Mutual funds are the ideal investment choice when it comes to investing for your long-term financial goals. However, there are many factors that you need to consider before investing in any mutual fund that’s available in the market. These include the time horizon for your financial goal, your risk tolerance, the amount you want to invest, etc. This will help you choose the right mutual fund category. Once you know the kind of mutual fund you need, you need to consider the mutual fund schemes that are being offered by different fund houses. When you have selected your fund, you need to understand all about the fund before putting money in it. This is where a mutual fund offer document is useful.
What is a mutual fund offer document?
The Scheme Information Document (SID) or the mutual fund offer document is a brochure that has all scheme related information including the mutual fund’s investment objective, its investment strategy, the fees associated with the mutual fund, benchmark of the fund, fund manager details, etc. You can easily find this offer document on the fund house’s website and can download it. You can get a hard copy from the fund house’s office, if needed. The document is useful in understanding if the mutual fund is the right one for you. Here’s what to look at in the offer document.
Investment objective
The investment objective explains the aim behind launching the particular mutual fund scheme and how the fund house will achieve the objective. You need to make sure that the investment objective of the mutual fund matches with that of yours. The most important reason why you need to read the investment objective is because it often might not match the scheme name. For instance, capital protection oriented mutual funds do not actually offer capital protection. Reading the investment objective will help you understand what the scheme will be doing for the investors.
Asset allocation
In the SID, asset allocation of the mutual fund will be mentioned. It will state the asset allocation that the fund will follow under normal market conditions. As you might know, the asset allocation of a fund will show the allocation of the Assets Under Management (AUM) to various asset classes such as equity, debt, gold, etc. Asset allocation of the mutual fund will help you determine whether the particular mutual fund scheme is equity, debt or a hybrid fund and whether it matches your risk profile.
Typically, none of the mutual funds will have a fixed percentage that is mandated for a particular asset class. The asset allocation for each of the asset classes will be given as a range. For instance, a fund might invest 65% to 90% in the equity asset class. This indicates that the exposure to equities will be at least 65% and can go up to 90% of the total investable amount of the scheme. The fund manager will stay within the given range at any point in time. Note that if there is any change in the asset allocation provided it needs to be notified to investors.
Investment Strategy
While the investment objective of the fund provides the aim of the fund, investment strategy will tell you how the fund will achieve this objective. Investment strategy given in the SID explains the approach that will be followed by the fund while selecting different securities (equity or debt) for investment. It tells you about the investment processes and systems that will be followed by the fund house.
The investment strategy of the fund will also consist of other details such as diversification of the fund’s portfolio, the sectors the fund will be selecting for investment, the top companies that will be a part of the portfolio, etc. You need to make sure that the diversification of the fund justifies the fund’s investment objective.
Fund’s expenses
Every mutual fund has recurring costs which the investors will need to pay when they invest in a mutual fund. This includes costs such as management fees, trustee fees, distributor commissions, etc. Your net returns from a particular mutual fund scheme will be higher if the fees and expenses charged by the fund house is low. A fund with a high expense ratio or entry/exit loads will affect your investment’s long-term gains. So, select funds that have lower costs.
Risk Factors
You need to understand your risk tolerance. However, you also need to understand the kinds of risks the mutual fund will be taking to achieve its objective. Every mutual fund comes with its own set of risks. These include credit risk, interest rate risk, liquidity risk, etc. These might cause an impact on your investments.
Moreover, other than the standard risks, there may be scheme specific risks also. For instance, if you invest in international funds, your investments might be exposed to the specific country risks (geopolitical and economic risks associated with the country of investment) where the mutual fund invests. So, it is good to understand these risks and determine whether you are willing to expose your investments to such risks.
Fund managers
Mutual funds are professionally managed funds. Fund managers buy / sell securities on your behalf. A fund manager who has many years of expertise and industry experience may be better at managing a fund than a beginner. The quality of the fund manager is also important as this determines the profits the scheme will be making. Hence, make sure that you read the detailed information about the fund manager/managers in the SID. You need to look for the fund manager’s experience, his/her track record, qualifications, etc.
Investment securities
You need to understand if the mutual fund will have exposure to riskier securities such as derivatives, futures or options. However, note that if a mutual fund scheme takes exposure to derivatives only for hedging their positions, it is not risky. It reduces the risks.
Need help choosing the right mutual funds? Get in touch with wealth experts at wealthzi.com today.
Engineering company MTAR Technologies is floating its maiden public issue of equity shares on March 3 and the IPO will close on March 5. The nearly Rs 600-crore fund raising happens at a time when the market is going thorugh a consolidation. That means there could be an opportunity to make a long-term investment in the IPO shares if they are priced right. To know more details, read on.
About the IPO issue
MTAR Technologies is offering up to 10,372,419 equity shares. This comprises fresh issue of upto 2,148,149 equity shares and an offer-for-sale of up to 8,224,270 equity shares.
Based on the upper end of the price band of Rs 574-575 per share, MTAR Technologies is seen raising Rs 596.41 crore. The face value of each share is Rs 10.
The minimum bid lot is of 26 shares, which means a minimum investment of Rs 14,950 at upper price band of IPO.
Post issue the implied market cap of MTAR Technologies will be Rs 1,766 crore to Rs 1,769 crore based on the IPO price alone. If the stock lists at a premium/discount, actual market cap will vary.
The issue’s book running lead managers are JM Financial, IIFL Securities.
The registrar is KFin Technologies.
About the company
MTAR Technologies is a leading precision engineering solutions company. It is engaged in the manufacture of mission critical precision components with close tolerances (5-10 microns), and in critical assemblies. The projects it works on primarily serve customers in the nuclear, space & defence, and clean energy sectors.
MTAR Technologies lays special emphasis on research and development (R&D) of their manufacturing processes.
