Why invest in gold funds when we can invest in gold?

Why invest in gold funds when we can invest in gold?

A Gold ETF is an exchange-traded fund (ETF) that aims to track the domestic physical gold price. They are passive investment instruments that are based on gold prices and invest in gold bullion. In India, Gold is usually held in ornament form, which has a certain making and wastage component (usually more than 10% of bill value). This is eliminated when investing in a Gold Fund.

Buying gold ETFs means you are purchasing gold in an electronic form. You can buy and sell gold ETFs just as you would trade in stocks. When you actually redeem Gold ETF, you don’t get physical gold, but receive the cash equivalent. Trading of gold ETFs takes place through a dematerialised account (Demat) and a broker, which makes it an extremely convenient way of electronically investing in gold.

Because of its direct gold pricing, there is a complete transparency on the holdings of a Gold ETF. Further due to its unique structure and creation mechanism, the ETFs have much lower expenses as compared to physical gold investments.

Why should one invest in Mutual Funds?

Why should one invest in Mutual Funds?

One should never invest in Mutual Funds, but should invest through them.
To elaborate, we invest in various investment avenues based on our requirements, e.g. for capital growth - we invest in equity shares, for safety of capital and regular income - we buy fixed income products.

The concern for most investors is: how to know which instruments are best for them? One may not have enough abilities, time or interest to conduct the research.

To manage investments, one can outsource certain tasks one is unable to do. Anyone can outsource ‘managing one’s investments’ to a professional firm – the Mutual Fund company. Mutual Funds offer various avenues to fulfill different objectives, which investors can choose from based on one’s unique situation and objective.

Mutual Fund companies manage all administrative activities including paperwork. They also facilitate accounting and reporting the progress of the investment portfolios through a combination of Net Asset Values (NAVs) and the account statements.

Mutual Fund is a great convenience for those who need to invest their money for future requirements. A team of professionals manages the money and the investors can enjoy the fruits of this expertise without getting involved in the mundane tasks.

How do I choose a Mutual Fund?

How do I choose a Mutual Fund?

Imagine asking a travel agent, “How should I choose my mode of transport?” The first thing he/she will say is, “Depends on where you want to go.” If I were to travel to a distance of 5 kms, an auto rickshaw might be the best option, while for a journey from New Delhi to Kochi, a flight might be the best. A flight would not be available for a short distance and an auto rickshaw would be highly uncomfortable and slow for a long-distance journey.

In Mutual Funds too, the starting point must be- What are your requirements?

It begins with your financial goals and risk appetite.

You’ve got to identify your financial goals, first. Some Mutual Fund schemes are suitable for short term requirements or goals, whereas some might be better for long term goals.

Next comes your risk appetite. Different people would have different risk appetite. Even husband and wife may have joint finances but different risk profiles. Some are comfortable with high risk products, whereas some are just not.

You can get help from financial planners or investment advisers or Mutual Fund distributors to assess your risk appetite

What is KYC Process?

What is KYC Process?

KYC is an acronym for "Know Your Customer" and is a term used for Customer Identification Process as a part of Account Opening process with any financial entity. KYC establishes an investor’s identity & address through relevant supporting documents such as prescribed photo id (e.g., PAN card, Aadhar card) and address proof and In-Person Verification (IPV). KYC compliance is mandatory under the Prevention of Money Laundering Act, 2002 and Rules framed there under, read with the SEBI Master Circular on Anti Money Laundering (AML) Standards/ Combating the Financing of Terrorism (CFT) /Obligations of Securities Market Intermediaries.

A Know Your Customer (KYC) is generally divided in 2 parts:

Part I contains the basic and uniform KYC details of the investor as prescribed by the Central KYC registry (Uniform KYC) to be used by all registered financial intermediaries and

Part II additional KYC information as may be sought separately by the financial intermediary such as a Mutual Fund, stock broker, depository participant opening the investor’s account (Additional KYC).

