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Most of our parents and grandparents have invested their hard-earned money into trusted FDs, and PPFs and relied on gold for wealth creation. That was a good option a long time ago, but today, that's a way to lose wealth than make wealth. A bank deposit earns 6% per annum. The interest earned on the principal is taxed according to the tax bracket. If the tax bracket of the individual is 20%, the net interest earned is 6%*(1-20%) = 4.8%. The current inflation ranging from 4% to 6%, erodes the wealth that is created by the bank deposit. Hence, in the current economic scenario, these instruments are not sufficient for beating inflation and creating wealth with reasonable returns over the years. Debt as an investment vehicle has always been trusted as there is a fixed promised return and a guaranteed principal payment, giving a sense of comfort to the investor. The debt market is a platform that enables the purchase and sale of loans in exchange for a rate of interest and periodic payments of the coupon. These markets are lesser risky than their equity counterparts, and hence also have lower returns when compared to equity instruments. In the following article, we explore various facets of this financial instrument.  What is a Debt Mutual Fund? A debt fund is a mutual fund that invests in fixed-income instruments such as treasury bills, commercial paper, government bonds, corporate bonds/debentures, money market instruments, etc. All the instruments that the fund invests in have a maturity and a fixed coupon or interest rate payment that the buyer/investor can rely on – hence have the name - fixed-income instruments. These funds are also known as bond funds or fixed-income funds. As the returns are pre-decided, they are not affected by market fluctuations when the instruments are held until maturity. Hence, these funds are low-risk options for an investor. Every debt security is assigned a credit rating which indicates the risk/probability of default, based on which the fund managers take a decision to either include or exclude them in their portfolios. If a paper or debt security has a high credit rating, it implies a low probability of default i.e., the borrower has a high propensity to pay back the principal and interest. Fund managers sometimes also choose a lower-quality debt to earn higher returns by taking a calculated risk. A debt fund with a higher amount of high-quality debt is more stable and less prone to market fluctuations however, earns a lower return. The fund manager also has the flexibility to choose long-term or short-term debt based on the existing yield curve or interest rate regime in the economy.  Types of Debt Funds Debt funds are classified based on the maturity period as follows - Liquid Fund: This fund invests in money market instruments that have a maturity of fewer than 91 days (3 months). The returns earned by these funds are greater than the savings accounts. These are considered one of the best alternatives for liquid and short-term investing. Gilt Fund: These invest over 80% of the assets into Government securities over a range of maturities (10 years, 5 years, etc). These funds are credit risk-free (as one is lending to the Government of India, which cannot default on its payments), however, are highly vulnerable to interest rate risk. Dynamic Bond Fund: These invest in debt securities with a range of maturities, adjusting for the interest rate regime or yield curve prevailing in the economy. These funds are ideal for investors seeking moderate risk with an investment horizon of 3-5 years. Money Market Fund: The fund invests in debt securities with a maturity of less than 1 year. These are sought after by investors looking for short-term investment options in low-risk vehicles. Corporate Bond Fund: This fund invests over 80% of the assets in corporate bonds with the highest credit rating (implying a low risk of default). These are suitable for investors seeking low risk and provide exposure to corporate bonds which provide higher returns than the G-secs. Banking and PSU Fund: The fund invests over 80% of its assets in Banks and PSU bonds. Credit Risk Fund: These funds are mandated to invest over 65% of their assets in bonds with a credit risk rating below AA+. They aim to generate a return higher than the funds invested in G-secs and other high credit-rating debt securities, by taking on more risk in their portfolios. However, these funds only thrive in a credit conducive environment where the economy is booming. These funds are very volatile and are suitable for investors seeking moderate-high risk. Floater Fund: These funds invest over 65% of their assets in bonds with a floating interest rate. One should consider investing in floater funds when there is a rise in interest rates in the economy to reap the maximum benefits. Short-term floater funds typically invest in Government securities with a tenure of less than one year. Longer-term floater funds invest in corporate bonds, debentures, and government bonds. Flexibility in tenure makes it an attractive investment to all investors in the market. Despite these funds providing higher returns (lower than equity funds), they are heavily reliant on market conditions, implying uncertainty in the prediction of returns that can be expected from these funds. Investors looking to make gains from the interest rate fluctuations, dilute the interest rate risk factor in their portfolio, or have their wealth unaffected by the volatile market fluctuations prefer to invest in these funds. Overnight Fund: These invest in securities with a maturity of 1 day. Due to the extremely small-time horizon, the interest rate and credit risk are almost negligible (SEBI also mandates these funds to invest in low-risk debt securities). The returns earned from these funds are also lower ranging from 3-5%. These funds do not charge exit loads even when the units are redeemed in a day, which was the primary reason for their popularity among investors. What is Macaulay's duration? This financial jargon indicates how many years it would effectively take for the bond to repay back to the investor with its periodic cash flows. It can also be considered as the time at which the investor’s investment reached a breakeven. It is also used as an indicator for the interest rate sensitivity of the bond, the higher the duration, the higher the sensitivity. The following table indicates the type of bonds that the funds would invest in depending on their fund type. FUND TYPEMacaulay DurationUltra-Short Duration Funds3-6 monthsLow Duration Fund6-12 monthsShort Duration Fund1-3 yearsMedium Duration Fund3-4 yearsMedium – Long Duration Fund4-7 yearsLong Duration Fund>7 years What type of Investor should invest in Debt Funds? Debt funds are considered ideal for risk-averse investors who aim to generate a regular income out of their investments. The funds diversify across various securities and ensure a stable return to their investors. If an investor has been saving in bank deposits for their stability, then he/she could prefer debt mutual funds and earn similar or higher returns in a tax-efficient manner. The funds are available for short-term (3-12 months) and medium-term investors (3-5 years). As an investor, if you are looking for a more liquid investment, you could prefer a short-term fund over a savings account and earn 7-9%. Monthly Income Plans (MIPs) also provide an option for the investor to receive a monthly payout, similar to FDs. Risks in debt funds We are not suggesting that debt funds are risk-free. That tag only belongs to the Government of India (Sovereign Debt). The underlying risks that one must consider while investing in debt funds are as follows - Liquidity Risk: In an economic downturn, the fund house could receive an umpteen number of redemption requests from the pool of investors. There is a possibility that the fund may not have enough cash and cannot sell/reverse their positions due to the economic conditions to oblige to all the requests. This risk is known as liquidity risk. Interest Rate Risk: When the interest rates increase, the NAV of the fund falls. In case of the interest rate decline, the value of bonds in the portfolio increases, due to their higher pre-decided coupon rates. This also pushes the NAV of the debt funds in an upward direction. Hence, the NAV of the fund is prone to interest-rate fluctuations in the economy. Credit Risk: The probability of default, i.e., the event when the borrower does not pay the principal and interest.  Expense Ratio: It is the fees paid to the fund house for managing your money. One should also consider this expense while investing in a debt fund. These funds earn lower returns than their equity counterparts. If the expense ratio is high, it could dent future returns/earnings. Hence, it is always advisable to stay invested for a longer duration and to choose funds with a lower expense ratio. Benefits of debt funds High Liquidity: Debt funds are typically considered alternatives to fixed deposits. Along with providing recurring returns, debt funds (especially liquid funds and overnight funds) have high liquidity where investors can redeem their investments in the shortest time frame. Investment Horizon: There are umpteen options available for any type of investment horizon that is preferred by the investor – a large number of options to choose from and hence make a portfolio customized for yourself. Higher Returns: The debt funds provide a higher return than the typical FDs, and savings accounts. Tax Efficiency: The interest rate earnings are taxed every year in the case of FDs. However, in the case of debt mutual funds, the investor reaps the benefits of indexation after a holding period of 3 years. Flexibility: The funds also provide an option to transfer the units to equity schemes if the investor is ready to take on additional risk for higher returns. Such options or alternatives are absent in the traditional route of FDs and bank deposits. FAQs What are debt funds? A debt fund is a mutual fund that invests in fixed-income instruments such as treasury bills, commercial paper, government bonds, corporate bonds/debentures, money market instruments, etc. What are the benefits of debt funds? High Liquidity Investment Horizon Higher Returns Tax Efficiency Flexibility Is it good to invest in debt funds? Yes, debt funds are a great investment option for investors. These offer higher returns over a long investment horizon and are tax-efficient as well. Is a debt fund better than an FD? Both are great investment options. FDs are more secure and offer fixed stable returns. A debt mutual fund offers high returns and has a risk factor involved.

