Innovative ways to Invest in Mutual Funds

Innovative Ways to Invest in Mutual Funds

Mutual Funds are the hottest investment vehicles in the world right now. This is because of the highly volatile Equity markets. because of this high volatality, Investors prefer to invest in the mutual funds rather than directly investing in the stock market.

Once you divert money towards the fund manager having a past record of excellent performance, your job is over. many people ask me that Why should anyone invest in the mutual funds? after all they charge the fund management fees. But well, just think that by giving 0.5-1.50% fund management fees, you are getting the professional management of your money. And if you try to save this fund management fee by investing directly by yourself in the stock market without having any knowledge about it than it will be more costlier than saving that 1.5% fund management fee.

Here are few Innovative ways to Invest in Mutual Funds -

01) Contact the AMC -
You can directly contact your Asset management Company. And their representative will assist you to invest in whole the process of buying the mutual funds.

02) Ask the Broker -
If you know some professinal broker than you can ask from him that in which mutual funds to invest? Well, remember that salesmen are not the brokers. Today everyone call himself a broker. But a broker is one who gives you the unbias advise about which mutual fund to chose.

03) Invest online -
Yes, You can Invest online in the mutual funds from your Online Demat Account. I Personally use the ICICIDirect.com to invest in the mutual funds online.

04) Search the Blogs, Forums & Investment Communities -
Today it is very easy to search the Internet and find some great blogs, review sites and forums about the Mutual Funds. You can easily get the review about any mutual funds by searching the web or visiting the reputed blogs and after reading the reviews, you can take the decision.

05) Ask the Bank -
You can also contact your bank and ask them that you want to invest in mutual funds. Your Bank will assist you in investing in the mutual funds.

Thus, there are several innovative ways to invest in the mutual funds. once you select the mutual fund, you can either invest lump sum amount or you can start SIP in that Mutual Fund. Over the time you can build a sufficient Corpus for your future...!!!

How Does SIP Work?

How Does SIP Work?

See the above diagram. This is how SIP (Systematic Investment Plan) Works. Over the long time, SIP does Dollar-Cost-Averaging and brings your over all entry level in the market and that’s why the compound interest works best over the long time in SIP Investments.

Another great advantage of doing SIP is that, whenever the market will be high, you will end up with buying less amount of units and whenever the market is down, you will end up with buying more amount of units.

But in the real life, people do exactly reverse and that’s why they suffer. Means they buy more when the market is up and they buy less when the market is down. But to become a successful investor, you exactly need to do the opposite.

And SIP do this for you. Believe me, if you buy more when the market is down and less when the market is up, you will make a fortune in the long run. Many people have made a fortune by investing in SIP over a period of long time. SIP introduces discipline in your Investments and gives handsome return in the long run.

So the Best way to Invest in the Mutual Funds is via SIP.

Investment in Bonds in India

Investment in Bonds in India

The Indian bond Market is not mature enough as that of world bond market. The Government, Public Sector Units (PSUs) & the private corporations issue bonds in India. Thus, Indian Bonds are basically of 3 types.

01) Government Bonds (Like RBI 8% Savings Taxable Bonds)

02) Public Sector Units Bonds (Like NABARD)

02) Corporate Bonds (Commercial Papers of Private Companies)

However, as a retail investor you can not invest directly in the Corporate bonds in India because they require higher minimum investments. The only way to invest in Corporate Bonds is via Debt Mutual Funds. Your Mutual Fund is an Institutional investor and it can invest in corporate bonds any time on behalf of you.

However, you can anytime invest in PSU & Government Bonds as a retail investors. The Indian Bonds will give you 8-12% annual return which is really excellent in comparison to the US Bond Market which has just 3-4% Yield.

So what I advise you is that, if you invest in the Indian Bond market than Invest via Debt Mutual Funds. This is the only best and convenient way to invest in the Indian Bonds.

Investing with Vanguard

Investing with Vanguard

Vanguard is a most popular United States Investment management company. The Vanguard Index Mutual Funds are the most popular variety of mutual funds in USA. The Assets under management under Vanguard Company are worth more than US $ 1 Trillion.

John C. Bogle is the founder and the former Chairman of Vanguard Group. He first time introduced the concept of Index Mutual Funds in USA. His Investment Philosophy was to cut down the cost of the fund by reducing the fund management fees by converting actively managed funds into the index funds which are easy to manage in comparison of the actively managed funds.

