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4 Tips to Achieve Your Financial Goals Through SIP’s

The “Mutual Funds Sahi Hai” campaign has fuelled an increased interest in Mutual Fund SIP’s (Systematic Investment Plans) over the past five years. The industry’s monthly SIP inflows have doubled to Rs. 8055 Crores since 2017, and assets have tripled in the past five years. If you’re one of the thousands of investors who are using SIP’s to achieve their financial goals, here are four things to keep in mind.

 

Select Your Funds Based on Your Time Horizon

Counterintuitive as it may sound – when it comes to goal-based investments, it makes sense to disregard your risk profile and focus only on your time horizon instead. 

 

For instance, choose aggressive small & mid-cap equity funds for goals that are more than a decade away, and short-term debt funds for goals that are a year away. 

 

Doing this will ensure that you reap the maximum benefits of rupee cost averaging and compounding from your SIP’s

 

Be Disciplined… Very Disciplined

When it comes to goal-based SIP’s it is mainly your discipline that will determine your long-term success. 

 

If you’re the kind of person who frequently stops and starts his SIP’s, or lets them bounce for a couple of months and lets them debit for a couple of months, your chances of achieving your goals through them are fairly slim. 

 

Ensure that you start with an amount that is comfortable for you, but once you do – make sure you treat your SIP’s as sacrosanct and ensure that they keep running like clockwork.

 

Ignore the Noise

Short-term events such as BREXIT, demonetization, elections, crude prices, and RBI rates have very little bearing on the long-term returns from SIP. 

 

If you get rattled into action every time the newspapers sensationalize something, you’re likely going to wind up taking some very myopic decisions with your SIP’s When it comes to SIP’s in Mutual Funds, dispassion is more important than active management! Just ignore the noise and keep going; rewards will follow sooner than later.

 

Have a Step-up Plan

An annual step-up plan is like rocket fuel for your Mutual Fund SIP. Here’s an interesting calculation. If you run a SIP of Rs. 10,000 per month for 25 years for your retirement, you’ll probably end up accumulating something to the tune of Rs. 2 Crores at the end. 

 

However, if you step up the amount by just Rs. 5,000 per month every year, you’ll have closer to Rs. 8 Crores! Some Mutual Funds even allow you to automatically step up your goal-based investments every year. Enrolling in this feature would be a great idea.

 

Source: FinEdge

 

 

5 Things that all great Advisors expect from their Clients

While much has been said about the traits of great Financial Advisors, the fact remains that the Client-Advisor relationship is a deeply symbiotic one, whose long-term success is contingent upon the attitudes and actions of both parties involved. 


Here are the five things that your Financial Advisor expects from you to ensure that your investment experience is a great one.


Patience

Financial Planning is a journey, not a destination. Along the way, there are bound to be many euphoric crests and dispiriting troughs. While a great Advisor will do all that she can to handhold you and keep you aligned to the big picture, her efforts will fall flat in the face of impatience on your part. 


As an investor, you must give an adequate amount of time to your investments, without being swayed by short-term market movements. Remember, your patience will give your Advisor the requisite bandwidth to take better long-term decisions on your behalf.


Trust

Few things impinge upon an Advisor’s efforts as much a trust deficit does. If you’re going to take her recommendations and run it past your banker (a salesperson), your LIC agent (a salesperson), and your well-meaning uncle (a little bit of knowledge is a dangerous thing!) before proceeding, you’ll have a hard time creating any wealth at all. While no Financial Advice is bulletproof, remember that a conflict-free Advisor is in a much better position to make the right investment calls. Ask all the questions you need to to build trust in your Advisor’s intent and competence; but once you do, take the plunge and hand over the steering wheel in toto, for best results.


Discipline

If only we had a Rupee for every time that a Financial Plan crumbled in the face of indisciplined investing! 


Things like – stopping and starting your systematic investments, making futile efforts at timing the market, redeeming your Goal-Based Investments to fund short term ‘wants’ while sacrificing long term ‘needs’ – all constitute acts of indisciplined investing that lead to great consternation for an Advisor who is as invested in your long term goals as you are. 


Being a disciplined investor allows your Advisor to frame and execute a robust Financial Plan that leads to the achievement of your goals in the long run.


Focus

Remember, even a great Advisor’s efforts will amount to nothing if you suffer from investment ADHD (Attention Deficit Hyperactivity Disorder). 


