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<ul><li>Long-duration <keyword id="35474" type="General" weightage="20" keywordseo="debt-funds" source="Orion">debt funds</keyword> are a category of mutual funds that primarily invest in fixed-income securities with extended maturity periods of seven years or more. </li><li>Long-term bond funds tend to exhibit an inverse relationship with interest rates.</li><li>Once interest rates start coming down as expected, investors in long duration debt funds will be benefited. </li></ul>With the Nifty surpassing 22,000 and the Sensex above 73,000, the bulls are making merry on Dalal Street. Indian investors, seeking to ride the wave, are going gung-ho about mutual funds, especially in the small and mid-cap category, but debt funds are not in vogue. However, investment gurus say that no investor should ignore debt funds because it is an important part of asset allocation. Moreover, at present, a category of debt funds, known as long duration debt funds, is creating a buzz. This is because currently the repo rate is 6.50% after the Reserve Bank of India (<keyword id="19899808" type="General" weightage="20" keywordseo="rbi" source="keywords">RBI</keyword>) maintained status quo for the fifth consecutive time in its last policy. Before that the RBI had hiked the repo rate by 2.5% from May 2022 to February 2023. “With the high interest rate regime behind us, interest rates are expected to reduce going ahead, aided by moderating inflation and crude oil prices. We expect RBI to cut interest rates in 2024,” says Ajaykumar Gupta, chief business officer, TRUST Mutual Fund. If this unfolds, it is good news for long term debt funds. “A cut in interest rates would lead to additional gains in form of bond price appreciation, which would benefit investors investing in <keyword id="6775742" type="General" weightage="20" keywordseo="long-duration-funds" source="Orion">long duration funds</keyword>,” says Gupta. What are long duration funds? Long-duration debt funds are a category of mutual funds that primarily invest in fixed-income securities with extended maturity periods of seven years or more. “These funds, having a portfolio Macaulay duration of more than seven years as per SEBI mandate, typically invest in instruments like Government bonds, corporate bonds, treasury bills, bonds issued by banks etc., making them suitable for long term investors,” says Gupta. Macaulay duration is a measure used in finance to estimate the weighted average time it takes for an investment to recover its initial cost in the form of present value of future cash flows, including interest and principal payments. “However, there are different kinds of debt funds that can take a long-term debt fund kind of form- dynamic bond funds or gilt funds- fund managers can invest in long duration bonds,” says Pankaj Pathak, fund manager, fixed income, Quantum AMC. Relation with interest rates Long-duration debt funds tend to exhibit an inverse relationship with interest rates. Whenever interest rates fall bond prices move up and vice versa. When interest rates fall, mutual funds that invest in long-term bonds typically experience an increase in bond prices. As bond yields move inversely to interest rates, the existing fixed-rate bonds held by these funds become more attractive. The higher bond prices contribute to capital gains for investors. “If the interest rate goes up, the return of long duration debt funds comes down. If interest rates start coming down then the return of long duration bond funds go up. The credit risk of long duration debt funds is not that high as they invest mostly in government securities, but the interest rate risk is very high,” says Soumya Sarkar, Co-Founder, Wealth Redefine, an AMFI registered mutual fund distributor. <table style="border-width: initial; border-style: none;" class="redcator-table-advance"></colgroup><tbody><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;background-color:#1589ff;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Funds </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;background-color:#1589ff;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">1 year return (%) </td></tr><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Aditya Birla Sun Life Long Duration Fund - Direct Plan </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">7.57 </td></tr><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Axis Long Duration Fund - Direct Plan </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">6.92 </td></tr><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">ICICI Prudential Long Term Bond Fund - Direct Plan </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">6.87 </td></tr><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Nippon India Nivesh Lakshya Fund - Direct Plan </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">7.07 </td></tr><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">SBI Long Duration Fund - Direct Plan </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:bottom;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">7.53 </td></tr></tbody><tbody></tbody></table> Source: Value Research Should you invest in long duration debt funds? Interest rates have seen a prolonged pause and thus fixed income proponents have been waiting for a pivot in stance. However, investors are advised to go with a cautious approach. “If the interest rates go up or the yields go up from here, one may see a negative return, for a short period of time, but if one has a two to three year time horizon, the interest should come down and one should generate good returns,” says Sarkar. The final word Selecting a good long duration debt fund requires careful consideration of various factors. “One must review the fund's portfolio holdings to understand the types of securities it invests in, including government bonds, corporate bonds, and other debt instruments. Further, one should examine the credit quality of the portfolio by reviewing the credit ratings assigned to the underlying securities,” says Gupta. One might also evaluate the fund's performance by comparing it to both its benchmark and other funds in the long-duration category. Individuals contemplating long-term investments should thoroughly evaluate their risk tolerance, investment objectives, and time horizon before deciding to invest in these funds.

Explained: Is this the right time to invest in long duration debt funds?