The Vanguard Index Fund Philosophy -

For his undergraduate thesis at Princeton, John C. Bogle conducted a study in which he found around three quarters of mutual funds did not earn any more money than if they invested in the largest 500 companies simultaneously, using the S&P 500 stock market index as a benchmark. In other words, three out of four of the managers could not pick better specific "winners" than someone passively holding a basket of the 500 largest public U.S. companies. The managers could pick specific stocks which would do as well as picking the 500 largest stocks (essentially doing as well as random chance would dictate), but the cost to pay their expenses, as well as the high taxes incurred through active trading, resulted in underperforming the index.

Thus, on this theory, John Bogle had introduced the Index Mutual Funds and they got tremendous popularity and the success. Today most of the Mutual Fund Investors in USA prefer Vanguard Index funds over any other mutual funds.

Investing with Vanguard mutual funds means investing for Success & Financial Freedom…!!!

Get Rich Mutual Fund

Get Rich Mutual Fund

People ask me that, tell us something about get rich mutual funds. In fact, i receive queries like, “Give me the name of Get Rich Mutual Funds” and something like that every month. I receive these queries via e-mail. Sometimes people call me on my mobile phone and ask me about this.

Well, my answer to all such kind of queries is that, There is nothing like get rich mutual fund in this world. And if there was something like get rich mutual funds in our world than today all of would be rich and out of financial troubles.

Well, see. It is not the Mutual fund which will make you rich. It is your Financial IQ & Disciplined investing over the period of long time which will make you and your family rich and financially free.

Remember my words,

“Investment is not risky but the Investor is Risky.”

It means that any Investment does not have the potential to make you rich or poor. But it is you (The Investor) who has the potential to make yourself rich of poor. If you regularly save & invest in any 4-star or 5-star rated equity diversified mutual fund via SIP for a period of more than 10 years than you will definitely make a huge corpus at the end of 10 years.

However, the most common problem with the People is – Lack of Discipline. Theoretically it’s really easy to follow advise like – Do Regular SIPs in MFs for long term but practically it’s very difficult to follow. And if somehow you manage to follow this simple advise, you will definitely make a fortune from the mutual fund investing.

So from now onwards, don’t search for get rich mutual funds but rather than that adopt a disciplined and financial sound life style. You will definitely get rich in the long run.

Shariah Compliance Mutual Funds in India

Shariah Compliance Mutual Funds in India

Many of my Muslim friends ask me that, Which are the Shariah Compliance Mutual Funds in India? Well, Shariah Compliance mutual funds are those which fulfills the Shariah Guidelines of Investment. Here are my 5 great articles on the various guidelines about Shariah Compliance mutual funds & Stocks.

- Shariah Funds

- Shariah Compliant Stocks in India

- Shariah Compliant Mutual Funds

- Shariah Compliant Stocks

- Shariah Compliant Investments

Well, the Conclusion is that, You can not invest in 2 kind of mutual funds according to this guidelines.

01) Debt Mutual Funds – Because making earning from Interest Income is strictly prohibited in Islam.

02) Mutual Funds that Invest in Stocks of the following Companies.

- liquor
- pork
- hotel
- casino
- gambling
- cinema
- music
- interest bearing financial institutions
- conventional insurance companies

Following Industries’ Stocks are Permitted -

- IT
- Automobile
- Oil & Gas
- Software
- Tele Communication
- Cement
- Pharmaceuticals

Remember: Out of 6000 BSE Listed Companies, 4,200 Listed Companies are Shariah Compliant.

Thus, You can invest in Sector Mutual Funds of any one of the above permitted sectors. You can not invest in Diversified mutual funds right now in India because they Include the stocks of Liquor, Pork, Hotels, Cinema, Interest Bearing Financial Instruments, Insurance Companies and other prohibited investments.

According to me, for the Indian Islamic Investors, Sector Mutual Funds are the best Investment Vehicles because they fulfill the Shariah Compliance.

You can learn more about Shariah Compliance Investments in the above articles.

Shariah Compliant Mutual Funds

Shariah Compliant Mutual Funds

Here are few facts about Islamic Investment Opportunities in India.

