How to invest in mutual funds

Rarely does one make a profit out of an investment without research. Before you look at investing your money, you must look at the market conditions and if the investment matches your requirement. There are several factors that contribute to the success of a fund investment and timing and fund selection are the most important of them. Yes, there are different requirement for so different investors, so let’s take a look at what you should know before you invest in mutual funds. 

What is mutual fund in the first place? It is a diversified investment in a set of companies or equities that will give you a return over a period of time, based on the performance of the overall set of companies. You can choose sector specific mutual funds which can be targeted to pharmaceuticals, energy, petro companies and so on. You can also invest based on the market cap of the company. Large cap, medium cap and small cap are the three major kinds. It is based on your take to a volatile investment that you can choose which of the three to choose. These are the mutual fund basics that you have to know before you go ahead making an investment. These are tax saving funds too and would give you a healthy benefit in income tax. To understand which kind of mutual fund definition of market cap would suit you best – speak to your financial advisor or an industry expert. The performance of your investment depends on the market condition and hence you require expert guidance.

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Why You Should Invest in Mutual Funds in 2015?

Mutual Funds are some of the most sought after investment opportunities. They offer good returns and a great sense of security that most other investment opportunities cannot provide for their investors. At the start of the year, mutual funds faced a slump of sorts, but market analysts expect the year to be quite fruitful for those who have made the smart decision of investing their money in mutual funds. However, those who have predicted good returns from the market have also stated that these returns will depend on certain factors that will act as benchmarks for the market through the year. These benchmarks include the pricing of crude oil, which saw a slump last year, and a hike in the rates of the Central Bank.

Mutual Funds

The decrease in the crude oil prices hit the energy sector in a bad way. At the end of 2014, energy mutual funds were seen as the biggest losers, and these doesn’t seem to be any respite in sight for these funds. On the other hand, this slump in prices has been most beneficial for airlines, as airline stocks skyrocketed. Therefore, on the whole, the lowering of crude oil prices has benefitted the market.

After the financial crisis in 2008, the Federal Reserve System set up some aggressive measures in the form of rates being at an all-time low, and repurchasing assets. The central bank completed its 3 rounds of repurchases by October 2014, but they continued to keep their rates low. It is however expected that they will raise the rates during this year, which will have a positive effect on the market, as profit margins are expected to rise.

Based on the market expectation, market analysts have handpicked the T. Rowe Price Health Sciences Fund, the Fidelity Select Transportation Fund, and the T. Rowe Price Global Technology Fund as the three funds to have invested in this year. They feel that these funds are most likely to give you the best returns for your money. Always remember to check all fund documents before you finally decide where to invest your money.

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Why You Should Invest in Balanced Funds

While most people like to save their money for rainy days, that aren’t entirely sure of how to make sure they have enough money when that rainy day rolls around. Most people prefer security and aren’t too thrilled with dealing with unknowns, which is why Fixed Deposits are the most common way Indians like to save their money. However, with inflation going through the roof recently, people have realized that they need a way to make their savings work for them. The safe fixed deposits with their low returns aren’t going to cut it for those people saving for their children’s education and wedding, and their own retirement. The desperate need to save more money than possible has led to the growing popularity of investments in India.

Balanced/Hybrid Mutual Fund

Investments are still a bit of a gamble, and most people lean towards putting their money in Mutual Funds. These funds pool together money from numerous investors and then a market expert invests the money for them. As safety goes, mutual funds are seen as the safest, but coming a close second are balanced funds, also known as equity-oriented hybrid funds. These funds have a very low risk factor and are perfect for first-time investors who aren’t sure what their risk-appetite really is. The funds also invest over 65% of funds in equity, and this gives investor certain tax benefits as well, making it all the more beneficial. People who are looking to invest for the first time, can try putting their money in balanced mutual funds by adopting an SIP route. It is preferable to invest money when the market is at a low, so you can reap higher benefits when the market rises.

Over the past year, equity and debt market funds were found to be volatile, and did not provide very high returns. While balanced funds on the other hand performed better than some mid-cap and large-cap funds in certain cases. While your financial goals will obviously dictate how you invest your money, it is a good idea to fully understand the investment before you make one.

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The "Ache Din Waale" Budget.....

With the coming of the new Government in May 2014, India has witnessed a number of changes. One of these can be seen in the proposal of the new Union Budget. The current finance minister, Arun Jaitley, has brought about a refreshing and much needed change in the budget. It hopes to help the common man in his daily struggles while also greatly reviving our country’s economy. It has called for certain surprising and positive changes, making us realize the faults in previous finance policies. This has become especially evident in the reaction of the masses. Within just a few days of its declaration, it has elicited a murmur of approval from them.