June turned out to be a blockbuster month for thematic/sectoral <keyword id="19929240" type="General" weightage="20" keywordseo="mutual-funds" source="keywords">mutual funds</keyword>, which managed to amass Rs 22,351.69 crore during the month, the highest amongst all equity mutual funds. Overall, equity mutual funds saw <keyword id="19967545" type="General" weightage="20" keywordseo="inflows" source="keywords">inflows</keyword> worth Rs 40,537 crore, whereas debt mutual funds saw significant outflows of about Rs 1.07 lakh crore. Within this category, liquid and overnight funds saw maximum outflows. As Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India noted, since June is a quarter end month, debt-oriented schemes, as expected, witnessed a net outflow. Only funds with a duration profile of less than 1 year, like low duration and money market funds, saw inflows. "The net outflow across the board could also be on the back of investors shifting towards equity markets in expectation of better returns, as the equity markets continue to touch all time high levels after the election results were announced. Between May and June, the number of folios in the debt segment fell from 7,091,977 to 7,013,214, which is a drop by 78,763 folios. In May, the number of folios fell by 26,088 folios". "Moreover, uncertainty over the interest rate cut cycle has also been keeping investors in tenterhooks. With no clarity on the probable timing for the beginning of interest rate cut cycle, investors, for a time being, would have decided to adopt a wait and watch approach and stay away from categories which are exposed to interest rate risks such as Dynamic and Gilt", he continued. <h2>SIP figures touch all-time highs</h2> As <keyword id="22344564" type="General" weightage="100" keywordseo="AMFI-data" source="keywords">AMFI data</keyword> further revealed, the number of new SIPs registered in June 2024 stood at a staggering 55,12,962. With this, the total number of SIP accounts in the country reached 8,98,66,962, inching up marginally from 8,75,89,485 in May 2024. SIP contributions also stood at an all-time high of ₹ 21,262.22 crores in June 2024 as against ₹ 20,904.37 crores in May 2024. The AUM of retail folios, which comprise of equity, hybrid and solution oriented was Rs 36,32,226 crores for June 2024. In <keyword id="22344565" type="General" weightage="20" keywordseo="hybrid-schemes" source="keywords">hybrid schemes</keyword>, multi-asset allocation funds garnered Rs 3,453.12 crore in June, and Arbitrage funds saw inflows worth Rs 3,836.58 crore. The only hybrid scheme to see net outflows were conservative hybrid funds, which shed Rs 130.57 crore. June marked the 40th consecutive month of positive inflows for <keyword id="20210668" type="General" weightage="20" keywordseo="equity-funds" source="keywords">equity funds</keyword> since March 2021. As Feroze Azeez, Deputy CEO, Anand Rathi Wealth Limited highlights, "SIP numbers are hitting peaks every month, accumulating a stellar ₹21,260 crore. This strengthens the fact that Indian investors are resilient and are participating in the long-term growth of the market. The overall market behaviour supported by numbers suggests that investors are strategically positioning themselves with cautious yet optimistic approach for long-term growth". Last month, the Indian MF industry hit the Rs 60 trillion mark for the first time. Exactly 10 years ago, in 2014, the industry's AUM stood at Rs 10 lakh crore. Just 6 months ago, its AUM was Rs 51 lakh crore. Anand Vardarajan, Chief Business Officer - Key Clients &amp; Alternate Investments, Tata Asset Management underlines that is growth is a huge validation when it comes to expanding retail investor's base and investors themselves choosing mutual funds as a reliable investment vehicle for wealth creation. This is further underscored by the fact that the addition in six months is equal to what the industry has seen in ten years ago! <h2>Large and Mid Cap funds find investors </h2>After garnering consistently high inflows in the recent past, small cap funds amassed Rs 2,263.47 crore, a slightly sobering figure. Midcap funds saw inflows worth Rs 2,527.84 crore. On the other hand, inflows in large-cap funds dipped at significantly to stand at Rs 970.49 crore. Far more investments went towards the large and mid-cap funds, which saw inflows worth Rs 2,912.19 crore. Melvyn Santarita, Analyst – Manager Research, Morningstar Investment Research India notes that these substantial net inflows can be attributed to the election results announced earlier in the month. Investors have remained optimistic and invested on policy continuity and anticipated reforms, expecting stability within the coalition government at the Centre. It was this optimism that propelled markets to new all-time highs. The multi-cap category witnessed the second highest net inflows in June 2024 among the equity-oriented categories amounting to INR 4,708.5 crores which was its 3rd highest net inflows ever over a monthly period. Categories which are biased towards the large-caps segment like flexicap (Rs 3,058 crores) and Value (Rs 2,027 crores) saw robust inflows during the month. "While markets have been in a prolonged bull run, there are concerns about overvaluations in certain areas, particularly in the mid and small-cap segments. Consequently, investors may be opting to invest in large-cap segments, where valuations are more favorable", Santarita highlighted. "However, they also continued their investments in mid and small caps, since the returns generated by mid and small cap segment over the last few years haven’t got unnoticed. Hence, the categories having substantial exposure in these two segments have witnessed strong net inflows. It is important to note that mid and small cap segments are highly volatile. While they can give exceptionally high return in up markets, they can fall equally hard in down markets. It’s important for investors to take exposure in these funds in line with their risk appetite", he cautioned. However, Hitesh Thakkar, Acting CEO, ITI Mutual Fund is confident of the immense wealth creation opportunities mutual funds will offer in the coming 5-7 years to retail investors. "Mutual fund is one of the preferred, transparent &amp; cost-effective investment products in India and is well accepted by retail investors. The trend is positive for Mutual fund industry future growth. There are chances that Industry will cross milestone of ₹100 lakh crores AUM by 2030”, he says. <h2><keyword id="19895579" type="General" weightage="20" keywordseo="gold" source="keywords">Gold</keyword> continues to glitter </h2>Net flows in Gold ETFs continued to be robust in June 2024, standing at Rs 726 crores. However, this was slightly below the net flows witnessed in May (Rs 827 crores). "Over the years, Gold has gained prominence as an effective diversifier, prompting many investors to include Gold ETFs in their portfolios. Gold prices also saw some slight correction in June which spurred buying from investors", underlines Santarita. However, the reason why inflows in gold ETFs have remained patchy as compared to equity is due to the significant gap in the returns offered. "Gold has done fairly well over the last year but dwarfs in comparison to how equities. Also, some investors could be choosing to opt for a risk-on approach to investing with the anticipation of a reversal in rate cycle going ahead", he continues.

Mutual fund AUM crosses the Rs 60 lakh crore mark, SIP nos. and AUM touch all-time highs