There are two ways of getting profit in Islam

(1) which Islam permits (2) which Islam prohibits.

Islam has forbidden earning from interests. And has counted as big sin and among the big sins there is no which forbidden in this manner; that notice a war from Allah and his messenger. Can human being defeat Allah and his messenger?

In India Muslims are second largest population after Indonesia, Indian Muslims population estimated to be around 150, millions. Inspite of this India is routinely ignored in the vast majority of the books articles on the subject of Islamic banking and or investments.

Dow Jones has Islamic index, FTSE of Britain has not only Islamic Index but also a full fledge Islamic bank, but unfortunately there is not a single Islamic Product or an Islamic benchmark in Indian investment environment.

Even more bizarre India is not covered and not included for any of their research work by any Islamic institution or bank .although India is the big market for Islamic investments,and according to me no research work of any research institution could be complete without including India.

Although India has a good Islamic structure which provides opportunity of riba free investment and finance which gives us lots of benefit.

Yes, India is the second largest population of Muslims in the world after Indonesia. It is 150 Million and still we don’t have any Islamic Index. Dow Jones has Islamic Index.

Shariah Compliant Investments.

Here are the Shariah Compliant Investment Criterias.

(a)The company’s activities should not include liquor, pork, hotel, casino, gambling, cinema, music, interest bearing financial institutions, conventional insurance companies, etc.

(b) The total interest bearing debt of the company at any point in time should remain  below one third of its average market capitalization during the last twelve months.

(c) Its aggregate of account receivables should remain below 45% of total assets.

(d) If company has any interest bearing income it should not be more than 10% in any condition.

Thus, According to the Islamic religion, you can not invest in Debt Mutual Funds. Because Islam has forbidden earning from Interest.

Another opportunity is mutual fund which is based on 100% equity. These funds are invested in different sectors like IT, automobile telecommunication, cement and a few present in interest based financial institutes, almost 10 to 15 %.

So investor has to purify that amount from the profits. And also there are many sectorial funds which
invests only in a particular sector like automobile,Oil & Gas, etc

Thus, Sector Funds are the Best Funds as they Invest in particular sector companies so they fulfill the Shariah Compliant Criterias.

HDFC Mutual Fund Offers registration of Multiple Bank Accounts

HDFC Mutual Fund Offers registration of Multiple Bank Accounts

Hey, Today I receive the news letter from the HDFC Bank and it announced that you can register up to 5 bank accounts with one folio and whenever you redeem your payouts, you can redeem in any of your registered bank accounts. Here is the detailed mail from HDFC Bank.

Dear Investor,

In our endeavour to continuously offer superior customer-centric services, HDFC Mutual Fund now offers a facility of registering upto 5 bank accounts in your folio for receiving redemption payouts. You must specify any one bank account as the “Default” bank account and register a maximum of 4 additional bank accounts^. Upon registration, you can opt to receive future redemption payouts into the bank account of your choice (i.e. any one of the registered bank accounts) without providing any further supporting documents at the time of redemption.

However, please note that the “Default” bank account will be used for settling redemption proceeds, in case you do not specify the bank account along with the request for redemption of units. Dividend proceeds, if any, will also be paid into the “Default” bank account. You have the flexibility to change/delete one or more of the registered bank account(s) and add new bank account(s), subject to a maximum of five accounts.

Once registered, we will intimate the registration of these bank accounts to you and also reflect them on your statement of account. Please check the same for correctness once you receive the intimation. We would like to, in your own interest, maintain confidentiality and security of your data and hence the bank account information will be partially masked. Your account statements will reflect a maximum of the last 4 digits of each registered account number.

I think this a a great news. Every Mutual Fund House should start this service.

Should I Go For Equity or Debt Funds?

Should I Go For Equity or Debt Funds?

Recently one of my friend who has just started investing in the mutual funds has asked me this question. In fact, when you first time enter into the world of mutual funds, you will have the same common question.

Well, see. mutual funds are basically of 4 Asset classes. They are broadly divided into 4 categories according to the asset under management.

01) Stocks – Equity Mutual Funds

02) Bonds – Debt Mutual Funds

03) Gold – Gold ETFs (Exchange Traded Funds)

04) Real Estate – REMFs (Real Estate Mutual Funds) & REITs (Real Estate Investment Trusts)

From the above 4, Equity & Debt are the 2 basic categories in which everyone should invest. Here comes the concept of “Asset Allocation”.