Comparison is an integral part of our life. Be it our constant nemesis Sharma Ji ka beta or be it our “friend” who always has everything that we aspire to. We all have parameters and factors with which we compare ourselves – salary, number of cars/bungalows owned, or something else. Similarly, there are factors that one should consider when one is planning to invest in mutual funds. There are n (n tending to infinity) number of options in the market for different goals and risk appetite of the investor. So, how do you evaluate a mutual fund and make the choice? Read on to understand the same! Expense ratio The expense ratio is the management fees that the fund charges – for managing your money and giving you the promised returns. This is generally a % of your investments, hence will impact your earnings from the fund. Always chose the fund with a lower expense ratio, as it forms a smaller dent in your long-term earnings. The expense ratio of a regular plan tends to be more than a direct plan. This is due to the intermediary distributor in the value chain who would also need a piece of the pie. For example, if a regular plan has an expense ratio of 2%, 1% goes to the fund and 1% goes to the distributor. However, in the direct plan, you would be charged only 1% which is attributed to the efforts of the fund. While comparing two funds, ensure that you are comparing direct-direct and regular-regular plans. (Apples to apple comparison) Benchmark SEBI mandates that each fund declare a benchmark, as it promises the investor that it would aim at achieving a return that is higher than the market. For example, ABC fund has declared the Nifty 50 as its benchmark. When the market rallies by 15% and the fund have delivered a return of 12%, it indicates that the fund has underperformed. However, when the market falls by 12% and the fund declines only by 10%, it indicates that the fund has outperformed the benchmark. Hence, a fund should beat the benchmark during market upturns and should decline lesser than the market in case of a downturn. Hunt for funds that have consistently performed better than their benchmarks.  Risk measurement A typical thumb rule or mantra in the financial industry is that - higher risk implies higher returns (Bank FD interest rate < Stock Returns). However, measuring the risk with only the returns becomes complex in the case of mutual funds, as there are factors such as sector allocation and other market conditions which affect the returns of the fund. Alpha and Beta then come to your rescue. These Greek alphabets are your crystal balls which give you a fair idea about the risk involved. Alpha indicates the surplus return generated by the fund when compared to its benchmark. Beta indicates the volatility or risk involved in the fund. For example, Fund ABC generated an alpha of 1 and had a beta of 1.5 whereas Fund XYZ had an alpha of 1 and a beta of 2. Then chose Fund ABC, since the risk is lower and the return generated is the same – in finance parlance, the risk-adjusted returns of Fund ABC > Fund XYZ. Allocation of sectors within the fund Consider a large-cap fund, SEBI mandates it to invest over 65% of its portfolio into large-cap companies. However, there is no restriction on the sector in this case. The fund manager may choose to invest in the pharma sector which has seen a boom post-COVID or could invest in the FMCG industry or the financial sector. Sector exposure also determines the risk of the fund. Depending on your risk appetite, and your preference for the sectors - accordingly do a right swipe on your fund match. Category average One last factor to consider would be a comparison against the Category average. What is the category you ask? Large-cap, mid-cap, and small-cap would classify as the category. The category average is the median of all the data of the funds. This gives insights into how our fund has performed when compared to all the other players in the market. There could be cases where your fund has provided returns greater than the benchmark, but all the other funds in the category have also outperformed the benchmark. Comparing with the average in the same class (Category) gives you another realistic indicator of how your fund has performed. For example, if the category average is 33% and your fund has given you returns of 39%, it indicates that your fund has outperformed its peers.  FAQs How can I compare the best mutual funds? There are a few categories to consider when comparing mutual funds such as returns generated over 3 - 5 years, fund managers and their professional history, category average, asset allocation, and portfolio diversification, benchmark, risk management, and expense ratio. Where we can compare mutual funds? You can also compare the mutual fund performance manually, through online investment sites, or ask your financial advisor for help. What is the 15x15x15 rule in a mutual fund? The 15x15x15 rule in mutual funds is a popular rule in investment which says that investing Rs.15, 000 for 15 years at a 15% interest rate can make any investor a crorepati. When there are two mutual funds How will you compare and take investment decisions? By comparing mutual funds' Net Asset Value, you can determine their potential and make the right choice. You can also consult a financial advisor if you are new to the field of investment. Conclusion You can get detailed information on the performance and other aspects covered above on the EduFund app. You can start your investment journey with EduFund and even get advice from wealth experts to invest in the top mutual funds in the country.

Equity Funds primarily invest in equity (stocks) and equity-related instruments. According to SEBI’s regulations, an equity fund should invest at least 65% of its assets into equity and equity-related instruments. These funds are ideal for most people who aim to invest for a longer time horizon for wealth creation. Investors need not possess any financial knowledge before investing their hard-earned money into these well-managed funds, as sufficient research and analysis are conducted by the fund manager and their army of analysts before investing. The funds are also diversified, hence reducing the blow of volatility (the higher the diversification, the lower the effect of adverse market or underlying security movement) in the market, and also allowing the retail investor to gain returns over smaller investment corpora.  Below is the list of top-performing equity funds, which includes information on their 1-year, and 3-year returns, AUM, the performance of the fund, and their pros, and cons. 1. Axis Long-Term Equity Fund Minimum Investment Amount (Lump Sum)Rs 5000Minimum SIP Investment AmountRs 500Expense Ratio 0.72%AUMRs 28,556.83 Cr Performance The fund has delivered an annualized return of 14.85% over the last 3 years (54.47% over the past 1 year) and has constantly outperformed its benchmark (S&P, BSE 200 Total Return Index).  Pros  The fund has higher 3-year and 5-year returns as compared to the category average. ELSS fund – Tax haven for 80C Cons Assets Under Management (AUM) of the fund are greater than Rs 20,000 Cr. When a fund crosses a certain AUM threshold, the returns from the fund tend to decrease or stagnate. Investors should monitor the performance 2. Parag Parikh Flexi Cap Fund Minimum Investment Amount (Lump Sum)Rs 1000Minimum SIP Investment AmountRs 1000Expense Ratio 0.96%AUMRs 8,701.65 Cr Performance The fund has delivered an annualized return of 21.11% over the last 3 years (76.57% over the past 1 year) and has constantly outperformed its benchmark (NIFTY 500 Total Return Index). The fund is suitable for investors who are looking to invest for greater than 3-4 years. The fund invests across market capitalizations (Flexi cap – large, mid, and small-cap) to deliver above-category average returns to its investors. Pros Fund has higher 1-year, 3 years and 5-year returns as compared to the category average Low expense ratio Cons None. 3. SBI Equity Hybrid Fund Minimum Investment Amount (Lump Sum)Rs 1000Minimum SIP Investment AmountRs 500Expense Ratio 0.97%AUMRs 38,080.12 Cr Performance The fund has delivered an annualized return of 12.20% over the last 3 years (42.72% over the past 1 year) and has constantly outperformed its benchmark (CRISIL Hybrid 35+65 Aggressive Total Return Index). The fund invests in a mixture of debt and equity (as the name hybrid suggests) - invests in high-growth companies and balances this risk/volatility by investing in fixed-income securities. (At least 65% in equity and 20-35% in debt and money market instruments)   Pros Fund has higher 1-year, 3 years and 5-year returns as compared to the category average Low expense ratio Cons Assets Under Management (AUM) of the fund is greater than Rs 20,000 Cr. When a fund crosses a certain AUM threshold, the returns from the fund tend to decrease or stagnate. The investors should monitor the performance. 4. SBI-Focused Equity Fund Minimum Investment Amount (Lump Sum)Rs 5000Minimum SIP Investment AmountRs 500Expense Ratio 1.77%AUMRs 14,533.37 Cr Performance The fund has delivered an annualized return of 13.08% over the last 3 years (51.60% over the past 1 year) and has constantly outperformed its benchmark (S&P BSE 500 Total Return Index). The fund aims to deliver high returns to its investors by investing in a highly concentrated portfolio containing equity and equity-related instruments. (At least 65% in Equity and 20-35% in debt or fixed income and 0-10% in REIT/InVIT) Pros Fund has higher 3-year 5 year and 10-year returns as compared to the category average. The fund has been in the market for over 10 years. Cons High expense ratio 5. Axis Bluechip Fund Minimum Investment Amount (Lump Sum)Rs 5000Minimum SIP Investment AmountRs 500Expense Ratio 0.55%AUMRs 25,134.85 Cr Performance The fund has delivered an annualized return of 16.55% over the last 3 years (46.32% over the past 1 year). The fund has constantly outperformed its benchmark index (NIFTY 50 Total Return Index). It invests in large-cap companies which have stable balance sheets and are market leaders in their respective sectors. It provides its investors with stable, reliable, and high returns. Suitable for investors seeking long-term investment options (of greater than 5 years).  Pros Fund has higher 1-year 3 years and 5-year returns as compared to the category average. The expense ratio is on the lower end. The fund has no lock-in period. Cons Assets Under Management (AUM) of the fund are greater than Rs 20,000 Cr. When a fund crosses a certain AUM threshold, the returns from the fund tend to decrease or stagnate. Investors should monitor the performance FAQs Which mutual fund is best in the current situation? Here are some of the best mutual funds in the current situation: Axis Long-Term Equity Fund Axis Bluechip Fund SBI Equity Hybrid Fund Parag Parikh Flexi Cap Fund SBI Focused Equity Fund What are the best 5-star mutual funds? Axis Long-Term Equity Fund Axis Bluechip Fund SBI Equity Hybrid Fund Parag Parikh Flexi Cap Fund SBI Focused Equity Fund What are the top 3 mutual funds? Some good performing mutual funds in India are:Parag Parikh Flexi Cap Fund Axis Bluechip FundSBI Focused Equity Fund Is today the right time to invest in mutual funds? There is no fixed right time for investing in mutual funds. You can start investing whenever you wish to enter the market and reap the benefits of compounding. Conclusion In a nutshell, here's why should you invest in equity funds - Highly diversified Can invest in smaller amounts and still reap the benefits of high returns Highly regulated by SEBI (Investor Protection) Tax benefits - Indexation, LTCG and STCG Offer higher returns than traditional instruments (however, have a higher risk than debt funds) You can get started on your investment journey by downloading the EduFund app today! DisclaimerMutual fund investments are subject to market risks. The past performance of a fund is no surety of the future performance of the fund.

