Showing posts with label mutual fund. Show all posts
Showing posts with label mutual fund. Show all posts

Friday, April 21, 2017

Is 30 Right Age to Invest in Stocks?

rocket-books-confused man

Actual Question:


At my age of 30, is it a good idea to start investing in stocks? I’m already investing in mutual funds. I don't have much idea about the stock market.

Answer:


Dear Friend!

Your question has three parts.

Age:


30 years is a golden age to start investing in stock. You still have at lest 30 years to earn active income and to invest in shares.
Investing success to a great extent depends on starting early. When questioned for one important factor for his phenomenal investing success Warren Buffett replied, “I was fortunate to start early”.

Knowledge of Investing in Stocks:


Now coming to the part about learning to invest in stock market, let me once again assure you that it is not a rocket science nor does it requires high IQ.

  • Please read the book, “The Intelligent Investor” by Benjamin Graham. It changed my life.
  • Please carefully scour through my blog “Wealth Vidya”. It has plenty of free knowledge compiled with great effort for seekers like you.
  • Watch many Warren Buffett’s interviews available on YouTube. I have made a short compilation on my blog at Videos.

Mutual Funds:


You mentioned that you are already investing in mutual funds. Great! Please keep in mind to invest only in low-cost, well diversified, index funds or exchange traded funds. Following articles will guide you:


In conclusion, 30 is the perfect age to start investing in stocks, don't worry about that.

Thank you,

With Best Regards

Anand


Tuesday, April 18, 2017

Types of Mutual Funds

collection of people-investment-bank-shares-bonds

Mutual funds can be categorised based on a few aspects as follows:
  1. Nature of underlying assets: Equity/ Debt funds
  2. End use of income: Growth/ Regular Income
  3. Type of fund management: Active/ Passive
  4. Liquidity: Liquid funds
  5. Exchange Traded Funds


Equity versus Debt funds:

This aspect is based on what type of assets into which the money is invested. There are three possible sub-categories:
  • Invest funds 100% in equity shares of companies
  • Invest funds 100% funds in debt instruments like government bonds, treasury bills, corporate bonds, etc.
  • Hybrid funds where money is partly invested in shares and partly in debt instruments


Growth versus Regular Income Funds:

In a growth fund, the income like dividend received from the underlying assets are reinvested. Growth funds are usually equity based.
On the contrary in a regular income fund the income earned by the fund by way interest, dividend, etc is distributed to the unit holders.
man watering plant for growth and coins paid as income

One obnoxious practice many mutual funds engage in is that they distribute sale proceeds of investment assets (capital receipts and not income receipts) as dividends to unit holders.

Active vs Passively Managed Funds:

Mutual fund managers constantly churn portfolios with an intended objective of beating the performance of certain benchmark indices like S&P 500, BSE Sensex, etc. Such funds are called actively managed funds. The funds charge high fund management fees (3–4%) as a justification for actively managing the funds. This is does not benefit the mutual fund investors.
active fund manager dancing and passive manager dozing


On the contrary, passively managed funds reflect a popular index like S&P 500 and BSE Sensex. In this case the fund manager simply makes an one-time investment in the exact proportion corresponding to the composition of the index, and simply sits quiet. Any changes will be made only when there is a change in the composition of the index. Since the fund is not actively managed the fund management fee is very low (usually below 0.50%). The passive funds are beneficial for the investors as the actively managed funds have any established track record of superior performance over a long period of time.

Liquid Funds:

Liquid funds are meant for companies and corporations which tend to hold huge funds for temporary periods. They would like to invest these funds and earn returns for short periods of time. Such funds are called liquid funds. These funds offer only limited returns and almost negligible growth (capital appreciation). Liquid funds are not meant for common investors who are on the way of building wealth. 
share and bond investments floating in water current


Exchange Traded Funds:

Exchange traded funds (ETFs) are a totally unique concept of a mutual fund. It is doubtful whether an ETF can be discussed in the same breath with a mutual fund at all.
The units of an ETF are listed on the stock exchanges and trade shoulder-to-shoulder with shares. Thus ETFs provide following unique features to an otherwise normal mutual mutual fund:
  1. Convenience - unlike subscription to mutual funds, there is absolutely no paper work involve. One can simply buy and sell them on the stock trading platform.
  2. No special redemption process: If an investor wants to liquidate the investment with a regular mutual fund he or she has to submit an application to the mutual fund for redemption. This may take some time. However in the case of ETFs the investor simply sells on the on-line trading platform and the proceeds.
  3. Exchange Traded Funds mostly track popular indices like the S&P 500 and BSE Sensex, NIFTY 50 and so on and therefore are passively managed with consequent low fund management fees.


Letters "ETF" in Bright Orange Colour inside a tag

Suggested Related/ Further Reading:




In conclusion there are many types of mutual funds based on the assets managed, whether income is accumulated or distributed, whether actively or passively managed, etc.

Thursday, April 13, 2017

Do Mutual Fund Investments Suit General Investors?

Picture shows a upper half of a elegant suit

Actual Question:

  1. AMFI started the campaign ‘ Sahi Hai ‘ recently and I am wondering why there is a need for sudden awareness ?
  2. For people who want to invest their hard earned money for a tenure of 5 years , Is this a right option or suggest other options if any.

Answer:

Dear Friend!
Thank you for asking a very pertinent question.
Yes, indeed there is a big need for awareness regarding equity ownership. As per Axis Securities’ report, equity ownership of Indians constitutes fewer than 6% of the household financial health compared to the 45% for the US. Most of Indians’ investments are in fixed deposits with banks, insurance policies, precious metals and real estate.
Equities are the real wealth creators in the long term and a solid hedge against inflation.
Coming back to your second question, yes indeed equities are the right investment option. Equity investments fall under three categories as follows:
  1. Direct, self investments in equities
  2. Through ‘Mutual Funds (MFs)’
  3. Through ‘Exchange Traded Funds (ETFs)’

picture shows an investor with the stock broker

When it comes to mutual funds and exchange traded funds, please choose well diversified, low cost, index equity funds for wealth generation. Do not opt for debt (income) and liquid funds.
You may find the following related articles useful:

In conclusion, do mutual fund investments suit the general investors? The answer is a big and strong yes.
Thank you,
With Best Regards
Anand