An NFO here, a short-term gamble there… and before you know it, you’ll have a scattered portfolio of Financial Assets that are beyond repair. The best Advisors will expect you to follow a goal-oriented approach to your investments. 


That involves sitting down together and mapping your goals, prioritizing them, and then aligning your current as well as future investments to them. Your goals are firmly in place, your Advisor will have a much higher chance of succeeding if you stay focused and keep your ‘eyes on the prize’!


Responsiveness

Last, but not least – great Advisors expect your time and commitment. That involves making time for important discussions such as periodic goal reviews and portfolio reviews. Once discussed and agreed upon, your Advisor will expect you to be swift with change executions as well. 


A lack of responsiveness on your part can result in your missing out on tactical entry opportunities as well as important, time-bound exit recommendations during tempestuous market cycles such as the one we witnessed when we first started grappling with COVID-19. When your Advisor calls, do make sure that you answer!


Source: FinEdge

Term Insurance Premium set to rise up to 40% from December 2021 | Know why?

Term insurance policy premiums are set to hike anywhere between 25 percent to 40 percent as reinsurers tightened underwriting norms in the wake of the Covid-19 pandemic. The extent of the premium hike will, however, vary from one insurer to another. The new rates will come into effect from December.

 

Covid-19 death claims in Q1 were hig­her than the cumulative claims in the entire FY21. As per the report, post pandemic’s second wave, Life insurers have so far shelled out Rs 11,060.5 crore to settle Covid-related death claims. 


As of October 21, life insurers settled a little over 130,000 Covid-19-related dea­th claims. About 140,000 Co­vid-related claims have been made so far, amounting to Rs 12,948.98 crore, of which 93.57 percent by volume and 85.42 percent by value were settled, a Business Standard report stated.


Following the claims burden, Munich Re, the largest reinsurer for the Indian insurance market, is set to hike its rates for underwriting portfolios of pure protection plans by up to 40 percent. 


Effect of a surge in claims post Covid-19 second wave

The worsening mortality experience for life insurers in the country accentuated by the pandemic has prompted reinsurers to re-evaluate their prices on term plans. Munich Re has intimated to insurance companies, whose risks it is covering, about a price hike. 


The global reinsurer has communicated its decision about increasing rates, according to a senior executive of a private life insurance company.


About 8-10 insurance companies have been informed about the move, sources told Business Standard. 


As Reinsurance rates hiked by up to 40% and Premiums are likely to increase by 30%, depending on age, sum assured and quality of life of the individual.


“The reinsurer has increased its rates for term policies by 30 to 40 percent across various companies. This will lead to an increase in the premium rates by 25-30 percent,” an executive said.


Apart from increasing reinsurance rates, the German multinational insurance company has also tightened underwriting standards.


This is the second time reinsurance rates have been hiked in 2021.07-Oct-2021. In March, the rates were raised by 4-5 percent. In June last year, there was a steep hike of 20-25 percent.


Life insurance companies in India have received four to five times Covid-related death claims in FY 2021 as compared to the last fiscal year, which has resulted in huge losses for them. Following this, Insur­ance firms are engaged in discussions with the reinsurer on the quantum of the hike.


Source: IndiaTV

6 Reasons that make sense to get Health Insurance

The rising cost of medical expenses, access to good medical facility and hospitalization costs can be financially strenuous. Therefore, getting a health insurance cover for yourself and your family can provide the added protection you need in times like these.


Apart from the obvious benefit of having the financial confidence to take care of your loved ones, a health insurance plan is extremely useful when it comes to beating medical treatment inflation.


1. To fight lifestyle diseases

Lifestyle diseases are on the rise, especially among people under the age of 45. Illnesses like diabetes, obesity, respiratory problems, and heart disease, all prevalent among the older generation, are now rampant in younger people. Some contributing factors that lead to these diseases include a sedentary lifestyle, stress, pollution, unhealthy eating habits, gadget addiction, and undisciplined lives. 


While following precautionary measures can help combat and manage these diseases, an unfortunate incident can be challenging to cope with, financially. Opting for Investing in a health plan that covers regular medical tests can help catch these illnesses early and make it easier to take care of medical expenses, leaving you with one less thing to worry about. 


2. To safeguard your family 

When scouting for an ideal health insurance plan, you can choose to secure your entire family under the same policy rather than buying separate policies. Consider your aging parents, who are likely to be vulnerable to illnesses, as well as dependent children.