The company has an order book of Rs 336 crore out of which half is in the space and defence sector while the rest is in clean energy and in the nuclear sector.
The company focuses on clean energy as one of its key customer sectors and are accordingly, involved in the manufacture of power units, specifically hot boxes, and in the development and manufacture of hydrogen boxes and electrolyzers, to serve Bloom Energy Inc., United States (“Bloom Energyâ€) with which, company has been associated with for over nine years, as per Kotak Securities. The company has been serving customers in the nuclear sector for over 35 years, and has established relationships with the Nuclear Power Corporation of India Limited (“NPCILâ€) having served them for over 16 years. Also, the company has been a key supplier of mission critical assemblies and components to customers within the space and defence sectors for their programs of national importance. Through its long-standing relationships of over three decades and four decades with customers such as the Indian Space Research Organisation (“ISROâ€) and the Defence Research and Development Organisation (“DRDOâ€), the company has been able to supply specialized products to the Indian space programme and the Indian missile programme, respectively.
The company has grown at 16.5% CAGR over the last three years at the topline, while its EBITDA margins were reported at 28.5% in FY2020. The company has consistently delivered profits at the bottom line, with net margins at 14% in the last fiscal. It has a significant interest coverage ratio and the lowest gearing ratio in the industry. Subbu Venkata Rama Behara is the Chairman of the Board, and an Independent Director of the company. Parvat Srinivas Reddy is the Managing Director of the company. Devesh Dhar Dwivedi is the Chief Operating Officer of the company. Sudipto Bhattacharya is the Chief Financial Officer of the company.
Outlook and valuation
Taking cognisance of the huge growth opportunities for MTAR and a high margin business that would aid flow of profitability to the bottomline, ICICI Securities recommends SUBSCRIBE rating on the issue. The company is available at a P/E of 56.5 times (post issue basis) on FY20 PAT. The stock’s current P/B ratio stood at 4.8 based on December 31, 2020 figures.
Systematic Investment Plan (SIP)Â is an easy way of investing in mutual funds. You can start investing in the best mutual fund SIP plans with as little as Rs. 100 per month. SIPs are hassle-free and straightforward. You can start investing online directly on the mutual fund website or through your broker/adviser. Investors can invest a fixed sum at regular intervals, such as weekly, monthly, or quarterly, in the top mutual fund for SIP.
Investing in mutual funds in a systematic and staggered way helps instil a sense of financial discipline in the long run. The compounding of returns helps accumulate wealth for financial goals. SIPs come with flexibility as the amount is auto-debited from your bank account. The amount debited will be invested in the mutual fund scheme you have selected.
With every SIP, units of the mutual funds are purchased at the prevailing Net Asset Value (NAV). This gets added to your investment account/folio. With SIP, you get the benefits of rupee cost averaging.
Why is SIP good for you, the investor?
Lump sum and SIP are two ways of investing in mutual funds. While both have advantages and disadvantages, SIP has several benefits for retail investors over lumpsum investment. SIPs can be chosen by all investors regardless of their age, while lumpsum might be beneficial only to those who have a significant amount of money to invest. You don’t need to time your SIP to invest in the market. However, you may not want to invest at market peaks when you invest a lumpsum amount. You need to wait for the market to fall if you want higher returns in the long run.
SIP is investing a fixed sum at regular intervals. So, investors buy more units when the markets are low and fewer units are bought when the markets are flying high. This leads to a lower average purchase price that translates to higher returns in the long run. This is rupee cost averaging. You need to invest at a particular cycle with the lump sum investment. If you invest when the markets have already peaked, the chances of getting more returns will be low. So, the advantage of investing regularly over time makes SIP a better option.
What are the benefits of SIP plans?
Here are some reasons why people invest in the best mutual fund for SIP in India.
Small amount – You can start investing in the best SIP plans with an amount that is as low as Rs. 100 per month. This makes SIP affordable to classes of investors. It reduces the financial risks associated with lump sum investments.
Averaging out risks – Mutual funds invest in securities that have a degree of risk. However, when you invest in mutual funds using SIP, the market risks get reduced as the units of the mutual fund scheme are bought periodically. This means that you buy fewer units when the markets are up. So, an SIP enables you to lower the average cost of your investment and reduces the risks.
Power of compounding – A SIP helps build wealth by investing a fixed amount of money regularly over time. So, your investment will start earning returns on the returns generated by the mutual fund if you stay invested.
Simple process- Starting an SIP is very simple and can be done online in minutes. To make it easier, you need to give a one-time mandate to your bank for your regular contributions. Once you set up auto-debit, your mutual fund SIP plans contributions will be automatically deducted from your bank account and invested in the mutual fund scheme. You don’t need to bother about doing this every month.
Top 5 mutual fund SIP plans
We know that you are looking for the best SIP plans to invest in India. However, you can make a better decision regarding the SIP performance of the fund compared to other funds in the category.
In the coming paragraphs, we will see the performance of the best SIP mutual fund from a 3- year and 5-year horizon. We have only taken the few popular equity categories as SIP is generally used for investments in equity funds.
These funds may well be the best SIP plans for 10 years.
Flexi Cap Funds
Let us see the top performing Flexi cap SIP funds from a 3-year and 5-year returns.
Flexi cap funds are equity funds that can invest in stocks of companies that are large cap, mid cap and small cap without any restrictions. The fund manager has the flexibility to invest in various companies as per their mandate.
