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Know about taxation while investing in the US market

Know about taxation while investing in the US market

Earlier we discussed taxation in mutual funds. In this article, we will discuss tax liabilities to consider while investing in the US market. Many investors are interested in learning more about the US market and its investment opportunities. The financial market in the United States is the most influential financial center globally. The New York Stock Exchange is the world's largest stock exchange, with a market capitalization of more than 26.7 trillion dollars as of March 2022, while India's GDP was 2.7 trillion dollars in 2020. You can imagine how big the US equity markets are.  As an Indian investor considering investing in the US share market, you should know the tax liabilities and benefits. You will not be able to keep the money you earn tax-free.  There are two types of gains from equities that are subject to taxation 1. Dividends  A dividend refers to a portion of a company's profit that it intends to distribute to its shareholders.   As a result, because your investment is profitable, you must pay up the tax on the dividend you get. Although a firm is not required to pay dividends, most Blue-Chip corporations do so to retain goodwill.  2. Capital gains on the sales  When selling a stock, you have the option of making a profit or a loss. If you make a loss, no tax is due, but you must pay Capital Gains Tax on that profit if you make profit.   The stock's holding duration determines the capital gains tax rate.  Let's now dwell on the taxation aspect 1. Dividends  In the United States, if you own stock in a firm that pays a dividend, your tax burden is a flat 25% which gets deducted from your dividend before you get it, resulting in a cash distribution of 75% of the dividend.  The good news is that because the US and India have a Double Taxation Avoidance Agreement (DTAA), you would be able to offset the US tax withheld against your Indian tax burden.   As a result, the tax you pay on the 100% dividend will be offset by an overseas tax credit of 25%, leaving you to pay only the difference.  Let's understand with an example Suppose you own Google (GOOGL) and have received a USD 1000 dividend. The broker will deduct USD 250 as his/her fee from the USD 1000 dividend you gained, while USD 750 will be transferred into your bank account.   The USD 1000 dividend is included in your annual income for tax whenever you file your return in India. You will, however, be allowed to use USD 250 in international tax credits to decrease your Indian tax liability.  2. Taxation on capital gains  There is no Capital Gains Tax on US Stocks for foreigners in the United States. However, you must pay tax in India under the Capital Gains Tax scheme.  Capital Gains are divided into two categories  a) Long-term capital gains tax rate (LTCG)  If you own a stock for more than 24 months, the profit from selling it shall be taxed at the long-term capital gains in India.   Long-term capital gains are taxable at a rate of 20%. (Plus, any additional surcharge and cess).  b) Short-Term capital gains tax rate (STCG)  If you make a sale before the 24-month, it will be the same as regular income, and your tax bracket will determine the tax rate.  Let's take an example to understand  For instance, you brought Apple shares worth USD 5000 and sold them for USD 7000, making a profit of USD 2000. While this gain will be tax-free in the United States, you are required to pay your tax dues in India on the USD 2000 capital appreciation.   If you hold the shares for two years, the tax accumulated is USD 400 plus any applicable surcharges and cess.   If you sold shares after owning for a little less than 24 months, USD 2000 would've been added to your income and taxed according to your tax bracket for the year.  Let's sum it up in an illustration for ease of understanding and assimilation The tax implications of investing in the US stock market are straightforward, and this should not deter any Indian investor from doing so.  FAQs Do Indians have to pay taxation on capital gains? There is no Capital Gains Tax on US Stocks for foreigners in the United States. However, you must pay tax in India under the Capital Gains Tax scheme. What are the rules for taxation on dividends? In the United States, if you own stock in a firm that pays a dividend, your tax burden is a flat 25% which gets deducted from your dividend before you get it, resulting in a cash distribution of 75% of the dividend.  The good news is that because the US and India have a Double Taxation Avoidance Agreement (DTAA), you would be able to offset the US tax withheld against your Indian tax burden.   As a result, the tax you pay on the 100% dividend will be offset by an overseas tax credit of 25%, leaving you to pay only the difference. Consult an expert advisor to get the right plan for you TALK TO AN EXPERT
How does a good credit score help?

How does a good credit score help?

