What are Balance Mutual Fund and Hybrid Fund

Hybrid funds are mutual funds that invest in both Equity and Debt Market to provide good returns and are the perfect mixture of diversification. The asset allocation can vary depending on the requirement i.e. it could have high equity allocation, or balance of debt and equity depending the type of investor one is i.e. risk taker or a conservative investor.

A balanced fund is a form of the hybrid fund and suitable for first-time investors. They invest in multiple assets to protect the investor from volatility, if one asset class has some issues.   Investors who are not to open to take risk are best suited for investment in a balanced fund with present limitations of equity and debt allocation.

How do Hybrid Funds work?

Hybrid funds offer investors a diversified portfolio. They aim at achieving appreciation in long run and generate income in short run via a balanced portfolio. They maintain an investment ratio of 60% - 40 % in equity and debt instrument, with a majority in either of the two. If asset allocation is more than 65 % in equities, then it is equity oriented fund and if the 65 % is allocated to debt, then its debt oriented fund. To maintain liquidity, a part of the fund will also be invested in cash and cash equivalents. These funds are basically a platform for income generation and capital appreciation. The allocation of your money is done by the fund manager basis the objective of the fund and investor.  The fund manager will also sell/buy securities to take advantage of market movements.

Industries like FMCG, finance, healthcare, real estate, automobile, etc. provide equity shares which are part of the equity component of the fund.  The debt component of the fund contains investments in fixed income like government securities, debentures, bonds, treasury bills, etc.

 Who should invest in Hybrid Funds?

New mutual fund investors prefer the hybrid funds, since they are safer bets than pure equity funds. The debt component of the fund provides a cushion against a volatile market while providing decent returns which is best suitable for the conservative category of investors.  They provide higher returns than pure debts and new investors can always choose them as the first step. Since they have a blend of equity and debt, the equity component helps to ride the equity wave.

Types of Hybrid Funds:  They can be differentiated as per their asset allocation. There are different equity and debt allocation in different types of hybrid funds, some may have higher equity allocation and others may have high debt allocation. Below are more details on the types of hybrid funds.

Balanced Funds

Balance funds are one of the most common types of hybrid funds. The investment in balanced funds is done majorly in equity or equity-oriented investments. Balanced funds are a good bet for risk-averse investors. As balanced funds majorly invest in equity funds, they get the same tax treatment of equity funds. As per the updated rules of 2018, an LTCG (Long Term Capital Gains) tax of 10% is applicable if the capital gains of the investor are more than INR 1 lakh in a financial year

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 Monthly Income Plans

These funds mostly invest in debt instrument with around 15% to 20% exposure to equities. The reason behind equity exposure is to generate better returns than debt funds. Monthly income plans distribute income through dividends to investors. These plans also offer growth option to the investor.

Arbitrage Funds

Arbitrage funds use the advantage of the pricing difference of the securities in the derivatives and futures markets to generate good returns. However, the flip side is that the opportunities are not much and the funds will stay invested in equity or debt market. Arbitrage funds are treated as equity funds for taxation purpose and thus LTCG tax is also applicable to them.

Things Investor should consider before investing

 Risk

Even though hybrid funds have maximum percentage allocated to debt instruments, this does not mean they are not completely free from risk. There is still an equity component that is exposed to the market volatility.  Due to changing markets, the fund value fluctuates as per the underlying value of the benchmark. Although balanced funds are safer proposition than equity funds, an investor needs to exercise caution and rebalance portfolio regularly to gain maximum out of the investment.

Cost

Mutual fund houses charge an annual fee charged for managing the portfolio of the mutual funds which is known as the expense ratio. It is calculated as per the fund’s average assets. The expense ratio shows the operating efficiency of the funds and is an important criterion for investors, when choosing a mutual funds. It is a good idea to compare the expense ratio of funds falling in the same category. Lower expense ratio will translate into higher take-home returns for the investor.

Tax on Gains

Taxation on the balance funds works as per the orientation of the fund. The equity-based balanced funds get the same treatment of tax as a pure equity fund. If the investment in the equity-based balanced fund is more than a year, then it will be treated as long-term capital gain. Long-term capital gain (LTCG) in excess of INR 1 lakh on equity component will be taxed at the rate of 10% without the benefit of indexation. There is a tax rate of 15% on short-term capital gains of equity-based balanced funds.

Investment Horizon

Balanced funds are the best bet for the kinds of investors who would usually choose to invest only in bank fixed deposit for 5 years. Balanced funds have the potential to deliver higher returns than a bank fixed deposit in a 5 year or a higher duration of time. In addition, an investor will also get the benefit of indexation on the long-term capital gain.

 Financial Goals

Balanced funds are best for financial goals set for a period of 5 to 7 years. For example - a financial goal of buying a car or funding for the higher education. Balanced funds are also great for new investors or for people who do not have time to actively manage portfolio or have a low-risk appetite. Senior citizens or retired investors can choose to invest in balanced funds and use dividend option that will help in post-retirement income.

Return

Balanced funds are meant for investors who have a low-risk appetite. In the past, equity-based balanced funds have delivered average returns in the range of around 10% to 12%. Even though there is a component of debt in balanced funds, there is no surety on the returns. Depending on the performance of the securities, the NAV of the fund will fluctuate.