What are blue-chip companies? The blue-chip companies with a large market capitalization (i.e., how much a company is worth. For example, ABC Corporation has 10 lakhs of outstanding shares the shares held by the shareholders which include retail investors like you and me, institutional investors like large companies, and owners of the companies themselves. Assume that the price of each share in the market is Rs 1000. Then the market capitalization would be = Price of the share * Number of outstanding shares = 100* 10 lakhs = Rs 10 Cr). The Market Cap of these companies runs in lakhs of crores and these companies have been in the market since your grandfather had his first tooth. So, these companies are ancient and have been in the market for a very long time. Most of them are market leaders in their respective sectors and have been showing consistent performance despite the ups and downturns of the volatile market. Why are these considered safe bets? These stocks belong to large companies which are established and are financially sound where they have large amounts of cash or their profits fund their growth or they can honor their debt obligations without any nasty case of default or bankruptcy. They have stable cash flows (Unilever, P&G, ITC, TCS, etc.) as they sell widely accepted, recognized, and high-quality products. As they have stable earnings, they also provide dividends to their shareholders (dividends are a share of profit that the company has earned in a quarter or in that financial year). Investors also categorize them as safe havens and rely on them to bounce back faster than the market owing to the experience and stability (less volatile) in stormy and rough market conditions. Wait, why are dividends important? Smaller companies borrow from financial institutions and invest their profits earned to fuel their growth. These companies do not have the ability to share the profit pie with their investors until they grow to a sufficient size. Bluechip companies, on the other hand, provide you with a regular income in the form of a dividend (apart from the price fluctuations – usually upwards in the market). This becomes important to an investor like you and me because these dividends are our other income or earnings which typically increase with inflation – hence we receive a higher dividend than the previous year to match that standard of living. They also indicate the stability and resilience of the company to economic downturns (a positive side effect indeed). These stocks and the funds which invest in these stocks are ideal for risk-averse or conservative investor who wants to grow their wealth with minimum exposure to volatility and risk of the market. As an investor, if you are looking to invest over a longer period (say for your 4-year-old’s education or your 10-year-old daughter’s wedding etc.) – i.e., a time frame greater than 5 or 7 years, bluechip stocks provide you with a safe and stable return. How do you invest in these stocks? You can either invest directly by choosing a sector, studying the company, performing your analysis, and adding your stock to your beloved portfolio or you can pay someone to do the above for you as you sit back and relax and see your money grow into a large corpus this is the idea of a Mutual Fund. Most mutual fund advisors/companies use Blue Chip funds synonymously with large-cap funds. Some of these funds also contain the name Blue Chip in them – for example, SBI Bluechip fund, ICICI Prudential Bluechip Fund, etc. SEBI mandates that > 80% of the fund’s portfolio should be invested in the top 100 companies sorted by market cap – which would be the blue chip companies. These funds also have the minimum SIP requirement of Rs 500, (or less) which makes it affordable to start building your retirement pot or the corpus for your future generation. FAQs What are blue-chip companies? The companies with a large market capitalization (i.e., how much a company is worth. For example, ABC Corporation has 10 lakhs of outstanding shares the shares held by the shareholders which include retail investors like you and me, institutional investors like large companies, and owners of the companies themselves. Why are companies called blue chip? Companies that have a large market capitalisation are called blue chip companies. These companies are very large and well-recognised companies with a long history of sound financial performance. For example, Unilever, P&G, ITC, TCS, etc. What are 10 bluechip stocks in India? 10 bluechip stocks in India are State bank of India, Bharti Airtel, Tata consultancy services, Reliance Industries, Coal India, HDFC, ITC, Infosys, ICICI Bank, ONGC, GAIL, and Sun pharma. Conclusion In short, Bluechip funds have consistent returns, are highly reliable companies (financially), and have a lower risk (as they are stable and less volatile) partly describing the qualities of a life partner. These funds also offer diversification into multiple sectors, hence giving you a balanced and low-risk portfolio suitable for your risk appetite. Consult an expert advisor to get the right plan TALK TO AN EXPERT

We often hear the word 'volatility in our day-to-day lives. What does volatility mean? A constant change or a rapid change, and can also mean unpredictability. Well, we live in a VUCA world (Volatility, Uncertainty, Complexity, and Ambiguity) where Volatility is a part and parcel of our life. We try to reduce financial uncertainty by constantly saving in our piggy banks (aka our investment portfolio). We also minimize the uncertainty of life using life insurance products. Funds and securities are also volatile in this VUCA world. However, we can measure the volatility and make informed choices about our investments. When we go to some of the websites to make our choice for investing in one of the funds, we often come across indecipherable Greek alphabets such as alpha, beta, etc. This article is to decode the jargon around volatility, and we assure you that the next time you visit a website or read a report on a fund, it will surely make more sense. What is volatility in mutual funds? It means a simple up-and-down, market movement in the value (prices or Net asset value).  Consider the two cases as shown in the following figures. If the expected price of the stock based on the analysis of historical data is Rs 58. In Case A, in a short span of time, as an investor or a market participant, I see that the stock has sudden upward movements ranging to Rs 80 and also has a downward movement reaching Rs 40. Hence, the stock is deviating from the expected price (or the mean price) – this case is considered to be highly volatile or highly unpredictable. In Case B, we observe that the price is stable or is hovering around the expected price. This stock or fund is considered to be less volatile. Higher volatility indicates unpredictability – and is perceived as a risk. As an investor, I hence command a higher return as a “price” for my sleepless nights. If I am willing to take a risk, I invest in Case A, where I could be earning a profit of Rs 22 (higher than Case B) or losing Rs 18 (based on the example) – a double-edged sword indeed. Volatility is hence a measure that one must consider before investing. As investors, each of us has a different risk appetite. Some of us can sleep even when our portfolio suffers a downward swing of 15%, whereas some of us have nail-biting moments when our portfolio sinks by a mere value of 5%. Determining your risk aversion becomes a paramount factor in building a tailored portfolio – It is up to you to determine if you want to jump onto the roller-coaster or to take on an easy slide. How to measure volatility in mutual funds? Going back to 10th-grade Mathematics - Standard Deviation The standard deviation essentially indicates the fall and rise of the returns of a fund or the prices of a stock/security. Does it indicate the variation from the mean return? higher the variation, the higher the standard deviation implying higher volatility. Consider Case B or a fund with a constant return of 9% over a 3-year horizon. Here, the standard deviation is said to be zero (as the mean is 9% and the return every year is 9%) and the fund is less volatile. However, consider Case B or a fund with returns of 9%, -18%, and 15% in each of the 3 years considered. The mean return of the fund is 6% (average of the returns), and the standard return would be a very high value (here, 17.58%) as the returns of the fund vary from the mean. However, volatility is one of the indicators of risk, and should not be the only variable that is considered by the investor. Stable past performance does not indicate the same for the future, but it could serve as a good way to project the future. Hence, as an investor what should you be looking at when you are choosing a fund? Try to minimize risk (volatility) and maximize returns – look for funds that give you similar returns and compare the standard deviations. Add the one with a lower standard deviation into the portfolio. The Greek letter - Beta (β) This Greek letter compares the returns of the fund with its benchmark. The beta of the market (here, the benchmark) is 1. If the fund has a β>1, say 1.5 then it indicates that the fund is more volatile when compared to its benchmark, and a fund with a β<1, is considered to be lesser volatile than the benchmark. When the β is closer to 1 it indicates that the volatility of the fund is closer to that of its benchmark.  Example: Consider β =1.5 for a fund. When the market rises by 10%, the fund’s Net Asset Value would rise by 10%* β = 15%. Similarly, if the market falls by 5%, the fund would decline by 5%* β= 7.5%. Hence, while choosing a fund consider the one which offers maximum returns with a lower β. FAQs How do you calculate the volatility of a fund? The volatility of a fund is calculated as the standard deviation multiplied by the square root of the number of periods of time, How do you explain volatility? Volatility refers to the movement of stock prices. When the price of a stock increases or decreases over a particular period, it indicates its volatility. How do you explain the volatility of a portfolio? Portfolio volatility means portfolio risk. It talks about the fund or portfolio's deviation from the set standard. What is good volatility? Volatility within a range of 10-20% is average and therefore, indicates minimal risk and deviation from the standard. DisclaimerMutual funds are subject to market risk. Please read all documents carefully before investing