Well, see. you are basically investing before you want the Growth of your Capital as well as the protection of your capital from the wilder fluctuations of the stock market. And that’s why the investor do the Asset Allocation.

Asset Allocation in simple words means divide your money in different parts and putting them in different asset classes to diversify it and reduce the risk such as Stocks, Bonds, Gold, Real Estate, Businesses, Art, Web Properties, Vintage Cars, Vintage Collectibles, Rare Wines, jewellery, diamonds and there are many other Asset classes in the world. However, Equity & Debt are the two commonest asset classes.

Now, there is a Rule of Asset Allocation and that is,

120 minus your Age = Equity Allocation in percentage of your over all portfolio & rest should be in debt.

It means that if you have started investing at the age of 20 years, you should invest 100% of your money in Equity mutual funds because at the age of 20, you have a time by your side and the retirement is a long way to go so even if the stock market fluctuates, you don’t need to worry. As your age advances towards the retirement, you can gradually increase the debt allocation of your portfolio by reducing the equity allocation.

Now, in your case, your age is just 26 and you don’t have any dependents on you (Children & Parents) and your spouse is also working. So according to me, you should invest 100% of your Money in 4-star or 5-star rated Equity Diversified Mutual funds up to the age of 35 years. Later on, you can gradually reduce the equity allocation and increase the debt allocation of your portfolio.

You have just started earning and time is on your side so it is advisable to invest 100% in equity at the age of 26. Hope this much information is useful to you.

Buy Mutual Funds on Margin

Buy Mutual Funds on Margin

It is possible to buy a stock on Margin. But the question here is that, Is it really possible to buy mutual funds using a margin account? Well, the answer is Yes & No both.

You can not trade the conventional mutual funds. Because they don’t work like stocks. In fact, one mutual fund scheme is not a single stock but it’s the portfolio of 30-150 carefully chosen stocks by a fund manager.

Mutual fund shares are issued to buyers and redeemed from sellers directly by the fund company. Fund share prices (Units or NAV or Net Asset Values) are determined once a day after the close of business and are based on the closing prices of the underlying securities in the fund's portfolio. Fund share buy and sell prices are not posted until the day after the transactions occur. A mutual fund's net asset value per share reflects this type of pricing.

While some brokerage firm margin policies may allow for an investor to borrow against their mutual fund positions, mutual funds themselves are prohibited from trading on margin. Additionally, mutual funds are also prohibited from selling short to participating in joint trading ventures.

And because of this limitation to conventional mutual funds, Exchange Traded Funds are introduced in the stock market. As the name suggest, they can be easily traded by the traders on the stock exchange like a stock.

How Exchange Traded Funds Work?

Think of an exchange-traded fund as a mutual fund that trades like a stock. ETFs are just like the Index funds. They represent the basket of stocks such as S&P 500 or so. So you can short or trade whole the index at a time just like a stock that otherwise you can not do with the index mutual funds. Because the Index mutual funds are the conventional types of mutual funds.

Types of ETFs
The first exchange-traded fund was the S&P 500 index fund (nicknamed spiders because of their SPDR ticker symbol), which began trading on the American Stock Exchange (AMEX) in 1993. Today - tracking a wide variety of sector-specific, country-specific and broad-market indexes - there are hundreds of ETFs trading on the open market.

Buy Mutual Funds at End of Year

Buy Mutual Funds et the end of the Year

Many smart investors buy mutual funds at the end of the year after the fund management company distributes the Capital Gains to it’s Investors. This is to avoid tax liabilities. You can read my article about Why you should not buy mutual funds in December and even if you want to buy, buy after the fund house distributes the capital gains.

Buy Mutual Funds in December

Here is the logic of why is it unadvisable to buy mutual funds in December?

Many mutual funds make large capital gains distributions in December. You have to pay taxes on those gains. (They may make them at other times of the year as well, but December is a very common month).
Example: You buy a fund on December 1. The fund goes ex-dividend on December 10 and you receive a $2,000 distribution. You have to pay tax on the $2,000 even though you just purchased the fund and may not even have made any money yet.
If you wait until just after the distribution, you won't have to worry about this until the next one. Some funds pay distributions at other times of the year, so it can be beneficial to read the prospectus and time your purchase accordingly.

