. If you buy something for Rs 2 Lakh & sell it for Rs 2.5 Lakh, you have made a Capital Gain of Rs 50000. Capital Gains are further divided into short term & long term depending on their investment horizon.

Long Term Capital Gain
If you make a gain/profit on your investment in a Equity Mutual Fund scheme that you have held for over 1 year, it will be classified as Long Term Capital Gain. If you make a gain/profit on your investment in a Non-Equity Mutual Fund scheme (Debt Fund) that you have held for over 3 years, it will be classified as Long Term Capital Gain.

Short Term Capital Gain?
If your holding in a Equity mutual fund scheme is less than 1 year i.e. if you withdraw your mutual fund units before 1 year, after making a profit, then the profit will be considered as Short Term Capital Gain. If you make a gain/profit on your Debt fund (or other than equity oriented schemes) that you have held for less than 36 months (3 years), it will be treated as Short Term Capital Gain.

Holding period : The holding period of mutual fund units can be short-term or long-term. In case of equity mutual funds and balanced mutual funds, a holding period of 12 months or more is regarded as long-term (As discussed above) and less than 12 months is defined as short-term. In case of debt mutual funds, a holding period of 36 months or more is regarded as long-term and less than 12 months is defined as short-term.

Now let’s have a look at the taxation of short-term gains and long-term capital gains on different types of mutual funds.
Equity Schemes-
If you sell your equity investments before a year, returns would be treated as short-term capital gains and taxed at 15%. If you sell your equity investments after a year, returns would be treated as long-term capital gains. LTCG of up to Rs 1 lakh are tax-free in your hands. LTCG in excess of Rs 1 lakh is taxed at the rate of 10% without the benefit of indexation. Exm- If you invest Rs 1 lakh in XYZ Fund & after 1 year, its value is Rs 1.3 Lakh – there will be zero tax on capital appreciation of Rs 30000.

Debt Schemes-
If you hold your debt investments for less than three years, returns are treated as short-term capital gains for taxation purpose. Short-term capital gains are added to the income and taxed according to the income tax slab applicable to the individual. If you hold your debt investments for more than three years, returns would be considered as long-term capital gains and taxed at 20% with indexation benefit.

Balance Schemes-
Balanced funds are equity-oriented hybrid funds that invest more than 65% of their assets in equities. This is why their tax treatment is exactly the same as equity funds.

ELSS Schemes-
ELSS comes up with a lock-in period of 3 years. It means that once you invest in ELSS, you cannot redeem your units before expiration of 3 years. Investments in ELSS is qualify for tax deductions of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. However, after the re-introduction of LTCG tax in the budget 2018, returns from them would be taxed. Long term capital gains from equity mutual funds abover Rs 1 lakh would be taxed at 10 per cent without any indexation benefit.

Important-
An SIP or a systematic investment plan is the method of investing a fixed amount in a mutual fund in a periodic manner. Gains made from SIPs are taxed as per the type of mutual fund and the holding period. For the purpose of taxation, each individual SIP is treated as a fresh investment and gains on it are taxed separately.
Suppose you begin an SIP of 1,000 a month in an equity fund for 12 months. Each individual SIP is considered to be a fresh investment. Hence, after 12 months, if you decide to redeem your entire amount (investments plus gains), all your gains will not be tax-free. Only the gains earned on the first SIP would be tax-free because only that investment would have completed one year. The rest of the gains would be subject to short-term capital gains tax.(15 % tax)
Apart from these, there is also something called the Securities Transaction Tax (STT). An STT of 0.001% is levied by the fund company itself when you sell units of an equity fund or balanced fund. There is no STT on the sale of debt fund units.

Mutual Funds Taxation Rules on Dividends

Dividends on Equity Mutual Funds:
The dividend received in the hands of unit holder for an equity mutual fund is completely tax free. The dividend is also tax free to the mutual fund house.

Dividends on Debt Funds:
The dividend income received by a debt fund unit holder is also tax free. But, the mutual fund company has to pay a dividend distribution tax (DDT) before distributing this dividend income to its Unit-holders. DDT on Debt Mutual Funds is 28.84%.