Introduction To be able to understand why you need a good credit score to represent you, it can be useful to be aware of the basics first. Once you grasp how credit works, you can not only avail all of the benefits, offers and rewards that come with different credit card transactions but also improve your credit score drastically.  What is credit?  In economics, a debit is a decrease in one’s assets and a credit is an increase in the same. When you get a bank account, a credit would mean an increase in your bank balance while a debit would mean a decrease in your balance.  Debits cause the flowing out of money from one’s expense account due to the costs incurred by the consumption of goods and services. Credit is the opposite. However, credit can become a liability in the case of an unpaid credit bill which is a debt that you must clear within a stipulated amount of time. What is an ideal credit score?  A credit score is a three-digit number that indicates how credit-worthy you have proved yourself to be with your past transactions. This is done by analysing your credit files which show how successful or unsuccessful you have been in clearing your credit bills on time. Thus, it indicates to your potential lenders how capable you are in handling the risk factor involved in borrowing money.  In India, credit scores can range from 300 to 900. Credit bureaus like CIBIL (Credit Information Bureau India Limited) are in charge of evaluating your credit score. You might have a score of about 700 and wonder what it means. Any credit score in the range of 700 - 750 is usually considered a decent one. Likewise, anything above 800 is considered an excellent score. However, credit scores of 650 or less might not be considered strong enough for lenders to approve high-interest loans to you.   How to build a good credit score? To build your credit score from scratch, you can start by applying for a secured credit card scheme. You can also choose the shortcut of building credit faster by becoming an authorised user of someone’s else preexisting account. It is easy to attain an ideal credit score with a few months of consistent credit activity. Once you have indulged in an amount of credit activity that is enough to generate a score, you can then focus on making it better.  The rules are simple - do not borrow more than you can pay back and make it a point to pay all your credit bills on time. Your credit score will get adversely affected if you miss a payment or default on a loan. Also, make sure to settle any pre-existing debts so that it does not prevent you from attaining the desired score.  Another factor that improves your credit score effectively is the diversity of your credit. A credit mix shows that you are equally capable of responsibly handling different kinds of credit, be it mortgages, personal loans or credit card bills.     What are the benefits of maintaining a good credit score?  The benefits of maintaining a favourable credit score are manifold. First and foremost, it creates a favourable impression upon prospective lenders. Building a good score and maintaining it helps you to easily avail future credits and loans. The higher the credit score, the more qualified you are to avail of low-interest loans.  The amount of money you get to borrow, known as the credit limit, also increases with a high credit score since money lenders or banks are thereby satisfied with your capability of paying back the money on time. Sometimes it even allows you to negotiate with lenders on interest rates. With an impressive credit file, you get to reap better rewards and benefits on credit products.  Even for your own financial health, building credit works as a favourable sign. Other than coming in handy while making big investments like getting a car or buying a house, it also implies your adeptness at managing your finances. In fact, car buyers with high credit scores often get better insurance rates than the ones with unsatisfactory scores.     You can also avail of education loans at affordable rates with a good credit score. You can download the EduFund app and apply for an education loan right away! FAQs What is credit? A credit means an increase in your bank balance while a debit would mean a decrease in your balance. What is a credit score? A credit score is assigned to every credit card owner, capable of borrowing money from a financial institute. The score indicates the borrower's potential in terms of trusty worthiness, repayment behaviour and past financial history. For example, you have defaulted on your credit card payments, then you are likely to have a bad credit score. But if you have financial discipline and make routine payments then you will have a good credit score. In India, credit scores can range from 300 to 900. Credit bureaus like CIBIL (Credit Information Bureau India Limited) are in charge of evaluating your credit score. What is a credit score and what is it used for? A credit score is usually a three-digit number to determine your borrowing capability, The lender can decide whether you are credit- worthy for applying for car, home or education loans in the long run. Credit worthiness is extremely important in building trust and showing your lender that you have the means and intent to pay back the borrowed money on time. Conclusion The thumb rule for building the ideal credit score is to borrow only as much as you can repay and to pay your bills timely. It is equally important to maintain that standard once you get to the top and secure it from any kind of deterioration. Knowing the correct ways of achieving these can make you more confident in choosing the right financial goals for yourself. Moreover, the added benefits of having an impressive credit score can work as the right kind of motivation for improving it.  
How to navigate finances as a married person?

How to navigate finances as a married person?

Goals that individuals plan for themselves before marriage can vary from person to person. Sometimes the goal is to have a fit body that looks amazing in a wedding dress and at other times, the goals are more long term like buying a house of their own or a car.  Marriage is a big event in anybody’s life and it is normal to divide your goals into pre and post-marriage. However, it is not enough to just have goals. You should plan out how you are going to lead your life post-wedding to achieve these goals. While money is not the only important factor in a marriage, setting concrete and judicious financial goals becomes crucial to leading a happy married life.  Below is a list of things that you can do as a married person to lead a better financial life after marriage. 1. Open a separate bank account You might already have a joint account with your spouse but that is not enough. It is always advisable to get another bank account that will be solely devoted to your monetary expenses as an individual. Having a bank account exclusively for this purpose serves many purposes other than keeping you from mixing up your finances.  It might bear witness to how independent and responsible you and your partner are. Offering each other time and space can be as important as contributing to your relationship, financial or otherwise. In the long run, it bears testimony to how invested you are in your marriage.  Moreover, being in a marriage does not have to mean that you don’t have any personal goals anymore. These individual goals can be for yourself, your parents, your child, and so on. Having a separate bank account will also prove how invested you are in yourself despite being married.  2. Talk about finances  It goes without saying that in any relationship, communication is key. In a marriage, too, it is important to keep your partner in the loop, as you have decided to live your life together. Among other things that partners should talk about, money is one of the most significant. Being actively involved in marriage also means that partners should stay aware of each other’s monetary difficulties like debts. If your partner is trying hard to pay off debts, home loans, education loans, and the like, it should be a priority to help them overcome it. Romantic gestures need not just be about taking your partner out on dates or handing them a bunch of flowers. Being the person they can depend on in times of adversity can strengthen your bond tenfold.  3. Make a priority list  One of the most important steps in navigating finances is to make lists that state your financial priorities in order. Sit down with your partner and discuss at length if rent should come first or debts, or retirement savings.  Financial planning takes into account things like emergency funds and the first step to start planning these is to place them on your priority list. Ideally, emergency funds should come before investment plans. You should also start clearing up your debts as soon as you can. This way your EMI money will be ready to be spent whenever you need it.  4. Get started with budgeting immediately  Budgeting is indispensable if you are looking to manage your finances effectively. In marriage, you need to go about every step of budgeting along with your partner as you are managing a household together. Budgeting includes your daily expenses and putting away a part of your income as savings every month.  Planning is key, be it for expected or unexpected expenses. Put aside money on regular intervals for expenses you are expecting - those can be a phone or car upgrades or even getting a new house. For unexpected expenses, save money every month as part of an emergency fund. Be in constant touch with your partner about their financial goals so that you can find out how to be compatible.    Surveys often indicate that couples might face stress in their married lives over their unregulated spending habits. Creating separate buckets of savings for different expenses is the healthiest and most systematic way of budgeting. It saves you and your partner the extra tension and ensures happy married life.  FAQs How finances are best handled in marriage? The best way to handle finances is to have an open discussion around money and expenses. Talk about the shared expenses and individual expenses. Whether you have dependents like children, siblings and parents? Try to have two separate accounts for personal expense and a joint account for shared expenses. Plan and save for major events like raising a child, their education, buying a house and trip. What is the best way to budget in a marriage? The right way to budget in a marriage is to discuss the income resources and expenses with each other. Divide the expenses, find out how much you and your partner can contribute and follow the 50-30- 20 rule. Herein you can dedicate 50% of your shared income towards household needs, 30% towards wants and 20% towards savings. Who should be in charge of the finances in a marriage? Both partners should be equally in-charge and responsible for finances in a marriage. Its important to budget, save and investment as partners and discuss the well of contribution towards shared expenses openly. Conclusion Managing finances together with your spouse might not always be easy because as individuals you might have different monetary goals and spending habits. Nevertheless, keeping judgments at bay and instead, helping each other overcome their unhealthy lifestyles and financial adversities can go a long way in securing your marriage.  You can start your investment journey right away with your partner by downloading the EduFund app. Consult an expert advisor to get the right plan TALK TO AN EXPERT
How to choose the right mutual fund?

