The domestic equity market has been very volatile in the recent past. An average volatility of 1,000 points either side at the bourses has become an order of the day. Due to this, the net asset value (NAV) of mutual fund (MF) schemes too have been impacted as they are directly linked to the equity markets.
The volatile financial market has compelled retail investors to chalk out their investment strategies properly. And, they have been sending several questions to this website on MF industry and the financial market.
Mukul K Gupta, CEO, Birla Sun Life Mutual Fund took some time from his busy schedule to address the issues and concerns raised by the investors. Excerpts:
I want to invest in mutual funds. Please give me a brief knowledge about them.
A MF is a trust that pools the savings of a number of investors who share a common financial goal.
The money thus collected is then invested in the capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them.
Thus, a MF is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.
Currently, in which scheme should I invest? My budget is Rs 4,000 per month.
With a budget of Rs 4,000 per month, you can invest wisely and the best way to do so is investing through a systematic investment plans (SIP). You can have couple of SIPs with allocations to mid-cap funds and the flexi-cap funds. If you are looking for tax planning then allocations can also be made to equity linked saving schemes, ELSS.
Is a unit linked insurance plan (ULIP) better than ELSS (close ended) scheme?
Investment in ULIPs and ELSS funds has to be viewed differently, though the products look comparable. In terms of returns, ELSS funds would always outperform the ULIPs due to low fund administrative and other charges.
Secondly, ULIPs also charges for the life cover associated with it.
The general opinion is that investing in an SIP on a long-term basis is better. Could I set a time frame for SIPs, say 20 years on a compounding basis?
Best results from SIPs are visible only in the long-term, though the definition of long-term may vary from people to people. I believe one should look at allocating funds towards SIP for minimum of 5 years.
What is the minimum amount to start investing in SIP?
To begin with a Rs 1,500 SIP is a very good idea. SIPs are the best way to invest for long-term wealth creation.
I am 28-year-old and earn Rs 45,000 month. What should be my monthly investment in MFs through SIP and what are the good MFs in which I can invest?
Your SIP allocation should be at least Rs 5,000 per month. You can look at mid-cap and flexi-cap funds to start off your investments and later move to thematic funds. If you are looking at tax planning then make some allocation to ELSS funds as well.
I want to invest Rs 15,000 per month in MFs. Please inform which are the best performing in terms of providing returns and tax saving?
Returns from MFs are directly linked to the equity markets so it would be very difficult to put a number to returns in term sof percentage. In the long run, markets have given returns in the range of 15 per cent to 18 per cent.
For tax saving, one needs to invest in special category of MFs termed as ELSS. These schemes have a lock in of three years.
Will investing in an infrastructure fund be profitable in the long run?
Investing in equity markets with a long term view is always good. And investing in companies participating in India's infrastructure boom is even better. India still has a long way to go in infrastructure development and as current order books of the infrastructure companies suggest they are in for huge rise in scale of operations.
What is a new fund offer (NFO)? How does it differ from equity shares?
New fund offer (NFO) or investments in MFs are quite different than investing in equity shares. Basically, MFs pool money of several investors through a professionally managed asset management company. MFs are the best tool to
mitigate your risks associated with investments in equity markets and at the same time enjoy the upside of equities.
Both the author and website have taken proper care while providing the above information. However, investors are advised to consult a financial advisor for their investment decisions. The author or website will not be responsible for their investment decisions. Read Disclaimer