We sometimes mimic the best strategies or life plans of our role models. Similarly, the index funds track or mimic the market indices such as Nifty 50, Sensex, etc. These funds use a passive investment strategy, where the responsibility of the fund manager is to only mimic the composition of the Index. This is the opposite of the active investment strategy used by mutual funds which promise to beat the benchmark or market returns, where the fund manager carefully analyses the market for opportunities and picks the perfect stocks for the portfolio by constantly buying and selling stocks and other assets to deliver the best return.  Whereas, the Index fund merely mirrors the companies or securities present in a particular index. For example, if ABC stock makes up 5% of the value of the Index, then the fund manager of XYZ fund with a Net Asset Value (NAV) of 10,000 will allocate 5% which is 500 to buy ABC stock. The idea of this investment strategy is “If you can’t beat them, then join them” – where one receives the average market return. Hence the responsibility of the manager is limited to only following the composition of the index and including the same in the fund, with an objective to deliver similar returns (with the same risk exposure) as the index. Index funds deliver a return smaller than the benchmark that they are tracking. Since there is no such thing as a free lunch, this is the expense ratio which is the fees charged by the fund to manage your money. An Index fund tracking Sensex (India’s benchmark stock index. Its composition is 30 of the largest and large-cap stocks), would invest in the same 30 stocks in the same proportion. Index funds can track different assets such as – stocks, bonds, commodities (Such as Oil, Gold, etc.), and currencies.  Cons of Index funds 1. Vulnerability to market crashes and market risks These funds are exposed to the same risk as that of the indices that they mimic. For example, if the Sensex comes down in value (similar to the crash of the Sensex in March 2020, where it fell by 23%), the funds tracking this index would follow the decline and have wealth destruction or decrease in NAV. Index funds which track bonds (This financial instrument are similar to the loan. Here, the investor is the lender, and the party which issues the bond is the borrower. The lender/investor receives a periodic interest payment – also known as a coupon. However, the bonds are tradable on stock exchanges), are prone to changes in interest rates. When the interest rates in the market decrease (regulated by RBI), the demand for bonds increases, and hence the price of the bonds increases. This leads to an increase in the NAV or the Index funds which track these bonds. Whereas, when the interest rates increase, the bonds decline in value and hence put these funds in the danger zone. 2. Less Flexibility & Limited Gains The fund cannot invest in a sector that is performing extremely well if it is not a part of the Index that it tracks. Hence, the gains that could be earned in case of a sector boom become limited. The investor only earns the returns of the market, whereas an investor in an actively managed fund could earn higher. Why should you consider investing in Index Funds? 1. Lower Expense Ratio? Lower cost (Paisa Vasool) As mentioned earlier, due to the passive investment strategy, the expense ratio or the fee charged to the investor is lesser when compared to actively managed funds which frequently buy and sell. charge higher for these transactions and services provided. This could drag down the growth of the portfolio over a longer period of time. This is illustrated by an example as shown below. If an investor had invested Rs.50,000 in 1991 (30 years ago) in Index fund A, he would have received a return of 11.7% and his investment would amount to 12.2 lakhs. Whereas, in Fund B it would amount to 10.1 lakhs (as shown in the figure). This difference of 2.1 lakhs is due to the lower expense ratio of the Index fund. Hence, in the longer term, these funds perform better than the actively managed funds offering similar returns. It is important to check the benchmark of an actively managed fund and decide if it is doing justice for the higher expense ratio that is being charged. Hence by surrendering to war with the market, you actually win.      2. Diversification: Ensuring that you don’t put all your eggs in one basket These funds are an indirect instrument of buying into the entire market, which implies that as an investor you are exposed to the entire market and its risks. If a sector such as Pharma was in the boom during March 2020, but the Financial sector stocks saw a decline – the stocks that are appreciating make up for the ones that are declining to keep the returns constant or increasing – implies a diversified portfolio.  FAQs What are Index Funds? Index funds are investment funds that follow a benchmark index like Nifty 50, Sensex in India and globally, S&P 500 or the NASDAQ 100. Are index funds a good investment? Index funds are a good investment for long-term investors. It passively tracks the benchmark index like S&P 500 or the NASDAQ 100 and invests in companies that have a proven history of profit. What is index funds for beginners? Yes, Index funds are a good investment for long-term investors. It passively tracks the benchmark index like S&P 500 or the NASDAQ 100 and invests in companies that have a proven history of profit. What is an example of an index fund? Here are some examples of index funds in India -IDFC Nifty 50 IndexNippon India Index S&P BSE Sensex Why Should You Consider Investing In Index Funds? Index funds replicate indices such as Nifty 50 and SENSEX which means they are not actively managed and the expense ratio for these funds is low. Another benefit of investing is portfolio diversification as the fund invests in companies across sectors from finance to pharma. Conclusion When you are choosing an Index fund, aim to invest in a fund that tracks a large portion of the market hence giving a wider range of a diversified portfolio. Also, chose a fund with low tracking error – which is the difference between the Index returns and the funds' returns. Hence a fund with a low tracking error indicates that it mirrors or tracks the index closely. Another aspect to consider while choosing the fund is the cost of the fund and past performance.

What is a Mutual fund? Mutual funds are investment vehicles that pool money from a large set of investors and invest this net corpus into various asset classes such as government securities, corporate bonds, stocks of companies, money market instruments, etc., to earn the promised returns to its investors. Fund manager who plays the role of the driver to the investment train and channels the pool of investments to align with the investment mandate and objective. Multiple schemes are launched by Asset Management Companies (AMCs) or fund houses to match the investment objectives of various investors. Why are mutual funds better than direct equity? Direct equity or investing in stocks all by yourself requires a detailed study of the company, its business, financials, quarterly earnings, expected growth, and all the recent news updates around the industry and company to make an informed choice. Investing in stocks gives flexibility to the investor to pick and invest in the companies and the sectors. However, the probability of a loss or risk is also very high in these investment vehicles, which is also coupled with a prospect of high return. Investors with a deep knowledge of the markets balance the risk and return of their portfolios, but for the rest of the pool of investors, mutual funds are the most convenient vehicles for investment. These vehicles also provide the diversification required to satiate the risk appetite of the investor by investing in various asset classes, and in various sectors within the asset class in a portfolio. Advantages of Mutual Funds 1. Low ticket size, with good returns Some of the shares of Bluechip companies have high prices, which often tend to be inaccessible to the investor. For example Hindustan Unilever Ltd, the leading FMCG company has a stock price of around Rs 2400. An investor who has a lower ticket size of investment of Rs 500 or Rs 1000, would find this lucrative stock to be out of his/her investment orbit. However, with mutual funds, one can buy units of the fund starting from Rs 500, which invests into these companies with the pool of money collected from the investors, hence providing every penny with diversified returns. 2. Professional management Mutual funds offer the expertise and an army of research analysts who perform a detailed study of the market conditions, industry outlook, company’s business, and financials and make an informed decision of investing the pool of money to earn the best returns. Everyone does not have the time and the knowledge to perform research and identify the right stocks and mutual funds to provide these services on a platter! 4. Liquidity Liquidity indicates the ease of entry or exit into any instrument. For example, Company A, a renowned company with strong financials is traded more frequently than Company B, a stock of an underperforming company, implying that the stocks of Company A are more liquid and easier to trade than Company B. Similarly, mutual funds are also liquid instruments, where an investor can buy units of the fund, and in an open-ended fund, he/she can sell the shares at NAV (Subject to exit load conditions of the fund). This ensures that the investor gets fair value for the units/shares of the fund. 5. Management of risk As individual investors, we often lack the expertise to assess the risk of our portfolio. We could also put all the eggs in one basket and lose our hard-earned money overnight. However, AMCs have risk management guidelines that limit or restrict the fund manager’s investments in some sectors and stocks. This ensures that the risk in the portfolio is well calculated and within the limits as promised to the pool of investors. The fund could also invest in various asset classes – bonds, commodities, stocks, gold, etc, which not only aids in diversification but also in gaining from the high potential returns from the asset classes. The fund manager’s decisions are also backed by strong research and analysis of each sector, asset class, and the conditions of the economy. 6. Choice or variety of funds Each of us has a different personality. Some of us are aggressive with our investments and can withstand a certain percentage of volatility, whereas some of us are risk-averse investors who cannot stand the thought of losing our money. Mutual funds are available that are approximately tailored to our risk profiles. For example, an aggressive investor can choose a diversified equity fund, whereas a risk-averse investor could choose to invest in a balanced fund. 7. Taxation Mutual funds offer indexation benefits for being invested in the fund for more than a year, which finally results in tax-free gains.  