How to choose the right mutual fund?

How to choose the right mutual fund can generate the best returns is the most common question amongst investors. We often judge a mutual fund by its past returns. But that is not enough; you need to make sure the future returns from the fund are also lucrative.   Mutual funds are of different types like large-cap, small-cap, and ELSS, among others. Once you have decided to invest, you must choose where to invest. Knowing about the basic factors that shape investment decisions can help you decide which mutual fund you want to opt for.  If you wish to watch a video instead of reading it, you can click below! https://www.youtube.com/watch?v=FqYR1IWgbZo&ab_channel=EduFund Two things you need to do to get started before you choose the right mutual fund 1. Setting a goal One of the most significant aspects of investing is being clear about your goals. A goal can be anything - buying a car worth 5 lakhs, a retirement scheme worth 1 crore, or an apartment worth 5 crores.  Any kind of goal requires a time horizon to function. Say, the goal of purchasing a car can be achieved within a time period of 5 years, or that of getting an apartment within 15 years. Retirement plans have longer time horizons - almost 20 to 30 years. Thus, while investing, you need to set a clear goal according to the time horizon for achieving it.   2. Calculating risk appetite  Once you have set your goal(s) and time horizon, the next thing that you need to analyze is your risk appetite. As the name suggests, risk appetite is your ability to withstand potential losses that might be incurred while investing. Risk-taking is an important aspect of investment. Why? Because the higher the risk, the greater tend to be the returns.  Time horizon becomes an important factor in calculating risk appetite. With a longer time horizon, the capacity to take risks also increases. This is because your investment return rates might decrease but they will still have a longer time window to recover.  What is an equity mutual fund?  Once you are clear about your goals and have calculated the time horizon and risk appetite, you can familiarise yourself with the different kinds of mutual funds so that you can choose the most suitable one for yourself. The first type is called Equity mutual funds in which the basic idea is to invest in the shares of various companies. Here, the fund manager will put your money in the stock market to avail the best returns from it. The returns from such investments depend highly on the market condition, thus, increasing the risk factor in equity mutual funds. But since higher risks mean more returns, you can opt for equity mutual funds if your time horizon is more than 7 years to accommodate for increased risk.   What are the different types of equity mutual funds? Equity mutual funds can be of 4 types based on the level of risk and returns. 1. Large-cap mutual funds The first one is called large-cap mutual funds. They invest in Indian companies that are considered to be in the top 100 in terms of their market value. Here, you invest in shares of famous companies like Reliance, HDFC, and Infosys. The risk involved is moderate and the return rate is about 15%. This can be your go-to if you have a larger time horizon.   2. Mid-cap mutual funds Mid-cap mutual funds invest in Indian companies that are in the top 101 to 250 in terms of market value like Voltas, JK Cement, and Avenue Supermarts. The risk involved in mid-cap mutual funds is higher than that of large-cap funds but the return rate is also more - about 17-18%. The time horizon for mid-cap mutual funds has to be at least 7-10 years to have a suitable risk appetite.   3. Small-cap mutual funds Small-cap mutual funds are ones that invest in companies that are beyond the top 250 in the country. This means that the amount of volatility is increased and so is the risk involved. The bright spot here is that these mutual funds can also get you the highest returns which are at times over 25%. 4. ELSS mutual funds Equity Linked Saving Schemes or ELSS is the third type. This scheme is a dedicated mutual fund allowing investors to save taxes. Here, you have the option to take a deduction of about 1.5 lakhs which will allow you to save almost 46,800 INR in taxes. It, however, has a lock-in period of about 3 years, meaning you won’t be able to withdraw money from this fund for 3 whole years. The purpose is to make you stay invested longer and receive higher returns - about 17-18%. The risk factor is higher than that of large-cap funds but ELSS is ideal if you’re looking to make long-term investments while also enjoying tax benefits.  What is a Debt mutual fund?  Debt funds invest in government securities, corporate bonds, treasury bills, and other such money-market instruments. Unlike equity funds, they do not get affected by market fluctuations and generate fixed returns. If you are looking for low-risk investments, you can opt for debt funds. Since debt funds are low-risk investments, the time horizon required can be about 5 years. The expected return rate might range from 7% to 12%.  A liquid debt fund is a kind of debt fund where you can put your surplus money. This can be utilized for short-term goals, say, for purchasing a laptop or planning a vacation. These generate returns of almost 7% - 9% which is a huge improvement on the 3% - 4% that bank accounts can generate. Liquid debt funds are also a brilliant way to save up for emergencies. One way to secure your equity investments as you inch closer to your goal is to move them to debt investments as debt funds have a low-risk factor.  What is a Hybrid mutual fund? As the name suggests, hybrid mutual funds are a combination of equity and debt funds. This fund is often chosen by low-risk investors because despite offering low risk, it generates better returns than debt funds.  If you are insecure about the high risks involved in Equity mutual funds, you can opt for a hybrid mutual fund. It allows you to partially test out equity investments without being exposed to all the risks. The return rates range from 13% - 14% and goals with shorter time horizons of about 3 years are ideal for this investment.  What is the significance of the expense ratio and exit load?  The expense ratio is the money charged to you by the assets management company for managing your funds. The higher the expense ratio, the lower the returns from an investment. Thus, it is wise to invest in a fund with a low expense ratio.  Another thing you need to know while investing is the exit load or the sum you pay while withdrawing the money from the fund. The purpose of exit load is to stop investors from exiting the fund prematurely. The exit load usually becomes nil after a year of investment. Thus, it is beneficial to be aware of the terms and conditions.  Once you have considered things like goals, time horizons, and risk appetite, you can choose from the different types of mutual funds. Next, you can check out the expense ratio and exit load of the chosen scheme. Good performance in the past might not be guaranteed the same in the future. Nevertheless, it is wise to check out the track record of the fund manager.  A wise thing to do is invest your money in different funds instead of investing all of it in one. Once you have followed all these steps systematically, choose the right mutual fund. FAQs How do I know which mutual fund is best for me? Here is a checklist to help you determine the best mutual fund category: Identify your goals Find out your risk profile Find out your time horizon Figure out the amount needed for goals Talk to a financial advisor What are the different types of mutual funds? There are many categories within mutual funds such as equity, debt and hybrid. There are further categories like small-cap, mid-cap and large-cap, multiple cap mutual funds as well. What is an expense ratio in mutual funds?  The expense ratio is the money charged to you by the assets management company for managing your funds. The higher the expense ratio, the lower the returns from an investment. Thus, it is wise to invest in a fund with a low expense ratio.  What is a Hybrid mutual fund? Hybrid mutual funds are a combination of equity and debt funds. This fund is often chosen by low-risk investors because despite offering low risk, it generates better returns than debt funds.  What is a Debt mutual fund?  Debt funds invest in government securities, corporate bonds, treasury bills, and other such money-market instruments. Unlike equity funds, they do not get affected by market fluctuations and generate fixed returns. Consult an expert advisor to get the right plan for you TALK TO AN EXPERT
What is market capitalization? Which large-cap funds to invest in 2023?