Equity: Flexi Cap
Fund Name
3 Yr SIP Ret (%)
Fund Name
5 Yr SIP Ret (%)
Quant Flexi Cap Fund – Direct Plan
34.15
Quant Flexi Cap Fund – Direct Plan
24.29
ICICI Prudential Retirement Fund – Pure Equity Plan – Direct Plan
25.39
Parag Parikh Flexi Cap Fund – Direct Plan
19.07
HDFC Focused 30 Fund – Direct Plan
24.78
PGIM India Flexi Cap Fund – Direct Plan
18.87
HDFC Retirement Savings Fund Equity Plan – Direct Plan
24.57
HDFC Retirement Savings Fund Equity Plan – Direct Plan
17.97
Nippon India Focused Equity Fund – Direct Plan
23.07
IIFL Focused Equity Fund – Direct Plan
17.57
So, we have seen that Quant Flexi Cap Fund and HDFC Retirement Savings Fund have made it to the top five list in both 3-year and 5-year best SIP plans in the Flexi cap category.
Another popular fund, Parag Parikh Flexi Cap Fund, comes second in the 5-year SIP return category.
Large cap fundsplans
Large cap funds are equity mutual funds that invest in stocks of large cap companies. Here is the list of the best large cap funds for SIP.
Fund Name
3 Yr SIP Ret (%)
Fund Name
5 Yr SIP Ret (%)
BHARAT 22 ETF
23.06
Quant Focused Fund – Direct Plan
16.93
ICICI Prudential BHARAT 22 FOF – Direct Plan
22.66
Nippon India ETF Nifty 50 Value 20
16.18
Quant Focused Fund – Direct Plan
22.64
ICICI Prudential Nifty50 Value 20 ETF
16.03
DSP Nifty 50 Equal Weight Index Fund – Direct Plan
19.87
Kotak Nifty 50 Value 20 ETF
16.03
Nippon India Large Cap Fund – Direct Plan
19.27
Canara Robeco Bluechip Equity Fund – Direct Plan
14.74
As we can see from this table, most of these large cap funds are passively managed funds, i.e., the fund tracks an underlying index. Quant Focused Fund, another fund from the house of Quant, were among the top SIP large cap plans in the 3-year and 5-year category.
The actively managed large cap funds that made it to the list are Quant Focused Fund, Nippon India Large Cap Fund and Canara Robeco Bluechip Equity Fund.
Mid-cap funds plans
Mid cap funds invest in mid-range companies that are in a growing stage. Midcap funds tend to be more volatile than large cap funds. However, this also helps these funds to earn higher returns than large cap funds.Â
Fund Name
3 Yr SIP Ret (%)
5 Yr SIP Ret (%)
PGIM India Midcap Opportunities Fund – Direct Plan
37.29
26.92
Quant Mid Cap Fund – Direct Plan
36.77
26.17
SBI Magnum Midcap Fund – Direct Plan
30.90
20.80
Motilal Oswal Midcap 30 Fund – Direct Plan
29.65
20.31
Edelweiss Mid Cap Fund – Direct Plan
27.50
19.90
This sector was an expectation as the best smallcap mutual fund SIP plans for 3-year and 5-year categories were the same funds, and the ranking were in the same order.Â
PGIM India Midcap Opportunities Fund topped the list of best SIP plans in India in the mid cap category.
Small Cap Funds
As the name suggests, small-cap funds invest in small-cap companies.
Fund Name
3 Yr SIP Ret (%)
Fund Name
5 Yr SIP Ret (%)
Quant Small Cap Fund – Direct Plan
49.68
Quant Small Cap Fund – Direct Plan
31.61
Canara Robeco Small Cap Fund – Direct Plan
42.49
Kotak Small Cap Fund – Direct Plan
25.50
Nippon India Small Cap Fund – Direct Plan
37.16
ICICI Prudential Smallcap Fund – Direct Plan
24.45
ICICI Prudential Smallcap Fund – Direct Plan
36.83
Nippon India Small Cap Fund – Direct Plan
24.30
Bank of India Small Cap Fund – Direct Plan
36.69
Axis Small Cap Fund – Direct Plan
24.14
Quant Small Cap Fund topped the category’s three-year and five-year SIP returns.
ELSS Funds
ELSS funds are tax-saving mutual funds. Investors can invest up to Rs. 1.5 lakhs and get a tax deduction under section 80C of the Indian Income Tax.
Fund Name
3 Yr SIP Ret (%)
Fund Name
5 Yr SIP Ret (%)
Quant Tax Plan – Direct Plan
39.17
Quant Tax Plan – Direct Plan
28.79
IDFC Tax Advantage (ELSS) Fund – Direct Plan
25.61
IDFC Tax Advantage (ELSS) Fund – Direct Plan
17.62
PGIM India ELSS Tax Saver Fund – Direct Plan
20.71
Mirae Asset Tax Saver Fund – Direct Plan
17.35
Mahindra Manulife ELSS Kar Bachat Yojana – Direct Plan
20.40
Canara Robeco Equity Tax Saver Fund – Direct Plan
17.17
Mirae Asset Tax Saver Fund – Direct Plan
20.16
Bank of India Tax Advantage Fund – Direct Plan
16.87
Quant Tax Plan, IDFC Tax Advantage (ELSS) Fund, Mirae Asset Tax Saver Fund were the top ELSS funds for SIP, as these funds made it to the top five in both three- and five-year categories.
Looking for more mutual fund SIP plans ? By investing in some of the best SIP plans, you can hope to get higher returns in the long run from your investments. Click here to explore the best funds.
SBI Mutual Fund is launching its first international fund offering on March 1, 2021. The country’s largest fund house’s new fund offer is called SBI International Access – US Equity FoF. The fund of fund will invest in its joint venture partner Amundi Funds’ US Pioneer Fund (domiciled in Luxembourg), which invests predominantly in US market securities. Let’s find out more details about the product.
About the new FoF
Investors putting money in SBI International Access – US Equity FoF will see the funds being fed into the Amundi Funds – US Pioneer Fund which is domiciled in Luxembourg.