Best value-oriented equity mutual funds to invest in 2018

The value mutual funds come with a diversified portfolio and growth-oriented stocks. They follow a constructive strategy for receiving good returns all over the market cycles. It is essential to choose the right MF to secure good returns.

The value-based funds are the best way to invest in undervalued stocks and receive potential growth and handsome returns. Through this option, the investors are in the hold of stocks till the day when the precise value of these stocks is realised in the market. You may have come across the names of Aditya Birla Sun Life Pure Value Fund or Tata P/E Fund but do you know where to invest?

Let us have a look at the best equity mutual funds for generating wealth creation to save the future.

Investing in the Best Equity Mutual Funds of 2018

The value-oriented funds have low-level of downside and they concentrate on trading stocks at a discount. They reduce the risk and assure potential growth by holding the stocks for a long period. The experts suggest having at least 10% of the portfolio on the value-based mutual funds for increasing the benefit of diversification in the portfolio.

The funds may witness under-performance but they guarantee high returns. It is widely suitable for the patient investors. Take a look at the following table for understanding the performance of the best equity mutual funds.

Mutual Funds	5-year Return	3-year Return	1-year return
Tata P/E Fund	25.4%	18.3%	11.6%
HDFC Capital Builder Value Fund	20.9%	15.2%	14.8%
L&T India Value Fund	25.5%	16.8%	6.1%
Aditya Birla Sun Life Pure Value Fund	28.5%	19.5%	11.2%

Tata P/E Fund

For the investors seeking long-term appreciation, this is one of the best mutual funds. It invests in equity-related and equity instruments of various companies only where the rolling P/E is not more than the rolling P/E of S&P BSE Sensex.

Categorised in the value fund, the open ended equity scheme offers regular and reasonable capital appreciation to an investor. There is no confirmation that the mutual fund investment objective may be achieved due to the no assurance on the returns.

The long-term record of Tata P/E Fund displays that within 10 years of return, the MF has outperformed the category. 12.72% is the average return of category but the fund has provided 15.16% of the return. Also, it has provided more than double of the benchmark return rate.

The minimum rate of mutual fund investment starts at Rs.5,000 and the expense ratio is 2.68%. There is no entry load but the exit load is 1% for the redemption in a year. This value-based equity fund is not particularly sector-biased but it still is a higher large-cap in comparison to its peers.

HDFC Capital Builder Fund

This MF is an equity-linked growth scheme which is only suitable for the long-term unit-holders. HDFC Asset Management Company has initiated the plan to boost long-term capital appreciation only by investing in equities of the blue-chip companies.

The blue-chip companies are acknowledged for their competence and integrity. They generally have surfeit cash generation and offer high profitability on the investments of mutual funds. HDFC Capital Builder Value Fund considers energy, financial and tech industries mainly. BPCL, Larsen & Toubro Ltd., ICICI Bank Ltd., Infosys Ltd., and Grasim Industries Ltd. are few of the companies that have invested.

The value of the asset under management is more than Rs.3644.53 cr. NIFTY 500 total return index is the benchmark. It is to note that the fund has surpassed the benchmark returns along with moderate category returns. The long-term track record shows the high mutual fund returns being primarily suitable for the investors with a high risk appetite.

As it is one of the efficient best equity mutual funds, the scheme has outperformed the benchmark 4%-6% in the 1-5 year(s). It has also surpassed the average rate of the category by 5%-8%. Since the beginning of the scheme, the fund has been able to provide a 15.15% return per year.

L&T India Value Fund

Launched in 2009, the fund invests in the undervalued stocks for generating long-term capital appreciation and risk-adjusted returns. The scheme analyses the financial strength, business prospects, stock valuation, competitive advantage and potential earnings at the time of choosing stocks.

Now the fund has more than Rs.7,638.71 cr asset under management and its benchmark is S&P BSE SENSEX. The top holding companies invested in the scheme are ICICI Bank Ltd., Infosys Limited and Reliance Industries Limited.

Apart from the Indian market, one of the best equity mutual funds 2018 also invests in the foreign securities of the international market. There is no entry load for the best equity mutual funds but 1% exit load is allotted within one-year of purchasing the fund.

L&T India Value Fund has outshined the category by 6%-14% and outperformed the benchmark by 6%-11% in three and five years of return. It has also provided 16.49% annualised returns since the launch. The systematic investment plan estimated Rs. 5,000 per annum in the fund initiated five years, is now worth of Rs.5.12 lakh.

Aditya Birla SL Pure Value Fund

If you are looking for one of the best equity mutual funds guaranteeing long-term capital growth, this is the one. It is an open-ended equity fund which is included in the under-value category. The minimum range of investment is Rs.1000 and the current NAV is Rs.51.572 cr.

Started in 2008, it looks forward to the business widely overlooked by the market offering high-level of safety. In this way, Aditya, Birla Sun Life Pure Value Fund secures potential growth. Nonetheless, the scheme tends to tilt towards the small-cap and mid-cap categories where the mispricing generally tends to be too accurate.  

Over the years, like other mutual funds, Pure Value Fund has enlarged the corpus leading to a diversified portfolio. It looks for new value ideas for resulting in a high portfolio churn. The consistent track record has paved the avenue for decent returns and high volatility in the market. Generally, this type of mutual funds is approached by aggressive investors.