Ensuring they get the best medical treatment, should anything happen to them, is something you would not have to stress about if you have a suitable health cover. Research thoroughly, talk to experts for an unbiased opinion and make sure you get a plan that provides all-around coverage. 


3. To counter inadequate insurance cover

If you already have health insurance (for example, a policy provided by your employer) check exactly what it protects you against and how much coverage it offers. Chances are it will provide basic coverage. If your current policy does not provide cover against possible threats – such as diseases or illnesses that run in the family – it could prove insufficient in times of need. 


And with medical treatments advancing considerably, having a higher sum assured can ensure your every medical need is taken care of financially. But don’t worry if you cannot afford a higher coverage plan right away. You can start low and gradually increase the cover. 


4. To deal with medical inflation

As medical technology improves and diseases increase, the cost of treatment rises as well. And it is important to understand that medical expenses are not limited to only hospitals. 


The costs for doctor’s consultation, diagnosis tests, ambulance charges, operation theatre costs, medicines, room rent, etc. are also continually increasing. 


All of these could put a considerable strain on your finances if you are not adequately prepared. By paying a relatively affordable health insurance premium each year, you can beat the burden of medical inflation while opting for quality treatment, without worrying about how much it will cost you.


5. To protect your savings

While an unforeseen illness can lead to mental anguish and stress, there is another side to dealing with health conditions that can leave you drained – the expenses. You can better manage your medical expenditure by buying a suitable health insurance policy without dipping into your savings. Some insurance providers offer cashless treatment, so you don’t have to worry about reimbursements either. 


Your savings can be used for their intended plans, such as buying a home, your child’s education, and retirement. Additionally, health insurance lets you avail of tax benefits, which further increases your savings. 


6. Insure early to stay secured 

Opting for health insurance early in life has numerous benefits. Since you are young and healthier, you can avail of plans at lower rates and the advantage will continue even as you grow older. Additionally, you will be offered more extensive coverage options. 


Most policies have a pre-existing waiting period which excludes coverage of pre-existing illnesses. This period will end while you are still young and healthy, thus giving you the advantage of exhaustive coverage that will prove useful if you fall ill later in life. 


A health insurance policy is an essential requirement in today’s fast-paced lifestyle. Protecting yourself and your loved ones from any eventuality that could leave you financially handicapped is a must.


6 Financial Lessons from Diwali

Diwali is one of the most awaited festivals in India. This is one festival, which keeps all of us busy with making arrangements, buying crackers, sweets, and gifts for everyone. Not everyone is aware that this festival also brings to us, the 6 most important Financial Planning Lessons of life.  


Let’s see what they are!


1.  Safety First

All of us enjoy fireworks and we also take all the needed measures to keep ourselves and our families safe. The same planning has to be implemented concerning one’s financial health.


Also, when we burst crackers, we take utmost care and children always burst them under adults’ supervision. Likewise, one also has to take the advice of a financial advisor before making any investment in schemes. Several schemes look attractive but they turn out to be a disaster in the long run.


The same also applies to trading as well. Never follow anyone when they ask you to invest in a particular stock. Do your research before investing in any stock. This is similar to how we trust ourselves when it comes to choosing and burning firecrackers. 


2.  Advanced Planning
People plan for the festival of Diwali well in advance. Everyone plans for the kind of gifts they need to give their family and friends, the sweets to make, the kinds of crackers to burn, shopping for clothing, house renovations, and so on. Similarly, one needs to plan and invest early to reap better benefits.  By early investments, one can also generate good returns with compounding. So, we not only need to plan early for Diwali but we also need to plan for our investments.


One also needs to be extra cautious when investing and it is important to have a very detailed financial plan, planned well in advance before making a safe and lucrative investment. Always choose an expert financial advisor.


3.  Have a Goal When Investing
Gifts for family and friends during Diwali are bought as per their taste, age, and preferences. Likewise, one has to have different goals of Financial Planning at various stages of life. One needs to have a goal when investing and these help you sail through some difficult situations without disturbing your regular cash flow. 


4.  Get Rewarded with Variety
We all choose various varieties of crackers for Diwali and similarly one also needs to properly diversify the investments in one’s portfolio. By this, investors will reap the benefits that are offered by different financial institutions. A well-balanced portfolio will provide you joy and benefit at the same time.