The union budget for 2024 introduced a slew of changes that will directly impact your pocket in the days to come. FM Sitharaman brought about significant changes in how your capital gains were taxed. Take a look at how this will impact your pocket. First off, what are capital gains? Simply put, any gains or profits you make when you sell a capital asset like your properties, investments in stock or mutual funds and more is counted as capital gains. What sets capital assets aside is their ability to generate monetary value over a long period. Depending on the time period they are held for before they are sold, <keyword id="20584761" type="General" weightage="20" keywordseo="long-term-capital-gains" source="keywords">long-term capital gains</keyword> (LTCG) or <keyword id="20584760" type="General" weightage="20" keywordseo="short-term-capital-gains" source="keywords">short-term capital gains</keyword> (STCG) is applicable. So, what has changed? In one sharp move, <keyword id="19916618" type="General" weightage="20" keywordseo="Nirmala-Sitharaman" source="keywords">Nirmala Sitharaman</keyword> pushed up the long-term <keyword id="20301441" type="General" weightage="100" keywordseo="capital-gains-tax" source="keywords">capital gains tax</keyword> from 10% previously to 12.5% now. Moreover, <keyword id="22142879" type="General" weightage="20" keywordseo="indexation-benefit" source="keywords">indexation benefit</keyword>, which reduced the total tax outgo from the investor's hands, also went away with these proposed changes. As for short-term capital gains tax, it was decreased to 15% from its previous rate of 20%. However, to ease the pain, the maximum exemption amount for long-term capital gains in a single year was increased from Rs 1,00,000 previously, to Rs 1,25,000 now. All listed securities will be considered long-term capital assets (and hence, LTCG will be levied) if they are held for a period of 12 months. For unlisted securities and other immovable properties, LTCG will be applicable post 24 months of holding them. Bonds, debentures and gold will have also have a holding period of 24 months, from the earlier duration of 36 months, in order to be eligible for long-term capital gains tax. What does indexation mean? Indexation allowed <keyword id="19900618" type="General" weightage="20" keywordseo="investors" source="keywords">investors</keyword> to account for inflation, by adding the same to their initial purchase price. This would result in a higher purchase price, significantly lowering the overall gains. But now, capital gains tax will be calculated at the actual purchase price (ouch!) with no scope to factor for inflation, which would mean a higher tax outflow from the investor's pockets. This benefit has been done away with for real estate and gold. Under indexation benefit, it is not your initial purchase, or acquisition price that is taken into consideration, but rather your indexed cost of acquisition that comes to play. This is calculated using the CII of the sale year and the purchase year. This helps in adjusting the purchase cost of your property for inflation when you are selling it. The government calculates and notifies the public of the CII (cost inflation index) every year. For instance, Aditya's father purchased a property worth Rs 40,00,000 in 2009 (FY2009-10). In 2004 (FY2024-25), he decides to sell this for around a crore. How will his tax liability be calculated? First, lets consider that he had indexation benefit. By that, his indexed cost of acquisition (there's a long formula to this) would be Rs 98,10,810, making his long-term gains at Rs 1,89,189. So, 20% of this would come down to Rs 37,837. But lets also consider if he did not have this indexation benefit. While indexation benefits have been done away with starting July 23rd, 2024, lets assume this rule came into effect at the very start of FY25, or 1st April, 2024. This would mean your total capital gain would be 12.5% of Rs 60,00,000, or a staggering Rs 7,50,000. What are the experts saying? Nilesh Sharma - President &amp; Executive Director, SAMCO Securities sees this as a double whammy which leaves much to be desired on the investors front. "It seems govt wants share in investors’ profit. At a time when the equity indices are at an all-time high, the government has tried to take a share out of the growth and the profits earned by the investors by increasing both the STT rates on derivatives and an increase in STCG and LTCG", he notes "The removal of indexation benefit for LTCG will also impact the real estate industry and will slow down the resale of residential flats /lands. There is a fear that it may also increase the proportion of cash transaction in real estate deals, which will be again be counterproductive. The government has not announced any major changes for the individual tax payers except a slight change in the tax slabs and a minor increase in the standard deduction. This too, is however applicable only in the new tax regime, leaving nothing for the tax payers who have opted for the old tax regime", continued Sharma. Palka Arora Chopra, Director, Master Capital Services Ltd notes that the removal of indexation benefits might negatively impact investor returns, leading to a short-term bearish outlook for the sector. "While the 25% increase in the Long-Term Capital Gains (LTCG) tax is manageable and not likely to deter investors significantly, the increase in short-term capital gains (STCG) tax from 15% to 20% could have a more pronounced negative impact in the medium term", she continued.

Decoding capital gains taxes: What FM Nirmala took from your pocket, what she gave you in Budget 2024

<ul><li><keyword id="76579" type="General" weightage="20" keywordseo="ppf" source="Orion">PPF</keyword> is a popular choice for retail investors seeking long-term savings, especially for retirement. </li><li>One can increase their <keyword id="45027" type="General" weightage="20" keywordseo="epf" source="Orion">EPF</keyword> contribution for their long term debt portfolio meant exclusively for retirement goals. </li><li>With <keyword id="6397939" type="General" weightage="20" keywordseo="interest" source="Orion">interest</keyword> rates peaking out, one may explore gilt funds for their medium to long term debt portfolio. </li></ul>Asset allocation is one of the chief tenets of investment. Basically, it means that your investments are spread across different asset classes, majorly equity and debt. What the ratio should be would depend on a lot of factors like age, risk appetite and so on, and would change with time. When we think of equities we think of stock or mutual funds. Here, we will take a look at how you should invest the debt portion of your portfolio in terms of the different options you have. <cmsannotation type="cmsannotation" annotationid="Public provident fund (PPF)" comment="Subhead" text="Public provident fund (PPF)">Public provident fund (PPF)</cmsannotation> Public Provident Fund (PPF) is an excellent choice for retail investors seeking long-term savings, especially for retirement. It offers tax benefits, with investments up to ₹1.5 lakh being tax-exempt per year under section 80C. However, other payments like life insurance premiums, EPF and home loan principal repayment also come under 80C. Hence, it is important to understand how much tax benefits one will get by investing in PPF and invest accordingly. <cmsannotation type="cmsannotation" annotationid="Voluntary provident fund (VPF)" comment="Subhead" text="Voluntary provident fund (VPF)">Voluntary provident fund (VPF)</cmsannotation> VPF refers to the additional contribution an employee can make to employee provident fund (EPF) over and above the mandatory contribution. The interest earned on an employee's contributions to EPF and VPF is exempt from taxes for contributions of up to ₹2.5 lakh per financial year. “So one can optimise investment up to the tax advantage and not beyond that,” says Mukesh Kochar, national head of Wealth, AUM Capital, a wealth management firm. “One can increase their EPF contribution for their long term debt portfolio meant exclusively for retirement or goals after retirement. On a post-tax basis with sovereign guarantee, EPF still remains the best debt investment option for a long term portfolio,” says Abhishek Kumar, founder and chief<a href="https://business.outlookindia.com/invest/investment"> </a>investment advisor at SahajMoney, a financial planning firm. This works best for someone who has a small salary as one can contribute a large additional amount and stay within the ₹2.5 limit. One should thus try to allocate a large portion of their long term debt portfolio towards EPF and then PPF. <cmsannotation type="cmsannotation" annotationid="Debt funds" comment="Subhead" text="Debt funds"><keyword id="35474" type="General" weightage="20" keywordseo="debt-funds" source="Orion">Debt funds</keyword></cmsannotation> Debt funds lost some of their appeal after the indexation benefits were removed but in the current context, it makes sense to invest in debt funds. “This seems to be the best time to invest in debt instruments as we believe that the interest rate cycle has peaked out. Reversal of rate may take some time but it has peaked out and there is a great opportunity to capture capital gain whenever the interest rate reverses,” says Kochar. Agres Nehal Mota, co-founder CEO of Finnovate Financial Services, “After exhausting the above options I would opt for debt mutual funds with a little longer term maturity. Since the interest rate has peaked, bonds with a little longer term duration will have more capital appreciation.” “So they can explore gilt funds for their medium to long term debt portfolio for the same. For a short term debt portfolio, overnight and liquid funds are better options,” says Kumar. Also, capital gains on debt funds are taxed only in the year of redemption. In contrast to that, interest on bank fixed deposits are taxed every year. So one can defer their tax incidence by investing in debt funds. <cmsannotation type="cmsannotation" annotationid="Sukanya Samriddhi Yojana" comment="Subhead" text="Sukanya Samriddhi Yojana">Sukanya Samriddhi Yojana</cmsannotation> If there is a girl child Sukanya Samriddhi Yojana (SSY) is also a good option. “SSY has an exempt exempt exempt tax structure. But I would not recommend this for tax savings but because the daughter will get a lump sum amount at 21,” says Mota. To sum it up, when you're building your debt portfolio, the key is to mix different types of debts, be careful with risks, and also keep in mind the tax aspect. This way, you can secure your financial future.

