Mutual Funds for All

Having explained the significance of Mutual Funds in creation of wealth by securing your money in the last post, we will see how your money grows constantly by taking care of “timing the market” risk. Though its not possible to avoid 100% risk in business and no investor or professional can claim to time or tame the market perfectly.

Stack of coins and growth sprout plant with hand watering as business finance or grow investment concept.

However there are ways to minimise the risks by following certain well researched and proven practices. Yes:Mutual Funds cover the risk broadly by spreading their exposure in diverse activities of fund management but investment in mutual funds through SIP almost nullifes the “timing of market” risk as small investments averages the price range which keep fluctuating through the entire time horizon of your investments.

A Systematic Investment Plan (SIP) is a vehicle offered by Mutual Funds to help investors invest regularly in a disciplined manner, through small and periodic installments.  The funds with portfolio of 100% equity stocks look risk oriented product in the basket of all the AMC’s but these funds have outsmarted index in the past by getting return of as high as 16%.

You need to work out your risk appetite and periodical financial goals fixed for achieving a relaxed retirement life. If you have started early and the first financial goal is expected any time after ten years then putting 15 to 20% of your income will create an ideal platform by investing into equity funds. The balance could be allocated to a low earning safer mode like Debt Funds. The number of Investors under SIP mode are increasing globally for the reason:

1. REGULAR SMALL SAVINGS
2. TIMING OF MARKET RISK COVERAGE
3. HIGHER RETURNS SOMETIMES BEATING THE INDEX
4. DUE TO AUTOMATED PAYMENT OF MONTHLY THERE IS VIRTUALLY NO CHANCE OF ANY PAYMENT PENALTY DUE TO ANY LATE INSTALLMENT

The AUM(Assets under management) has grown exponentiolly as the figures suggest: ₹ 6.28 trillion as on 30th September, 2009 to ₹ 24.6 trillion as on 30th September, 2019, about 4 fold increase in a span of 10 years and the total number of investors have grown to more than 2900000 in number. Like any other business this portfolio has also tasted rough weather due to volatality in the market which saw outflow of 1.6 lakh crores against inflow of 66990 cr only in 2019. The downside came as income and debt oriented schemes including close-ended and interval schemes saw net outflows of Rs 1.74 lakh crore in June as against net inflows of Rs 67,930 crore in the previous month.

AMFI regulates the funds in India and its very easy to start investing through SIP. You need to submit your KYC which get verified online as the process has been made very simple through AADHAR card also.

1. POA(Proof of residence)
2. Identity Proof (Voter Card, Passport,Bank Statement)
3. PAN Card
4. Aadhar Card

Once you are KYC compliant, you can start investing directly. DEMAT account is not manadatory as the customer can invest directly with the Funds distributors/Mutual Fund Companies, therby saving on the fees. You can provide mandate for automated instalment from your Bank and the instalment will start on a fixed date as agreed to by you at the time of starting the investment. You can start on 1st of every month or from the date of your salary or any other day which is convenient for you.

The redemption of mutual funds can be made any time in part or full and the proceeds get credited into your bank account within three business days. Normally the bank account for getting redemption amount remains the same from which the investments have been made. There is a lock in period for the funds enjoying tax deductions from their income like ELSS schemes, where the whole amount is invested in the equity market by the fund managers. May be this is one way to encourage the stock markets to prosper. Whereas the indian residents can start investments as and when they like but the NRI need to follow certain specific guidelines to comply before starting SIP. The undernoted funds accept investments from the NRIs irrespective of the countries they are living in.

• Birla Sun Life Mutual Fund
• SBI Mutual Fund
• UTI Mutual Fund
• ICICI Prudential Mutual Fund
• DHFL Pramerica Mutual Fund
• L&T Mutual Fund
• PPFAS Mutual Fund
• Sundaram Mutual Fund
• However,ICICI Prudential AMC, Birla Sun Life Mutual Fund and SBI Mutual Fund allow investments only through an offline transaction with an additional declaration signed by the client. Similarly, L&T Mutual Fund doesn’t allow USA and Canada based clients to invest in close-ended funds.

The best option available with the NRI investors is to appoint a POA(Power of AttorneY) for completing all their formalities back home before starting any investments through Mutual Funds SIP Scheme. They need to provide these documents through POA for updation of KYC with CAMS, KARVY or AMC branch offices. Once the KYC is complete, they are open to investments at any point of time in future as its a one time exercise. If you are staying outside India, then you can approach authorized officials of overseas branches of Scheduled Commercial Banks registered in India, notary public, Court Magistrate, Judge, Indian Embassy/Consulate General in the country where you reside. Such individuals are permitted to do IPV along with verification of originals.

