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Showing posts with label elss. Show all posts
Showing posts with label elss. Show all posts

Index Funds vs Actively Managed Mutual Funds

There is an ongoing debate in India about Index Mutual Funds Vs Actively Managed Mutual Funds. Is the debate worth it? Which type of Mutual Funds are better for Indian market? Is Indian market mature enough to switch to Index Funds across all segments of Mutual Funds? Who is the winner?


What are Index Funds?

Index funds, as the name suggests, are the funds or the schemes that invest in a particular index. These funds purchase all the stocks in the same proportion as the index it is bench-marked to. This means the scheme will perform in tandem with the index it is tracking. For example, if an index fund is bench-marked to Nifty 50, it will buy all the 50 stocks in the Nifty index in the same proportion as Nifty 50.

Some examples of popular Index Funds include NSE Nifty 500 TRI, S&P BSE 100 TRI, NSE Midcap 100 TRI, S&P BSE Small cap TRI. Big institutions such as the Employees Provident Fund Organisation (EPFO) also invest through index funds rather than actively managed funds. Such funds are process driven rather than person driven. And the reason is obvious. These funds invest in an index and the manager doesn’t have to choose the stocks to invest. These are, therefore, also known as Passive Funds.

What are Actively Managed Funds?

Actively Managed Funds or Active Funds, or simply referred as 'Mutual Funds' are just the reverse of Passive Funds. These are the most preferred route for Mutual Fund investments in India as on date. In an active fund, the fund managers choose the stock to invest based on the goal of that fund. Here, the manager tries to beat the market by choosing better stocks. Nevertheless, the problem with active funds is that the return on these funds depends on the goal and efficiency of the fund manager. Moreover, even if you are able to find a good fund with a coherent manager, still there is some danger of what might happen in the case the manager quits and moves to some other company. Tracking the manager along with the fund becomes a headache for many investors. Since these funds have more freedom and flexibility on investments, they are expected to outperform the index funds.

There are hundreds and thousands of Actively Managed Funds to chose from. Some of the examples are ICICI Pru Value Discovery Fund, Reliance Small Cap Fund etc.

Why Index Funds are preferred?

1/ Low Total Expense Ration (TER)

These funds incur significantly lower expenses than actively-managed funds. For example, UTI Nifty Index Fund has an expense ratio of 0.20 per cent, whereas actively-managed funds may charge around 1 per cent on direct plans and around 2 per cent in regular plans.

2/ No dependency on Fund Manager

In the index funds, the stocks are not picked by the fund managers. These funds are merely copying the index. That’s why even if the fund manager of an index fund quits, it won’t create any havoc (unlike actively managed funds).
3/ Easy Selection of Funds
For the active funds, you need to read and understand the reason why the fund manager believes any stock can perform well in future. And this can be a very tedious job. On the other hand, the stock selection in the index fund is quite straightforward.



Investment  trading in securities market is always subjected to market risks, past performance is not a guarantee of future performance. CapitalStars Investment Adviser: SEBI Registration Number: INA000001647
For more details call on 9977499927 or visit our website www.capitalstars.com

6 Points to Remember Before You Review Your Mutual Fund Portfolio





1. Tenure: 

For Example, While going through Krishna's portfolio, I realized his first investment was in the ELSS fund. He had done SIP in an ELSS fund from the last 12 months. ELSS funds have a lock-in period of 3 years. So if he plans to move his present funds to any other ELSS fund, he has to wait for the next 3 years. If he keeps switching between ELSS funds every year, his portfolio will be full with a bunch of ELSS funds.

2. Index Funds: 

Index funds are a very crucial part of a long term investment portfolio. Krishna portfolio had a missing component of index investing. So, I explained to him Index Investing and how to make the best use of Index funds in investment. I personally prefer investing through Index ETF. Index Funds Returns, in the last 20 Years - NASDAQ 100 is up +468%, DOW JONES is up +191%, GERMAN DAX is up +163%, S&P500 is up +158% and most surprising is India Sensex return. It is up a whopping +928%.


3. Direct Mutual Funds: 
Krishna's portfolio had all regular funds. TER of direct mutual funds is lower than regular mutual funds. TER (Total Expense Ratio) has a direct bearing on your returns massively through the power of compounding. For example, Rs 1 lakh over 10 years at a rate of 15 percent will grow to Rs 4.05 lakh. But if we consider an additional expense ratio of 1.5 percent, your actual total returns would be Rs 3.55 lakh, nearly 14 percent less compared to direct funds. So, the selection of direct mutual funds over regular mutual funds is very important.