Explained: How to build a debt portfolio for the long term

<ul><li>Loans against <keyword id="6357979" type="General" weightage="20" keywordseo="mutual-funds" source="Orion">mutual funds</keyword> come at an interest rate of 8-10% which is lower than high-cost unsecured loans </li><li>If the market corrects and your portfolio value falls, your loan eligibility might decrease and you may need to pay off the difference </li><li>Experts advise redeeming the MF units and putting the EMI you would have otherwise paid as an SIP in the same fund </li></ul> When in need of money, especially at short notice, a personal finance loan is one option. However, being an unsecured loan, personal loans come with high rates of interest. But if you own mutual funds, you can get a <keyword id="6553947" type="General" weightage="20" keywordseo="loan-against-mutual-funds" source="Orion">loan against mutual funds</keyword> at a lower rate of interest. However, there are a few things one should consider. The concept of loan against mutual funds operates by leveraging your mutual fund portfolio. For instance, if you hold a portfolio valued at approximately ₹1 crore, you have the option to obtain a short or long-term loan of around ₹50-80 lakhs against it. These loans typically have a duration of one year but can be renewed annually. “For equity portfolios, you can typically secure a loan of up to 45% to 50% of the portfolio's value, which translates to around ₹45 lakhs to ₹50 lakhs. In the case of debt portfolios, the loan amount can be as high as 80% of the portfolio's value, equating to around ₹80 lakhs,” says Soumya Sarkar, Co-founder, Wealth Redefine, a mutual fund distributor. What works for loan against mutual funds The first advantage of such a loan is that it will come at an interest rate of 8-10% which will be much lower than interest rates against personal loans which can be as high as 14-24%. Another primary benefit of obtaining a loan against your mutual fund lies in the fact that you can access funds without having to liquidate your portfolio. If you are bullish about your portfolio, you may feel reluctant to redeem your mutual fund units. By opting for a loan against your mutual fund, you can sidestep these drawbacks. Furthermore, there could be a numerical advantage to leveraging this strategy. For instance, if your portfolio is experiencing a 15% growth rate and you secure a loan at 10%, you effectively save 5 % by leveraging your assets. However, this is the case only when the <keyword id="31671" type="General" weightage="20" keywordseo="markets" source="Orion">markets</keyword> are performing well. What happens when the markets correct sharply? If there is a sharp market correction, there are evident risks with this strategy. For instance, consider having a portfolio worth ₹1 crore with equity and having taken a loan of ₹45 lakhs. If the portfolio value drops to ₹80 lakhs due to the correction, your eligibility reduces to around ₹30 to ₹35 lakhs. Therefore, it's crucial to constantly assess whether the portfolio is fully leveraged or not. For instance, if the portfolio value drops to ₹80 lakhs, your eligibility decreases from 45 lakhs to 35 lakhs. If you've already taken a 45 lakh loan and your current eligibility is ₹35 lakhs, ideally, you should bridge this gap and pay off the difference of ₹10 lakhs. If not, you risk undue liquidation of your portfolio in a bear market. “The financial institution may deduct units from your mutual fund holdings to cover this amount, although they may not explicitly disclose this process. If you fail to pay continuously for 3 to 6 months, they may redeem a portion of your mutual fund units to settle the outstanding loan balance,” says Sarkar. What should you keep in mind? However, B. Srinivasan, director and founder of Shree Sidvin Investment Advisors, says that he does not allow his clients to take loans against mutual funds. “Loan means that the interest is a fixed cost. And you cannot pit fixed cost against variable return,” he says. At the time of taking the loan, the markets may be doing well and one may feel confident that one will make more money than the interest rate. If the markets are correct, as they did recently, they may sell their units at lower costs and incur losses. “Those who have a lot of clarity and can accept losses can apply for such a loan. What I would suggest is that when one needs money they redeem the units and put the EMI they would have otherwise paid as an SIP in the same fund. Because when you do not borrow, you are not answerable to anyone,” says Srinivasan. So, while a loan against mutual funds may be a better option when you need money compared to a <keyword id="180660" type="General" weightage="20" keywordseo="personal-loan" source="Orion">personal loan</keyword>, you should be aware of the pitfalls before you opt for such a loan.

Loans against mutual funds may come at a lower interest rate, but experts urge caution