Why tax-saving mutual funds are the best way to save on taxes

You can’t grow long term if you can’t eat short term; one can always manage short and long-term goals as independent as it can be. The art lies in balancing both your short and long-term goals successfully.  Many of us plan our retirement and needless to say it’s one thing that isn’t in our list of things. We focus on saving tax every year, but we need to better manage it to achieve our long and short team goal. Tax saving should be done in two parts i.e. first save tax for the year and next, invest in funds for your retirement.

So the next question obviously is, do we have instruments that will help us save tax and plan our future. Yes, we have an equity-linked saving scheme or as we call it ELSS of mutual funds.  In Income Tax Act, under Section 80 C, one can invest up to INR 1.5 lakh for a financial year. One can always invest more than INR 1.5 lakh, but it won’t qualify for tax benefit.  There was a recent announcement that the return generated from ELSS will become taxable with the dividend distribution tax and taxes on the long-term capital gain. In spite of the changes, it’s a good option for young earners who are starting to save for retirement and tax. The benefit of ELSS is short lock-in period and provides the potential for growth via equity.

Understanding Equity Linked Saving Schemes

ELSS is equity diversified mutual fund scheme with a lock-in period of three years from the date of investment. Post completion of the lock-in period, the scheme turns into an open-ended scheme and one can withdraw the fund. It’s better to keep the funds invested considering your long-term goal of retirement. These funds are managed by fund managers who are experienced finance professionals with a better understanding of the benefits of tax saving, plus are offered by fund houses. It’s important to decode why ELSS is a better investment under Section 80 C to save tax.

Types of ELSS

ELSS has two main categories of funds i.e. Dividend and Growth fund.  Dividend Fund is further subdivided to Dividend Payout i.e. you will receive the dividend tax-free and Dividend reinvestment i.e. your investment will be reinvested as a fresh investment. Growth Fund provides long-term wealth creation platform for investors where the full value of the fund is realised at the time of redemption.

How ELSS is better than all other 80C Investments             

ELSS still is considered one of the best options to invest even though the returns are being taxed as per the new guidelines.  Returns attract long-term capital gains from ELSS, but they should still continue to be part of your investment portfolio as per the industry experts. These are equity-based investment instruments that provide the potential of higher returns considering the long-term scenarios. In comparison to other investment options like PPF and ULIPS, post-tax returns are better for ELSS.

Short lock-in period: This is one of the attractive aspects of investing in ELSS in comparison to other tax saving investment option. The lower lock-in period is beneficial to an investor. Whether it is Public Provident Fund, Employee Provident Fund or National Saving Certificate (NSC), all required a minimum lock-in period ranging from five to fifteen year where ELSS stands at a minimum of a three-years.

High Returns on Investment (ROI): We all invest to gain profit, increase our savings and of course, hopes to fulfil our aspirations. Since ELSS is invested in equity markets, the returns are much higher than other investment options.  While we save tax, these profits earned in long run is a better option of investment in Section 80 C with a focus on not too short or mid-range of investment duration. Public Provident Fund provides eight percent returns, while ELSS can generate anything in the range of ten to twelve percent in a period of ten plus years. The returns from NSC and other life insurance schemes are also less than of ELSS.

Flexibility with ELSS:  ULIP’s don’t provide flexibility of ELSS; in case we are not okay with the ELSS fund, one can always moved to another fund since there is no multi-year commitment. With ULIP non-performance, one can move or invest in funds that are offered only that ULIP. It’s true that ULIP can also provide similar returns like that of an ELSS and are sold at a low cost by insurance firms directly.

Benefit of Combining ELSS and PPF: This is a solid combination since together, they cover the stability of PPF and earning a potential of ELSS.  The next advantage is that you combine debt and equity both in your investment portfolio with government-backed security and opportunity of growth through fund house.

 Protection in times of volatility:  Since the lock-in period if of three years, it helps to build a discipline and stay away from fear of changing your fund house too frequently.  In terms of changing market’s, they act as a strong shield to weather the volatility that comes with investing in stock markets. In simple terms, it enjoys the benefits of market high and has provisions to reduce the impact of marker low.

Things to know about ELSS before you invest

Before we even start with our selection of ELSS, tax saving mutual funds, one should know how much to invest, duration and the objective of the investment i.e. is it for saving tax or your retirement or your dream house goals?

Look at your earning, spends and time frame to achieve your goal, inflate the expenses and see how much surplus you have to start investing.

Selecting your ELSS isn’t a simple task since we have multiple options like Large Cap, Mid Cap or Multi-Cap Stocks. It will be good to diversify across on not more than 2 to 3 ELSS with variation in industry and market capitalisation.

It is crucial to consider all facts about the fund and your financial objective before investing. One should keep reviewing the performance of schemes after the lock-in period is completed. Don’t look at funds in isolation, look at its benchmark return with consistency to beat its benchmark and at the category average returns will tell how good or bad is your investment against its peers.  Don’t look at a short-term run; incentivise your long run by balancing your investment goals.

All the Information about Equity Funds

One place where you can always find the definition of money is a dictionary. But one place where you can invest your money for earning a long-term profit is equity mutual funds.  With Equity mutual funds, you will not only find money, but will also have the capacity to spend for yourself and family. To begin, you must be thinking that you definitely know the word equity and mutual funds is where you must invest to save tax every year. So how does these two combine? Hence, let’s start by deep diving on equity mutual funds.