Also, crackers are classified into hazardous and non-hazardous categories and we give the less risky ones to the kids. Likewise, when investing, we need to choose the schemes that are less risky or riskier by considering various other factors.


5.  Prepare For Emergency
Whenever there are a lot of firecrackers to be burnt, fire extinguishers are kept handy to avoid any accidents that might occur. When planning any investment, one also needs to have a backup by choosing the right insurance policy as it helps to deal with any uncertainties that might come up. Being prepared with an insurance cover will be of help when unplanned losses occur.


Also, we never purchase crackers from unknown brands and similarly one should never invest in any unpopular scheme. Just understand the risk before you invest in any scheme.


6.  Clean up your portfolio on a timely basis
Like people clean their houses and offices before Diwali and give away the things that are no longer needed, investors also need to follow a similar approach with their investments. Check the investment portfolio thoroughly to make sure that it has all for your financial goals and any unseen and unplanned expenses. One also needs to exit from the schemes that are not performing well.


The festival of Diwali teaches us all many money management lessons. Apart from those mentioned above, this festival also has a lot to teach us when it comes to financial planning. So, this is the time to plan your finances well and to have a sparklingly safe and financially planned Diwali. 


Source: Motilal Oswal

The Era Of Cheap And Easy Term Insurance Plans May Be Over

Life insurers are expected to increase premiums for term plans as claims spiked during the Covid-19 pandemic.


Reinsurers are becoming stricter about underwriting and the documentation required from customers, said Vighnesh Shahane, managing director and chief executive of Ageas Federal Life Insurance. “It will not be so easy or cheap to get a term product in India.”


The quantum of the hike, he said, will vary depending on the insurer, the reinsurer, and the volume of business between the two.


The revenue and profit of listed life insurers tumbled in the quarter ended June as they set aside more provisions against anticipated claims from the deadlier second Covid-19 wave. ICICI Prudential Life Insurance Co. saw the biggest sequential decline in new business premium at 50%, followed by SBI Life Insurance Co. and HDFC Life Insurance Co.’s 46% and 43% fall, respectively.


The companies have yet to report their earnings for the quarter ended September.

Term plans are likely to turn costlier because of three mains reasons:


Risks Of Higher Penetration

Since the original target group for term or protection products was the affluent category with better medical facilities, a lower risk was associated with a lower premium, according to Prithvish Uppal, the analyst at IDBI Capital Ltd. But as penetration for protection products rose, lower-income groups susceptible to higher risk merit higher premium, he said.


Cheaper Than Developed Countries

While India has a lower life expectancy, pricing has been on a par with the developed nations where people live longer on an average, according to Uppal. Annual premiums in Hong Kong, with a life expectancy of 84 years, are around Rs 12,000, about the same in India where the mortality age is 69 years, he said.


Covid-Induced Expenditure

An upsurge in claims due to the pandemic, especially the second wave, prompted reinsurers to hike rates, according to Mohit Mangal, the analyst at Anand Rathi Financial Services Ltd. “In Q1 FY22, HDFC Life’s gross claims were Rs 1,600 crore and net claims were Rs 960 crore,” Mangal said. “Thus, the reinsurers had to bear the burden of Rs 640 crore.”


Premiums declined in the 10 years through 2019. But just prior to the pandemic, reinsurers—companies that provide financial protection to insurance firms—raised prices ranging between 15% and 40%, according to Uppal.


ICICI Prudential Life Insurance passed on the entire hike to customers in July 2020, Mangal said. Others didn’t.


“HDFC Life and SBI Life chose to retain some portion of this hike on their books while others, in a bid to expand their protection business, absorbed the entire hike,” Uppal said.

HDFC Life, SBI Life, and ICICI Prudential Life refused to respond to queries from BloombergQuint citing the silent period ahead of their earnings.


Shahane said insurers may take a decision “depending on their expectations and predictions of the future and how the pandemic is likely to play out”.


According to Uppal, the companies will pass on the increase in reinsurance costs based on their historic mortality experience and follow a cautious underwriting approach to avoid pandemic-related uncertainties.


“ICICI Prudential is most likely to continue passing on the entire hike to customers due to its management policy,” he said. “[But] HDFC Life and SBI Life may also follow suit, unlike in the past.”


Unlikely Gainer: LIC

As term plans of private insurers turn costlier, Uppal expects one company to gain: state-run Life Insurance Corp.