What is Net Asset value (NAV)?

What is Net Asset value (NAV)?

The performance of a particular scheme of a Mutual Fund is denoted by Net Asset Value (NAV). In simple words, NAV is the market value of the securities held by the scheme. Mutual Funds invest the money collected from investors in securities markets. Since market value of securities changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date.

The video on the left explains how NAV is calculated.

The NAVs of all Mutual Fund schemes are declared at the end of the trading day after markets are closed, in accordance with SEBI Mutual Fund Regulations.

How will I evaluate my risk profile?

How will I evaluate my risk profile?

Every individual investor is unique. Not only with regards to investment objectives but even in approach and view of risk. This is what makes Risk Profiling absolutely crucial before investing.
A Risk Profiler is essentially a questionnaire that seeks an investor’s answers to questions about both “ability” and “willingness”.
It is highly recommended that investors contact their Mutual Fund distributor or an investment advisor to complete this task and get to know their Risk Profile.

What is the risk of investing in Mutual Funds?

We have all heard: “Mutual Fund investments are subject to market risks.” Ever wondered what are these risks?

Not all risks impact all the fund schemes. The Scheme Information Document (SID) helps understand which risks apply to your selected scheme.

So how does the fund management team manage these risks?

It all depends on what type of investments the Mutual Fund has invested in. Certain securities are more sensitive to certain risks and some are exposed to some other.

Professional help, diversification and SEBI’s regulations help mitigate risks in Mutual Funds.

Finally, and the most important question that many investors have asked: Can a Mutual Fund company run away with my money? This is just not possible given the structure of Mutual Funds as well as the strong regulations.


Diversify risk, for potential rewards

Risks could be controlled. And Mutual Funds can be rewarding!
When we say “RISK” in investments, a few questions immediately arise in the mind of the investor… “Is my money safe?” ”How much return will I get?” “Will I get my money back when I want it?”… While, all these are very valid questions, let’s look at them from three angles to understand Mutual Funds better

Professional Fund Management - Mutual funds are managed by professional fund managers and as an investor, you benefit from their research and expertise. While this may not completely eliminate risk, it certainly lowers it.

Diversification – Mutual Funds invest in a basket of securities. Diversification helps in minimizing the risk from a specific security’s under-performance.

Select a Scheme In Line With Your Investment Objective - If the time horizon of the investment is in sync with the fund selected, you protect yourself from very short term fluctuations. For example, if you have invested in an Equity Fund, you may be affected by short term fluctuations, but over a longer term, you would be more likely to get the long term returns associated with equities.

Most people believe that Mutual Funds are risky possibly because of the standard disclaimer they come across in the Mutual Fund advertisements. It’s important to remember that the stringent regulations that ensure investor protection, professional fund management and diversification mitigate it to a large extent.

What are Liquid Funds?

What are Liquid Funds?

On watching the video on the left, you will notice that in all the situations, the money is lying idle for a short period of time. In certain cases, the exact time when the money needs to be taken out may not be known. What does the investor do? Where should the money be parked?

One must consider a few things here:

1. The money is parked for a short period of time

2. One would prefer that there is no drop in investment value

3. Even low returns should be fine, if it means the money is safe

4. The period may not be fixed or even known

Given the above four conditions, putting money in a fixed deposit may serve the purpose, but only to a limited extent. One of the big benefits of a fixed deposit is the safety. At the same time, one of the limitations is often ignored – the money can be parked for a fixed period only – there is no flexibility regarding the period of parking.

That is where liquid mutual funds could be considered. As is conveyed in the video too, they offer safety, reasonably good returns (in comparison to savings accounts or even very short term fixed deposits) and full flexibility of redemption any time.
What are Debt Funds?

A debt fund is a Mutual Fund scheme that invests in fixed income instruments, such as Corporate and Government Bonds, corporate debt securities, and money market instruments etc. that offer capital appreciation. Debt funds are also referred to as Fixed Income Funds or Bond Funds.