Equity Fund is a mutual fund that invests principally in stocks or shares of companies.

Management of equity mutual funds can be done either actively or passively.

While managing an active fund, the fund manager needs to scan the market, conduct research on companies, scrutinize performance and keeps an eye on the best stock to invest.

For Passive, the fund manager puts together a portfolio which is similar to popular market index i.e. Sensex or Nifty Fifty.

TYPES OF EQUITY FUND

There are many types of Equity funds which can be further categorised based on their investment mandate and the kind of stocks and sectors they invest in.

Equity funds can also be classified as domestic or international which can be broad market, regional or single country funds.

To name a few equity mutual funds, details are mentioned below:

A) Basis Market Capitalisation:

Equity funds are also divided basis market capitalisation i.e. how much the capital market values the equity of an entire company. They limit investments to Micro Cap, Small Cap, and Medium Cap, Large Cap or mega-cap companies.

Large Cap equity funds belong to large-cap companies which are well-established companies and hence, these are reliable plus stable investments.

They primarily invest in large-cap stocks of the biggest listed companies of the economy.

Mid Cap equity funds and Small Cap equity funds belong to midsize and smaller companies respectively. Additionally, one can always invest their funds in both mid cap and small cap naming them as mid-cap & small-cap funds

The returns are fluctuating due to volatility in smaller companies.

 Multi-cap funds are equity funds that invest across market capitalisation which is in large, mid and small cap stocks.

B) Basis Sector and Themes:

Further classification for equity mutual funds is diversified where the scheme invests in stocks across the entire market spectrum or Sectoral /Thematic is restricted to only a particular sector or they say infrastructure or theme.

Sector equity mutual funds particularly invest in one industry i.e. Pharma/FMCG /Technology.

Thematic equity mutual funds are those following a particular theme like emerging consumer companies or international stocks.

Since these are concentrated in particular sector, they tend to be riskier than diversified equity funds.

C) Index Funds

Equity funds that follow a particular index are called index funds which are passively managed funds that invest in the same companies in the exact same proportion that make up the index that fund follows.

For example, a Sensex index fund will have investments in all 30 Sensex companies in the same proportion in which the companies form part of the index. Index funds do not cost much as they don’t require to be managed actively by the fund manager.

Equity fund essentially invests in company shares and aims to provide the benefit of professional management and diversification to ordinary investors.

HOW DO EQUITY FUNDS WORK?

 It’s actually pretty simple; you give your money to a fund which invests in stocks. There will be gain or loss which will accumulate to your account. This is the bare minimum information that one needs to invest in equity mutual fund.

The word mutual in the name exactly means what it indicates, i.e.it is composed of the money that a huge number of people have invested and the way law, rules & regulations have designed is that all investors are exactly equal financially and are treated the same way.

The way this fund is designed is that an equity fund invests 60 percent or more of its assets primarily in equity shares of companies in different proportion as per the investment mandate. This investment might be in any variety of mutual funds i.e. large or sectoral with variation in investing style as value or growth oriented.

After investing a major portion in equity shares, the remainder amount might be invested in debt or money market instruments. This investment will also help in redemption requests raised by the investors.

 The fund/portfolio manager will keep buying or selling particular stocks to take advantage of changes in a dynamic market.

The expense ratio of equity funds changes due to regular buying and selling of equity shares. The current upper limit of the expense ratio is at 2.25% fixed by SEBI for equity funds and they plan to further reduce it. An investor will always look for the equity fund that has low cost as measured by expense ratio, lack of sales overload and has little or no turnover in the underlying portfolio.

WHO SHOULD INVEST IN EQUITY FUNDS?

An important decision that each investor needs to be crystal clear is that to invest in equity mutual fund or stocks direct.

This decision is to be guided by risk appetite along with the length and breadth of your investment portfolio. Ideally speaking, any investor who isn’t looking for relatively short-term isn’t suited for equity mutual fund. Equity mutual fund benefits the most for those who can stay invested for 5 plus years or more.

Another way to decide is by rupee cost averaging into a low-cost equity fund over long periods of time, reinvesting of dividends and then regularly going through up and down of stock market until one retires.

As a salaried employee, one can save tax under Section 80 C of Income Tax Act by investing in ELSS, which are regarded as the most appropriate because of the shortest lock-in period of 3 years and provides higher returns.

If you are starting fresh in the stock market, large-cap equity funds are an appropriate choice since these funds invest in equity shares of the top 100 companies of the stock market and provide stable returns in the long term.

As an experienced investor, you may look at investing in different equity funds who invest in shares of companies across market capitalisation which provide a combination of high return and less risk, as compared to equity funds who invest only in small cap or mid-caps.

BENEFITS OF INVESTING IN EQUITY FUNDS

·         Expert Money Management

·          Low Cost

·          Convenience

·          Diversification

·          Systematic investments

·          Flexibility

·         Liquidity

·          Tax

One of the huge benefits of investing in equity funds is one doesn’t need to worry about choosing the right stock and sectors to invest which, of course, requires a lot of research and study of company financials. On an average, the performance of equity funds in India have generated pre-tax returns in the range of 10 to 12 % which fluctuates as per the economic and market dynamic changes.