The hikes will narrow the pricing gap with LIC. Currently, private firms charge around Rs 10,000 to Rs 15,000 a year for a plan worth Rs 1 crore, while LIC which sells similar policies at Rs 20,000-25,000, Uppal said.


“LIC is most likely to benefit from the price hike as brand recognition will enable it to gain market share in the protection business.”


Uppal also expects volume growth in the third quarter before the reinsurers increase prices by December-end.


Source: Bloomberg

5 Key financial lessons to learn from Dussehra

Dussehra is celebrated to honor the victory of good over evil with much pomp and fervor. While Dussehra is a time when eternal hope rises in the good that exists in humanity, 


it also brings with itself some important lessons you can implement to your financial plans to have a better grip on your finances and plan for a better future. Read 5 Key financial lessons to learn from Dussehra here;


Destroy the evils on your wealth creation journey

The festival of Dussehra marks the victory of good over evil. During the Lanka war, Lord Rama and his army encountered various hardships to attain victory. Looking at the festival from a finance and investment perspective; the festival offers the vital lesson of ridding away all the causes that pose as a hurdle on our financial planning and wealth creation journey. Surmounting credit card debts, reckless expenditure, timing the market, booking losses amongst many other hurdles are the real enemies on our wealth creation journey.


Live a disciplined life

The advocacy of ‘Dharma’ or righteousness by Lord Rama emphasized the significance of being upright, responsible, and disciplined in life. While in exile or during the Lanka war, Lord Rama did not deter living a life of frugality. You too can learn to live in less than what you earn. By saving wisely, spending cautiously, and investing smartly; you can apply financial discipline to cater to your current and future needs as well as your family’s needs. One way of inculcating and nurturing financial discipline within you is by firmly following a financial plan, avoiding binge-spending at all costs, and investing in a regular pattern; possibly in Mutual Funds via Systematic Investment Plan (SIP).


Lead a life of patience and perseverance

When Lord Rama along with Lakshmana and Sita were exiled to the woods for 14 years and was asked to live a simple life as opposed to the luxurious lifestyle of the royal palace; he accepted his fate and maintained composure. When Ravana abducted Sita and the Lanka war broke out; Lord Rama fought the war with patience and perseverance and never thought of giving up or looking for shortcuts. These two incidents in the Ramayana signify the importance of being patient and perseverant in the hardest of times. In your life too, you may face financial hardships or you may find it difficult to avoid unnecessary expenditure. As an investor, you may get impatient while watching your money grow or market ups and downs can test your patience to its extreme forcing you to quit investing any further and derail you from achieving your financial goals. Irrespective of the above-mentioned incidents; you must be patient and perseverant at all times.


Protecting your finances

The festival of Dussehra symbolizes the faith in defeating all forms of evil to protect humanity on Earth. By protecting or securing your finances, the message is to create a financially sound future and shun all evils that affect your financial wellbeing.  You could protect your hard-earned money from going to waste by putting it to good use; in the form of investments or insurance plans. Also, maintaining a contingency fund that helps battle your emergency needs can prevent you from using up your savings or taking loans.


Cheers to new beginnings

The Lanka war of 14 days marked the defeat of evil and paved the way to newer paths. Upon returning to Ayodhya with Lakshamana and Sita, Lord Rama was crowned as the King of Ayodhya, and Vibhishana was crowned as the new king of Lanka. The events during the Lanka war and the subsequent victory of Lord Rama brought a new lease of life by starting afresh. Taking a cue from this; it’s never too late to tread on a path of financial freedom. You can start by chalking out a financial plan that suits you the best. If you wish to achieve your financial goals, you can always invest in a Mutual Fund scheme that is aligned with your financial goals and matches your risk appetite.


Source: Mtilal Oswal

How to Invest at A MARKET HIGH

It is that point of the year…the stock market is at its all-time high. All this while you waited for this opportune moment to begin investing. But wait! Don’t lose yourself in the exuberance all around. You never know where the market is heading the next moment.

 

The questions remain unanswered:

  • * Is the market going to rise further or is it going to fall?
  • * Should you be a skeptic and wait for a correction or cheer up and invest right away?

Waiting for a market correction to start investing would result in a loss of opportunity. This is exactly why you should get going immediately. If you keep waiting for a market correction, you will stay stuck. This is why you should invest, even at a market high, as the markets are only going to go higher. Sure, there will be a few hiccups on the way, but the general market trajectory is going to be largely upward-looking.