So now you understand that, why you should buy mutual funds after the distribution of the capital gains? However, the distribution month of every mutual fund is different in USA. So you should carefully read the prospectus before taking the investment decision in the mutual fund.

Buy Mutual Funds Directly

Buy Mutual Funds Directly

You can buy mutual funds directly from the fund house as well as online from your online demat account. However, as far as I know, buying mutual funds directly from the fund house in India is cheap because it will attract 0% Entry Load. If you buy mutual funds online, probably it will attract up to 2.5% entry load. (Well, This is the 6 months old information. One of my friend recently told me that, there is no entry load for online buying also now in India.).

There are many Pros & Cons of buying mutual funds directly from the fund house. One advantage is that, you will receive your NAV statement every month or a quarter in physical form. In case of Online Demat accounts, you will also receive a statement but this statement is not that much in detail.

The only disadvantage of buying mutual funds directly is that, you will have to pass through the tireding paperwork. Which is not the case in case of online purchasing of the mutual funds. Online purchasing of the mutual funds is totally paper less. You can invest in mutual funds directly without no paper work.

Another main thing I want to tell you readers is that, make a portfolio of just 2-3 Equity Diversified Funds, 1 or 2 Debt Funds & 1 Tax Saving Fund. I know several people who are collecting NFOs & Mutual funds in the sake of Diversification. But well, collecting mutual funds in your portfolio is not the Diversification but it’s the Over Diversification. because only one mutual fund contains 30-150 Stocks Portfolio. So keeping several mutual funds in your portfolio means every stock in the stock market is in your  portfolio.

Anyways… So Start Investing in the Mutual Funds.

Buy Mutual Funds in December

Is it Advisable to Buy Mutual Funds in December?

In USA, it is not advisable to buy mutual funds in the December, i mean in the end of the year. Do you know Why? Well, because you will end up with paying more taxes for the Capital Gains that you have never made. Here is the Example.

Throughout the year all the long-term and short-term net capital gains are accumulated and distributed to all the shareholders.  Capital gain distributions are usually made once a year – typically near the end of the calendar year in December.  Here's the catch – all accumulated annual capital gains are distributed to the existing shareholders at the time of distribution, no matter how long you've been in the mutual fund – the gains are NOT prorated based on how long you've been in the fund.  So even if you weren't around long enough to participate in all the profits generated throughout the year, you will have to pay taxes on whatever capital gains are distributed to you  -- ugh, more taxes!  Here's an example of what could happen to you if you purchase a mutual fund right before they distribute capital gains:  Let's say on December 1st you invested $5,000 into a stock mutual fund that has performed extremely well during the year, but has a very high turnover rate.  Throughout the year, the fund has taken a lot of profits by selling stocks and has generated short–term profits representing 20% of the value of the mutual fund.  On December 15^th the mutual fund distributes those profits to its existing shareholders, who in turn must pay taxes on the reported capital gains.  So in this example, you would be required to pay taxes on a $1,000 gain ($5,000 x 20%).  If your taxable rate is 30%, you could pay an extra $300 ($1,000 x 30%) on gains you never received.  Because you invested in the mutual fund toward the end of the year, you did not participate in the appreciation of the fund's net asset value (NAV) during the year.  But unfortunately, you did pay taxes on the reported capital gains.  The cold hard facts are you essentially paid extra money for the mutual fund – an extra $300.  Yes, maybe unfair, but that is the way mutual funds work.

What is the Best Time to Buy a Mutual Fund in USA?

Now, You will ask me that, What is the Best time to Invest in the Mutual Funds in USA? The Best time to buy mutual funds is right after they distribute the Capital Gains I mean from January onwards.

Thus, Never Buy Mutual Funds in December to avoid extra taxes on your Income. This small information can help you to save more in taxes.

Buy Mutual Funds with Credit Card

Is it really Worth to Buy Mutual Funds with Credit Card?

Many of my friends and readers of this Blog ask me this question several times. People think that they have credit cards so what’s wrong in paying one or two SIP payments via credit card money? But well, This may be technically possible, it’s not at all the wise Investment Decision as an Investor’s Point of view.