According to a presentation from SBI MF, the underlying fund has delivered returns of 16.27 per cent (CAGR) in euro terms, beating its benchmark S&P 500 Index return of 16.16 per cent (as of 31st January 2021). The underlying fund has a size of $2.5 billion.
SBI International Access FoF may also invest in other mutual funds/ ETFs domiciled overseas and invest predominantly in US markets. The scheme will be benchmarked to the S&P 500 index after converting it to Indian Rupee.
The advantages of investing outside India includes international diversification, lower correlation and currency depreciation. Also, the new fund is supposed to be a US concentrated fund with some bias for value.
The minimum investment will be Rs 5,000. The fund manager is Mohit Jain.
About the underlying Amundi fund
Amundi Funds – US Pioneer Fund is the underlying main scheme. It seeks out high-quality, attractively priced companies trading at below their intrinsic value.
The underlying fund’s top five sectors by exposure are Technology, Financial Services, Consumer Cyclicals, Industrials and Healthcare.
In terms of top stock holdings, the fund’s five biggest are Apple, Amazon, Visa, Microsoft and Alphabet (Google parent).
How is SBI International Access – US Equity FoF different
SBI International Access – US Equity FoF is the fund overseas fund of funds in SBI MF. This is more of a passive investment option.
Some of SBI MF’s domestic schemes such as SBI Focused Equity already invest a part of their portfolio in international stocks. But, that’s a small exposure compared up to 100 per cent allocation in the new fund.
SBI MF also offers an indirect way linked to overseas companies. This is done by SBI Magnum Global Fund which does active management of investments in diversified portfolio comprising primarily of MNC companies. MNCs are all globally controlled.
Watch out for
The funds and schemes that FoFs invest in have their own expense ratios. Combine it with the expense ratio of the FoF, and you are looking at an expense ratio that is higher than standard expense ratios of equity schemes.
FoFs are for long term. So, consider investing if you have at least 5 years. Also, FoFs should be part of your satellite allocation.
Young earners tend to spend more and save less thinking that they have no goals and have plenty of years for their retirement. Just because they are single with reasonable financial independence doesn’t mean that they should invest less. Being in your 20s or 30s is the best time to plan for financial independence. Not only young earners, all breadwinners need to invest some part of their salary in mutual funds. Now, how much should that be? Here are a few answers.
What’s the thumb rule of investing?
The general thumb rule of investing in mutual funds is to put at least 10% of your monthly income in a mutual fund. You can do this using a systematic investment plan (SIP) if you are just starting to invest in mutual funds. This is applicable to all those who are able to save at least 20% or more of their income. Initially, before investing you need to build an emergency fund using the savings. Once you have this in place, you can start an SIP with about 10% of your savings a month, which you can increase as you go along. Where did the thumb rule come from?
This comes from the 50:30:20 rule. Senator Elizabeth Warren popularized this rule in her book, All Your Worth: The Ultimate Lifetime Money Plan. Every earning member of the family should mandatorily implement this rule in their financial plan. The 50:30:20 rule says that you should save at least 50% of your income for your needs, 30% of your income can be spent on wants, while the remaining 20% must be used to save and invest.
How does the 50:30:20 rule work?
Needs are those expenses that are necessary for survival and need to be paid every month without fail. These include your groceries, house rent or Equated Monthly Instalment (EMI) for home loan, utilities, and so on. You cannot be without paying these bills for your family and yourself. There is no way you can compromise on needs. Note that these don’t include expenses for movies, dining out and other non-essential expenses. Most of the time 50% of your salary goes towards these expenses. However, if you are able to make do with lesser money then, you can save more. If you are spending more than this, you need to cut down on the expenses.
Wants are those that are not absolutely necessary for running your household. These are just the expenditures that help make your life better. For instance, going to the gym or eating out at the restaurant. You can exercise at home and cook at home to cut down on these expenses. Wants also include your vacations, movie outings, subscriptions to online streaming sites, and so on. It is best to limit the spending on wants to 30% of your salary or lesser than that.
You must save the remaining 20% of your income. You can do this by making investments. You can invest in mutual funds based on your risk profile. Therefore, your investments in mutual funds should be at least 10% of your monthly salary. If you can cut down the spending on wants, then you can use that money in increasing your mutual fund investment.
Why invest in mutual funds?
A large population in India is investing in mutual funds as they offer the much-needed flexibility in terms of minimum investment and ease of investing. You can easily invest in mutual funds online with just Rs. 500 per month. You can get a variety of funds based on your risk profile. For instance, you can invest in debt funds if you have a low risk profile and equity funds are best suited for young earners who are investing for the long run. Mutual funds are one of the few investments that have the potential to offer inflation-beating returns.
If you didn’t know, inflation can reduce the worth of your money or investment over time. If your investment doesn’t provide inflation-beating returns, your savings will get reduced in the long run. For instance, the value of Rs. 1,00,000 will be worth Rs. 1.6 lakhs 10 years down the line if the inflation is 5%. If your investment is earning less than 5%, the value of your money will be negative. If you invest in mutual funds that give you more than 11.25%, your investments will be worth Rs. Rs. 2.9 lakhs. So, if you want to make wealth, you need to invest in mutual funds that provide inflation beating returns. The effect of inflation has made it essential for investors to invest in mutual funds to prevent their investment from losing its value over time.
How to start investing in mutual funds?
You can start with a simple, balanced portfolio of 3-4 mutual funds. For a long-term portfolio, you can invest equally in four funds that are large cap, diversified, index fund and debt fund. Overall, this can be a 70-30 portfolio with 70% in equity.
It is important to implement the 50:30:20 rule in your financial plan and invest at least 10% of your salary in mutual funds. You can step it up whenever possible. Need help? Get in touch with your wealth expert at wealthzi.com.