In case you are a novice investor, this time demands higher levels of composure from your end. Instead of placing impulsive bets and repenting later, sit down and formulate an investment strategy. 


Review the entire portfolio

When you initially constructed a portfolio at the beginning of the cycle, markets must have been quite different. Now that so much time has elapsed in between, chances are the valuations might have changed. 


The reasons which made you buy that bunch of stocks might no longer be existing. The market leaders might have changed ranks. In such a situation, sticking to laggards might end you in losses. So, use this time to review your entire portfolio. Weed out the stocks which don’t seem valuable anymore.


Re-balance the portfolio

You need to know that market volatility affects your portfolio’s asset allocation. Your original asset allocation might have been in a ratio of say 50:50 (equity: debt). But the steadily rising markets might have skewed the original allocations. 


It means that now the ratio must have become say 70:30 (equity: debt). On one hand, it may seem like a lucrative opportunity to accumulate more wealth. But if it is not in line with your risk preferences, you may land in trouble.


You got it right! Your portfolio has now become riskier than you actually can digest. If you don’t want to carry a riskier portfolio, then it is better to re-balance it. Re-balancing involves bringing the skewed allocation to its original asset allocation of say 50:50 in this case.


Diversify your portfolio

Your portfolio might be composed only of small-cap or mid-cap stocks. In a rising market, a concentrated portfolio might increase your chances of losing money. When markets are high, you need to diversify. In diversification, you need to include stocks of different market capitalization. You can invest in large-cap stocks which tend to be stable during such volatility.  


Start SIP in mutual funds

For first-time investors,  trading in the stock market can be tricky. If that is not your ball game, then go for equity mutual funds. Equity mutual funds give a similar kind of investment experience; although with greater diversification and professional fund management. 


You may think of starting a Systematic Investment Plan (SIP) in equity funds. In this, you will be consistently placing smaller bets. Over a period, it will give you the advantage of rupee-cost averaging.  


Never invest in something you don’t understand

One mistake you shouldn’t commit is investing in a complicated financial product. Market highs are usually accompanied by fund houses launching sophisticated offerings. You might come across a lot of New Fund Offer (NFO) during this time. 


These offerings might promise sky-high returns. However, you shouldn’t get enticed by the lucre, especially when the product offering is not transparent. Ensure that you understand what you are getting into before investing. 


Moreover, invest in a financial product that has an investment history of 5 to 10 years. Even if you want to take the risk, don’t invest a lump sum in a single stock or fund.


Goal-based investing

Mapping specific mutual funds to specific goals will help you not only choose mutual funds correctly but also keep track of them in a better way. You can choose mutual funds depending upon the term and the risk profile of the goal.


All said and done, market highs and market lows will come and go. The volatility shouldn’t bother long-term investors. You should keep an eye on your goals and invest systematically. 


Source: ClearTax

Why Investing in NFOs is not a good idea?

Whenever a fund house launches an NFO, there is a lot of buzz in the market. You see ads everywhere; there are fund manager interviews where they extol the virtues of the new fund’s investment strategy, you see newspapers carrying articles detailing what the new fund is, and a whole lot more.


With so much happening around you, it is quite natural to get carried away and invest. But is it a good idea to invest in an NFO? Before we get into this debate, let’s first understand what an NFO is?


So, what exactly are NFOs?

When an asset management company launches a new fund, it first opens it up for a subscription for select days. The aim is to raise money for buying stocks for the fund’s portfolio and get it off the ground. This entire process is called NFO or New Fund Offer. 

In a lot of ways, it looks like an IPO, and that pushes people to buy in the NFO period. But there is no advantage like IPO. We will come to that later.


Now, as per regulation, in India, the NFO duration cannot be more than 15 days for any mutual fund.


After the NFO period, if the fund is open-ended, it starts accepting new investments within a few days. So, you can invest in a fund after the NFO period as well.

If it is a close-ended fund, then an investor can subscribe to the fund unit only during the NFO period and will have to hold it until the end of the duration. 


Now you know what NFOs are, let’s look at reasons we believe you should avoid investing in them.


1) No Track Record

The fund being launched is new and therefore has no track record. In the absence of a history, people tend to rely on a fund house’s past performance, which might not be the best approach. 