Bachat Nivesh Badhat

www.profitfund.in

Mutual Fund NAV Change

Mutual Fund NAV Change
Scheme Name Inception Date NAV Date Latest NAV 52 Week Lowest NAV Change Percentage
UTI - Equity Fund-Growth Option 01-08-2005 16-08-2018 148.0389 22-08-2017 119.4352 19.32
Parag Parikh Long Term Equity Fund - Regular Plan - Growth 28-05-2013 16-082018 225.3139 22-08-2017 20.9157 17.37
Edelweiss Multi-Cap Fund - Regular Plan - Growth Option 27-01-2015 16-08-2018 14.78 22-08-2017 12.448 15.78
ICICI Prudential Multicap Fund - Growth 01-10-1994 16-08-2018 294.33 21-08-2017 252.48 14.22
Axis Multicap Fund - Regular Plan - Growth 13-11-2017 16-08-2018 11.41 23-03-2018 9.79 14.20
Canara Robeco Equity Diversified Fund - Regular Plan - Growth 16-09-2003 16-08-2018 132.02 22-08-2017 113.97 13.67
Invesco India Multicap Fund - Growth Option 17-03-2008 16-08-2018 51.27 22-08-2017 44.44 13.32
Mirae Asset India Equity Fund - Growth Plan 04-04-2008 16-08-2018 49.465 22-08-2017 43.548 11.96
DSP BlackRock Equity Fund - Regular Plan - Growth 07-06-2007 16-08-2018 39.301 22-08-2017 34.847 11.33
JM Multicap Fund - Growth option 23-09-2008 16-08-2018 32.3379 23-03-2018 28.8564 10.77
IDBI Diversified Equity Fund Growth Regular 28-03-2014 16-08-2018 21.57 27-09-2017 19.25 10.76
Kotak Standard Multicap Fund - Growth 11-09-2009 16-08-2018 34.724 27-09-2017 30.987 10.76
Principal Multi Cap Growth Fund-Growth Option 25-10-2000 16-08-2018 144.17 22-08-2017 128.86 10.62
HSBC Multi Cap Equity Fund - Growth 24-02-2004 16-08-2018 90.9913 22-08-2017 81.4348 10.50
IDFC Multi Cap Fund-Regular Plan-Growth 15-09-2005 16-08-2018 97.06 21-08-2017 86.8964 10.47
Reliance Multi Cap Fund-Growth Plan-Growth Option 28-03-2005 16-08-2018 93.0345 22-08-2017 83.3791 10.38
L&T Equity Fund-Regular Plan-Growth 16-05-2005 16-08-2018 84.06 27-09-2017 75.34 10.37
HDFC Equity Fund - Growth Option 01-01-1995 16-08-2018 639.373 27-09-2017 573.218 10.35
Union Equity Fund - Growth Option 10-06-2011 16-08-2018 19.6 22-08-2017 17.58 10.31
Franklin India Equity Fund - Growth 29-09-1994 16-08-2018 602.3793 27-09-2017 542.0265 10.02
SBI Magnum Multicap Fund - Regular Plan -Growth Option 29-09-2005 16-08-2018 48.5351 21-08-2017 43.682 10.00
LIC MF Multicap Fund-Regular Plan-Growth 15-04-1993 16-08-2018 45.6728 27-09-2017 41.3651 9.43
DHFL Pramerica Diversified Equity Fund - Regular Plan 25-02-2015 16-08-2018 13.53 27-09-2017 12.49 7.69
Aditya Birla Sun Life Equity Fund - Growth - Regular Plan 27-08-1998 16-08-2018 728.49 22-08-2017 672.64 7.67
MOF35-Regular Plan-Growth Option 28-04-2014 16-08-2018 26.9733 27-09-2017 25.0785 7.02
Taurus Starshare (Multi Cap)Fund - Regular Plan - Growth 29-01-1994 16-08-2018 115.72 05-06-2018 107.76 6.88
BARODA PIONEER MULTI CAP FUND - Plan A - Growth Option 12-09-2003 16-08-2018 100.37 22-08-2017 93.98 6.37
Mahindra Mutual Fund Badhat Yojana - Regular Plan - Growth 05-05-2017 16-08-2018 10.9049 27-09-2017 10.2257 6.23
BNP PARIBAS MULTI CAP Fund-Growth Option 15-09-2005 16-08-2018 46.6 28-06-2018 44.634 4.22
Essel Multi Cap Fund - Regular Plan - Growth 02-07-2018 16-08-2018 10.3323 16-07-2018 9.9218 3.97
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