7. Transparency As an investor, you can see where your money is being invested. The strategy for investing is publicly declared by the fund. The NAV also updates daily, giving a lucid picture of the investment value to its investors How can mutual funds help in saving for education? Saving for your child’s education can be a daunting task, given the rising cost of education. In our previous generation, our parents depended on FDs, gold, and PPFs to fund our education, but the returns from these asset classes would not be sufficient to beat the current educational inflation. Investment in equity would be the best route for grabbing the maximum returns over every penny. However, investing in direct equity requires detailed analysis and research coupled with the volatility of the asset class. Mutual funds would be the one-stop solution for all your long-term goals providing you with financial discipline (through SIP) and also providing the required returns to beat inflation. If the child wants to pursue his/her higher education in a reputed college for costing around INR 25- 28 lakhs today, it will multiply to a much higher amount of over INR 1-1.5 cr in the next 15 years, given the educational inflation around the globe. To save for this scenario one would have to invest approximately Rs 15,000 – Rs 22,500 per month to accumulate the final corpus. One could also rely on an educational loan in the future but could accumulate 60% of the required corpus by investing Rs 9000 per month as a SIP into the fund.    1 Cr1.5 Cr0.6 CrMonthly saving required 14,959 22,438 8,975 Expected return rate15%15%15%Time Period  15 15 15 Maturity amount      1,00,00,000 1500000060,00,000  Types of Mutual Funds A plethora of options of mutual funds is available in the market, which allows the investor to choose based on the investment horizon, risk appetite, amount for investing, etc. The funds are categorized into the following types based on the - Principal Investments Maturity Period a) Maturity Period Classification 1. Open-ended funds The majority of the funds (approximately 59%) are open-ended. These provide the flexibility to buy and sell units of the fund at any point in time. There is no maturity period. It is like buying a stock, where you transact at the Current Market price – in mutual funds you buy and sell units at NAV. There is no exit load (subject to lock-in conditions). The key feature of these types of funds would be liquidity. 2. Close-ended funds These funds have a maturity period (of 3-5 years). Investors can have an entry into the fund only at the time of the New Fund Offer (NFO). However, the exit has two routes -  Sale of units through the stock exchange: In the case when the investor needs to withdraw the amount, he/she can sell it on the exchange. However, this route could be illiquid, as one may not find enough buyers for the sale of the unit and could also result in a potential loss (by selling the units at a lower price) The second exit route is at maturity. Some mutual funds give the option to sell and exit the fund through the periodic repurchase of units at NAV 3. Interval Funds These funds have the characteristics of both open and closed-ended funds, where the fund allows the purchase/sale of units at pre-defined intervals. b) Principal Investments Classification 1. Equity funds These funds invest in Equity and equity-related instruments. The fund manager aims to beat the market/benchmark by spreading across various sectors or by picking companies across different market capitalizations. They earn more returns than the Debt and Hybrid schemes. SEBI has defined 11 categories of these funds. It has also defined the variation between the categories as follows: Large-Cap: First/Top 100 companies in terms of Market Capitalisation Mid-Cap: 101-250 companies ranked according to Market Capitalisation Small–Cap: Companies ranking above 250 with respect to Market Capitalisation 2. Debt Schemes These funds invest in fixed-income securities such as Government Bonds, Corporate bonds, commercial papers, and other money market instruments. The maturities of these are fixed, implying that the returns are unaffected by the fluctuations in the market if held until maturity. These schemes are hence considered less risky when compared to the Equity Schemes. SEBI has defined 16 categories in these funds. 3. Hybrid Schemes These schemes invest in a combination of debt and equity to create a specific investment objective. Each hybrid fund has a different % of the allocation to debt and equity. Equity Oriented These invest >65% in equity and equity-related instruments. The remaining 35% is invested into debt and other money market instruments.  Debt Oriented These invest >60% of assets in fixed-income instruments or debt instruments such as G-secs, bonds, debentures, etc. The remaining 40% is invested in equity. 4. Balanced Funds These funds invest a minimum of 65% in equity and equity-related instruments. The remaining is invested in cash and debt securities. For taxation purposes, these are considered equity-oriented funds where a tax exemption of Rs 1 lakh can be obtained on the long-term gains from the fund. Conclusion Having a financial discipline aids in having a corpus for all your long-term goals. Mutual funds act as a convenient vehicle for driving you to your financial destinations (goals). As an investor one must consider their risk profile, investment horizon, goals, and investment amount before jumping into any fund. FAQs What is a Mutual Fund? Mutual funds are investment vehicles that pool money from a large set of investors and invest this net corpus into various asset classes such as government securities, corporate bonds, stocks of companies, money market instruments, etc., to earn the promised returns to its investors. Why Are Mutual Funds Better Than Direct Equity? Both mutual funds and direct equities have their merits and demerits. If you understand the market and have a well-researched strategy then direct equity can be beneficial. If you are a newbie, then mutual funds can be helpful. These are managed by experts who monitor the market regularly to ensure the best returns for their investors. Another difference is that direct equity gives you exposure to a single stock while mutual funds can offer exposure to multiple stocks and industries at once. What are the advantages of Mutual Funds? Low Ticket Size, With Good Returns Professional Management Liquidity Taxation Transparency Reduced management risk How Can Mutual Funds Help In Saving For Education? Saving for your child’s education can be a daunting task, given the rising cost of education. In our previous generation, our parents depended on FDs, gold, and PPFs to fund our education, but the returns from these asset classes would not be sufficient to beat the current educational inflation. Investment in equity would be the best route for grabbing the maximum returns over every penny. However, investing in direct equity requires detailed analysis and research coupled with the volatility of the asset class. Consult an expert advisor to get the right plan TALK TO AN EXPERT

A benchmark in mutual funds measures the overall performance of the fund against a set standard in the market. Let us explain! We all have a “Sharma Ji Ka Beta” in our lives, who has always been 'our benchmark' for the best academic performance, best campus placement, or the one who possesses the best car, etc. He is used as the SI unit for Success by our Indian parents. Similarly, the Mutual Funds are also compared with their respective Benchmarks, to assess their performance.  What is a benchmark? Benchmark in mutual fund or finance parlance is an index or a group of unmanaged stocks which are used to assess the fund’s performance, which is directly linked to the efficiency of its fund manager. Market indices like Sensex, Nifty, and others, serve as benchmarks with which the annualized returns generated by the funds are compared against. For example, ABC fund generates an annualized return of 12.3%, whereas its benchmark generates 15% annualized returns, then the fund has clearly underperformed.  SEBI mandates the declaration of benchmarks to the fund houses (Asset management companies that manage mutual funds such as HDFC, ICICI Prudential, etc.). This aids the investor in making an informed choice about investing or exiting from the fund. The current return assessment of the benchmark returns incorporates the dividends to provide accurate information to the investor. Fund houses select the benchmark that they would like to beat, by considering various factors such as - 1. Market Capitalisation If the investment strategy of the fund is to majorly invest in large-cap securities, then it would compare itself with the Nifty 50; if it is a Small-cap fund – S&P Small Cap Index, etc. (Link to refer to the information on mutual funds, their benchmarks, and annualized returns)  2. Sector/Thematic Focus where a mutual fund invests only in a specific sector of the economy such as energy, infra, real estate, etc. One can use the benchmark to have a common yardstick for the funds that are in the same category (Large-cap, Small-cap, Mid-cap, etc). For example, Mutual fund A outperforms the index or benchmark by 6% whereas Mutual Fund B beats it by 2%; hence providing a vivid picture to the investor.  How is this a report card of the fund manager? Mutual funds promise to deliver a higher return than the market on your invested amount (also called “beating the market”) and even charge a management fee known as expense ratio for the same. The fund manager actively sells, buys, hunts for opportunities to pounce, and takes informed choices on the behalf of thousands of investors invested in the fund. If a mutual fund is delivering lower returns when compared to its benchmark – an index, it indicates that one would have earned more by investing in an Index fund (passive fund) which mirrors the stock allocation in the indices. Hence, the performance against the respective benchmark becomes the report card of the efficiency of the fund manager. Benchmarks should be used to assess the performance of the fund only after a reasonable duration of 1 year. This also provides a larger window to measure the risk associated with the fund. One also needs to assess the consistency in performance. For example, due to market downturns, the index has declined by 20%, but if the fund has declined by 15%, and also outperformed the benchmark in previous years, it can be considered for investing.  FAQs What is a benchmark? Benchmark in mutual fund or finance parlance is an index or a group of unmanaged stocks which are used to assess the fund’s performance, which is directly linked to the efficiency of its fund manager. Who sets the benchmark of mutual funds? In India, SEBI mandates the declaration of benchmarks to the fund houses (Asset management companies that manage mutual funds such as HDFC, ICICI Prudential, etc.). Conclusion There could be a Benchmark error, where the mutual fund compares itself against a wrong yardstick. This could lead to an incorrect evaluation of the performance due to the large difference in the returns. However, as an investor, I could compare the returns of the fund with the category average which abides by the same rules of asset allocation (E.g., large-cap funds are required to invest 60% of the total portfolio into large-cap/ blue-chip companies). For example, I would like to invest in a Small Cap fund, hence taking an average of the returns of the Small Cap funds, I arrive at an average that shows if my fund has outperformed or underperformed with respect to its peers). One can also compare the annualized returns with benchmarks provided by research institutions such as Morningstar. They conduct detailed research into the investment portfolio, assess the asset allocation, and declare the appropriate benchmark. (Link to an example of Morningstar tool to assess fund performance) DisclaimerThe above article is only for educational purposes. It is not an endorsement or recommendation to the investment strategies. Hence, no information in this article constitutes investment advice. Past performance is not indicative of future returns. Investments are subject to market risk.