Mirae Asset Mutual Fund has unveiled a new fund offering in the debt segment. Mirae Asset Corporate Bond Fund will open for NFO subscriptions on February 24 before closing on March 9. The scheme will re-open for continuous sale and purchase on March 18. The investment objective of the scheme is to provide income and capital appreciation by investing predominantly in AA+ and above rated corporate bonds. Read on to know more.
Why invest
Mirae Asset Corporate Bond Fund offers a reasonable amount of safety with at least 80% exposure is in AA+ and above rated corporate bonds. Also, liquidity is not expected to be a trouble in normal times as the fund will be heavy on top rated papers. Corporate bond funds endeavour to provide better risk adjusted returns and are also preferred by investors with moderate risk profiles for Systematic Investment Plan (SIPs) with 3 years horizon.
What is the investment framework
Mirae Asset Corporate Bond Fund will primarily make investments in AA+ and above rated corporate bonds and in some in Government Securities and other Debt and Money Market Instruments.
In terms of duration management, the new corporate bond fund will do investments across the yield curve but the target Macaulay Duration will be within the range of 2-5 years.
For risk management, the fund at present will maintain a portfolio of high quality and not invest in instruments below AA.
Fund details
Fund manager – Mahendra Jajoo
Minimum investment amount – Rs 5,000
Exit load – Nil
Plans – Regular Plan and Direct Plan
Options – Growth Option and Dividend Option (Payout & Re-investment)
SIP amount – Monthly and Quarterly is Rs 1000 and for a minimum of 5 installments
Who can invest
Mirae Asset Corporate Bond Fund is suitable for investors who want stable returns and want to avoid credit risks. This is ideal for investors who have moderate risk profiles, and at least 3 years of investment tenure. If you can remain invested for 3 plus years, you can enjoy benefits of long-term capital gains taxation.
Bank fixed deposit rates are on a declining trend. 3 to 5 year FD rates are in the range of 5.3 – 5.5% for leading public and private sector banks. Traditional fixed income investments like Bank FDs are taxed as per the income tax slab rate of the investor. Long term capital gains (investment tenure of 3 years or longer) in debt funds are taxed at 20% after allowing for indexation benefits. Indexation benefits can reduce your tax obligation considerably.
Why Mirae MF
Mirae Asset as a fund house has a robust credit risk appraisal and management process.
Also, Mahendra Jajoo as fund manager is highly experienced and has a strong long term track record.
UTI Mutual Fund has introduced India’s first ever momentum based index fund – UTI Nifty 200 Momentum 30 Index Fund. The new index fund aims to follow an index tracking the performance of the top 30 trending stocks within the Nifty 200. The NFO opened on February 18 and will close on March 4, before reopening on March 12 for continuing subscriptions and redemptions. Read on to know more
What is Momentum Investing
In general, a trend is the broad upward or downward movements of stock prices. Upward movements are called as uptrends, while those which move lower are said to be downtrends. At its core, a momentum-based portfolio is constructed believing that investments that have performed relatively well, continue to perform relatively well and those that have performed relatively poorly, continue to perform relatively poorly.
Momentum investing broadly refers to capturing the ‘trend in movements of stock prices’ and going along with the general opinion of the market with an underlying belief that prices are a true reflection of investors’ reaction to the publicly available knowledge.
Globally, there are many momentum based mutual funds such as iShare MSCI USA Momentum Factor ETF, Invesco DWA Momentum ETF and Invesco S&P Midcap Momentum ETF.
New fund in India
While many investors practice momentum investing, in India there was so far no momentum based index fund. UTI Nifty 200 Momentum 30 Index Fund changes this scenario.
The Nifty 200 Momentum 30 Index aims to track the performance of the top 30 companies with high momentum within the Nifty 200 Index. Stocks are selected based on their normalized momentum score which is determined based on its six-month and 12-month price return, adjusted for its daily price volatility. Stock weights are based on a combination of the stock’s normalised momentum score and its free-float market capitalisation.
At this moment, the index’s top weights are Wipro, M&M, Infosys, HCL Tech., and JSW Steel . Currently, the index is overweight on IT, Consumer Goods & Pharma sectors, whereas underweight on Financial Services. Do remember the portfolio drifts towards sectors which have shown strong momentum. Aggressive sector rotation has worked well for the index historically.
Compared to Nifty 50 TRI and Nifty 300 TRI, the momentum index has done well. For instance, Nifty 200 Momentum 30 has captured 102% of Nifty 200 up moves, whereas it has lost less than Nifty 200 about 83% during the periods when Nifty200 has declined. Similarly, the momentum index has captured 101% of Nifty 50 up moves, whereas it has lost less than Nifty 50 about 81% during the periods when Nifty 50 has declined. Also, between Nifty 200 Momentum 30 and Nifty 200, the former has under-performed the latter in only three calendar years out of the last 16 years. But most of the data for the momentum index is based on back-tested data, as the index was launched last year.
Do remember, momentum is an aggressive investment style and is relatively riskier as compared to Nifty 200 and Nifty 50. So, it may undergo periods of relative under-performance when there is sharp change in market cycles like sharp recovery or sharp drop.
Why invest in the index fund
The UTI Nifty 200 Momentum 30 Index Fund offers a portfolio that systematically adds relatively performing stocks and removes relatively non-performing stocks, based on predefined criteria, without individuals’ intervention.
The addition and removal of components is majorly driven by movements in prices of stocks, which is a reflection of market trend. One can argue the fund will add winners and remove laggards based on well defined processes.
But do understand that given the risk-profile of the fund, your money in UTI Nifty 200 Momentum 30 Index Fund will be at ‘very high’ risk. So, a momentum strategy is not really suited for conservative investors.
Why UTI MF
UTI MF offers index funds with low ‘tracking error’. This can be looked at as a strength of managing index funds. Both UTI Nifty Index Fund and UTI Nifty Next 50 Index Fund have low tracking errors.
