Category: Mutual Fund

Key features of ELSS

Key features of ELSS

With the tax-saving season having begun, many people are thinking of investing in equity-linked saving schemes (ELSS), where they can get equity-like returns along with the benefit of tax saving.

Here is a look at some of the key characteristics and benefits of ELSS:

Benefit of tax saving: Tax Benefit under section 80c of the Income Tax Act can be availed through ELSS upto Rs 1.5 lakh per year by either SIP or Lumsum

Shortest lock-in period: ELSS has the lowest lock-in period of 3 years as compared to other investment avenues.

Discipline savings & potential of high returns: Besides giving tax benefits, ELSS also leads to ‘forced savings’ because of the lock-in. This allows investors to earn market-based benefits over a longer period of time. Returns are more likely to beat the inflation unlike some of the other tax-saving schemes.

No minimum and maximum investments limit: ELSS funds have a lower threshold of Rs 500. Even a one-time investment of Rs 500 can be held till perpetuity. There is also no maximum limit specified for investing in ELSS. However, the tax savings are available on a maximum of Rs 1.5 lakh per year.

In a nutshell, for wealth enhancement and savings for tax exemptions, ELSS could be a preferred choice.

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Growth & dividend options in Mutual Fund

Growth & dividend options in Mutual Fund

What are the options available to a mutual fund investor?

There are three primary options available:

  • ‘growth’,
  • ‘dividend’ and
  • ‘dividend reinvestment’.

If no choice is exercised at the time of application, the fund house will select the default option for that scheme as mentioned in the application prospectus.

How does the dividend option work?

Under this option, you will get paid from the profits made by the fund. Most debt schemes aim to pay a monthly dividend. In the case of equity-oriented schemes, a dividend is declared as and when there is a surplus. An important point to note: dividends in mutual funds are not guaranteed. In the dividend reinvestment option, dividend is not paid to the investor, but is used to buy more units of the same scheme.

What happens to the NAV when dividend is paid?

This dividend gets deducted from the net asset value (NAV) of the scheme. For example, if your scheme has an NAV of Rs 25 and the fund house declared a 10% dividend (Rs 1 on a face value of Rs 10 per unit), the NAV will decline by Rs 1 to Rs 24 after paying the dividend. The NAV goes down to the extent of dividend paid. Investors, who need a regular income, choose this option. Also, in case of dividend reinvestment, the NAV of the scheme declines after the dividend is paid.

What happens under the growth option?

In this option, the scheme does not pay any dividend but continues to grow. If the fund buys or sells stocks and makes a gain, the amount is reinvested into the scheme. This gain is captured in the NAV, which rises over time. If your aim is to build long-term wealth, then the growth option would be the right choice.

Using SIP Calculator, To prepare a plan and illustration of your investment.
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Mutual Funds across Market Caps

Mutual Funds across Market Caps

Large-cap funds, mid-cap funds and small cap funds. In this the word ‘cap’ refers to the market capitalisation, or the size, of a listed company.
Large cap funds

  • Invest a larger proportion of their corpus in companies with large market capitalization. Such companies typically have generated wealth for their investors slowly and steadily over a long term.
  • On the risk-return spectrum, large-cap funds deliver steady returns with relatively lower risk, compared with mid- and small-cap funds.
  • They are ideal for investors with lower risk appetite.

Mid-cap funds

  • Mid-caps are those that they lie between large-caps and small-caps in terms of company size. During a bull phase, mid-cap stocks may outperform their large-cap counterparts, as these companies seek to expand by looking out for suitable growth opportunities.
  • Mid-cap equity funds are advised for investors with a higher risk tolerance than large-cap investors.
  • So, invest in these schemes if you seek higher capital appreciation, albeit with reasonably higher risk.

Small caps funds

  • Small-cap stocks typically have the highest growth potential, since the underlying companies are young, and seek to expand aggressively.
  • They are more vulnerable to a business or economic downturn, making them more volatile than large and mid-caps.
  • Investors who possess the high risk-taking capacity can look to invest in small cap funds.

 

Fund market capitalization What are they? Risks Ideal for
Large-cap funds Invest in large firms. Endeavor to provide better capital appreciation over a long term and distribute dividend fairly regularly. As they are financially strong, they are capable of withstanding bear markets. High Risk. May under-perform the small- and mid-cap funds during a bull market. Risk-averse investors, who want equity exposure to high-quality stocks, and have a long-term investment perspective.
Mid-cap funds Invest in medium-sized companies that are actively seeking investment opportunities for expansion. High Risk. Mid-caps are more volatile than large-caps. Investors with a greater risk-taking ability compared with large-cap fund investors, who want to capture the price gains during a bull market.
Small-cap funds Invest in small-cap companies, which may have higher growth potential High Risk, Prices have greater volatility compared to both large-caps and mid-caps. Investors with high risk appetite and higher return expectations
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Different Types of Mutual funds

Different Types of Mutual funds

What are the different types of Mutual funds?

Equity Funds/ Growth Funds
Funds that invest in equity shares are called equity funds. They carry the principal objective of capital appreciation of the investment over the medium to long-term. The returns in such funds are volatile since they are directly linked to the stock markets. They are best suited for investors who are seeking capital appreciation. There are different types of equity funds such as Diversified funds, Sector specific funds and Index based funds.

Diversified funds
These funds invest in companies spread across sectors. These funds are generally meant for risk-taking investors who are not bullish about any particular sector.

Sector funds
These funds invest primarily in equity shares of companies in a particular business sector or industry. These funds are targeted at investors who are extremely bullish about a particular sector.

Index funds
These funds invest in the same pattern as popular market indices like S&P 500 and BSE Index. The value of the index fund varies in proportion to the benchmark index.

Tax Saving Funds
These funds offer tax benefits to investors under the Income Tax Act. Opportunities provided under this scheme are in the form of tax rebates U/s 80c. They are best suited for investors seeking tax concessions.

Debt / Income Funds
These Funds invest predominantly in high-rated fixed-income-bearing instruments like bonds, debentures, government securities, commercial paper and other money market instruments. They are best suited for the medium to long-term investors who are averse to risk and seek capital preservation. They provide regular income and safety to the investor.

Liquid Funds / Money Market Funds
These funds invest in highly liquid money market instruments. The period of investment could be as short as a day. They provide easy liquidity. They have emerged as an alternative for savings and short-term fixed deposit accounts with comparatively higher returns. These funds are ideal for Corporates, institutional investors and business houses who invest their funds for very short periods.

Gilt Funds
These funds invest in Central and State Government securities. Since they are Government backed bonds they give a secured return and also ensure safety of the principal amount. They are best suited for the medium to long-term investors who are averse to risk.

Balanced Funds
These funds invest both in equity shares and fixed-income-bearing instruments (debt) in some proportion. They provide a steady return and reduce the volatility of the fund while providing some upside for capital appreciation. They are ideal for medium- to long-term investors willing to take moderate risks.

Hedge Funds
These funds adopt highly speculative trading strategies. They hedge risks in order to increase the value of the portfolio.

 

Using SIP Calculator, To prepare a plan and illustration of your investment.
Download Mobile app from

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