Most of us grapple with the big question – how much % of our salary should we save and how much of it should we invest? However, there is no thumb rule or fixed mantra for this (I really wish that there was). How much of your salary should go into your SIP entirely depends on your goals or the future expenses that you want to plan for. We would like to illustrate this by using some personas. PERSONA 1 (Details in the table) NameHari KrishnanAge25Salary (per month)INR 40,000Family DetailsUnmarried. Plans to get married in the next 2 yearsPlans for future (Expected Expenses)Wedding Expenses – 10 lakhsEducation Expense for kids – 30 lakhs (Above expenses are according to the current level of expenses)Total expected expenses = 40 lakhsInflationInflation = 6% Educational Inflation = 12% Hari has lifestyle expenses which include rent, food, clothing, etc., which would add up to 30% of his salary, which would be Rs 13,500. Also, he has taken a vehicle loan for purchasing a car for his parents and contributes 10% of his income to the EMI/loan repayment, which would be Rs 4500. The expenses that are foreseeable in the future are education and wedding expenses. Assuming the inflation rates as mentioned in the above table, the expenses would be as follows: ExpensesRate and Corpus requiredNumber of yearsWedding Expenses - Economy Inflation 6%Marriage expensesINR 11,91,016 3Educational Inflation11%Education ExpensesINR 2,41,86,935 20                           INR 4,07,56,391  As the wedding expenses are due in a shorter time frame, he can invest in short-term debt funds which offer an average return of 9% per annum, which would beat the inflation of 6% and offer him better returns than the fixed deposits in a financial institution. For education, which is investing for a longer time frame, he can cultivate a discipline of saving every month to keep up with the constantly evolving dreams of a child and to have enough corpus to fulfill the dreams of his child, how much of his salary should he invest into a mutual fund?  Follow the calculations in the following table. A regular Equity Mutual Fund promises a return of 12-15%. Taking an average to be 13.5% - Monthly Saving                                          19,702 Expected Return13.5%Time period20Maturity Amount (As calculated in the above table)                                2,41,86,935  Hence, Hari would have to save Rs 19,700 of his salary into an equity mutual fund to create a corpus of Rs 2.41 Cr for his child’s education. He would be still left with Rs 7000 after excluding his lifestyle expenses and his investments. As a parent, we should start as early as possible to ensure that we do not burden our child with a mountain of interest payments and principal payments from his or her educational loans. It is our responsibility as a parent to provide a stress-free and debt-free life for our children. NameRajat BhattacharyaAge45Salary (per month)INR 70,000 INR 50,000 (Wife’s Income)Net Family Income = INR 1,20,000Family DetailsMarried with two children (Ages 12,15)Plans for future (Expected Expenses)Children's Wedding Expenses – 20 lakhs per childEducation Expense for kids – 30 lakhs per child(Above expenses are according to the current level of expenses)Total expected expenses = 100 lakhsInflationInflation = 6%Educational Inflation = 12% PERSONA 2 (Details in the table) The following could be the monthly inflows and outflows of the family - Salary120000[-] Lifestyle expenses (Food, rent, clothes, celebrations, travel, etc) 40% of Salary48000[-] EMI (Loan payment) (6% of Salary)6000[-] Invest for Future expenses?? The future expenses can be detailed as follows - ExpensesRate and Corpus requiredNumber of yearsWedding Expenses - Economy Inflation 6%Marriage expensesINR 85,31,713 13Educational Inflation11%Education ExpensesINR 1,38,27,227 8Total Corpus RequiredINR 2,23,58,940  Assuming that Rajat invests in an Equity Mutual fund for the long-term expenses of the wedding and education of his children, which earn a return of 12%-15% per annum. How much would his family have to save to ensure that they have a large enough corpus to cushion the future of their children? Monthly SavingINR 62,067 Expected Return13.5%Time period12Maturity Amount (As calculated in the above table)INR 2,23,58,940  In both personas, the estimated returns offer a higher benefit and enable a smooth sailing journey to reach your destinations.  Start early and reap the benefits of compounding. Also, do not shy away from equity markets. Index funds and other mutual funds charge a premium to manage your money to offer you a promised return. They can be considered as one of the best financial products for long-term investing to reach your milestones in life. FAQs Should I invest 20% of my salary? There is no fixed percentage that you should invest in a given year. Based on your needs and aspirations as well as budget, one can determine the available investment percentage from their income. Most investors ideally follow the 20-30-50 rule wherein 20% is for investing, 30% for savings, and 50% for spending. What is the 15x15x15 rule in mutual funds? A popular rule to become a crorepati via investing in just 15 years. If an investor decides to invest 15,000 rupees every month for the next 15 years assuming 15% returns from his/her investments then there is a high chance you will be able to earn a crore. How much of the salary should be invested in equity? Ideally, one should invest 20 to 30% towards equity investment from their salaries. Starting early and taking advantage of compounding interest can

When you plan to start investing via mutual funds, you would encounter direct mutual funds and regular plans offered by the fund houses. Which one would you choose and why? What do these plans entail, and how are they different? The following article gives a brief overview of these questions and also provides information on how to invest in direct mutual funds. What is a direct mutual fund or direct plan? A direct plan, as the name suggests means to invest directly into the mutual fund without any intermediaries – distributors, agents, brokers, etc. The direct and regular plans only differ in terms of the expense ratio, which is the management fees paid from your portfolio. The plans have a portfolio and are also managed by the same fund manager. Direct plans can be analogous to buying a pair of shoes from the brand’s factory outlet whereas regular plans would be buying it at the retail store. In the former case, you are purchasing directly from the manufacturer and hence would have a lower purchasing price. Similarly, in regular plans, the higher expense ratio is attributed to the distribution or commission charges by the intermediary. Why should invest in direct mutual funds? Direct plans have a higher NAV as a result of a lower expense ratio than their regular plan counterparts. These returns or differences get compounded over the years and could lead to a significant difference in the value of the investment at the end of the time period.  As shown in the figure, the initial investment in both plans is Rs 50,000. However, the plan with a lower expense ratio amounts to a larger corpus of Rs 12 lakhs after 30 years, whereas the plan with a higher expense ratio amounts to a corpus that is Rs 1.5 lakhs lesser than the former plan. However, direct plans are targeted at those investors who have a fine acumen on the nuances of the market and hence can make an informed decision on the choice of the fund – these investors can be called do-it-yourself investors. In the case of market downturns and sudden volatility, it is always advisable to have an experienced player such as a mutual fund distributor to guide you through your investments – for a fee. How to invest in a direct mutual fund or direct plan? Once you have decided which fund to invest in, the investment into the Direct Plan of the mutual funds can be made using any of the following routes: 1. Asset management company or AMC One can invest through this offline/traditional route by visiting the fund house for the first time to complete the KYC formalities if you are not KYC (Know your customer) compliant. An account will be thus opened which will hereafter contain your investments. The fund house will provide an online option for the next investments and hence you would not be required to visit the fund house in an offline mode again. To find the nearest office of your preferred fund, you can visit the AMFI website, where you can obtain the location and contact numbers of these centers.  2. Registered investment advisors They are individuals who provide financial advice that is tailored to your investment objectives, risk appetite, the affordability of schemes, etc. These professional advisors smoothen the process of investing by helping you fill in the application form and submit the same to AMC. They charge a management fee in exchange for the services provided. However, it is always advisable to screen the track record of these individuals before approaching them with your hard-earned money. 3. Mutual fund agents & distributors These organizations are intermediaries in the value chain of investments, analogous to the Kirana stores (where AMCs are your FMCG companies that produce the product, and these Kirana stores provide you with the convenience to buy them at your doorstep). The distributors are typically banks, small financial advisory companies, stockbrokers, and individuals – and they are registered with the Association of Mutual Funds in India (AMFI). Similar to the RIAs, the distributors bring in the application to the investors and submit them back to the respective fund houses. These agencies charge a flat fee for their services.  4. Registrar and transfer agents (RTA) These institutions maintain detailed records of the investments and the investor’s transactions on behalf of the AMCs or the fund houses. Transactions include buying and selling units, updating the personal information of the clients, redeeming funds, switching funds, etc. These backend tasks are tracked and recorded by the RTAs and are typically outsourced by the fund houses. They provide services and required information to the investors on behalf of the AMCs. One can invest in direct mutual funds through these agencies. 5. CAMS CAMS is a leading RTA that provides the investor with a web portal and mobile application through which he/she can independently transact without the help of any agency or service center. It is a mutual fund agency with trusted shareholders – Acsys, NSE, and HDFC Bank Group. 6. Karvy One of the largest Registrar and Transfer agents. It provides a single window to transact and assist its customers in the investment process. The agency has over 70 billion accounts and offers multiple other services. One can also visit the locations of these agencies to complete the registration process. Click on the links to find the nearest Karvy office and CAMS office. 5. Mutual fund utilities (MFU) This is a shared and innovative platform by the Mutual Fund industry, which is used by all the Indian AMCs. The platform enables easier and more convenient tracking of investments for the investor. It gives the option to create a common account through which transactions can be made to multiple schemes in various funds (Which are the participants of MFU). With your PAN and other KYC details, the platform will map all the details of the Accounts linked to your PAN, hence consolidating all your investments in one place and making it your single point of reference. A Common Account Number (CAN) is a unique id created for an investor (similar to your bank account number). To obtain this, the investor must complete the KYC process. One can invest in Direct mutual funds through this platform. Conclusion While selecting any of the routes for your investments ensure that you weigh the pros and cons of each of the options. Direct plans are preferred and considered economical for their low expense ratios, which have a noticeable effect in the long term and amount to a high magnitude as high as denominated in lakhs. Consult an expert advisor to get the right plan TALK TO AN EXPERT FAQs What is a direct mutual fund? A direct plan, as the name suggests means to invest directly into the mutual fund without any intermediaries – distributors, agents, brokers, etc. The direct and regular plans only differ in terms of the expense ratio, which is the management fees paid from your portfolio. Why Should One Invest In Direct Mutual Funds? Direct plans have a higher NAV as a result of a lower expense ratio than their regular plan counterparts. These returns or differences get compounded over the years and could lead to a significant difference in the value of the investment at the end of the time period. What is the difference between direct mutual funds and regular mutual funds? Direct Plan allows the investor to invest directly with the AMC without any broker or distributor involvement. In a regular mutual fund plan, the investor invests via an intermediary such as a distributor, broker, or banker who is paid a distribution fee by the AMC. Is it safe to buy direct mutual funds? Yes, it is the safest way to invest in the stock market. Direct mutual funds are managed by SEBI-registered AMCs that allow investors to enter the market in a relatively safe manner. What are the disadvantages of direct mutual funds? The biggest disadvantage of direct mutual funds is the lack of financial help while selecting mutual funds. There are many AMCs in India and thousands of mutual funds offered by these establishments. Any new investor is likely to suffer choice fatigue.

