@vijaykapoor282 I totally agree with you. Financial planning is really essential these days. Once we start earning whether in job or business, we should think about savings and planning investments too. The sooner we realise the importance of financial panning, the better and happier we can live in the coming days.
Posts made by Anmol
RE: 10 Financial Planning Tips for Women
What are Short term Debt funds in India? Meaning & Features
Here we discuss in brief about Short term debt funds, its meaning, features and objective to invest. Investment in the capital markets always exposes your capital to the risk of volatility. So, it is not suitable for those investors who depend on their savings for livelihood.
Short Term Debt Funds: Features
Short Term Debt Mutual Funds provide an alternative to traditional Fixed Deposits and Monthly Income schemes.
- Short term debt funds can offer higher returns and low volatility.
- These are also known as income funds.
- These fund invests in Govt. and companies debt instrument and money market instrument of shorter duration of maturity of up to 3 years.
- These are highly liquid debt instruments and also help the investors to fight inflation.
How Debt Funds work?
The fund generates its return from interest it receives from bonds and capital appreciation.
The bonds are traded at regular market and bond prices are affected by Interest Rates Risk i.e bond price and interest rate moves in opposite direction, credit risk, and inflation.
For example: If the interest rate falls in the economy, new debt instruments starts getting issued at newer rates less than previous rates. Then investors start to buy the old bonds which have high rates and the price of bond increases.
What's your take on Short term debt funds in India? There are so many investing instruments, one tends to get confused. So, be careful in planning your investments.
What are arbitrage funds? Meaning
Arbitrage Funds started gaining traction in India when liquid funds gains started getting taxed. I thought of discussing a bit on What are Arbitrage Funds? What investment objective the funds serve?
Taxation and risk are the main factors which concern the investors most. Before 2014, short-term debt funds were considered as best option for risk-free returns from investment in mutual fund. After government reduced the tax benefits for debt funds, Arbitrage funds became popular.
It's investment strategy to generate a return with less risk and taxation benefits have attracted a large number of investors. Arbitrage Funds gains profit from the difference in price of a security in various markets.
Arbitrage Funds: Things to know before Investing:
The fund's return is based on the volatility of the market. It doesn't take any directional call in any stocks or in future market.
The fund is not a substitute of the debt fund, both have different investment objective with different risk factors.
Not all the time arbitrage opportunity is present in market, then at that time it considers increasing the limit of debt securities in the portfolio.
Arbitrage funds: Taxation
Arbitrage funds are considered as equity funds for tax purpose. So, fund returns earned within 1 year are Short term Capital Gain (STCG). The tax rate on STCG is 15% only. Moreover, Long term Capital Gain i.e. fund returns after 1 year shall be taxed @10% if it exceeds Rs.1 lakh during a financial year.
Arbitrage funds: Different Investment objectives
- A fund's objective might be to generate income by taking advantage of the arbitrage opportunities that potentially exists between cash and derivative market and within the derivative segment along with investments in debt securities & money market instruments.
- It might be a blend of value and growth style of investing. Having an objective to generate income through arbitrage opportunities emerging out of pricing anomaly between the spot & futures market, and also through the deployment of surplus cash in fixed income instruments.
- It can be primarily to generate capital appreciation and income by predominantly investing in arbitrage opportunities in the cash and the derivative segments of the equity markets. Investing in the arbitrage opportunities available within the derivative segment and by investing the balance in debt and money market instruments.
- The fund's objective might be to generate low volatility returns by using arbitrage and other derivative strategies in equity markets and investments in a short-term debt portfolio.
The fund manager can employ Cash arbitrage strategy in which it pockets the difference in price of stocks between the cash market and futures market. In Index arbitrage strategy it takes equal and opposite positions in index futures and corresponding stock futures constituting the index in proportion to their respective weights in the index simultaneously, to lock in the price difference.
- The fund's objective can be to generate income by investing in equity and equity related instruments and take advantage of the price differentials or mispricing prevailing in a stock or index.
Whatever be the objective of the fund, the investment motive remains the same. To leverage the price differentials in cash and derivatives market for generating good returns.
ELSS vs Mutual Funds: Comparison, Differences, Review
ELSS and Mutual funds are similar in nature. Generally, ELSS is referred to as tax saving mutual fund as well. But, these two serve a completely different purpose to investors. I thought of highlighting ELSS vs mutual funds difference, comparison and review.
Equity Linked Savings Scheme (ELSS)
- Equity Linked Saving scheme (ELSS) is an open-ended equity mutual fund scheme.
- These are diversified equity funds suitable for investors who are comfortable to risk.
- A popular investing alternative option for investors who want the benefits of both capital appreciation and tax savings.
- The investment made in ELSS is tax exempt up to Rs 150000 under section 80C.