Do remember the golden rule that those who have the gold will make the rules and hence, choose wisely to dig your gold on equity mutual funds.

Aditya Birla Sun Life Frontline Equity Fund: Fund review

The best way to dodge the market risk is to make investments in the decade-old schemes. Talking about the mutual funds that have witnessed various market cycles, Aditya Birla SL Frontline Equity has etched its name in the list for serving over a decade.

The rich experience of 13 years has helped Birla Sun Life Mutual Fund to keep up a stable image averting financial risks. As the company only identifies stable stock for improving returns, the investor can regard it as one of the safest options. Limiting the drawbacks of the falling market, this scheme is established compared to its competitors.

Read further to understand why you should invest in this equity mutual fund and increase long-term wealth.

Birla Sun Life Mutual Fund: Overview

Birla Sun Life mutual fund online is ideal for long-term growth. It is an open-ended equity scheme offering minimum investment of Rs.1000. Mr Mahesh Patil, the fund manager who has been managing this since almost 13 years, also indicates the objective of generating income and distributing a dividend.

The investments are in equity-linked securities and equity. Additionally, they are expanded over different sectors aligning with the benchmark index.

Birla Sun Life fund scheme aims at maintaining industry exposure within ±30 comparative to benchmark or actual ±5, whichever is better of the industrial volume in the benchmark index. Stock concentration limits and good market cap exposure are also prevalent to maintain a disciplined and diversified strategy.

Key Features of Birla Sun Life Mutual Fund

The long record of Birla Sun Life mutual fund performance is good news to the investors. Targeting wealth creation through an investment portfolio, the fund carefully invests in the leading companies of the country. This mutual fund ventures to announce standard dividends under the dividend choice.

Also, the large cap-tilt does not appear as an issue to the Aditya Birla SL mutual fund performance because the fund manager has the scope of selecting winners out of S&P BSE 200. For the years, the scheme has been able to manage large cap allotment around 80% or higher since the beginning.

Therefore, if you wish to achieve surplus returns beyond the benchmark through the blend of the bottom-up and top-down method of investment, Aditya Birla Sun Life Frontline Equity is the one. It also performs beyond the benchmark around the market cycle.

Who should invest in Aditya Birla SL Frontline Equity?

If you want to diversify the investment all over the blue-chip stocks in various market leaders of the respective sectors, Birla Sun Life mutual fund is the one. The centre of the investment is stability along with high returns. When the conservative investors wish to take risk assessing the fund and its minute exposure to mind and small-cap companies, the mutual fund will not disappoint them.

Now should you invest in Birla Sun Life Mutual Fund?

One of the main reasons of Birla SL mutual fund to outshine the peers is its brilliant performance. Birla SL large-cap fund performed better than the benchmark and its rivals for thirteen years straight. However, in 2017, one of the best equity mutual funds has faced setbacks and passed marginally. Needless to say, the fund has secured four to five-star rating continuously for a decade.

In the last five and ten years, the scheme has offered 17% and 15% returns while the benchmark has only been able to provide 14% and 11% returns in the respective years. The recent results indicate that Birla Sun Life mutual fund has taken its diversification to the next level by investing in IT sectors, financials and FMCG.

The present market trend influences to remain invested with the established, proven and large scheme makers. In this way, it becomes easier to avert the macro challenges including economical and sectoral ones.

During ups and downs of the market, it is wise to choose a scheme having a portfolio aimed at large-caps. The size of an equity mutual fund is essential; especially, when the investor looks out for redemption. In any case, Aditya Birla Sun Life mutual fund fits perfectly.

Aditya Birla Sun Life Frontline Equity Fund: Analysis

As Birla Sun Life mutual fund benchmarked its own performance to BSE 200 index, it is now fixing its sectoral weight and stock choice to the index. The fund does not choose stocks out of the index.

Nevertheless, the new categorisation rule imposed by SEBI has led the fund to be classified as a complete large-cap fund. Market capitalisation chooses the portfolio among the top 100 stocks. Keep in mind that the 80% allocation to the stocks is mandatory and Nifty50 has become the new benchmark.

The changes do not threaten any alteration of the Birla SL mutual fund character but the fund manager is required to focus on a limited universe in case of the stock selection. Growth at an affordable price - this approach is not affected by the new rules.

The manoeuvrability of this large-cap mutual fund is not influenced and the impeccable performance has resulted in the asset size of Rs.20,000 crore. The equity fund is in the hold of 70-80 stocks in the portfolio for managing an absolute diversified profile. Thanks to the balanced fund management team, the result of continuous flow and large market cap bias has been prevalent over a decade.

Additionally, you have the choice to move the investment in a scheme before completing one year from the inception period. During this time, exit load of 1% is applied on best equity mutual funds. The tax exemption benefit under Section 80C of the Income Tax Act is available. Tax-deductible is also applicable when there is up to 15% of gained profit.

Last Minute Takeaway

As it takes care of the downside, the investor can rely on the fund for five years minimum and take benefit out of the fund manager’s stock-selection. The stable and consistent fund management makes sure that the stock-selection continues while boosting the growth. Without a doubt, Aditya Birla offers the best equity mutual fund which cushions against the sudden fallings of the market.