What is the meaning of arbitrage funds? Are these funds a wise investment option for investors? How do arbitrage funds work? Let's find the answers to all these questions in this article. We work our fingers to the bone to save and invest for our future selves or for our future generations. As investors, the biggest nemesis to our portfolio is the unstable market or an extremely volatile, ever-changing market. What if we told you, that there are funds that thrive in such conditions? An arbitrage fund is a kind of mutual fund, where the fund manager hunts for price differences in the spot market (cash market) and future market (derivates market) to perform the arbitrage. This fund ensures profit in volatile markets with minimal risk. These funds are highly suitable for conservative or risk-averse investors. Too much to handle? Read on to navigate through this financial labyrinth. To demystify this financial product, we need to start by understanding the term Arbitrage. What is Arbitrage? Arbitrage in a simple sense is a transaction or a trade where a commodity or security is purchased and sold in the same time frame in order to profit from the price difference. For example, a fruit retailer would purchase Apples from Kashmir for Rs.100/kg and sell them in Mumbai for Rs. 200/kg. Here, the retailer has made an arbitrage by purchasing and selling the commodity in different markets. Similarly, a stock of ABC company is trading at $100 on the stock exchange. A but is trading at $102 on stock exchange B. As a rational investor (provided that it is legally allowed in the country), I would buy from stock exchange A and sell it at B, hence pocketing a profit of $2.  The opportunity of arbitrage also presents itself in the price difference of securities in the spot and futures markets. Spot market refers to the public financial market where securities or commodities are traded to receive an immediate delivery. For example, if the price of stock ABC is INR 2350, one can purchase this stock and secure ownership of the company immediately. Is it advisable to copy the mutual fund portfolio? Read More Whereas, in the futures market the trades are locked for delivery at a specific date in the future, and the price is determined by the market view of the stock. Hence, if you are buying a share in the future market that has a maturity at the end of 1 month, then the share is delivered to you at the end of maturity (whereas in the spot market, it comes into your possession immediately). Pricing of the stock in the future market can be illustrated from this example: The price of stock ABC is INR 2350 in the cash/spot market. However, if the market feels that the company has a great potential for growth or there is an expectation that the stock would see a potential increase in the next two months, then future contract delivering these shares at the end of two months would be highly valued of a price say, INR 2700. Arbitrage funds are equity funds that employ an active strategy - buying and selling during downturns to deliver good returns. They hence turn volatility, your nemesis, into your friend-in-need. How do these funds do that? Volatility causes chaos and uncertainty in the markets and in the minds of investors. This leads to a large price differential in the future and spot market, hence opening up an opportunity for arbitrage. These funds also allocate ~10% or higher of the asset value into debt instruments that are considered stable. In a stable market condition where the opportunity of arbitrage is lesser, this allocation is altered, and the fund invests more in the highly stable debt securities becoming a bond fund or a debt fund would have a large impact on its profitability. This makes it a product that is highly suitable for risk-averse investors and investors who want to benefit from the volatility.  In a typical mutual fund, the securities are purchased with the view that the prices would increase over a period of time. However, in an Arbitrage fund, when the market is bullish or optimistic for the future, (which implies a potential growth in prices), the fund buys the stock in the cash market and sells it in the future market, hence pocketing the profit, Cha-Ching! Similarly, when the market is pessimistic or is taking a downturn, the fund buys the future contracts which would be priced lower, and then sell these shares in the spot market, where it would get a higher price – Cha-Ching again! Conclusion  These funds are suitable for a medium time horizon of 1- 3 years, where you are saving to get that Gaming laptop that you always wanted to buy that beautiful lehenga for your wedding or to fund any expense in the foreseeable time horizon. Reason: Because the volatility over a longer period of time would appear smoother, making other options superior investment alternatives. Arbitrage funds also have a higher expense ratio (management fees paid to the fund) than typical mutual funds. Reason: The profit made from the arbitrages is marginal and hence requires a large number of transactions to be executed to have a sizable gain. Hence, the fund charges you a higher fee than the regular mutual funds. The exposure to risk is very minimal as the purchase and sale trades occur almost simultaneously. As there would be a dearth of arbitrage opportunities as the prices in cash and futures markets converge, one would have to invest in other instruments to augment their overall returns. These funds are treated as equity-related instruments. Hence the funds are taxed at capital gains tax depending on the holding period.  a) If the holding period is >1 year – Returns earned are subject to long-term capital gains tax – 15%. b) If the holding period is <1 year – Returns earned from the fund are liable to a short-term capital gains tax -10%. A little more Financial Gyan To choose one of the many arbitrage funds available in the market, assess them on the following factors - Performance Consistency over the last 3 years 1-year returns How much has it outperformed the benchmark? Expense Ratio Asset Size  FAQs What is Arbitrage? Arbitrage in a simple sense is a transaction or a trade where a commodity or security is purchased and sold in the same time frame in order to profit from the price difference. For example, a fruit retailer would purchase Apples from Kashmir for Rs.100/kg and sell them in Mumbai for Rs. 200/kg. What is an arbitrage fund? Arbitrage funds are equity funds that employ an active strategy - buying and selling during downturns to deliver good returns. They hence turn volatility, your nemesis, into your friend-in-need. Is it good to invest in arbitrage funds? Arbitrage funds are good funds for investors who wish to gain good returns in a volatile market without the added risk. These are relatively less risky with a good margin of returns. Can you lose money in arbitrage funds? Yes, it is possible to incur a loss while investing in arbitrage funds. TALK TO AN EXPERT

Mutual funds have been the buzzword in the investment arena and a large number of budding investors are exploring this vehicle. Despite the awareness around this vehicle, the level of understanding of the nuances that exist in this investment route is very minimal. If you have been boggled by the jargon in the industry and would like to understand “What are mutual funds?” and the various benefits of investing in them, you have clicked on the right link – as this article provides you with a starter kit to navigate the financial jargon labyrinth. What is a Mutual Fund? Mutual funds are investment vehicles that pool money from a large set of investors and invest this net corpus into various asset classes such as government securities, corporate bonds, stocks of companies, and other money market instruments to earn the promised returns to its investors. A fund manager is the one who plays the role of the driver to this investment train and channels the pool of investments to align with the investment mandate and objective. Multiple schemes are launched by Asset Management Companies (AMCs) or fund houses to match the investment objectives of various investors. The profits (or losses) earned are apportioned according to the amount invested. For example, as shown in the figure below, 4 investors invest 1 to 4 coins in a mutual fund. After a year, the fund generates profits through these investments (capital gains or dividend earnings from the equity instruments or interest income through debt instruments). These are apportioned accordingly as 1 to 4 stars (representing units of profits) to the respective investors. As an investor, when you invest in mutual funds, you receive units of the fund in return representing your investment – similar to buying stocks of a company (however, one does not get voting rights into any company). These units are easily redeemable in the market. The price of each unit is known as Net Asset Value (NAV) and is obtained after the profits earned from the fund are adjusted for expenses and liabilities of the fund. Net Asset Value NAV = Fund Assets - Fund Liabilities or Expenses / Number of Units For example, XYZ Asset Management Company has launched a new fund and collects Rs 1 lakh from 10 investors. The fund house determines the NAV of the fund to be Rs 10. Hence each of the 10 investors receives Rs 10,000/10 (Units = Investment Amount/NAV) = 1000 units. Over a period of 1 year, the fund invests in multiple securities and earns profits which translates to an increase in NAV to Rs 15. Now, the investment value of each of the investors would have increased to Rs 15 * 1000 = Rs 15000 (New NAV * units held by the investor). Why should you invest in a mutual fund? Diversification, management of your money by financial experts, flexibility, and higher returns than typical bank deposits are some of the reasons which make mutual funds an ideal investment option. 1. Money managed by experts The fund managers who manage the pool of money are financial experts who are well-versed with the market and its patterns and have an excellent track record of managing funds. An enormous amount of research is done by the research analysts on each of the stocks or assets or sectors. This aids in handpicking the best stocks in the market. 2. No lock-in period Mutual funds do not have a lock-in period where an investor cannot withdraw the funds. Some of the instruments in the market do allow a withdrawal but charge a fat penalty for the same. Most of the mutual funds are categorized under the umbrella of open-ended schemes and have different levels of exit loads (small fees charged by the AMC for exiting the fund). ELSS, which is a tax-deductible instrument comes with a lock-in period of 3 years. 