That’s because a new investing strategy comes with its challenges, and you don’t know whether the fund house has the expertise to overcome those challenges.

Also, you only know the broad mandate of the fund. You don’t know what will constitute the portfolio or if it will be able to execute its mandate as intended.


So, if a fund is being launched in a category where funds already exist, picking a fund with a track record makes a lot more sense. You will know what you are getting into as you can evaluate it on various parameters like past performance, risk it takes amongst other things.


Always pick a fund with history and a proven track record over a new fund.


2) NFOs are not like IPOs – There is no benefit of investing in the NFO period

As we said in the beginning, people look at NFOs as they look at IPOs. They think they will get benefitted if the demand for funds increases, just like it happens in stocks. This notion can’t be farther from the truth.


That’s because a mutual fund’s NAV doesn’t get affected by demand and supply. 

Here’s why – the number of units available in case of a stock is limited, so their price goes up if there is more demand. On the contrary, there is no limit to how many units a mutual fund can have. Units get created as and when required.


3) Higher cost

Every fund charges a fee to manage your money. This fee is a percentage of the portfolio and gets deducted from the returns generated. In technical terms, it is called the expense ratio.


A higher expense ratio means you pay a higher fee and it affects the returns you get 

As per regulations in India, a fund with a smaller Asset Under Management (AUM) can charge a higher expense ratio as compared to a fund with a higher AUM. 


Now, since the fund size, when launched is small, the AMC has the flexibility to keep the expense ratio on the higher side.


4) Launch Timing

AMCs launch new funds because they want to complete or increase their product basket, other times it could be because there is a demand in the market for a particular kind of fund. The reason could be any.


So, just because a fund is launched doesn’t necessarily mean it is the right time to invest in that fund category. Especially if the trigger is market demand  (you can figure it out by seeing how many similar funds have come in the recent past), it is best to stay away.


But there are a couple of exceptions though:

  • If the NFO is for a close-ended fund and it fills a gap in your portfolio, you can consider investing. However, you need to be aware of the investing strategy the fund will follow as you will be committing for a specified duration.

  • When you are getting a discount during the NFO, like the 5% discount Bharat CPSE ETF NFO offered, it might be worthwhile considering them. In the Bharat CPSE ETF, you knew in which companies’ money will get invested (as it is an index fund) and you got a discount as well.

Conclusion

Investing in NFOs is like a shot in the dark. It will be wise to opt for an existing scheme that has a proven track record instead of going for something new or unpredictable.

Even if it is something unique and can be a good fit in your portfolio, wait for some time to see if the theme or investment strategy plays out as intended.


Source: ET MONEY

Is PMS investment the right way to invest for you?

1. One way of investing a large amount

Portfolio management services (PMS) is a customized solution for high net-worth individuals (HNIs), it offers greater flexibility with an investor’s money and higher returns too. 


So if you have a substantial amount you want to invest, such as say a crore, this service can prove beneficial. But is it the right product for you? Read to find out.


2. How PMS works for an investor

Portfolio management service (PMS) is provided by professional money managers to informed investors and can be tailored to meet specific investment objectives. PMS providers invest directly in securities through focused portfolios. 


So one’s account will be kept separate and operated according to his/her investment mandate in a discretionary PMS, where an investment manager takes all decisions in sync with the investor’s goals.


3. How it is different from MFs

Unlike mutual funds, the investors’ assets here are not pooled into one large fund. Portfolio Management Service (PMS) uses a separate bank account and Demat account for each client. 


The minimum investment amount is Rs 50 lakh for PMS. You can see the portfolio daily through your Demat account.


4. Higher risk-reward aspect

This structure allows the fund managers to take concentrated calls on their high-conviction stocks without too many regulatory and operational constraints prevalent in a mutual fund portfolio. 


It may generate a higher return as the fund manager will have greater flexibility to choose or hold stocks and capitalize on the market opportunities in the smaller and newer companies that may have the potential for high growth. This may lead to a higher risk, which may be best mitigated through a long-term investment horizon.


5. It is a good option if…

If you wish to set this corpus aside for your retirement or in other words, for the long-term, this makes sense. The higher transparency and regular reporting as compared to a mutual fund are also plus points. 


Stocks are bought and sold in your name, with the help of a power of attorney, which means you can monitor all investment activities in real-time. As a PMS investor, you may also hold direct interactions with fund managers, should you feel the need.


Source: – The Economic Times