What is market capitalization? Which large-cap funds to invest in 2023?

What is Market capitalization? The market capitalization of a company is the number of outstanding shares of that particular company multiplied by the price of each share. It is an indicator of the size of the company based on its market value. Market Capitalisation = (Number of shares outstanding) * (Share Price) Market capitalizations of companies are broadly classified into three types - Market CapitalisationRank In CountryExampleLarge CapGreater than Rs 20,000 CrTop 100 CompaniesReliance Industries, InfosysMid CapGreater than Rs 5000 Cr, but less than Rs 20,000 CrRank among 100-250 companiesCastrol India, LIC Housing FinanceSmall CapLess Than Rs 5000 CrRanked lower than 250Hathway Cable, Thyrocare Technologies Ltd Companies with large market capitalizations are typically market leaders in their respective sectors and are considered to be reliable. These companies also have strong financials which aid in maintaining stability despite market fluctuations and economic conditions/downturns. These stocks tend to underperform when compared to small-cap and mid-cap companies with respect to returns. However, they also tend to offer low volatility and high stability; and hence are suitable for risk-averse investors. Funds that invest a large % of their total assets into companies with high/large market capitalization tend to be more stable than others. These funds are known to often generate a profit for their investors due to the stable performance of their underlying securities. These funds are suitable for investors looking to invest for a long-term horizon of 5-7 years. These funds stay strong and deliver stable returns despite the economic downturns (bear market) and hence are suitable for investors looking for low-risk options for wealth creation. Scheme NameReturn 1 Year (%) DirectReturn 3 Year (%) DirectReturn 5 Year (%) DirectDaily AUM (Cr.)Canara Robeco Bluechip Equity Fund57.9417.7518.382,250.25Axis Bluechip Fund46.3216.5518.3425,134.85Kotak Bluechip Fund66.7014.1115.632,392.31BNP Paribas Large Cap Fund51.6814.0315.111,041.16Mirae Asset Large Cap Fund61.4713.7717.7823,976.51UTI Master share Fund62.3513.4815.367,823.84 Let us now take a look at 6 large-cap funds that have delivered good returns over the past few years and how they have performed. 1. Canara Robeco Bluechip Equity Fund Minimum Investment Amount (Lump Sum)Rs 5000Minimum SIP Investment AmountRs 1000Expense Ratio 0.58% Performance The fund has delivered an annualized return of 17.75% over the last 3 years and has constantly outperformed its benchmark (S&P BSE 100 Total Return Index). The fund has also outperformed other funds and the category average. Pros The expense ratio is on the lower end Fund has higher 1-year, 3-year, and 5-year returns as compared to the category average. Cons None 2. Axis Bluechip Fund Minimum Investment Amount (Lump Sum)Rs 5000Minimum SIP Investment AmountRs 500Expense Ratio 0.50% Performance The fund has delivered an annualized return of 16.55% over the last 3 years and has constantly outperformed its benchmark (NIFTY 50 Total Return Index). The fund has also outperformed other funds and the category average. Pros  The expense ratio is on the lower end Fund has higher 3-year and 5-year returns as compared to the category average. Cons The AUM of the fund is greater than 15,000 Cr. The performance of the fund with respect to the returns stagnates when the fund crosses this AUM threshold. Investors should keep an eye on the performance by monitoring the returns of the fund. 3. Kotak Bluechip Fund Minimum Investment Amount (Lump Sum)Rs 1000Minimum SIP Investment AmountRs 100Expense Ratio 0.92% Performance The fund has delivered an annualized return of 14.11% over the last 3 years and has constantly outperformed its benchmark (NIFTY 50 Total Return Index).  Pros The expense ratio is on the lower end Fund has higher 3-year and 5-year returns as compared to the category average Cons None 4. BNP Paribas Large Cap Fund Minimum Investment Amount (Lump Sum)Rs 5000Minimum SIP Investment AmountRs 300Expense Ratio 1.02% Performance The fund has delivered an annualized return of 14.03% over the last 3 years and has constantly outperformed its benchmark (NIFTY 50 Total Return Index).  Pros The expense ratio is on the lower end Fund has higher 3-year and 5-year returns as compared to the category average. Cons None 5. Mirae asset Large Cap Fund Minimum Investment Amount (Lump Sum)Rs 5000Minimum SIP Investment AmountRs 1000Expense Ratio 0.54% Performance The fund has delivered an annualized return of 13.77% over the last 3 years and has constantly outperformed its benchmark (NIFTY 100 Total Return Index).  Pros The expense ratio is on the lower end Fund has higher 1-year, 3-year, and 5-year returns as compared to the category average. Cons The AUM of the fund is greater than 15,000 Cr. The performance of the fund with respect to the returns stagnates when the fund crosses this AUM threshold. Investors should keep an eye on the performance by monitoring the returns of the fund. 6. UTI Master share Fund Minimum Investment Amount (Lump Sum)Rs 5000Minimum SIP Investment AmountRs 1000Expense Ratio 1.02% Performance The fund has delivered an annualized return of 13.48% over the last 3 years and has constantly outperformed its benchmark (S&P BSE 100 Total Return Index).  Pros  The expense ratio is on the lower end Fund has higher 1-year, 3-year, and 5-year returns as compared to the category average. Cons None FAQs What is Market capitalization? The market capitalization of a company is the number of outstanding shares of that particular company multiplied by the price of each share. It is an indicator of the size of the company based on its market value. Which large-cap funds to invest in 2023? Here are some of the best large cap funds to invest in 2023: Canara Robeco Bluechip Equity FundUTI Master share FundMirae asset Large Cap FundBNP Paribas Large Cap Fund This is not an investment advise. Please consult a financial expert before starting any investments. What is a large-cap fund? Funds that invest in companies with large market capitalizations that are typically market leaders in their respective sectors and are considered to be reliable, are called large-cap funds. Large cap companies such as Reliance, TATA Steel, Apple, Microsoft and many more. Conclusion Listed above were the best large-cap mutual funds to invest in 2021. You can start investing in them through the EduFund platform by just downloading the app and signing up. DisclaimerMutual fund investments are subject to market risks. The past performance of any fund is no surety of its future performance. Please do your own research on the risks associated.
Investment tools for creating children's education fund