3. Flexibility Mutual funds provide the flexibility of entering and exiting the fund which is a highly desired option for most of the investors and is not available in most of the options in the market. This is owing to the high liquidity in the secondary markets (buying and selling over exchanges) for the mutual funds. Investors have also started considering mutual funds as a vehicle to save for their emergency fund.  4. Liquidity With the absence of a lock-in period, an investor can redeem his/her investments in case of a financial emergency. There is also a high level of convenience of completing the process within a few button clicks when compared to the long procedures of other investment counterparts. Post the request, the fund house credits the money into your account within 3-7 business days. 5. Diversification As a retail investor, one cannot mimic the market as our ticket sizes for investments would be very low compared to the level of diversification required to beat the market. Mutual funds invest across various asset classes or various sectors in the case of securities thus providing you with the benefit of diversification. Hence, an investor need not lose his sleep, over market volatility and fluctuations as the fund takes care of such market shocks.  6. Lower cost Due to the economies of scale of managing a large pool of money, the funds charge a very small % of the fees (also known as the expense ratio) from the investors for managing their investments. The fees range from 0.5% - 1.5% and do not exceed 2.5% which is the maximum fee that a fund can charge as per the mandates of SEBI. 7. Fund switch options Mutual funds also provide an option to the investor to switch to another fund under the fund house. It gives a smooth option to enter and exit the fund and to transfer the investments into another fund with another sector/objective of his/her choice based on the risk appetite and other factors. Systematic Transfer Plans are also available in the category which facilitates a smooth transfer of Debt to Equity hence enabling a reallocation of the portfolio of the investor. 8. Tax saving Equity Linked Savings Scheme (ELSS) can be used for tax deductions up to Rs 1.5 lakhs under Section 80C of the Income Tax Act of 1961. The instrument comes with the lowest lock-in period of 3 years when compared to other tax-saving instruments. It offers the benefits of wealth accumulation and tax savings. 9. Rupee cost averaging Investing into mutual funds through SIPs averages the cost of purchase of the units of the fund. In a bull market, where the prices are high, one purchases a lower number of units, whereas, in a bear market, one accumulates the units. Hence over a period of time, the cost of the units gets averaged providing the best price for the investor and eliminating the need to time the market. 10. Regulation SEBI strictly monitors the functioning of the mutual funds and has sacrosanct guidelines to the AMCs, ensuring the safety of the investments of a large number of retail investors. How to invest in mutual funds? There are multiple routes through which one can make investments in Mutual Funds 1. Fund houses Online website: Most fund houses provide the facility for opening an account through the fund house’s official website. The KYC or e-KYC process needs to be completed by filling in the details – PAN and Aadhar number. Post the verification of information, the fund house intimates you, and you can start investing. This hassle-free and the quick route is preferred by most investors. Apps: Fund houses also allow investors to invest, sell and buy through mobile devices. A detailed account of your portfolio can also be viewed on these apps. Offline: By visiting the nearest branch office of the fund house, where an application form is provided to initiate your account. Ensure to carry the following - Passport Size Photograph Identity Proof Canceled check Address Proof 2. Broker Also known as a mutual fund distributor, they will aid you through the end-to-end process of your investment. Information regarding the documents required and other guidelines will be provided to you along with guidance on the funds to invest in. A fee is charged by this intermediary for his/her services and is deducted as a % of your investments. 3. EduFund EduFund is a simple-to-use app that helps you invest in over 4000 mutual funds in India from all the leading fund houses in the country. The process to begin takes very little time and is quite intuitive. You just have to download the app from the app store and fill in some information to get started. FAQs What is a Mutual Fund? Mutual funds are investment vehicles that pool money from a large set of investors and invest this net corpus into various asset classes such as government securities, corporate bonds, stocks of companies, and other money market instruments to earn the promised returns to its investors. Why should you invest in a mutual fund? Diversification, management of your money by financial experts, flexibility, and higher returns than typical bank deposits are some of the reasons which make mutual funds an ideal investment option. How to invest in mutual funds? To invest in mutual funds, you can approach a broker, invest directly with the AMC and through financial investment app. Conclusion It is nearly impossible to time the market. However, with mutual funds, you need not hunt for the right time to invest because the right time would be now! Consult an expert advisor to get the right plan TALK TO AN EXPERT

Investing is no longer associated with wealth. To protect one's future it has become essential. In this blog, let's compare Life Insurance Corporation of India (LIC) vs. Public Provident Funds (PPF) vs. Equity Linked Savings (ELSS) funds to see which is a better option for you. What are LIC plans? The insurance and investment firm Life Insurance Corporation of India is owned by the government. It provides individualized policies to meet each person's insurance needs. One of the first life insurance companies and a pioneer in the insurance industry is LIC. Life insurance shields a family from unforeseen events like death. It helps to secure the financial future of a family. In the event that the family's primary provider dies suddenly, life insurance's primary objective is to provide "death benefits" to the dependents. Features of LIC plans Policy Holder: The life insurance policy's premiums are paid by the insured. They also agree to the terms of the company's life insurance policy. Premium: It's the sum that the policyholder pays to the insurance provider to have their life covered. Maturity: It is the period of time following the conclusion of the policy term and the termination of the life insurance contract. What is PPF? A portion of one's annual income is set aside in the Public Provident Fund, also known as PPF, which is a popularly abbreviated savings vehicle. If the money was received on maturity, PPF investors may receive tax-free interest income on their capital. PPF is a government-backed saving method for risk-averse people. Features of PPF  Tenure: A Public Provident Fund account has a 15-year term. The lock-in period is, therefore, 15 years as well. Eligibility: PPF investments are open to all Indian nationals. Additionally, a PPF account can be opened in a minor's name, and the parent or legal guardian can manage it. Risk: The PPF program is supported by the Indian government. As a result, it is one of the most secure investment strategies available to private investors. What are ELSS funds? The only type of mutual fund that qualifies for tax deductions under the terms of Section 80C of the Income Tax Act of 1961 is an ELSS fund, also known as an equity-linked savings plan. You can save up to INR 46,800 in taxes each year and get a tax credit of up to INR 1.5 lakhs by investing in ELSS mutual funds. The majority of the portfolio of ELSS mutual funds is allocated to equities and equity-linked instruments, such as listed shares, making up 65% of the portfolio. They could also be somewhat exposed to fixed-income securities. The shortest lock-in period among all Section 80C investments is three years for these funds. Lowest Lock-in: In the tax-saving category, ELSS investments have a 3-year lock-in period, making them a relatively more liquid option. SIP Option: The Systematic Investment Plan allows you to start investing in ELSS with as little as INR 500 each month (SIP). When it's convenient, you can start and stop the SIP. High Returns: One of the best returns in the group of tax-saving products has been provided by ELSS. PPF vs ELSS Following is the difference between PPF vs ELSS:  CharacteristicsPPFELSSSafetyVery High (Govt Guaranteed)Low-Moderate (Invests in Equity)ReturnsModerate – Fixed by Govt every quarter.High – Equity compounds over the long term.Lock-in15 years3 yearsLiquidityLow High Tax on ReturnsExempt10% of capital gains over the long term. Gains up to 1 lakh are exempted.Tax on MaturityExemptAs indicated above, taxes only apply to gains. PPF vs LIC  Following is the difference between PPF vs LIC:  Basis of DifferencePPFLIC PolicyPurposeSavings and investmentInsurance and risk protectionReturns7.1% p.a., compounded annuallyDepending on the policy, usually 4%-6%Tenure15 yearsFlexible tenure, as chosen by the subscriberPremature closureNot allowedAllowed with penaltiesRegulatory authorityCentral GovernmentInsurance Regulatory and Development AuthorityDeposit amountThe minimum is INR 500 and the maximum is INR 1.5 lakhsFixed Premiums LiquidityPPF enables loans from the third year and permits partial withdrawals from the seventh year.A 3-year lock-in term applies to insurance plans before they may be redeemed.TaxationPPP belongs to the EEE group. As a result, the corpus of the investment, interest, and redemption is entirely tax-free.If the premium is less than 10% of the amount assured, it is tax-free. Additionally tax-free is the death benefit. LIC vs PPF vs ELSS: Which is better? People frequently mix up investments with insurance. Investments are for a secure future, whereas insurance options like LIC are for risk protection. Having sound financial standing is important for any investor. A person needs an emergency fund for unforeseen costs, insurance to protect against unfortunate events, and investments to ensure a secure financial future. While both PPF and ELSS programs save taxes, it's still important to choose one based on your investment time horizon, risk tolerance, and expected returns. PPF is best for those who can afford a 15-year lock-in period and are utterly risk-averse. While ELSS is a good option for investors who are willing to take a moderate risk in exchange for higher returns. The best way to keep ELSS risk to a minimum is to keep your investments for the long run. Each person has a unique style of thinking and attitude while creating investment strategies. Some people desire higher earnings, while others seek financial security. Examining your financial condition is essential before making any form of investment, including those in PPF, LIC, or ELSS plans. Consult an expert advisor to get the right plan TALK TO AN EXPERT