UTI MF manages 26% of ‘Index Fund’ AUM in the industry spread across 2 lakh folios.
Invesco Mutual Fund is throwing its hat in the Environmental, Social and Governance (ESG) thematic fund space with a new fund offer (NFO). Invesco India ESG Equity Fund NFO, an actively managed equity scheme investing in companies following ESG theme, will open for subscription on February 26 and close on March 12. This will be the 10th fund in the ESG segment. Read on to know more details about investment strategy and ESG fund suitability for your portfolio.
ESG – What it is all about
Climate change, burgeoning pollution, resource’s scarcity, inequality, among others are some of the defining issues of our time. Some companies are increasingly focusing on ESG initiatives as businesses face a new set of challenges in today’s socially conscious economy.
With risks emanating from the environment, social and governance (ESG) factors are increasing; it is important to assess where the company faces risk on account of ESG parameters as ignoring these risks can have far reaching consequences, including impact on the shareholder value.
ESG issues can impact company’s positioning and have financial impacts. In the past, continuity of several businesses has been risked due to disregarding ESG practices, which in turn impacted their business operations, reputation and the shareholder value.
Invesco India ESG Equity Fund
The new fund will ultimately buy 30-40 stocks and hope these ESG compliant shares will appreciate over time. The selection of the 30-40 stocks will be done on the basis of ESG risk score evaluation of each company.
Companies involved in thermal coal extraction, unconventional oil & gas extraction (shale oil, shale gas, and Arctic drilling), power production based on coal, unconventional weapons (including nuclear weapons systems, biological weapons etc.), tobacco – production & trading, and gambling are excluded from such a portfolio.
The portfolio will invest primarily in largecap stocks. There will be limited exposure to midcap and smallcap stocks, which may have 35 per cent allocation of overall portfolio.
The portfolio will be a blend of growth and value stocks.
Fund details
Plans/Options – Growth Option, Dividend Option
Minimum investment – Rs 1,000
Exit load – For any redemption / switch out in excess of 10 per cent of units allotted within one year from the date of allotment, there will be load of one per cent. If units are redeemed/switched out after one year from the date of allotment, there will be zero load.
Fund manager – Taher Badshah and Amit Nigam
Benchmark – NIFTY100 Enhanced ESG TRI
Problem with ESG investing
If investors turn towards environmentally-friendly or socially-friendly stocks, they push up the prices and lower their expected returns. Investors are saying that the choice has its own reward and expect that they are going to get higher returns from doing that but that may not really happen.
People may pay more for products that are produced in an environmentally friendly way but it is yet to be seen, over the long-term, if the same will pay more for stocks that belong to companies that stick to ESG principles. For instance, the NIFTY100 ESG index has a price to earnings of 40 times and price to book of 4.78 times compared to Nifty 100’s price to earnings of 36.9 times and price to book of 3.9 times (Jan-2021 end figures).
Suitability of ESG fund
ESG funds should not be a part of your core allocation. Hence, give them a place in your satellite allocation alone.
Both Axis and ICICI Prudential ESG funds can invest in global companies with high ESG scores. This adds another feature as well as risk to such funds.
There is not enough compelling evidence that the ESG theme is worth investing more than what you can give to a normal thematic fund (maximum 5 per cent).
In India, ESG funds are relatively new and hence should stand the test of time before they merit more seriousness.
Most investors in India are not market experts. They rely on stock brokerages to invest in stocks and bonds. However, if you want your stock and debt investments to be professionally managed, you can consider investing in mutual funds. These are companies that invest in stocks and fixed-income investments for you by pooling money from different investors. The portfolio is managed by a fund manager who will be a stock/debt market expert. It is easy to invest in mutual funds online or offline. However before investing in mutual funds, you need to follow these steps.
Step 1: Look at your financial goals
Everyone has financial milestones to achieve, right? These goals could be for the short-term or long-term. Identifying your goals will help you invest right. For instance, if one of your goals is to buy a house within the next seven years, then it makes sense for you to invest in an equity mutual fund to meet this goal. Equities are the best wealth-creation instruments for long-term goals. On the other hand, if your goal is to buy a car in the next three years, you can invest in debt mutual funds. as they provide higher returns than other investment avenues.
Step 2: Stay invested
When it comes to equities, discipline matters. Markets don’t keep going up. They could be volatile at times. If you stay invested, your investments will be affected by short-term volatilities. Patience and discipline can make a significant difference to your wealth and portfolio returns in the long run.
Regular investments in mutual funds allow you to generate wealth. When you invest regularly, the money invested earlier has longer time to work for you. Investing regularly is the best way to achieve long-term financial goals. For instance, a monthly investment of Rs. 5,000 can become Rs. 4 lakhs in 5 years. If you invest for 10 years, it can be Rs. 12 lakhs and it becomes Rs. 25 lakhs in 15 years.
Step 3: Diversify your portfolio
Every portfolio should have different kinds of asset classes and investment instruments. This will help to minimise risks while allowing you to earn optimal returns. The various kinds of mutual funds can help you diversify your investment portfolio.
Step 4: Assess your risk appetite
With equities, there is always the risk of market volatility when the market is down. So, if you are totally averse to risks, you should invest in debt mutual funds. If you have a moderate risk profile, you can choose an optimal distribution across equities and debt. A person who is young can put the majority of his/her investments in equities.
Step 5: Stick to your time horizon
You should set a time frame for each of your financial goals. This will help you decide how much you have to invest and the kinds of mutual funds you will require. You should choose schemes which are in line with your goal, time frame, and risk appetite.
Step 6. Identify your fund category
The answer to this question springs directly from the answers you give to points 1, 4 and 5. Here is a table that will help you navigate this process, although this is not to be followed strictly as you could be flexible too.