Mutual Fund Industry in India

The mutual fund industry has been around for over 6 decades now in India. Mutual funds were first introduced in the year 1963 with the formation of UTI (Unit Trust of India) with the backing of RBI and Indian Government. Since then, the mutual fund industry has come a long way. It has seen its up and downs but the growth in the mutual fund industry has reached new heights in the last decade. Today the AAUM (Average Assets Under Management) of the mutual fund industry in India stands at over INR 24,31,342 crore.  The industry has seen four and a half fold increase in the span of 10 years from INR 4.83 trillion to INR 22.04 trillion. (All figures are taken from the official website of AMFI 

– Association of Mutual Funds in India)

When the mutual fund industry started in the year 1963, the main objective was to give an opportunity to small-time investors to participate in market-related gains and wealth formation. The history of the mutual fund industry can be bifurcated into six different phases.

Phase I (1964-87): Growth Of UTI:

In the year 1963, through the act of parliament, UTI was established. UTI had a monopoly as it was the only entity that was offering mutual funds. Initially, UTI was started by RBI but later it was delinked from it. The first mutual fund scheme was launched in 1964. During the period in the 70’s and 80’s UTI started offering schemes that would suit investors of all classes.

Phase II (1987-93): Entry of Public Sector Funds:

In the year 1987, many public sector mutual funds made an entry in the market. Many public sector banks and institutions were allowed to launch mutual funds. On Nov 1987, SBI became the first bank to launch the first non-UTI mutual fund in India. This was followed by other public sector banks like PNB and Canara. The AIM increased from INR 6700 crores to nearly INR 47000 crores from the year 1987 to 1993. During this period, a lot of investors had gained confidence in best mutual funds and were investing in larger amounts.

Phase III (1993-96): Emergence of Private Funds:

In the year 1993, the private sector got the nod to establish mutual funds. This was a breakthrough moment in the mutual fund industry as the investor had a broader choice of options and there was healthy competition between the public and private sector funds. This also allowed foreign companies to make an entry in the Indian mutual fund industry but through a joint venture with Indian promoters. Through the private sector, new product innovation and investment management techniques were introduced in the mutual fund industry.

Phase IV (1996-99): Growth And SEBI Regulation:

With the private sector and foreign players entering the mutual fund industry, it witnessed a tremendous growth in the industry. Indian economy had become more liberal which helped introduce more competition and thrust to the growth of the mutual fund industry. The increasing growth of the mutual fund industry beckoned introduction of regulation and this is when SEBI (Security Exchange Board of India) regulations come into existence. During the budget of 1999, a big step of exempting all mutual fund dividends from income tax in the hands of investors was taken. It was also during this time AMFI launched awareness programme in the interest of the investors.

Phase V (1999-2004): Beginning of a Large and Uniform Industry:

From the year 1999, a beginning of a modern economic phase of the mutual fund industry has emerged in terms of growth. In 2003, UTI act was updated and UTI no longer had special legal status and it adopted the same structure of trust and AMC as any other mutual fund. UTI comes under SEBI guidelines like any other mutual fund in India. The uniformity in the mutual fund industry made it easy for investors and distributors. During 1999 and 2005, the size of AUM saw a growth from INR 68000 crore to INR 1,50,000 crore.

Phase VI (From 2004 Onwards): Consolidation and Growth:

Since 2004, mutual fund industry has grown from strength to strength. The merger between big mutual fund houses and more international players continue to enter the Indian mutual fund industry. The mutual fund has also seen a surge in investments due to the introduction of technology for ease of making investments and available investment tools like mutual fund calculators. There are various categories and types of mutual funds available in the market today.

ADVANTAGES OF MUTUAL FUNDS:

Diversification feature in the mutual fund mitigates the risk and improves the overall returns for the investor.

Mutual fund transaction cost is spread over a large pool of investors and hence, it comes down to nominal rates for the individual investor.

There are many options of different types of mutual fund schemes available in the market like equity, money market, balanced and hybrid. An investor can choose the best mutual fund scheme as per his/her investment objectives.

Types of Mutual funds are professionally managed by a fund manager and its team. It saves time and effort on part of investor and results in high returns than other investment types.

Mutual fund schemes offer flexibility and affordability in investment through SIP (Systematic Investment Scheme).

Mutual fund investments are easy to liquidate as trading of mutual fund units are done on regular basis.

Dividend returns on mutual funds are tax-free in the hands of the investor. This enhances the returns value of the mutual funds than other investments.

Mutual fund operations are well regulated and come under the guidelines of SEBI which regularly overlooks the operations of mutual fund houses.

STRUCTURE OF MUTUAL FUNDS IN INDIA:

The mutual fund operates through 4 tier structure of Sponsor, an asset management company, Board of Trustees, and a custodian.

Sponsor:

Sponsor is responsible for establishing the mutual fund. It may be an individual or corporate body. The sponsor of the mutual fund needs to compulsorily contribute at least 40% of the net worth of the AMC.

Board of Trustees:

The mutual fund house needs to have an independent board of trustees. The two-thirds of the trustees need to be totally independent and not associated with the Sponsor of the mutual fund. Trustees are responsible to protect the interest of the unit holders or investors of the mutual fund.