- Mutual funds are professionally managed funds which pool money from numerous small investors.
- It invests in equity and debt instrument of publicly traded companies and of government securities.
- The objectives of mutual funds are wealth maximisation over long term period.
- There are various types of mutual funds like equity funds, debt funds, balanced funds etc to suit the various financial needs of investors.
- ELSS are also a kind of mutual fund.
Comparison Between ELSS and Mutual Funds
1. Approach to Investment:
Investment in ELSS does not restrict to tax saving purpose only. It opens the door to the equity investment in a disciplined fashion. The returns are more as compared to other tax saving instruments like PPF, NSC. One should check the fund's return over the long term and the performance of fund manager in managing the portfolio.
Investment into mutual funds is decided by the financial goal, risk appetite, time period of investment of an investor. Mutual Fund's sole objective is wealth maximisation over long period time.
2. Lock-in period:
Investment in ELSS have 3 years lock-in period where you cannot withdraw funds for at least 3 years. Moreover, if the investment is done through SIP, then each installment of SIP has to complete the mandatory 3 years lock-in period before it can be liquidated.
Mutual funds don't have any lock-in period on investment and are highly liquid investment.
3. Risk Factors:
ELSS doesn't guarantee any return on investment just like Mutual funds. The management and investment approach are same for both fund types.
ELSS funds are actively managed, where risk is managed efficiently by the fund manager. Historically, ELSS has outperformed the traditional tax saving instruments. In mutual funds, investors can choose category of fund according to their risk appetite but investor of ELSS does not have this option
4. Tax Benefits:
The main purpose of investing in ELSS is the attractive tax benefit. The investment made on ELSS is tax exempt under section 80C of The Income Tax Act. So, you can claim a tax deduction of upto Rs 1.5 lakhs for the year in which investment has been made.
Mutual Funds enjoy the benefits of taxation for long term investment. Taxation of different fund types is based on period of holding.
As discussed above, the only major difference in investing in ELSS than mutual funds is the tax benefit. But, it also comes with certain disadvantages like lock-in period, lack of flexibility in a portfolio of the fund and risk on capital.
Further, ELSS falls in the category of Equity funds. So, after the introduction of 10% tax on equity (where LTCG exceeds Rs.1 lakh during a financial year) this is a matter of concern for investors.
What do you think about it? Which investing option do you like? Do share your feedback.
Mutual Funds vs Index funds: Difference
Index funds or Index mutual funds are essentially mutual funds in which investments are made in stocks which track a particular index in the stock market.
An index like Nifty 50 or BSE 100. So in a way, they replicate underlying Index.
Differences Between Mutual Funds and Index Funds:
Index funds can generally come in two forms Index mutual funds or ETFs.
Index mutual funds are simply mutual fund schemes whose mandate is to invest in underlying index stocks. So, in a way it is a passive investment in underlying index.
Similar to Mutual funds, Index mutual funds have a daily NAV and can be brought or sold to the Fund house.
Mutual funds, on the other hand, depending on it stated scheme goals have greater flexibility in changing their portfolio. Hence, these are actively managed funds.
ETF ( Index funds) track one of the stock indices and are actively traded on the exchange. The price of ETFs hence varies dynamically. ETFs can be bought and sold on the exchange.
Mutual funds vs Index Funds: Conclusion
- Actively managed equity portfolios tend to outperform passive index funds.
- Outperformance can vary over time period and decreases with large time intervals.
So, for now it may be worth paying higher expense ratio for actively managed mutual funds. Since, actively managed mutual funds end up giving better returns.
What are the available Post Office Saving Schemes in India?
Here is the complete list of post office schemes in India:
- Post office saving account
- Public provident account (PPF)
- 5-year Post office Recurring deposit
- Post office Time deposits account
- Post office Monthly Income account
- Senior citizen saving scheme
- National Savings certificate (NSC)
- Kisan Vikas Patra (KVP)
- Sukanya Samriddhi account
These are the popular Post office schemes available in India. Where would you like to invest? Do give your suggestions.
RE: How many credit cards should I have to improve credit score?
One credit card is a must. We can need it at different places like shopping online or at store, paying bills etc. I think one credit card is quite manageable. We can easily clear dues and enjoy credit as well.
RE: Financial Planning for Beginners: Personal finance tips
@harleen Hey, That's a nice list of personal finance tips. But, what do you mean by "an optimal and balanced portfolio". Can you clarify a bit on it. What should be included in a balanced portfolio to get higher returns on investments? Any suggestions on it.
RE: How to Save and Grow your Money? Financial tips to follow
@harleen That's quite interesting to know! Thanks a lot for giving nice ideas on saving and growing money. I have completed my studies and starting a career. Still a long way to go for reaching the financial planning part. Firstly, I need to establish myself and earn good enough. I'll definitely keep these points in mind.