4. TER (Total Expense Ratio):

We have already discussed TER in the above point. But, even in the direct fund, TER keeps on fluctuating and communicated to investors through Change in Base TER (Total Expense Ratio) notice/mail from funds. This change must be keenly checked, to align your investment projections and monitor your return impact.



5. Change in Mutual Fund scheme name and changes of fundamental attributes:  
Change in Mutual Fund scheme name and changes of fundamental attributes can have an adverse impact on your investment projection and returns. This might change your overall reason for holding a particular fund.

6. Goal

Last but not least, GOAL. In investing, the goal is your idea of the future projected return combined with investment strategy and timelines. Before mutual fund portfolio review, check whether your goals are changes. In the case of Krishna, he had a change in goal duration and amount. 

Investment  trading in securities market is always subjected to market risks, past performance is not a guarantee of future performance. CapitalStars Investment Adviser: SEBI Registration Number: INA000001647
For more details call on 9977499927 or visit our website www.capitalstars.com

Top 3 Equity Mutual Funds for SIP To Invest In 2019


Mutual Funds investing via SIP is one the best wealth creation tool but only and if you remain invested during turbulent times of stock market. I am personally a big fan of mutual funds because it is has always given me superior returns. It is not just that i only give recommendation but i do remain invested in this scheme.

I have selected on 3 funds rather than 10 -15 funds which actually confuse the investor i mean lesser the better

Below are the 3 best equity mutual funds (Large Cap) as on 30/05/2016 handpicked for you which are based on following parameters
1-> Funds having CRISIL ratings of 4 Star & 5 Star
2-> Funds having Value Research Ratings of 4 Star & 5 Star
3-> Superior returns compared to benchmark funds for last 10 years (where available) in SIP & Lump Sum investment (Proof below)
4-> Funds with positive Alpha
5-> Funds providing a return of more than 12% CAGR

#1 : SBI Bluechip Fund

Objective of the fund is to provide long term wealth while investing more than 80% in Equity & 20% in Debt related instruments

Materials and Industrial are some places fund is currently overweight compared to index.Fund Manager has taken that little bit of a contra approach in the sense where the other fund would probably be more towards financial and technology companies

SBI Bluechip Fund has outperformed its benchmark index BSE 100 Indices from last 10 years

From the above screen we can analyze

If you had invested Rs 1000 in SIP for last 10 years then you would have accumulated Rs 245940 for an investment of Rs 120000 with a Compounded Annual Growth Rate (CAGR) of 13.8% and absolute return of 104.5% double the amount with a mere Rs 1000 a Month
Compared to Benchmark Index of BSE 100 your SIP invested value would be Rs 190269 vis a vis Rs 245940 generated from fund
Year after Year SBI Bluechip Fund has outperformed BSE 100 Benchmark


If you had invested Rs 1000 in SIP for last 10 years then you accumulated wealth would Rs 253899 for an investment of Rs 120000 with a Compounded Annual Growth Rate (CAGR) of 14.4% and absolute return of 111.5825% infact double the amount with a mere Rs 1000 a Month
Compared to Benchmark Index of Nifty 50 your SIP invested value would be Rs 189384 vis a vis Rs 253899 generated from fund
Year after Year Birla SL Frontline Equity Fund has outperformed Nifty 50



#2 : Birla Sun Life Frontline Equity

If I had to look at the consistency of returns; over the last 10 years it is been a quartile one or two performer throughout. So an investor like you getting into this fund would be very comfortable about the consistent track record of returns.
If you had invested Rs 1000 in SIP for last 10 years then you accumulated wealth would Rs 253899 for an investment of Rs 120000 with a Compounded Annual Growth Rate (CAGR) of 14.4% and absolute return of 111.5825% infact double the amount with a mere Rs 1000 a Month
Compared to Benchmark Index of Nifty 50 your SIP invested value would be Rs 189384 vis a vis Rs 253899 generated from fund
Year after Year Birla SL Frontline Equity Fund has outperformed Nifty 50


#3 : ICICI Prudential Top 100 Fund
ICICI Prudential Top 100 contains a slightly different large-cap strategy that is aggressive in comparison to different funds from the AMC’s however what i might call it a contra strategy on the large-cap side. Therefore where as the portfolio would be holding regular sectors, the fund manager is truly at now overweight in sectors like materials, industrial and energy, which is what this fund is making an attempt to derive value from.