Asset Management Company:

The asset management company looks after the investing and administrative functions of the mutual fund. They have fund manager and analyst team of look after the daily trading of the investments. AMC charges a fee on the mutual fund for the services offered which is also known as an expense ratio of the fund.

Custodian:

As per the SEBI guidelines, the portfolio securities need to be guarded by a qualified bank custodian. The mutual fund house is required to have a registered custodian for their mutual fund securities.

Tips for NRIs to Invest in Indian Mutual Funds

Indians migrate to other countries in search of better paying job opportunities. However, most Indians want to return to India one day as no place in the world can replace the joy of living in your own country. Be it the rich culture, food, or weather conditions, India is truly an incredible place to live. Most of the Indians that go abroad for work have dependents living in India. In such a case, making an investment in India becomes almost necessary for them. This article will give out tips for NRIs to invest in Indian mutual funds.

Can a NRI (Non-Resident Indian) invest in mutual funds in India?

Absolutely, NRIs can invest their money in mutual funds in India provided that they comply with the Foreign Exchange Management Act (FEMA). Through mutual funds, an NRI investor is able to create a diversified portfolio of a good mixture of equity and debt securities. Even if the NRI investor wants to play safe and requires regular income from the investment, then the Indian debt market has good potential to fulfil the desired requirements. The investment can be made with an appropriate mixture of equity, hybrid, and debt funds.

What are the benefits of mutual fund investments for NRIs

Today in the entire world, India has become one of the fastest growing economies and due to this, thousands of investors all around the world want to invest in India. The following are the benefits that NRIs can enjoy through mutual funds:

Manage fund online easily from anywhere

Thanks to technology and internet, it has become easier to manage and track mutual fund performance from anywhere in the world. Investors can control their investments online like switching and redeeming funds. There is no requirement to give physical bank DD/cheque or requirement of being in the same country.  In today’s day and age, most companies send the regular statement (CAS) through email. All the information related to the best mutual funds is updated online on a daily basis which can be accessed by the investor from anywhere, just by login to the mutual fund house website.

NRI investor can make more profit from currency exchange prices

If the value of the rupee has fallen as seen in recent times against the dollar, then as an NRI investor he/she can get more gains out of their investment. For example – If 1 dollar is equal to 74 rupees, then an NRI investor can get more units of a particular mutual fund. The dividend and returns due to increasing gap of the currency will help fetch higher returns and overall more profit for the NRI investor.

What is the Procedure for NRIs to invest in India

The mutual fund houses do not accept or foreign currency. The NRI investor will first need to open an NRE account, NRO account or FCNR (Foreign Currency Non –Resident) account with the bank in India. Following the opening of the above-mentioned account investment in the mutual funds can be done in the following ways-

  

a. Self

An NRI investor can carry out the transaction through normal banking platforms. The application along with KYC details need to be confirmed if the investment is on a repatriable or non-repatriable basis. For KYC, an investor will need to furnish passport copy, PAN card copy, residence proof outside India and a bank statement. The bank may ask for in-person verification which can be done by visiting the Indian embassy of the resident country.

b. Through Power of Attorney

The other method is to give the rights to someone else to do the investment on your behalf in India. Mutual fund house entertains Power of Attorney holders to make the investment and take crucial investment decisions on the NRI investor’s behalf. The signature of both the parties i.e. the NRI investor and the Power of Attorney holder need to present on the KYC document to make the investment.

Regulations set for NRI investors for mutual funds

KYC for NRIs

NRI investor needs to get the KYC done mandatorily for investment in mutual funds. They will need to submit proof of identity and residential proof.

FIRC (Remittance Certificate)

If the payment in the mutual fund investment is made through a draft or cheque, then the NRI investor need to attach FIRC (Foreign Inward Remittance Certificate) along with it. If that is not possible, then a letter confirmation from the bank will also do to confirm the funds have come through a legal channel.

 Redemption

The best performing mutual funds house will credit the investment (capital amount + gains) to the NRI investor account on redemption. If the investor has opted for non-repatriable investment, then the redemption proceeds can only be transferred to an NRO account.

What are the Tax implications for NRI Mutual Fund Investors?

Most of the time, NRI investors have the misconception that they will have to pay taxes in India and also in the resident country. This is not the case if India has signed a DTAA treaty (Double Taxation Avoidance Treaty) with the resident country. For example, if the taxes are also deducted in India on the investment, then the NRI investor will not have the liability of tax to be paid in his/her resident country.

Some of the reputed Mutual Fund Houses in India that accept NRI Investments

•    HDFC Mutual Fund

•    Sundaram Mutual Fund

•    DHFL Pramerica Mutual Fund

•    PPFAS Mutual Fund

•    SBI Mutual Fund

•    Birla Sun Life Mutual Fund

•    ICICI Prudential Mutual Fund

•    UTI Mutual Fund

•    L&T Mutual Fund

Some Important Points to remember when investing in India

•    Attachment of resident proof in the foreign country is mandatory along with the application

•    The right of repatriation of the amount is valid only until you have the NRI status

•    US and Canada have more stringent compliance of overseas investments for their residents

•    Check if your resident country comes in the countries that have signed the Common Reporting Standard.  CRS has been formed to report and eradicate tax evasion for the investment made in other foreign countries.