Investment tools for creating children's education fund

Where to invest in children's education? What are the best investment tools for creating children’s education fund? How much do you need to get started? Let’s find out in this article.  If you're thinking about setting aside money for your children's educational needs, it's time to get moving and avoid delay at all costs. Education inflation is rising considerably more quickly than general inflation. Parents are finding it more and more difficult to cover the rising fee structure and other expenditures involved with education.   This is true from basic to secondary to higher education. Saving in assets that can produce returns that outpace inflation is crucial. This is why it is important to make a rough estimate of the course's inflation-adjusted cost now, even before you begin saving. Your child might be interested in it in a few years.  Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), or equity mutual funds are the top three investment options for many parents while saving for their children's education expenses. Let's look at what PPF, SSY, and equity MF as the best investment tools for creating child’s education fund:  1. Public Provident Fund (PPF)  Even little children's names can be used to open PPF accounts. A total of Rs. 1.5 lakh per year may be invested in both the parent's own PPF account and the child's PPF account. To construct a tax-free corpus for the child that is secured by a government guarantee for the debt part, one could think about investing in child PPF. The PPF donation made to the child's PPF account may also provide tax benefits to the parent. PPF is a 15-year plan, and when a child turns 18, they can utilize the same account to make partial withdrawals to reduce their tax burden.  The PPF may be extended after 15 years in blocks of 5 years, thus for the child, it will be a 5-year PPF. The interest rate on the PPF account is currently 7.9% per year, compounded yearly, and paid at maturity.  2. Sukanya Samriddhi Yojana (SSY)  The Sukanya Samriddhi Yojana program is designed to meet a girl child's financial needs. The youngster must be younger than 10 years old, and the program matures when the child turns 21. Only the first 15 years must be covered by the parent's SSY deposits. The SSY regulations permit the plan to be terminated after the child becomes 18 as long as it is only done so to facilitate marriage. The interest earned is tax-free, while the SSY contributions are eligible for a tax break under section 80C. The interest rate is currently 8.4% per year, compounded yearly, and paid upon maturity.  While the compounding and tax advantages of SSY and PPF are comparable, SSY has a greater interest rate. A PPF for a girl kid can be formed with only a tiny part of money entering into it, even though SSY can be given precedence for a girl child.  3. Equity mutual funds  Since PPF and SSY are both debt investments, returns will almost certainly fall short of inflation over the long term. One needs to be exposed to equity mutual funds in order to achieve strong inflation-beating returns. Create a mutual fund portfolio by combining at least two to three open-ended, diversified MF schemes, including an index fund, a large-cap fund, and a mid-cap fund. Pick investments that have consistently outperformed their benchmark throughout time. Connect them to your child's goals and keep SIPs going in them till the objective is three away.  The number of years before a goal can also influence a person's choice of plans.  4. Children's mutual fund schemes  There are mutual fund schemes specifically designed to meet the needs of children, but they have a lock-in period. When the market declines, immature investors typically have a tendency to sell their positions. They are unaware that keeping an investment for the long term, despite market volatility, is necessary to get returns that outperform inflation. On the other hand, fund management is given the freedom to make some risky decisions in order to maximize returns.  5. Child insurance plans  There are life insurance policies designed specifically to meet the needs of children. Such child insurance policies have a "waiver of premium" provision that guarantees the child will receive the intended amount of money when it is needed, even if the parent passes away during the policy's term. Such plans are more expensive because they guarantee the necessary sum for a child's demands.  No one investment can be the best. Diversify among all three of these investments based on the number of years till the target and your risk tolerance. Aim to use the long-term potential of equities through equity mutual funds rather than becoming significantly invested in debt products like PPF or SSY.  FAQs What are the best investment tools for your child's education? Public Provident Fund (PPF) Sukanya Samriddhi Yojana (SSY) Equity mutual funds Children's mutual fund schemes Child insurance plans How do I create a child education fund? There are many ways to create a child's education fund. Here are some tools that you should consider building your child's education fund Mutual Funds, US stocks, Sukanya Samriddhi Yojana for girl children by the Indian government, child insurance plans, and Public provident fund. These are effective ways to build wealth for big financial goals like your child's college fees or for your house. Is SIP good for child education? SIP is one of the best tools to invest in your child's education planning. It allows you to create a fund gradually and systematically without spending a huge amount in one go. It is a disciplined way to invest and allows you to stay invested for a long period of time. Consult an expert advisor to get the right plan TALK TO AN EXPERT
How to budget for short-term and long-term goals?