1. Copy of Passport is compulsory
2. Copy of Overseas Address Proof (in English)
3. Copy of Indian PAN card
4. Two passport size photos
5. The fully Filled KYC form
6. Power of Attorney(POA)

It must be noted that any redemption of mutual fund units shall be credited to the same account only. If the investment is coming from NRO account then the redeemed amount will get credited in the NRO account and investments made through NRE account will find the redeemed amount credited in the NRE accounts. Sometimes the defintion of NRI is not understood properly by the beneficiaries and for the sake of clarity and brevity, the same is briefed herein below for the benefit of all concerned:

“A Non-Resident Indian (NRI) is a person residing outside India. This person may be an Indian citizen or of Indian origin. One is deemed to be a “person of Indian origin”(PIO) if he or she is a citizen of any country other than Bangladesh or Pakistan and if:

• He or she has At any time held an Indian passport
• The person or either of his or her parent or grandparent was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57of 1955);
• The person is a spouse of an Indian citizen or a spouse of the person referred to in the above points.

I hope the progress on our effort to make you wealthy and a satisfied person has been going on as contemplated but your feedback matters a lot for getting this process more interesting.. Stay blessed stay connected

Closeup of businessman inserting coin in transparent piggy bank on wooden table

Personal Finance-1

As discussed earlier, Personal Finance is an exercise to plan your Finance so that you have enough money for your immediate Financial needs, savings for higher education of your children and planning for retirement. All Financial planners recommend for early action on your planning but I think this planning can be started at any stage of your life but sooner the better as the insurance premiums keep increasing with age and the gap between your current and retirement age keeps decreasing making it difficult for your money to grow enough .However you need to have resources to generate income to fulfill all these goals. It could be through your salary,business or any other regular stream of income. The art of managing your income, expenses and savings comes from within by becoming finacially literate which does’nt cost you much. A rough calculation on a small piece of paper willl be enough every month to provide you the much needed expertise in personal finance. Lets start from the first step:

1. Minimum Emergency Fund: You need to create this fund to overcome the unforeseen circumstances. You may be contemplating to leave the job and looking for better job options or there could be a slump in your business due to sudden defaults by the debtors/unfavourable market conditions. In such circumstances you can’t afford to stop living your life style, maintaining the social status, pursue education of your children and other routine expenses. To maintain a buffer, you need to have a minimum bank balance equivalent to 4 to 6 months of salary/income in your Bank account. This will provide you comfort level to search for the new job or to tide over the adverse market conditons. If you are drawing a monthly salary of 10000$, you need to maintain an emergency fund in your bank account to the tune of 40000$ to 60000$. You will agree that this cushion will not let you down when you are not getting regular salary/income
2. Insurance: Most of the planners rank this item at number four in priorty but I would prioritise to suggest obtaining of Life Insurance or Term Life Insurance Cover for the earning member of the family to safeguard against any future risk to life or permanent disability. There is no need to get LIC for all the members of your family. The total quantum of Life Insurance Cover should normally be 8 to 10 times of annual salary/income. For example if your salary is 100000$ per year then the total cover should be 800,000$ to 100,0000$. Fortunately the amount of insurance premium for a Term Life Insurance Cover is very small and it keeps increasing with the age. This amount is sufficient to ensure that your family does’nt feel the financial issues when you are not around and continuity of education of your children is guaranteed. Besides a Medical Insurance/Health Insurance cover needs to be taken for all the family members as the ever increasing medical/hospital bills can cause turbulance in the entire budget of the family and whole financial planning could be paralysed. I will prefer for a Medical Insurance coverage of 500000$ under a family floater scheme which does’nt cost you much and every member of the family is covered by a single policy.
3. Savings: Having covered the uncertain part of your life upfront, I will prefer you to save a minimum 25% of your Net income and keep aside to invest for creation of wealth. This investment will start earning for you and take care of all your sustenance expenses when you are not working after retirement. You can invest these funds in high yield Securities, Stocks, Real Estate, Mutual Funds as per your interest and opportunities available
4. Monthly Household and Life Style Expenses : This takes away the major piece of your cake as your Bills, School Fees,Grocery,Utilities, Car maintenance, Hotel Bills and Club Memberships consume maximum part of your budget. You can allocate 60% of total income under this expenditure. Though Credit cards make a second line of defence to meet the unexpected unplanned expenditure for buying a computer/Bike for the children but effort should be made to pay off the bills regularly and in no case the part payment ever be made for the credit card bill as the balance will attract a huge rate of interest. The Credit Card companies will keep coxing you for the minimum amount for obvious reasons Under all circumstances, the allocation of 60% should be used for payment of all bills including credit card bills

Hope to come back again tomorrow with further inputs but I will wait for your feedback and suggestions to make this exercise more interesting and simple.

Have a great day!!