Time Horizon
High Risk Appetite
Medium Risk Appetite
Low Risk Appetite
Less than 1 year
Low duration funds
Low duration funds
Liquid funds
1 – 3 years
Credit Risk funds
Short duration funds
Low duration funds
3 – 5 years
Aggressive Hybrid funds
Credit Risk funds
Short duration funds
Above 5 years
Multicap funds
Large Cap Funds
Aggressive Hybrid funds
We have not covered all 36 categories in the table as it is not feasible. There are several mutual fund categories that suit some people but not others. For instance overnight funds are more geared towards corporate treasuries, sector funds are suited for people with a high level of risk appetite and the ability to ride the ups and downs of a sector’s fortune. International funds may suit you if you have goals or expenditures such as foreign travel or education or for someone who wants to diversify geographically..Â
Step 7. Identifying funds
Once you’ve identified your fund category you can use parameters like returns, performance in bear markets, fund manager history and fund ratings to shortlist a particular fund or couple of funds. We give you our top picks in a few common categories below. Returns and performance keep changing and we encourage you to do your own research as well to supplement our picks. Wealthzi’s Explore Funds section is a good place to do research.
Category
Fund
Liquid
Aditya Birla Sun Life Liquid Fund, Invesco India Liquid Fund, HDFC Liquid Fund, Axis Liquid Fund
Low duration
Kotak Low Duration Fund, PGIM India Low Duration Fund
Short duration
Franklin India Short Term Income Plan, PGIM India Short Maturity Fund
Credit Risk
Aditya Birla Sun Life Credit Risk Fund, ICICI Prudential credit Risk Fund, HDFC Credit Risk Debt Fund
Aggressive Hybrid
L&T Hybrid Equity Fund, ICICI Prudential Equity and Debt Fund
Large Cap
ICICI Prudential Bluechip Fund, Axis Bluechip Fund, Mirae Asset Large Cap Fund, SBI Bluechip Fund
Multicap
Mirae Asset India Equity Fund, Kotak Standard Multicap
Should invest in mutual funds. Mutual funds sahi hai?
Only 5% of the average Indian household’s wealth is in financial assets. Of this only 9% is invested in mutual funds. The RBI’s household finance committee suggests that this under-allocation to productive, wealth-generating assets may be causing households to lose out on wealth creation. If you look at the returns that mutual funds have delivered over the last three, five and 10 years, this seems to be self-evident.
Mutual Fund kyun sahi hai?
Firstly, mutual Funds allow small investors to pool their savings and invest in the stock or bond market. These savings are managed by a professional fund manager at a very low cost.
High returns
Mutual Funds invest in equity and hence are able to deliver high returns over the long term. Multicap equity funds have delivered on average about 18% annualised over the past five years and large-cap funds have delivered 15%. Even debt mutual funds have done well with dynamic bond funds delivering 9.28% annualized over the past five years.
Tax-efficient
The capital gains tax on equity mutual funds held for longer than one year is 10% for the returns exceeding Rs 1 lakh in the financial year. Under Rs 1 lakh, it’s zero. For a holding period less than one year, it’s short term capital gains tax of 15%. For debt funds, it is 20% if the fund is held longer than three years and you also get the benefit of indexation. If a debt fund is held for a shorter period (less than three years), then your gains will be taxed as per your slab.
Highly regulated
Mutual Funds are tightly regulated by the Securities and Exchange Board of India (SEBI). SEBI prescribes limits on how much they can invest in a single company, how much expense they can charge and various other limits to ensure investor protection. Their value (known as NAV) is published every day. The fund’s holdings are held by an independent entity called the custodian.
Liquidity
The vast majority of mutual funds can be purchased and sold on any working day. You can buy units directly from the fund and sell them back to the fund. There is a category of funds called ‘close ended funds’ which do not have this feature. However, the units of such funds can be bought and sold on a stock exchange.
How to invest in mutual funds
You can invest in mutual funds online or offline. You need to make sure that your Know Your Customer (KYC) norms are completed. You can do this directly with an Asset Management Company (AMC) at their office, or through an investment advisor. Once you have chosen the mutual fund, you have to submit the mutual fund application form which will have details including the bank account of the unitholder.
You can set up an auto debit if you are investing via the Systematic Investment Plan (SIP). You don’t need a demat account for investing in mutual funds. You can track your investments even if you choose to invest offline. The minimum investment for mutual funds is as low as Rs. 100 for SIP. You can even make one-time investments in mutual funds.
If you are new to the world of mutual funds or don’t understand jargons, then making investment decisions on your own could be risky. You will require a seasoned mutual fund advisor such as wealthzi.com. They will be able to address your investment queries, suggest the right funds, keep track of your asset allocation and investments, and help you buy or sell funds at the right time. Click here to explore the best mutual funds.
How to invest in mutual funds online
Choosing a platform, advisor or website for mutual funds can be tough given the sheer number of options on offer. We take you through them and give you the pros and cons of each. Different ones may suit the needs of different types of investors.
Online mutual fund platforms
You can invest in mutual funds online through various platforms like Wealthzi or directly on the AMC website. You need to open an investment account on the platform before you can start investing. If you are KYC compliant already, you can start investing right away after uploading the relevant details like your PAN, address proof, bank account details and so on. Online platforms like Wealthzi have partnered with BSE Star MF for providing mutual fund transaction services. The investor transfers the investment amount to the escrow account of BSE Star MF which in turn is paid out to the AMC. The unit allocation is done after the payment reaches the AMC usually in a day or two.
What if the online platform goes out of business
The online platforms or advisors do not ‘hold your money’ once your money has been invested. Your money is transformed into units of mutual funds. The records of your holdings are held by independent Registrar and Transfer Agents (R&Ts) or in demat accounts. A platform going out of business can be an inconvenience from the point of view of managing your investments but your money and holdings will not be lost.