How to budget for short-term and long-term goals?

Do you plan on buying a laptop? Do you also wish to save for your child’s education? These are two different financial goals, and both require good planning and execution. This blog will discuss “How to Budget for Short-Term and Long-Term Goals”.  It is better to be aware of your financial situation and the different expenses that you incur to plan accordingly.   Budgeting helps to identify financial spending and understand how to allocate the leftover money to various needs for a better future. It encourages people to stay organized and appreciate the value of accounting. Steps needed to budget for short-term and long-term goals Step 1: Prepare for life’s contingencies Life is unpredictable, and it is necessary to be prepared for any events that might set you back, like recession, job loss, illness, or even death. Prepare for some of the contingencies with the help of insurance plans, for example, health insurance or Mediclaim plans are suited for illness and hospital bills, and life insurance plans like term insurance for financial assistance in case of death.  For a recession or job loss, you need to create an emergency fund where you put aside some money regularly. Automate these payments so that they can continue without any hassles.  Step 2: Define the financial goals Identify both short-term and long-term financial goals so that it becomes easy to segregate them and make budgeting plans accordingly. Short-term goals can be credit card payments, emergency funds, or personal expenses, whereas long-term financial goals often include retirement funds, a child’s education fees, and paying off the mortgage.  Define the financial goals and be specific with the goal, be it about buying a new house in 5 years or your child’s education down the line, or a retirement fund? Step 3: Prioritise the financial goals Once you have defined and sorted out the financial goals, it becomes imperative to prioritize them. Consider the time you have in hand to meet them and how vital these goals are for yourself and your family’s future.  Step 4: Consider the timeline  By this time, you have identified and segregated the financial goals and have a few specific goals in mind. Think about the time in hand for instance, for the child's education goal, you need nearly 10 - 15 years, but for buying a house, you need 5 years. Step 5: Consider the money  The next question to consider is the money you will need to fulfill the financial goal, for instance, the estimated price of the house you want to buy (nearly INR 80 Lakhs) or the amount you want to save for the education corpus (nearly INR 60 Lakhs).  Step 6: Review all your expenses Record all the spending for at least a month to know how much and where you have been spending. Review these expenses and identify which ones are necessary, which ones can be reduced and how much money you have left after meeting them.  Step 7: Set a savings target The money must work for you and provide maximum advantage hence look for ways to save it. There are numerous short-term and long-term investment plans available in the market, like SIP, liquid funds, debt funds or PPF, etc.  Take the help of a financial advisor at Edufund to know more about short-term and long-term investment options. Look at your total savings and make sure it accounts for everything from the contingency fund to the long-term and short-term financial goals. The ideal ratio for spending and saving should be 50:50, but you can mold it as per your requirements up to 60:40. Any more spending will create worries hence try to maintain a balance. Step 8: Divide the savings for important goals Divide your savings for all the important goals. Prioritize necessary long-term goals like education corpus for the child, retirement plan, and necessary short-term goals like purchasing a home. Now put the focus on comparatively less important goals like marriage, family vacation, home renovation, etc., and lastly, consider the short-term lifestyle goals.  Tips to make budgeting a success The premium of health insurance and life insurance policies must be on time. Automate the process from your salary account to avoid any discrepancies. Always keep the contingency fund aligned with current income and expenses. Club similar lifestyle purchases and expenses to get better value. Take the help of a credit card to pay for your expenses but pay back the amount within the stipulated time to avoid any charges.  Conclusion It takes both planning and budgeting to stretch your money to the last unit and meet your financial dreams effectively. Once individuals are aware of how to budget for short-term and long-term goals, then it becomes easy to manage their expenses and put focus on spending that will have more value. Consult an expert advisor to get the right plan TALK TO AN EXPERT
How to align short-term and long-term goals

How to align short-term and long-term goals

Planning to align your short-term and long-term plans and want to know the best way to do so? Well, this blog will answer your queries and explain how to go about it systematically. Individuals often have a list of financial goals that will secure their financial future. Both, short-term and long-term goals are equally important and serve different purposes in real life. In most cases, you cannot achieve one without the other. Hence, it becomes feasible to align them as short-term goals depend, to a great extent, on long-term strategy. What are short-term goals? Short-term goals are the goals that have to be met in the immediate future and cannot be avoided. For instance, you might be interested in creating and managing an emergency fund or have to make regular payments towards an insurance scheme that you have taken out or simply your credit card payments. Short-term goals are actionable steps that improve productivity and help to remain focused.   What are long-term Goals? The long-term goals are the financial goals for the future or down the line in the next 10 or 15+ years. These often include a child’s education corpus, retirement fund or mortgage payments, as these will be needed after several years and not just now. Long-term goals give direction and help to develop plans and steps that will take an individual towards his dream.  Steps for aligning short-term and long-term plans 1. Look into the financial goals Look at your financial goals and divide them into two different categories short-term and long-term. Be aware of your goals to know where you have to spend your money. Are you creating an emergency fund or paying rent, or making home improvements? These are short-term financial goals, but if you want to maintain a retirement fund or an education fund for your child, then these will be treated as long-term goals.  2. Prioritize your goals Identifying the various goals is the easy part but prioritizing them is a very different scenario. Every goal looks important at the onset hence you need to sit down and think carefully about the ones with the maximum impact.  3. Be realistic People need to be realistic about their expectations because you need to have the means to fulfil your wishes. Look at the amount left after meeting your expenses and decide how to manage it constructively. You can take the help of the 50/30/20 equation or adjust it according to your personal needs. Realistic and clear goals will enable the alignment process and lead to success.  4. Set long-term goals before the short-term tactics There is a misconception that you have to set up short-term goals first because they are related to the present and need to be addressed first. The truth is that aligning both sets of goals requires you to set clear and defined goals for the future at first. When you know the direction, you need to take it becomes easier to break the long-term goals into specific and measurable short-term tactics, follow a definite timeframe and uphold the long-term vision.  5. Break the long-term goals into shorter goals Aligning and solidifying the short-term and long-term plans will have a positive impact on future objectives, and one of the best ways is by breaking the long-term goals into small defined goals that can be achieved within a specific and small timeframe. Make sure the long-term goals are identifiable and concrete because vague goals will make the alignment process difficult. 6. Specific goals When the goals are specific, it becomes easy to create and follow a definite plan of alignment. For example, if a person has INR 4000 left for savings and investment and he has to pay INR 1000 every month towards his retirement plan, then his path is clear. It becomes vital to keep up with your rising income. If at the start of your professional career, you were saving and investing only a small amount because of a small salary, then you should increase your savings as your salary increases.  7. Take the help of financial experts Sometimes it is better to opt for expert advice and work accordingly. Financial counsellors at Edufund can create a financial plan that will align your short-term and long-term goals perfectly. This will make the journey comparatively easy.  Conclusion  It is important for short-term planning to align with long-term goals and not the other way around. When an individual has a specific long-term plan which is concrete and identifiable, then it becomes easy to mould the short-term tactics and uphold the longer visions. Consult an expert advisor to get the right plan TALK TO AN EXPERT
The Best Debt Funds to Invest in 2022