<ul><li>When building a MF <keyword id="27676" type="General" weightage="20" keywordseo="portfolio" source="Orion">portfolio</keyword>, defining clear goals is essential. </li><li>An investor needs to keep in mind what kind of risk taking ability he/she has. </li><li>An investor should know his/her investment horizon and see if it aligns with that of the fund. </li></ul>More and more Indian investors are believing in the slogan often heard during the ongoing ICC World Cup 2023 telecast – ‘<keyword id="6357979" type="General" weightage="20" keywordseo="mutual-funds" source="Orion">Mutual Funds</keyword> Sahi Hain’. According to data by Association of Mutual Funds in India (AMFI) in October, ₹16,928 crore (approx $2 billion) flowed into SIP accounts, adding up to a total inflow of ₹1.75 lakh crore over the preceding twelve months. In October 2022, it stood at ₹13,040 crore. With over 44 registered mutual fund houses in India and a wide variety of fund categories, it is not easy to construct a mutual funds portfolio that is suitable for one’s needs. Here we take a look at some key factors that will help you build a mutual funds portfolio and select the categories of funds to invest in. <cmsannotation type="cmsannotation" annotationid="Constructing a portfolio" comment="Subhead" text="Constructing a portfolio">Constructing a portfolio</cmsannotation> When designing and then constructing one’s mutual fund portfolio, there are three crucial factors to consider. “First, age plays a significant role in determining the investment strategy. Second, defining clear financial goals is essential – whether it's retirement planning or funding your child's education, specifying when these goals should be met is key. Lastly, one must assess their risk tolerance,” says Soumya Sarkar, Co-Founder, Wealth Redefine, a mutual funds distribution firm. For example, when you are in your 30s or 40s, there is still a long time to go for retirement, so you can have a greater portion of your portfolio invested in equity funds, but when you are near to a goal like child’s education or retirement, you should make a shift to debt because capital preservation becomes important. “While age and goals are important, the emphasis should largely lean towards risk tolerance, accounting for around 60% of the decision-making process. Understanding how comfortable one is with potential fluctuations in the market is paramount, as it guides the selection of mutual funds that align with their risk profile,” says Sarkar. The remaining 40% should factor in age and goal timelines to craft a well-balanced mutual fund portfolio that suits individual financial aspirations and risk appetite. <cmsannotation type="cmsannotation" annotationid="Deciding on the type of mutual fund to invest in" comment="Subhead" text="Deciding on the type of mutual fund to invest in">Deciding on the type of mutual fund to invest in</cmsannotation> It all starts with asset allocation and depends on the individual, his preference and his requirements. Shaily Gang, Head-Products, Tata Mutual Fund, explains. Let us say someone decides 70:30 in equity and debt. Within that 70% if someone is very aggressive and has the horizon and has the capacity to take volatility then one can go very aggressive on thematic, sector and small cap funds, which could total to 35% of that 70%. The rest of the 65% of the 70% of equity allocation will be formed by diversified funds. Someone else with a high risk appetite may decide to invest 50% of his equity exposure into <keyword id="509662" type="General" weightage="20" keywordseo="large-cap-funds" source="Orion">large cap funds</keyword> and another 50% in small cap funds. However, it is advised that if a person has a horizon of three to five years, <keyword id="882925" type="General" weightage="20" keywordseo="hybrid-funds" source="Orion">hybrid funds</keyword> like equity savings funds and balanced advantage funds, are a good option because they carry less risk than pure equity funds. “So an investor needs to keep in mind what kind of risk taking ability he has, his horizon for that part of the investment and also map that to the horizon of the fund. For example, if someone has a high risk taking capacity and the investor has a horizon of beyond five years, then he can invest in a small cap fund,” says Gang. <cmsannotation type="cmsannotation" annotationid="Making the most of market trends?" comment="Subhead" text="Making the most of market trends?">Making the most of market trends?</cmsannotation> Predicting specific market periods is challenging, as rallies can be unpredictable. “Investors can use various parameters to make informed decisions, such as the price-to-earnings ratio, price-to-book value, standard deviation, and rolling returns in mutual funds,” says Sarkar. Rolling returns indicate how fund managers have performed over different time frames, providing insights into potential future performance. While not always foolproof, these metrics are often reliable. Should a sector remain undervalued over an extended duration, there exists a probability that it will eventually exhibit strong performance, irrespective of whether it falls into the large-cap, mid-cap, or small-cap category. This positive performance has the potential to yield favourable returns for investors. “Currently small cap valuations are attractive. Let’s say that when markets are heated small caps trade at 40-50% of the large caps but currently they are trading at 5% premium. So they are very reasonably valued. One would need to visit all of these things before making a decision,” says Gang. To sum up, although accurately timing market periods is challenging, slightly evolved investors can utilise these metrics to make informed decisions and potentially capitalise on rallies specific to particular sectors.

Seek to build a healthy mutual fund portfolio? Key things to keep in mind

<ul><li><keyword id="6377620" type="General" weightage="20" keywordseo="fixed-deposits" source="Orion">Fixed deposits</keyword> serve as an attractive option for short-term investments too with guaranteed returns. </li><li><keyword id="551306" type="General" weightage="20" keywordseo="arbitrage-funds" source="Orion">Arbitrage funds</keyword> are well-suited for investments with a horizon of one year or less due to their relatively low risk profile.</li><li>Low duration <keyword id="35474" type="General" weightage="20" keywordseo="debt-funds" source="Orion">debt funds</keyword>, which invest in a diversified portfolio of fixed-income securities, are also a viable option.</li></ul>While the purpose of investing is to grow your money, where you invest depends on the time horizon and specific goal. While <keyword id="6391506" type="General" weightage="20" keywordseo="equity" source="Orion">equity</keyword> investments are a great option for long term goals which are at least 5-7 years away, for a shorter duration of one year or less, investing in equity can be risky, as it will be exposed to the vagaries of the market. If you require the amount in a year or less, and do not want to keep your money parked in a savings account, then you need to choose your investments wisely. We take a look. <cmsannotation type="cmsannotation" annotationid="Bank fixed deposits" comment="Subhead" text="Bank fixed deposits">Bank fixed deposits</cmsannotation> Fixed Deposits (FDs) serve as an attractive option for investment of less than one year due to their stability and guaranteed returns. They offer a fixed interest rate, shielding investments from market volatility. With the option of flexible tenures, you can align your FD with your specific financial goals. However, FD returns may be lower than some alternate investment options. While at present, the interest of 211 days to less than one year is 5.75% at State Bank of India (SBI), small finance banks can give an interest of up to 6.50% for a period of less than one year. It is noteworthy that interest earned on FDs is taxed at slab rates. <cmsannotation type="cmsannotation" annotationid="Arbitrage funds" comment="Subhead" text="Arbitrage funds">Arbitrage funds</cmsannotation> Arbitrage funds operate on a unique investment strategy that capitalises on price discrepancies between cash and derivatives markets. They identify opportunities where the underlying securities are bought in the cash market while simultaneously selling equivalent futures or options contracts. The goal is to profit from the convergence of these prices over time. These funds are well-suited for investments with a horizon of less than one year due to their relatively low risk profile. Since they primarily engage in arbitrage opportunities, they are less exposed to market fluctuations and volatility, making them a stable choice for short-term investors. According to Value Research, arbitrage funds have given a category average return of 6.54% in the last one year. Arbitrage funds do not have a credit risk. “They are also tax efficient. For a short period of time the taxation of equities is 15% whereas in debt, individuals have to pay the tax as per their tax bracket where some individuals can pay up to 30% tax,” says Soumya Sarkar, Co-Founder, Wealth Redefine, a mutual fund distribution firm. Arbitrage funds are taxed similarly to equity funds. When held for less than a year, any gains are categorised as short-term capital gains (STCG), subject to a 15% tax rate and thus they are more tax efficient than FDs and debt funds. <cmsannotation type="cmsannotation" annotationid="Debt funds" comment="Subhead" text="Debt funds">Debt funds</cmsannotation> Low duration debt funds are a viable option for investments with a horizon of less than one year. They invest in a diversified portfolio of fixed-income securities such as government bonds, corporate bonds, and money market instruments. These funds maintain a shorter average maturity period, between six months to twelve months (according to SEBI rules), which helps mitigate interest rate risks. They aim to provide investors with stable returns while preserving capital, making them suitable for those with a short investment horizon and a preference for lower risk. “Right now given where the yields are, one could look to get around 6.5% - 7.25% return on low duration funds. Obviously these returns are not guaranteed like a bank FD," says Deepak Gagrani, Founder of MADHUBAN FINVEST, a financial services firm. According to Value Research low duration debt funds have given a return of 6.53% in the last one year. One also needs to understand the tax aspect. “The taxation would be something very similar to a bank FD. It will be based on the tax slab,” says Gagrani. <cmsannotation type="cmsannotation" annotationid="Equity savings fund" comment="subhead" text="Equity savings fund"><keyword id="1554748" type="General" weightage="20" keywordseo="equity-savings" source="Orion">Equity savings</keyword> fund</cmsannotation> <a href="https://www.businessinsider.in/investment/news/benefits-of-equity-savings-fund-offered-returns-and-who-should-opt/articleshow/101210167.cms">Equity savings funds</a>, a hybrid investment option, allocate funds into equity, debt, and arbitrage segments to balance potential returns with risk management. “In equity savings funds the proportion of debt is quite high and equity proportion is low. It has 70-80% in debt and the remaining in equity, so it is a conservative fund,” says Sarkar. With lower volatility compared to pure equity funds, they mitigate market fluctuations, making them a favourable choice for those seeking balanced, relatively stable short-term investments. However, it's crucial to align investments with individual financial goals and risk tolerance for the best results. While the debt portion gives around 6%-7% return, the overall returns go up due to the equity portion. According to Value Research, equity savings funds have given a category average return of 9.14 % in the last one year. In the case of FDs, you can withdraw the funds on the day the FD matures, but in case of the mutual funds mentioned above, it may take one to three business days for the funds to be credited to your account after you submit a redemption request.