Budget 2014 - The aam admi wala budget

The new budget does not propose any changes in the tax rate. However it does propose an increase in the personal income tax exemption limit by Rs. 50,000.Therefore, those below the age of 60, whose earnings come within the tax slab of Rs. 0 to Rs. 2,50,000 are exempted from taxes. For senior citizens, the same has gone up to 3 lakhs. 

He also attempts to encourage more savings. He did so by increasing the limit for investments under section 80C to 1.5 lakhs. The Public Provident Fund (PPF) limit too was raised similarly. The reintroduction of the Kisan Vikas Patra profited the small investors. Life Insurance was declared tax free, making it more affordable. The New Pension Scheme also brought relief to several people. It deducts from one’s monthly salary. But after the age of 60 it provides a lump sum as well as a monthly pension. It therefore reduces the fear of working into old age.

The budget has also promised the construction of nearly 100 small cities, redevelopment of slums and an increase in allocation for the National Housing Bank. This, coupled with the reduction in interest rates on housing loans would directly impact the common man. It would greatly increase the demand for housing. It would also positively impact the real estate and construction sectors.

There is a welcome increase in the Foreign Direct Investment (FDI) limit for banks from 26% to 49%. The increase in the FDI limit would help insurance schemes to penetrate even the rural areas. It would allow more people to be insured, preventing sudden accidents from becoming financial handicaps. The budget also allows banks to raise long term funds. These could be lent to the infrastructure sector with minimal regulatory obligations.

A part of the budget focuses on the agricultural sector and rural development. There is an attempt to reduce wastage of crops. With the building of warehouses and soil testing facilities, it tries to increase and preserve the crop yield. The ‘Price Stabilization Fund’ attempts to give agricultural workers the right price for their efforts, preventing their exploitation.

The budget also allocates funds for setting up rural health care facilities and health research centres. This allows for the studying of local health problems, leading to better solutions. 

The budget seems to have an overwhelmingly positive effect upon the masses, especially the investor. It has introduced various schemes and tax exemptions in order to encourage investments and savings. Its increase in the percentage of FDI brings relief to various sectors. The rapid economic growth it plans for is intended to bring about a more hopeful future.

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How to profit on your Mutual Fund investments

In India, saving money is always something we are taught to do from a young age. We are not a society that lives on credit. We firmly believe that being cautious with our money is the best route towards success. However, due to this nature, we are not prone to invest in financial products that do not provide a good measure of security. It is for this reason that mutual fund investments are a big part of the financial market in our country. They allow us to generate some income from the money we invest, while still providing a lower level of risk when compared to other investment products.

The reason for the success of mutual funds in India is that the risk to individual investors is lowered simply because he is not investing alone. The funds operate by obtaining capital from multiple investors and then investing the total amount into various equities and securities. The rate of return on the funds depends entirely on how the fund is managed and where the money is being invested. Usually funds that invest either entirely or mostly in equity, yield a higher rate of return but are also higher in risk due to the fact that they are affected by changes in the market. Meanwhile funds that invest in long term security, such as government bonds, offer a much lower risk but also offer much lower rates of returns to the investors.

In order to determine the rate of return for investors, mutual funds sell units within the fund to investors, based on the money they put in. The value of each unit is known as the net asset value or the mutual fund NAV. The more units an investor purchases, the higher are the returns he receives. The value of these units may fluctuate based on market conditions and on how well the fund is doing due to these conditions.

The funds also vary in terms of time-period. It is therefore very important for the investor to know before he invests how long he can invest his money for. Usually, most equity funds are of a shorter term than those that invest in long term securities. In fact, investors should take a lot of factors into consideration when investing, such as how much they are willing to invest in total, whether they can invest regularly in the fund, if they choose an SIP fund and also the amount of risk they are willing to take with their investments.

Mutual funds are usually managed by fund management companies or by fund managers, and they provide with a prospectus that contains all the details of the fund. The objective and goals of the funds are all mentioned in this document and it is important for an investor to understand every aspect of the document so that they know how the fund operates and how their money is being invested.

It is important for investors to get professional advice before investing in the funds because they are not as well versed with the market conditions as professionals. However, they should be aware that it is their financial objectives that are important and that it is their money that is being invested and so should insist on courses of action they best feel realises these goals.

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