Many Americans think that, they will pay their next SIP from their credit card. But it is not a good thing to do because the credit cards are associated with anywhere between 35-50% annual interest rate while average mutual funds in USA has given 10-12% return in the long run. So borrowing money at the rate of 35-50% per annum interest rate to investment in mutual funds which give you 10-12% annual return is not a wise financial decision at all.

According to me, if you think that you won’t be able to pay your mutual fund SIP this month, simply default that month. After all, you have not borrowed money from anyone so even if you default in your regular SIP Payments, there is not penalty for doing this.

What I advise to my friends is to change their financial behaviour and bad money spending habits. Because defaulting in your regular SIP is not a good thing in the long run. Remember, even a small but regular SIP Investment over a long time can end up in a large sum at the end of 10 years or so.

But Buying Mutual Funds with a Credit Card is a Bad Idea. So Forget about it…!!!

Buy Mutual Funds Online India

How to Buy Mutual Funds Online in India?

Do you know that, you can now buy mutual funds online in India? Here is my detailed post about how you can buy mutual funds online in India from ICICIDirect.com. However, you can chose any other brokerage services and buy mutual funds online such as Sharekhan.com or any other.

Buy Mutual Funds Online

In the above article, I have mentioned in detail that How I buy Mutual funds online in India from my ICICIDirect.com online demat account. Buying mutual funds from your online demat account in India is very easy now. You can place your order in just few minutes. It will just take 2 working days to execute your order and the Units will be allocated in your online demat account.

Thus, buying mutual funds was never this much easy. The only thing that I don’t like about the offline method is, Lots of Paper work. If you want to buy a mutual fund directly from the fund house than you require lots of paper work and identity proof. Rather than that, now it is very simple and easy to buy mutual funds online just like shares from your online demat account in India.

It usually takes 21 days to open the Online Demat account with ICICI Bank once you have a savings account with the ICICI Bank. Once you get your username and password, you can start investing in the stocks as well as mutual funds online via your demat account.

Buy Mutual Funds Online

How to Buy Mutual Funds Online?

Mutual Funds are not like stocks. A Stock is the ownership of a single company while a mutual fund share (Unit) represent the value of underlying basket of carefully chosen stocks (Portfolio). You can directly buy mutual funds from the various fund houses.

However, it is also possible to buy mutual funds online. For that, you must need the online demat account. I Personally buy mutual funds online from ICICIDirect.com. You can simply log on to your account and go to mutual fund category and place your order to buy the mutual fund units from your online demat account.

See the above screenshot. You can go to mutual funds section and select the mutual funds of your choice from a list.

See the above screenshot. Select your fund house from the list, chose fund category & sub-Category & Click “Go” to find a list of mutual funds. You will be directed towards  the purchase page where you can place your order online.

See the above Snapshot. You can place your order and buy your desired mutual fund online from this page. Thus buying mutual funds online is this much easy. You can open an online demat account anytime and start buying mutual funds online.

Start Investing Mutual Funds

Start Investing Mutual Funds

Don’t you know How to Invest in the Stock Market? Don’t you have time to analyze and watch the stock market? Don’t you have time to manage your own Investments? Than I have a solution for you. And that is,

Start Investing in the Mutual Funds.

Many people who have just started their career don’t know that How to Invest in the stock market, What is Mutual Fund & How they work?

Well, in simple words, a mutual fund is a professionally managed portfolio management service. Here the fund manager and his team do all the hard work of analyzing, picking and maintaining the best stocks from the stock market. Once you divert your money in the Mutual Funds, your job is over. The fund manager will take care of everything.

Many people think that a Stock and the mutual funds are the same thing. But this is not true. A Stock is a piece of a single Company while a Mutual Fund Unit or a Share is a piece of the underlying portfolio of around 30-150 Stocks. Mutual Fund is a collection of stocks. It’s the basket of carefully chosen stocks which likely to give you the best returns while a stock is the ownership of one company only.

This is the basic difference between mutual funds and stocks. And that’s why I advise people to start investing mutual funds. Because the mutual funds will make your life very easy. Once you carefully select a mutual fund, stay invested in it for next 3-5 years and you will have good corpus at the end.

In USA, today there are more number of mutual funds in the market than the actual number of stocks. Isn’t it amazing? Anyway, so start investing in the mutual fund and enjoy the Good Investment Returns with no effort.