Short-term investing: Options to park your money if you have a time horizon of one year or less

Every individual wishes to have <keyword id="6383453" type="General" weightage="20" keywordseo="wealth" source="Orion">wealth</keyword>, which can empower them to lead a financially independent and secure life filled with the luxuries they crave – be it a world tour, a stately abode or simply the freedom to lead their life on their terms. However, in the absence of a fairy godmother or a genie, the effort behind <keyword id="112023" type="General" weightage="100" keywordseo="wealth-creation" source="Orion">wealth creation</keyword> falls on one’s own capable shoulders. Famous author Idowu Koyenikan once said, “When money realises that it is in good hands, it wants to stay and multiply in those hands.” So, how can you create wealth and ensure it stays for good? <cmsannotation type="cmsannotation" annotationid="Understanding the concept of Wealth Creation" comment="subhead" text="Understanding the concept of Wealth Creation">Understanding the <keyword id="19095463" type="General" weightage="20" keywordseo="concept-of-wealth-creation" source="Orion">concept of Wealth Creation</keyword></cmsannotation> If you think the best way to create wealth is to earn more money, your plan has a fatal flaw. This is because, as an individual, you can only earn so much money in the duration of your career. However, if you devise a roadmap to invest your money and make it work for you, wealth creation becomes feasible. Therefore, wealth creation involves the process of investing the money you have at hand in asset classes which are aligned with your investor profile and financial goals, with the aim of growing your wealth sustainably. During this process, you will come across the best friend of the wealthy – the concept of compounding interest, which involves earning returns over both your invested principal and the gains accrued so far. Accordingly, the sooner you begin your wealth creation journey, the longer you allow it to grow, thus leading to better outcomes. <cmsannotation type="cmsannotation" annotationid="Importance of Wealth Creation" comment="subhead" text="Importance of Wealth Creation"><keyword id="19095462" type="General" weightage="20" keywordseo="importance-of-wealth-creation" source="Orion">Importance of Wealth Creation</keyword></cmsannotation> When you earn a good salary every month and find it sufficient to manage your lifestyle, you may belittle the importance of wealth creation. However, if you cannot generate money passively, you will be forced to remain shackled to your job. Further, the lack of a well-strategised wealth creation plan will end up pinching you once you retire. When you focus on wealth creation, you find it easy to achieve your financial goals, be it short or long-term, without eating into your savings. As Henry Thoreau wisely noted, “Wealth is the ability to fully experience life.” And that, in itself, underscores the imperative nature of wealth creation. <cmsannotation type="cmsannotation" annotationid="Investment options to consider" comment="subhead" text="Investment options to consider"><keyword id="381673" type="General" weightage="20" keywordseo="investment-options" source="Orion">Investment options</keyword> to consider</cmsannotation> Now that you know the meaning and importance of wealth creation, how should you go about charting the roadmap? Firstly, you need to assess your investment profile, which includes aspects such as your risk appetite, return requirements, time horizon and financial goals. For instance, someone with a longer time horizon and higher appetite for risk has the ability to invest in equities and earn higher returns. Alternatively, for medium duration goals, a combination of equities and a safer option like bonds may be the right approach. Given below are some of the asset classes you can consider for your investments: <ul><li>Equities: You can consider equity investments by picking the stocks of fundamentally strong companies to realise the potential for high returns, especially over the long term. Remember to diversify your stock portfolio to reduce the underlying risk.</li><li>Debt: Fixed-income securities such as government bonds, corporate bonds, and short-term papers like commercial papers fall under this category. These tend to be less risky than stocks.</li><li>Mutual Funds: These instruments pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets based on their strategy, thus ensuring diversification and professional management. Systematic Investment Plan(SIP) is a facility that fund houses offer that allows investors to invest a specific amount of money at pre-determined intervals.</li><li>Real Estate: Investors can consider investing in real estate investment trusts (REITs), in the quest for rental income and potential appreciation.</li><li>Commodities: Investing in commodities like gold or silver can provide diversification and act as a hedge against inflation.</li></ul>By using a combination of these asset classes, an investor can build a diversified portfolio to reduce overall risk while optimising opportunities across different asset classes. In case you are unsure how to go about it, seek the help of a financial advisor and invest through mutual funds such that your investment is in wise hands. Whichever route you may choose, as long as you remain focused on your end goal and start right away, creating sustainable wealth will only be a matter of time. Wealth creation is an attainable goal for anyone willing to invest time and effort into building a solid financial foundation. So, start your journey today, and watch your wealth grow over time. Disclaimer: The article is authored by Amit Rathore of AR Finserv. The opinions expressed are those of the author and do not necessarily reflect the views of Business Insider India. Do your own research (DYOR) before deciding to invest in any financial asset class:

The power of compounding: Your key to long-term wealth creation

<ul><li>Budget amendment proposes to do away with long-term capital gains tax on debt investments. This effectively ends the tax arbitrage that used to exist between bank deposits and debt schemes. </li><li>Experts view this as a negative for <keyword id="6357979" type="General" weightage="20" keywordseo="mutual-funds" source="Orion">mutual funds</keyword> as investors may move capital from debt schemes to bank FDs or other long-term instruments like non-convertible debentures. </li><li>According to CLSA, the measure would have a moderate to low impact on profitability, as bulk of the revenue/profitability for AMCs accrues from equity assets and non-liquid debt AUMs are neither higher growth nor higher profitability segments. </li></ul> It is going to be a busy weekend for mutual fund advisors and distributors, with the government proposing to change the taxation structure of debt schemes. With the change in taxation, distributors and advisors are rushing to lock in large amounts of investments from their HNI customers before the financial year ends. As per the proposed changes in the Finance Bill, investors in debt funds will have to pay tax according to their income slabs. Investors have so far benefited from indexation while calculating long-term capital gains from debt funds but this will now longer be available from 1 April, 2023. However, all investments made before 31 March 2023 will continue to enjoy indexation and LTCG benefits. According to FY24’s Budget amendment, capital gains arising from any investments made after 1 April, 2023, in non-equity mutual fund schemes will not be eligible for long-term capital gains benefits. Mutual fund distributors have been spamming their HNI clientele all morning about these proposed changes so that they can lock in their investments before the new fiscal year to take advantage of the indexation benefits. Explains CA Manish. P Hingar, founder at Fintoo, “This move may have a negative impact on all debt funds…We may see a shift from long-term debt funds to equity funds, and money may be directed towards sovereign gold bonds, bank fixed deposits, and non-convertible debentures in the debt category. This is good news for banks as they can attract customers with higher interest rates and increase their borrowing and saving book sizes.” Fund houses are screaming blue murder, especially the non-bank backed ones, as the amendment has come as a complete surprise. Few fund houses wanted to go on record to speak on the subject, as they feel it is a negative for the bond funds. The government is seeking to do away with the tax arbitrage that currently existed between debt funds and bank deposits. So far interest income from bank deposits have been taxed at slab rates, while investments in debt funds of a duration of over 36 months have been taxed at a long-term capital gains tax rate of 20% with indexation benefits. Indexation is nothing but a methodology that helps reduce tax burden by adjusting for inflation. Now this option will no longer be available to debt investors. Mutual funds are an unhappy lot as this takes away the added benefit that investors of debt schemes had over bank deposits. Srikanth Subramanian, CEO, Kotak Cherry said, "The amendment in the finance bill will have significant structural changes to the way we invest. For mutual funds to get investor interest, it’ll now have to purely be on their ability to add extra ‘risk adjusted returns’ and not because of any tax arbitrage.” The advantage of paying lower tax on a debt instrument like mutual fund will no longer be available to investors or savers. The playing field is now more even, believe experts. However this will benefit the corporate bond market where there will be renewed interest from retail investors, and this will also add depth to the liquidity which again will mean better pricing for the end customer, explains Subramanian. Analysts believe that this is negative for mutual funds, as debt schemes (barring liquid) contribute to 19% of AUMs and anywhere up to 14% of revenues. According to CLSA, the measure would have a moderate to low impact on profitability, as bulk of the revenue/profitability for AMCs accrues from equity assets and non-liquid debt AUMs are neither higher growth nor higher profitability segments. The measure will also not impact liquid MFs of ₹6.6 trillion materially, as they are short-term products and there is no material change in tax attractiveness. For life insurers, there appears to be no change in the taxation structure in the budget. An unintended impact of this could be felt by non-banking financial institutions that rely on mutual funds for some of their funding requirements. With flows into debt schemes slowing after this move, NBFCs may have to rely more on bank funding than mutual funds.

Debt schemes of MFs lose edge over bank deposits as Budget proposes to scrap LTCG & indexation benefits

Debt MFs catch investor fancy as their returns go up to 23%

<ul><li>Another related question is whether one opt for a daily or weekly <keyword id="35471" type="General" weightage="20" keywordseo="sip" source="Orion">SIP</keyword> to maximize returns </li><li>Most investors wonder if one can enhance returns on a SIP in <keyword id="6357979" type="General" weightage="20" keywordseo="mutual-funds" source="Orion">mutual funds</keyword> </li><li>By investing in SIPs, investors can take advantage of the power of compounding, say experts </li></ul> Systematic Investment Plans (SIP) are one of the simplest because they allow small ticket monthly allocations to preferred asset classes. Since these investments are regular they are best suited to even out market volatility, especially in case of investments in equity mutual funds. One question that most investors ask is whether one can enhance returns on a SIP in mutual funds? One decision most of us have to make in SIPs is the date of the SIP. The million dollar question is, does the date of the SIP really make a difference? Can you earn a higher return on SIPs by choosing the start of the month instead of the end of the month or vice versa? <cmsannotation type="cmsannotation" annotationid="The date of SIP does not matter" comment="subhead" text="The date of SIP does not matter">The date of SIP does not matter</cmsannotation> “In fact, the efficacy of SIPs lies in their ability to eliminate the need for precise market timing, as attempting to predict market lows can be challenging, if not impossible,” says Anand Dalmia, co-founder and Chief Business Officer at Fisdom, a direct mutual funds platform. A study of SIP returns on Sensex for different SIP dates over a 27-year period between September 1996 and March 2023, threw up interesting results. The date of SIP really did not matter. “The returns have been almost the same irrespective of the date you choose. In fact, the difference in returns between choosing the best date, and the worst date is 0.08%. In short, the date of the SIP does not matter,” says Nehal Mota, co-founder, Finnovate, a hybrid wealth tech platform. According to Dhirendra Kumar, CEO, Value Research India, even if there is a pattern that you get higher returns if you do your SIP on the first or the 15th of a month, there is absolutely no basis of why it should be true or why it will repeat in future. So that doesn't matter. He suggests that one should just choose a day which is convenient, when the money will be debited, and ensure that there is money in the account on that day. Says Arijit Sen, a SEBI-registered investment advisor and co-founder of Merry Mind, a financial advisory firm, “Some YouTube videos claim that if you invest on such and such dates every month, you can get the maximum returns from SIPs. But there is no basis to such claims.” <cmsannotation type="cmsannotation" annotationid="Do daily or weekly SIPs help maximize returns?" comment="subhead" text="Do daily or weekly SIPs help maximize returns?">Do daily or weekly SIPs help maximize returns?</cmsannotation> Would it make sense to do a weekly SIP or daily SIP instead of a monthly SIP? Will it result in better averaging? “We get back to the previous point of being indifferent to the date of SIP. When the date of SIP does not matter, the number of SIP iterations also would not matter. Frequent SIPs can be an administrative nightmare, so one SIP a month is good enough,” says Mota. The frequency at which an SIP should be conducted depends primarily on the investment horizon and expected volatility. To optimize the benefits of an SIP, it is crucial to align its frequency with the specific requirements of each investor's financial goals and circumstances. “For long-term investment horizons, a monthly SIP can be a suitable choice. This duration allows for cost averaging across longer market cycles, enabling investors to benefit from the potential ups and downs of the market over an extended period. By investing monthly, investors can take advantage of the power of compounding and enjoy the benefits of accumulating wealth gradually,” says Dalmia. He says that another factor to consider when determining the SIP frequency could be personal cash flow situations. Investors who have visibility and regularity in their daily or weekly cash flows may find it beneficial to commit to a similar frequency for their SIPs. This alignment ensures a smoother integration of investments into their financial planning, and helps maintain consistency in their investment contributions. On the other hand, individuals who receive monthly paychecks often find it convenient to opt for monthly SIPs. Kumar says that it is important that one becomes a regular investor, because only then the magic of compounding happens. Instead of worrying about the periodicity of SIP, focus on selecting the right mutual fund, after considering your risk tolerance. <cmsannotation type="cmsannotation" annotationid="The mantra for maximizing your SIP returns" comment="subhead" text="The mantra for maximizing your SIP returns">The mantra for maximizing your SIP returns</cmsannotation> So, we have seen that the date of the SIP, or the frequency of the SIPs do not make much difference to the returns. But there are four other factors that form the pillar of a successful SIP investment. First is discipline. “Once you start a SIP, don’t give up on it till the milestone for the goal is reached. Here, don’t wait for income to increase to generate savings. You must target monthly savings and then build your expenses around that. That is the way to make SIPs workable in practice,” says Mota. The second mantra pertains to the dominance of time over timing. The specific day chosen for the SIP is not significant; however, the duration of the SIP is crucial. Even if the regular investments are smaller, opting for a longer SIP period can result in a significantly higher accumulation of wealth within the same mutual fund. The third mantra is to believe in the power of equities, or equity funds to generate long term positive returns. You can never create wealth by doing SIP for a prolonged period on liquid funds or arbitrage funds. The beauty of equity funds is that over longer periods of time, the risk of negative returns almost diminishes to zero. The final mantra of SIP is enhancement. “Don’t get stuck to the SIP amount you started with. Over time, your income is bound to increase so your saving power must also grow proportionately. That is only possible, either with a stepped up SIP or by plugging additional SIPs to accommodate higher savings,” says Mota. SIPs can thus be a great way to meet your future goals, and staying disciplined is key.