Also unlike brokers, your mutual fund money goes straight from your bank account to BSE Star MF’s escrow account or the fund house and the proceeds come straight back only to your bank account. The platform does not hold money on your behalf.
Are they regulated?
Platforms will either be registered as mutual fund distributors (MFDs) with Association of Mutual Funds of India (AMFI) or as Registered Investment Advisors (RIAs) with the Securities and Exchange Board of India (SEBI). All entities operate as per SEBI regulations. Most will display the registration number and status at the bottom of the home page or in the FAQ section.
How does the money transfer happen?
Most platforms will ask you to sign ‘bank mandates’ or ‘one-time mandates’ to let you transfer your money for mutual fund investments. These mandates will usually specify an upper limit such as 1 lakh or 10 lakh. Once the mandate is given, you don’t have to keep logging into net banking to authorize payments for your investments. In case of redemptions, your bank account will typically be linked to your mutual fund records and thus the money will be directly credited to your bank accounts.
How are fees/commissions usually charged?
Typically, if a platform offers regular plans, the fund house pays a commission of 0.5%-1% to the platform as your distributor. If it offers ‘direct’ plans, it may charge you a monthly fee.
Mutual fund terms you should know
If you are new to the world of mutual funds, there are many terms associated with funds. Here are some of the common ones that you need to know.
Net Asset Value (NAV)
The NAV of a mutual fund is the total value of assets for every unit of the fund that you hold. How is this calculated? The NAV is all the assets the fund is managing minus all related and permissible expenses. This is the price for your mutual fund. Does a low NAV indicate a good buy? This is a myth. The NAV of the fund shouldn’t influence your investment decision. You should look at the scheme, its performance, the portfolio it holds and fund manager expertise before you invest in a mutual fund
Expense Ratio
Total expense ratio indicates the expenses incurred for running the mutual fund. It is usually expressed as a percentage of the total assets under management. These expenses will include the advisory fees and the management charges for the fund. A very high expense ratio could mean lower returns, especially if you are investing in a debt fund. Expense ratio of over 2% is considered to be high.
Systematic Investment Plan (SIP)
SIP refers to investing a fixed amount of money in a mutual fund scheme on a regular basis. An SIP can be monthly, quarterly or daily. Investing in a monthly SIP is better if you are salaried because it matches the frequency of your income. SIPs should not be stopped during market downturns because this beats their whole purpose which is getting more units when the markets drop. As you keep buying more units during market falls, you will get great returns in the long run.
Exit Load
Similar to entry load, exit load is recovered from you when you sell a mutual fund or redeem mutual fund units.
Growth Option
Looking for capital appreciation rather than regular income? Then, you can choose the growth option for mutual funds. Choosing this option will mean that you don’t get any dividends. You will get capital appreciation if the fund does well and the NAV of your fund goes up.
Motilal Oswal Asset Management Company (AMC) has announced two New Fund Offers (NFO) — Motilal Oswal Asset Allocation Passive Fund of Fund – Aggressive and Motilal Oswal Asset Allocation Passive Fund of Fund – Conservative.
Instead of managing multiple portfolios of different asset classes, the funds offer management of one portfolio with four asset classes showing a simplistic approach to investing. Here are more details.
About the NFOs
The new schemes are the country’s first 100% passive multi asset FoFs. They will provide allocations across Equity, International Equity, Fixed Income and Commodity, offering investors an opportunity to take exposure in low cost and diversified assets as per risk appetite or investment goal.
Investors looking for a moderate portfolio could invest 50:50 in both funds. Both funds play on the advantage of investing into historically low correlated asset classes.
The NFOs start from Feb. 19 and close on Mar. 5. The allotment date is Mar 12.
Why asset allocation
Factors such as, market timing & security selection are considered to have a relatively small impact on long term investment results.
Generally a significant percentage of volatility of investment performance is driven by asset allocation decisions.
What is unique
What also sets these funds apart from most multi-asset and hybrid schemes is that they follow strategic rebalancing, eliminating market timing risk.
In these funds, there is also no fund manager risk or credit risk involved.
The equity portion (Nifty 500) also removes size and sector bias out of the portfolio since it captures 95%+ of the entire equity market.
Key attributes of the funds are as follows:
1. Diversified – Combines four low correlated asset classes
2. Options per Risk Appetite – Portfolios according to the risk appetite of investors – Aggressive FoF and Conservative FoF
3. Risk Reduction – Significant reduction of risk in terms of historical annualized volatility and drawdowns
4. Inbuilt Rebalancing – FoF has rule based portfolio rebalancing in place, which helps asset weights stay in line with the target asset allocation
5. Tax Efficient – Unlike individual investor, the Mutual Funds don’t incur income tax liability during portfolio rebalancing
6. Low Cost – All underlying funds are passive funds
What about taxes
From the context of tax implications, unlike equity taxation, given the current regulations, both FoFs will be taxed as debt instruments. A long-term investor who holds this fund could claim indexation benefits which significantly bring down the overall tax implication.
Fund-house speak
Explaining the reasoning and benefit of investment in these funds, Pratik Oswal, Head – Passive Funds, Motilal Oswal Asset Management Company, said, “In our endeavor to continuously simplify investing, we are launching two passive multi-asset funds catering to two risk profiles – aggressive and conservative. Customer’s opting for a moderate option could simply combine both funds (50:50). These FoFs offer a complete portfolio solution in a single fund with periodical rebalancing. With the thousands of investment options today – we believe this single fund is sufficient for an investor’s needs.â€
In an environment where equity (domestic and international) is at all-time highs, debt yields at lows and gold being the highest performing asset class in 2020 – we believe a multi-asset solution is a low risk way of deploying capital. These funds are low cost and deliver good returns in most market conditions.