A few major advantages of investing in debt funds are low cost structure, relatively stable returns, relatively high liquidity and reasonable safety.

Debt funds are ideal for investors who aim for regular income, but are risk-averse. Debt funds are less volatile and, hence, are less risky than equity funds. If you have been saving in traditional fixed income products like Bank Deposits, and looking for steady returns with low volatility, debt Mutual Funds could be a better option, as they help you achieve your financial goals in a more tax efficient manner and therefore earn better returns.

In terms of operation, debt funds are not entirely different from other Mutual Fund schemes. However, in terms of safety of capital, they score higher than equity Mutual Funds.


What is a Hybrid Fund?

Our choice of meals when we dine depend largely on the time at hand, the occasion and of course, our mood. If we’re in a hurry, say during an office lunch or eating before boarding a bus/train, we may opt for a combo meal. Or if we know a combo meal is famous, we may not bother to go through the menu. A leisurely meal would mean ordering individual items from the menu, as many as we’d like.

Similarly, an investor in a Mutual Fund can select and invest individually in various schemes, e.g. equity fund , debt fund , gold fund , liquid fund , etc. At the same time, there are schemes like a combo meal – known as hybrid schemes. These hybrid schemes, earlier known as Balanced Funds, invest in two or more asset categories so that the investor can avail the benefit of both. There are various types of hybrid funds in the Indian Mutual Fund industry. There are schemes that invest in two assets, viz., equity and debt, or debt and gold. There are also schemes that invest in equity, debt and gold. However, most of the popular hybrid schemes invest in equity and debt assets.
Different types of hybrid funds follow different asset allocation strategies. Remember to have your objectives clear before you invest.

What is an ELSS?

An ELSS is an Equity Linked Savings Scheme, that allows an individual or HUF a deduction from total income of up to Rs. 1.5 lacs under Sec 80C of Income Tax Act 1961.
Thus if an investor was to invest Rs. 50,000 in an ELSS, then this amount would be deducted from the total taxable income, thus reducing her tax burden.
These schemes have a lock-in period of three years from date of units allotment. After the lock-in period is over, the units are free to be redeemed or switched. ELSS offer both growth and dividend options. Investors can also invest through Systematic Investment Plans (SIP), and investments up to ₹ 1.5 lakhs, made in a financial year are eligible for tax deduction


What is an ETF?
An ETF is an Exchange Traded Fund, which unlike regular Mutual Funds trades like a common stock on a stock exchange.

The units of an ETF are usually bought and sold through a registered broker of a recognised stock exchange. The units of an ETF are listed in stock exchanges and the NAV varies as per market movements. Since units of an ETF are listed in the stock exchange only, they are not bought and sold like any normal open end equity fund. An investor can buy as many units as she wishes without any restriction through the exchange.

In the simple terms, ETFs are funds that track indexes such as CNX Nifty or BSE Sensex, etc. When you buy shares/units of an ETF, you are buying shares/units of a portfolio that tracks the yield and return of its native index. The main difference between ETFs and other types of index funds is that ETFs don't try to outperform their corresponding index, but simply replicate the performance of the Index. They don't try to beat the market, they try to be the market.

ETFs typically have higher daily liquidity and lower fees than Mutual Fund schemes, making them an attractive alternative for individual investors.


What are Equity Funds?

An Equity Fund is a Mutual Fund Scheme that invests predominantly in shares/stocks of companies. They are also known as Growth Funds.

Equity Funds are either Active or Passive. In an Active Fund, a fund manager scans the market, conducts research on companies, examines performance and looks for the best stocks to invest. In a Passive Fund, the fund manager builds a portfolio that mirrors a popular market index, say Sensex or Nifty Fifty.

Furthermore, Equity Funds can also be divided as per Market Capitalisation, i.e. how much the capital market values an entire company’s equity. There can be Large Cap, Mid Cap, Small or Micro Cap Funds.