What is the best date to set for your SIPs – Beginning, end, or middle of the month?

Although FII flows have reversed, retail investor confidence remains low thanks to macro concerns

Over the past one year, several global factors, including geopolitical unrest and spiralling inflation across developed markets that led to sharp rate hikes by global central banks, have had an impact on Indian equity market sentiment. In spite of this, it is undeniable that the Indian economy is in a better position fundamentally and is more likely to grow steadily in the long run. However, in the short term, global events may lead to more uncertainty. Hence, investors need to moderate their return expectations and not invest in equities for short-term gains. We continue to have a positive outlook on stocks for the medium to long term and expect both the economy and markets to deliver. Given this mixed backdrop, investing in current market conditions can be challenging for a retail investor. However, there are some basic principles one should be mindful of when investing during such volatile times. <cmsannotation type="cmsannotation" annotationid="Investing across asset classes" comment="subhead" text="Investing across asset classes">Investing across asset classes</cmsannotation> Consider using asset allocation schemes for lumpsum <keyword id="6355120" type="General" weightage="20" keywordseo="investment" source="Orion">investment</keyword> opportunities that will divide your holdings among different asset classes. If you want to increase your exposure to debt and equity in this case, choose a dynamically managed asset allocation strategy. A multi-asset category scheme is an option if you're looking for allocation to equity, debt and gold. Based on the shifting market environment, the fund manager will manage the allocation in either of the funds so that the investor can take advantage of the investment opportunities offered by these asset classes. Another strategy would be to stagger your investments and take advantage of market volatility by using features like Booster SIP and Booster STP. An investor can use this feature to deploy funds based on the shifting market conditions. Therefore, if market valuation increases, the amount of funds deployed would be minimal, and as and when market valuation turns attractive, the amount of funds deployed would increase. The investor benefits from both cost and value averaging as a result of this feature. <cmsannotation type="cmsannotation" annotationid="Value investing and investing in defensive themes" comment="subhead" text="Value investing and investing in defensive themes">Value investing and investing in defensive themes</cmsannotation> Now, if you are an investor looking to allocate to an equity fund, it would be best to choose a value-oriented scheme. Value was out of favour until September 2020, but after the market recovered from the pandemic-induced correction, value as a theme made a powerful comeback. Value themes often make for a good investment during uncertain times because they focus on investing in sectors that are out of favour but have potential long-term value. The erratic economic climate has created numerous value pockets in various sectors. By investing in a value-oriented scheme, an investor may profit from these. If you are a defensive investor looking to allocate funds to defensive themes, a dividend yield category or a fund focused on consumption can be considered. As value is being unlocked, dividend yield as a strategy typically performs well during an economic or market recovery phase. At the same time, an economic recovery is underway, which is causing earnings growth for stocks with fair prices. This results in such stocks being rerated, which ensures a win-win for dividend-yielding names. Purchasing a consumption-based fund is another way to play the defensive theme. An investor can consider investing in the consumption theme at any stage of the market cycle because it is secular in nature. This theme includes a number of industries, including automotive, pharmaceutical, FMCG, consumer durables, retail, and telecommunications, to name a few. From a medium to long term perspective, India's consumption demand is likely to increase steadily due to its expanding population. Therefore, an investment in the consumption theme will be a defensive play in the portfolio if you are an investor looking to stay invested over the long term. The export theme is interesting from the tactical allocation point of view, in light of the depreciating Indian rupee. The major exporter industries to the US —viz. Indian IT, pharmaceuticals, and automobiles, will benefit from the strong tailwind the currency currently offers. <cmsannotation type="cmsannotation" annotationid="Don’t ignore debt" comment="subhead" text="Don’t ignore debt">Don’t ignore debt</cmsannotation> With the RBI moving toward rate normalization, the road for debt appears to be an interesting one. Investing in floating rate bond funds would be the best course of action in such an environment from a short-term standpoint. This is due to the fact that it is built to adjust to rising interest rates and coupons that accrue to investors as the benchmark/overall RBI rates rise. The much-needed necessary cushion for the portfolio is provided by floating rate securities, which have a positive correlation with rising interest rates. Dynamic bond funds can be another worthwhile option for investors who are thinking about making a long-term allocation to debt or who are unsure of where to invest, given the evolving macroeconomic conditions. By managing duration dynamically, a dynamic bond fund looks to profit from interest rate volatility. The scheme can also invest in <keyword id="6386461" type="General" weightage="20" keywordseo="corporate-bonds" source="Orion">corporate bonds</keyword> and G-Secs based on the interest rate scenario, and the fund manager can manage durations of 1 to 10 years in this case. In conclusion, the near future appears uncertain, but that does not mean investors should stay on the side lines. Based on your risk profile and asset allocation requirements, choose programmes that will enable you to take full advantage of any market situation. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/tech/news/smart-farming-can-prove-to-be-a-game-changer-in-the-coming-days/articleshow/93514224.cms">Smart farming can prove to be a game changer in the coming days</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/finance/news/india-must-pitch-for-rupee-as-dollar-distancing-might-be-finally-happening-sbi-ecowrap/articleshow/93513940.cms">India must pitch for Rupee as dollar distancing might be finally happening: SBI Ecowrap</a>

You Searched For "long duration funds" and got 13 results

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