NRIs can certainly choose to invest in their home country. The process may look a bit complex initially but in the long run, the investments made in the home country are worth it. Presently there are eight mutual fund houses that are accepting investment in mutual funds from NRIs living in USA and Canada, where majority of Indian choose to travel for work. Hence, if you are a NRI then you should not miss the opportunity of investing in one of the fastest growing economies in the world.

Mutual funds have become the best source of wealth creation from market-related investments.  Mutual funds mitigate the market-related risks and give the investor an opportunity to make the most from the investment. An investor can track the progress of his/her mutual fund online on a regular basis to know the performance of the mutual fund. One of the key components when it comes to tracking the mutual fund performance is NAV (Net Asset Value) of the fund. The NAV is updated daily and is accessible to the investor to see. In this article, we will learn about the NAV and how NAV of a mutual fund is calculated.

What is NAV?

When an investor invests in mutual funds, units are allotted for the specified amount. NAV is the value per unit of the particular mutual fund on a specified day. It can be considered as a book value of the mutual fund.  The NAV gets computed every day of the active stock market. The NAV depends on the stock prices of the companies on a day to day basis, in which the mutual funds hold its investment.  If you plan to sell your mutual fund scheme, it is not necessary that you will be able to sell at the present day’s NAV. Suppose if you sell your mutual fund scheme too early, then you may be charged an exit load on a percentage of NAV. This way your actual selling price and NAV may show different figures.

For example:

If you invest INR 20,000 in a scheme that has a NAV of INR 100, you will be allotted 200 units of that mutual fund scheme. Let’s assume the NAV of the mutual fund increases to INR 110 in the period of six months and you want to redeem them. You will receive INR 22,000, but if the exit load of 1% is applicable on your withdrawal, you will get INR 21780 (200 units X INR 109.9 NAV minus the exit load)

How is mutual fund NAV calculated?

The calculation of the mutual fund NAV is done at the end of the day after the market closes and is based on the market value of the fund. The formula to calculate Ulip NAV is:

NAV = (Assets-Liabilities) / No of outstanding shares

You can use this formula to calculate the NAV of any mutual fund once the market trading is done for the day.

Liabilities generally include long-term and short-term liabilities, in addition to all the expenses, such as administration fees, fund manager salary, and other miscellaneous expenses.

There is a change in the NAV when a number of shares’, assets and liabilities change. If the number of assets increases, the NAV of the mutual fund will increase and if the liabilities increases then the NAV decreases.

For example:

Mutual Fund scheme that you are invested in has INR 100 crore of investments, after the day’s closing price of each asset.

It additionally has INR 7 crore of cash as well as INR 4 crore in total receivables.

The income for the day after trading is INR 7, 50,000.

The scheme has INR 13 crore in short-term liabilities and INR 2 crore in long-term liabilities.

Accrued expenses for the day are INR 1 lakh. The mutual fund has a worth of 5 crore of shares. The NAV will be calculated as per the below formula:

NAV = ((100,00,00,000 + 7,00,00,000 + 4,00,00,000 + 7,50,000) — (13,00,00,000 + 2,00,00,000 + 1,00,000)) / 5,00,00,000 = (111,07,50,000 — 15,01,00,000) / 5,00,00,000 = 19.21

How is NAV (Net Asset Value) different from the price of an equity share?

The market price of an equity share is normally different from its book value. There are many factors dependent on the price of the share that is listed on the stock exchange such as the company’s future and the sectoral performance in which the company is operating.

An investor does not have to worry about the market demand of the mutual fund as there is no such thing as market value for the mutual fund.  The mutual funds can be purchased as per the NAV on the given day.  Hence, the investor never has to worry about the right price of the asset. In a mutual fund scheme, there is no concept of high or low valuation of a mutual fund scheme. All depends on the performance of the stocks which exist in the portfolio of the fund. This makes the valuation of mutual funds more transparent and easy to understand.

Misconceptions about NAV

NAV is only the book value of the mutual fund in India scheme; it has nothing to with undervaluation or overvaluation of the mutual fund. There is a misconception amongst many investors that a fund value of INR 10 is better and cheaper than fund value of INR 100. Many a times, funds with a similar portfolio can have different NAVs. The wrong perception of the NAV is built by the investor for the mutual fund scheme he/she tries to compare the market price of an equity share.

Does NAV matter?

There is a false perception amongst investors that lower NAV will give them better returns. The return of a mutual fund scheme does not have anything to do with the NAV.

For example – an investor has INR 1,00,000 to invest in a mutual fund scheme. There are two options fund A and fund B.

Fund A has NAV of INR 100 and fund B has NAV of INR 500.

The investor will be allotted 1000 units if he/she invests in fund A and 200 units if he/she decides to go for fund B.

On completion of a year say the investment grows by 25%, let’s see the returns on fund A and fund B-

NAV of fund A will be INR 125 and fund B will be INR 625.

The returns calculation of your investment for fund A will be 1000 units X 125 = INR 1,25,000 and for fund B will be 200 units X 625 = INR 1,25,000.

Hence, the returns on both the mutual fund schemes are same irrespective of the different NAV.

Factors that actually affect the mutual fund returns

•    Quality of the mutual fund scheme

•    Quality of stocks in the mutual fund scheme

•    The efficiency of the fund manager and its team