Also there can be a further classification as Diversified or Sectoral / Thematic. In the former, the scheme invests in stocks across the entire market spectrum, while in the latter it is restricted to only a particular sector or theme, say, Infotech or Infrastructure.

Thus, an equity fund essentially invests in company shares, and aims to provide the benefit of professional management and diversification to ordinary investors.

Why is investing better than saving?

Why is investing better than saving?

Imagine a 50-overs cricket match in which #6 batsman walks in to bat only in the 5th over. His job is to first ensure he does not lose the wicket, and then focus on scoring runs.
While saving is a must for investing, it is important to save one’s wicket in order to be able to score later. One can save the wicket by playing defensive cricket and avoiding all sorts of shots. But that would result in a very low score. He would need to hit some boundaries by taking certain risks like lofted shots or drives between fielders or cuts and nudges.
Similarly, in order to accumulate large sums to meet one’s financial goals, in order to beat inflation, one must take certain investment risks. Investing is all about taking calculated risks and managing the same, not avoiding the risks altogether.
At the same time, in the cricket analogy, in order to stay at the crease as well as score runs, one must take calculated risks and not play rash shots. Taking unnecessary risks is a bad strategy.
So while saving is necessary, investing is very important to achieve long term goals
What is the ideal amount to start investing in a mutual fund?
Several questions rest in a potential investor’s mind regarding the ideal amount to invest. People consider Mutual Funds as just another investment avenue. Is it really the case? Is a Mutual Fund just another investment avenue like a fixed deposit, debenture or shares of companies?
A Mutual Fund is not an investment avenue, but a vehicle to access various investment avenues.
Think of it this way. When you go to a restaurant, you have a choice to order a la carte or buffet/thali or a full meal.
Compare the full thali or the meal with a Mutual Fund, whereas individual items you order are the stocks, bonds, etc. A thali makes the choice easy, saves time and also some money.

The important thing is to start investment early, even if small, and gradually add on to your investments as your earnings increase. This gives you better prospects of better returns in the long run.

What is the benefit of staying invested in the long term?
Invest for long term – an advice routinely given by many Mutual Fund distributors and investment advisors. This is especially true in case of certain Mutual Funds – such as equity and balanced funds.
Let us understand why the professionals give such advice. What really happens in the long term? Is there a benefit of staying invested for long term?
Consider your Mutual Fund investment as a good quality batsman. Every good quality batsman has a certain style of batting. However, each good quality batsman would be able to accumulate lots of runs, if he continues to play for years.
We are talking about the record of a “good quality” batsman. Every good batsman would go through some good and poor performances. On average the record would be impressive.
Similarly, a good Mutual Fund would also go through some ups and downs – often due to factors beyond the control of the fund manager. An investor would benefit if one stays invested through these funds for long periods of time.
So, as long as you can afford, stay invested for long periods of time – especially in equity and balanced funds.Are there particular funds that help create wealth over the long term?


What is wealth? What purpose does it serve?
Many answer these questions as “living a life of one’s dreams”, or “not having to worry about money”, or “having financial freedom”. Being wealthy means having enough money to spend for one’s responsibilities and dreams.
However, for all the long term expenses, one must never forget one major factor – “Inflation”. As the name suggests, inflation is a phenomena that inflates the cost that you will incur to fulfil your life goal when the time arrives to fulfil it.

Diversified equity funds offer the opportunity to create wealth over the long term at reasonable levels of risk. The risk associated with equities gets controlled with equity Mutual Funds due to three factors

· The expertise of the professional fund manager who manages the fund

· Diversification of risks due to the investments made in a basket of securities

· Investing for the long term which lowers the impact of short term volatility

Although it’s true that equities as an asset class offer investors the opportunity to create wealth, it is important to keep in mind that equities as an asset class is volatile over shorter time frames. Therefore, you need to invest for the long term.