The Best Debt Funds to Invest in 2022

What are Debt Funds? Debt Mutual funds invest in fixed-income securities such as corporate bonds, government securities, money market instruments, etc. These funds are also known as income funds or bond funds. The difference between the purchase price and the selling price of the securities adds to the NAV of the fund. If the fund bought security for Rs 1000 and had to sell it in extreme market conditions at Rs 900 by making a loss, it results in the depreciation of the NAV. How do debt funds make money? Debt funds earn through capital appreciation and interest income from fixed-income securities. Consider that a debt fund receives 10% interest per annum; this is divided by 365 and is added to the NAV every day. A debt fund’s NAV hence depends upon the interest rate and the credit rating of its portfolio. If the credit rating of one of the securities that a fund is invested into goes down (due to default), the NAV of the fund also depreciates. The interest rate regime also has an effect on the NAV of the fund. For example, if a fund ABC holds security that offers 8% interest. If the RBI announces a decrease in the interest rates, then any new security would adhere to these new regulations and offer a lower interest rate. This would drive up the demand for pre-existing securities which were offering a higher rate (similar to our security which offered a rate of 8%). Consequently, the price of these bonds/securities would increase, leading to an increase in the NAV of the fund. Types of Debt Funds In the following paragraphs, we aim to provide 2 top-performing funds in each of the debt fund categories and also aim to provide insights on which category would be ideal for you. 1. Liquid & Money Market Funds These funds invest in money market securities with a maturity lower than 91 days. They are considered to be a good alternative to savings accounts and fixed deposits as they offer higher returns and are tax-friendly (when compared to traditional instruments). They have a reasonable level of safety of the invested principal, coupled with liquidity. They typically do not have exit loads. Investor If you have surplus cash or a sudden influx of money – sale of real estate property, bonus, or something similar, instead of parking it in a savings account and earning a meager 4% return, you could consider Liquid funds as an alternative. These are also suitable for risk-averse investors and for investors looking for stable returns and liquidity. Scheme Name1-year ReturnAUMProsConsQuant Liquid Fund4.85%Rs 174.84 CrHave higher 1-year, 3-year, and 5-year returns than the category average.The age of the fund is greater than 3 years.A high expense ratio of 0.62% (could potentially dent your earnings). AUM is less than Rs 1000 Cr, where investors need to keep an eye on the expense ratio as the fees for the operation of the fund are collected from a small base of investors.IDBI Liquid Fund Rs 1114.21 CrHave higher 1-year, 3-year, and 5-year returns than the category average.The age of the fund is greater than 3 years.The expense ratio is on the lower end – 0.13%.AUM is slightly higher than Rs 1000 Cr, where investors need to keep an eye on the expense ratio as the fees for the operation of the fund are collected from a small base of investors. 2. Gilt Funds Gilt funds invest in Government securities of State and Central governments with different bond tenures (or varying maturities) such as 1-year, 3-year, 10-year, etc. Government bonds are considered to be risk-free and have a zero probability of default (Credit risk is zero). However, these funds are subject to interest rate risk i.e., the portfolio’s worth appreciates or depreciates depending on the interest rate regime in the economy. Investor These are suitable for a risk-averse investor. They are beneficial in a falling interest rate environment as these funds would have underlying securities which would carry a high coupon. Scheme Name1-year ReturnAUMProsConsICICI Prudential Gilt FundExpense Ratio: 0.61%Min SIP Amount:Rs 100011.12%Rs 4,086.85CrHave higher 1-year, 3-year, and 5-year returns than the category averageExit Load is ZeroNoneDSP Government Securities FundExpense Ratio: 0.54%Min SIP Amount: Rs 50010.36%Rs 444.52 CrHave higher 1-year, 3-year, and 5-year returns than the category averageExit Load is ZeroNoneEdelweiss Government Securities FundExpense Ratio: 0.41%Min SIP Amount: Rs 50012.07%Rs 88.68 CrHave higher 1-year, 3-year, and 5-year returns than the category averageExit Load is ZeroAUM is slightly higher than Rs 100 Cr, where investors need to keep an eye on the expense ratio as the fees for the operation of the fund is collected from a small base of investors. 3. Short-Term Funds Funds that invest in securities that have a maturity of 1-3 years with high liquidity. The fund invests in corporate bonds, certificates of deposit, commercial paper, and government securities with medium and long-term maturities. They are prone to a lower interest rate risk when compared to medium and long-term funds. This aids the funds to sail through adverse market conditions. Investor They are ideal for risk-averse investors who aim to receive higher post-tax interest or returns (when compared to FDs). When the investment horizon is greater than 1 year. Scheme Name1-year ReturnAUMProsConsAditya Birla Sun Life Short-Term FundExpense Ratio: 0.39%Min SIP Amount: Rs 10012.00%Rs 7,001.71 CrHave higher 1-year, 3-year, and 5-year returns than the category average.Exit Load is ZeroThe expense ratio is on the lower endNoneICICI Prudential Short-Term Fund Expense Ratio: 0.44% Min SIP Amount: Rs 10010.92%Rs 22,254.84 CrHave higher 1-year, 3-year, and 5-year returns than the category averageExit Load is ZeroThe expense ratio is on the lower endThe AUM of the fund is greater than Rs 20,000 Cr. After crossing this benchmark, the returns of the fund tend to be stagnated or experience a downturn 4. Medium-Term Funds Funds that invest in securities that have a medium-term maturity of 3-4 years. SEBI mandates that these funds invest in securities that have a Macaulay duration of 3-4 years. They earn higher post-tax returns when compared to a 5-year bank FD. One can also choose to opt for monthly income plans if one wishes to receive a periodic income from their investments. Investor They are ideal for risk-averse investors who aim to receive higher post-tax interest or returns (when compared to FDs). They are also ideal for the diversification of risk. They are lesser volatile when compared to equity funds and are also lesser prone to interest rate risk when compared to long-term funds.  