If you had invested Rs 1000 in SIP for last 10 years then you accumulated wealth would Rs 233661 for an investment of Rs 120000 with a Compounded Annual Growth Rate (CAGR) of 12.8% and absolute return of 94.7175% almost double the amount with a mere Rs 1000 a Month
Compared to Benchmark Index of Nifty 50 your SIP invested value would be Rs 18984 vis a vis Rs 233661 generated from fund
Year after Year ICICI Top 100 Fund has outperformed Nifty 50
except the current year but i truly believe it is a fund for long term investment 




Investment  trading in securities market is always subjected to market risks, past performance is not a guarantee of future performance. CapitalStars Investment Adviser: SEBI Registration Number: INA000001647
For more details call on 9977499927 or visit our website www.capitalstars.com



Reasons Why You Should Invest in Mutual Funds



Should I invest in Mutual fund ? in your mind. Ask yourself below simple questions.

Why I'm investing in Mutual Fund ? - For return or because someone suggested you.
If returns - Whats your tenor of investment? - Tenor here means time for which you will surely not require this amount. Let say like investing in PF or PPF.
If your tenor is less than 5 years - You need to go for Debt funds.
If more than 5 years - You can go for Equity funds.
If you plan to invest in Debt fund only go for Liquid funds. The rest can be to complex without basic knowledge of the product.


If you plan to invest in Equity, start with Large caps and gradually move to Mid Cap. Best is a combination of both.


Basic Risk / Loss of Mutual Fund

Total Expense Ratio (TER) -
It is a measure of the total costs associated with managing and operating an investment fund / mutual fund. Lesser the better ! It plays a critical role in a Debt fund, as without correct knowledge of TER you might end up making lower returns.

Fund Managers -
Every fund is managed by a fund manager and most returns are depended on his Alpha generation than the choice of product. You might have seen the ranking of Funds on many websites but, there are ranking for fund managers too.
 
Tax Complications - 
Where there is Money - there is Tax. So be sure you know taxes applicable on the fund returns. Many investors lost most of their profits in taxes. Prefer EEE (exempt- exempt- exempt status on the income earned) products over mutual funds. 

Load - 
Most funds have locking period, exit before locking period is chargeable. So think twice before investing.
Asset Allocation - Fund creates different produces, if not selected wisely you might end up without appropriate asset allocation.
Constant review - 
You might have seen advisors advising to invest for the long term and then asking you to constantly review your investment after certain year gaps. Imagine yourself jumping from funds to funds for the next 25 - 30 years. Will your money really compound?

 And the last but not least Power of Compounding

Investment  trading in securities market is always subjected to market risks, past performance is not a guarantee of future performance. CapitalStars Investment Adviser: SEBI Registration Number: INA000001647
For more details call on 9977499927 or visit our website www.capitalstars.com

How to select best mutual fund ?

Since the last few years, Mutual funds are the center of attraction for all investors in India. The situation is such that financial planning without mutual funds seems impossible for many. But, is it true and if yes how to go about it.
'Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing'Have you ever asked this question to yourself? Why this line is mandatorily disclosed with every Mutual Fund ads and product documents?

Simple answer: Everyone in the Financial World will advise you based on past data and future probability. The market is dynamic and changes on a daily basis all investments are subjected to risk. Offer documents help Mutual Funds to pass liabilities on you as now you’ll be responsible for your decisions.


Today we will understand, how to select the best fund for your investment. You might be Surprised why we are discussing this topic first! Don't be, the next post might completely change your view on Mutual Funds completely. Stay Subscribed.


Best Mutual Fund selection process:

Financial Plan - Your financial plan must be very clear. This includes the amount to invest, tenure, realization gains expected or maturity amount.
Risk Appetite - It is very important to understand taking an unusual risk for higher returns is not required. You can check my previous posts for more details.
Selection of right fund category - There are multiple types of fund categories: ELSS, Equity, Debt, Sectoral funds, Thematic funds, Liquid Funds, etc. This depends mainly on three factors tenure, amount to be invested and method of investing.
Method of Investing - Investing through Lumpsum and SIP has a huge significance on investment and selection of funds.
Once the above basic parameters are in place, you now need to filter funds based on three basic criteria.



Standard Deviation - Always try to find funds that have a standard deviation in line with Nifty funds or nearby by them. Standard deviation measures the volatility the fund's returns in relation to its average.
Beta - Prefer funds with Beta of 1 or below. A beta of less than 1.0 indicates that the investment will be less volatile than the market.
Alpha - Higher the better. Alpha is a measure of an investment's performance on a risk-adjusted basis.
Fund Manager & Fees are other important criteria. They are not included in the above list as it depends on the fund category you want to invest.


Investment  trading in securities market is always subjected to market risks, past performance is not a guarantee of future performance. CapitalStars Investment Adviser: SEBI Registration Number: INA000001647
For more details call on 9977499927 or visit our website www.capitalstars.com

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Investors can directly buy mutual funds on stock exchange

Capitalstars investment advisor Till now investors looking to buy directly had to go to a fund house website or independent websites. ...