What are the various types of funds?

Various types of Mutual Funds exist to cater to different needs of different people. Largely, they are of three types.

1. Equity or Growth Funds

· These invest predominantly in equities i.e. shares of companies

· The primary objective is wealth creation or capital appreciation.

· They have the potential to generate higher return and are best for long term investments.

· Examples would be

· “Large Cap” funds which invest predominantly in companies that run large established business

· “Mid Cap” funds which invest in mid-sized companies.

· “Small Cap” funds that invest in small sized companies

· “Multi Cap” funds that invest in a mix of large, mid and small sized companies.

· “Sector” funds that invest in companies that are related to one type of business. For e.g. Technology funds that invest only in technology companies

· “Thematic” funds that invest in a common theme. For e.g. Infrastructure funds that invest in companies that will benefit from the growth in the infrastructure segment

· Tax-Saving Funds

2. Income or Bond or Fixed Income Funds

· These invest in Fixed Income Securities, like Government Securities or Bonds, Commercial Papers and Debentures, Bank Certificates of Deposits and Money Market instruments like Treasury Bills, Commercial Paper, etc.

· These are relatively safer investments and are suitable for Income Generation.

· Examples would be Liquid, Short Term, Floating Rate, Corporate Debt, Dynamic Bond, Gilt Funds, etc.

3. Hybrid Funds

· These invest in both Equities and Fixed Income, thus offering the best of both, Growth Potential as well as Income Generation.

· Examples would be Aggressive Balanced Funds, Conservative Balanced Funds, Pension Plans, Child Plans and Monthly Income Plans, etc.

What is a Mutual Fund? 

To many people, Mutual Funds can seem complicated or intimidating. We are going to try and simplify it for you at its very basic level. Essentially, the money pooled in by a large number of people (or investors) is what makes up a Mutual Fund. This fund is managed by a professional fund manager.

It is a trust that collects money from a number of investors who share a common investment objective. Then, it invests the money in equities, bonds, money market instruments and/or other securities. Each investor owns units, which represent a portion of the holdings of the fund. The income/gains generated from this collective investment is distributed proportionately amongst the investors after deducting certain expenses, by calculating a scheme’s “Net Asset Value or NAV. Simply put, a Mutual Fund is one of the most viable investment options for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.


What are the benefits of investing in Mutual Funds?
Many of us dread the thought of managing our own investments. With a professional fund management company, people are put in charge of various functions based on their education, experience and skills.

As an investor, you can either manage your finances yourself, or hire a professional firm. You opt for the latter when:

1. You do not know how to do the job best – many of us hire someone to file our income tax returns, or almost all of us get an architect to do our house.

2. You do not have enough time or inclination. It’s like hiring drivers even though we know how to drive.

3. When you are likely to save money by outsourcing the job instead of doing it yourself. Like going on a journey driving your own vehicle is far costlier than taking a train.

4. You can spend your time for other activities of your choice / liking

Professional fund management is one of the best benefits of Mutual Funds. The infographic on the left highlights all the others. Given these benefits, there is no reason why one should look at any other investment avenue.

How can I start investing in Mutual Funds?
Investing in Mutual Funds requires you to complete a few basic formalities. Such formalities may either be completed directly with an Asset Management Company (AMC) at their office, or authorized point of acceptance (PoA), or through an authorized intermediary such as an advisor, banker, distributor or broker.

Prior to investing in a Mutual Fund scheme, you need to complete the Know Your Customer (KYC) process. The completed KYC form may be submitted with the scheme application form (also known as Key Information Memorandum). The application form would have to be carefully filled as it would capture important details like names of all account holders, PAN numbers, bank account details etc. This would have to be signed by all account holders. Much of these can be done through online platforms too.

New investors may take help from their advisors, to make the entire process smooth and easy. And before investing, all investors are advised to read important scheme related documents and know the risks of their scheme choice.