Scheme Name1-year ReturnAUMProsConsSBI Magnum Medium Duration FundExpense Ratio: 0.68%Min SIP Amount: Rs 50010.88%Rs 8,505.15 CrHave higher 1-year, 3-year, and 5-year returns than the category averageNoneICICI Prudential Medium Term Bond FundExpense Ratio: 0.73%Min SIP Amount: Rs 100011.12% Rs 6,437.31 CrHave higher 1-year, 3-year, and 5-year returns than the category averageNone 5. Dynamic Bond Funds Funds are actively managed or employ a dynamic investment/asset allocation strategy by reducing the average portfolio duration (or maturity) in increasing interest rate environments and increasing the duration in a falling interest rate regime. These funds hence provide an option to the investor to earn from the interest rate fluctuations. Investor They are suitable for investors who would like to stay invested for the long term without worrying about the interest rate movements affecting their wealth creation.   Scheme Name1-year ReturnAUMProsConsAxis Dynamic BondExpense Ratio: 0.25%Min SIP Amount: Rs 100010.88%Rs 8,505.15 CrHave higher 1-year, 3-year, and 5-year returns than the category averageExit Load is zeroThe expense ratio is on the lower endNoneKotak Dynamic Bond FundExpense Ratio: 0.47%Min SIP Amount: Rs 100011.12% Rs 6,437.31 CrHave higher 1-year, 3-year, and 5-year return than the category averageExit Load is zeroThe expense ratio is on the lower endNone 6. Credit risk funds These funds allocate 65% of their total assets for the purchase of lower-rated securities (lower than AA- credit rating) and offer higher returns to their investors. The credit risk is higher for these funds. The interest rate risk is comparatively lower as these funds invest in securities with low maturities. The funds also gain from capital appreciation if the underlying security is upgraded to a higher credit rating. Investors These are only suitable for investors who are willing to take a higher risk. This is due to the lower credit securities as a part of the portfolio which have a higher probability of default. Scheme Name1-year ReturnAUMProsConsICICI Prudential Credit Risk FundExpense Ratio: 0.90%Min SIP Amount: Rs 100010.01%Rs 7,209.19 CrHave higher 1-year, 3-year, and 5-year returns than the category averageNoneHDFC Credit Risk Debt FundExpense Ratio: 1.06%Min SIP Amount: Rs 50011.25% Rs 7,315.34CrHave higher 1-year, 3-year, and 5-year returns than the category averageThe expense ratio is on the higher end FAQs What are debt funds? A debt fund is a mutual fund that invests in fixed-income instruments such as treasury bills, commercial paper, government bonds, corporate bonds/debentures, money market instruments, etc. What are the benefits of debt funds? High Liquidity Investment Horizon Higher Returns Tax Efficiency Flexibility Who should invest in debt funds? Debt funds are for investors looking for a passive and regular income. These are ideal for risk-averse investors who prefer Is it good to invest in debt funds? Yes, debt funds are a great investment option for investors. These offer higher returns over a long investment horizon and are tax efficient as well. Which are the best debt funds to invest in now? Here are the best debt funds to invest in:Aditya Birla Sun Life Low Duration FundNippon India Money Market FundICICI Prudential Ultra Short-Term FundAxis Ultra Short-Term Fund How Do Debt Funds Make Money? Debt funds earn through capital appreciation and interest income from fixed-income securities. Consider that a debt fund receives 10% interest per annum; this is divided by 365 and is added to the NAV every day. A debt fund’s NAV hence depends upon the interest rate and the credit rating of its portfolio. If the credit rating of one of the securities that a fund is invested into goes down (due to default), the NAV of the fund also depreciates. Conclusion Debt funds provide a low risk to investors, while still getting investors better returns than fixed deposits. It is important to note that the previous performance of any fund isn't surety of the fund's future performance. You can start your research as well as investments on the EduFund app!
How to invest in Debt Funds?

How to invest in Debt Funds?

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

How to compare two mutual funds?

Comparison is an integral part of our life. Be it our constant nemesis Sharma Ji ka beta or be it our “friend” who always has everything that we aspire to. We all have parameters and factors with which we compare ourselves – salary, number of cars/bungalows owned, or something else. Similarly, there are factors that one should consider when one is planning to invest in mutual funds. There are n (n tending to infinity) number of options in the market for different goals and risk appetite of the investor. So, how do you evaluate a mutual fund and make the choice? Read on to understand the same! Expense ratio The expense ratio is the management fees that the fund charges – for managing your money and giving you the promised returns. This is generally a % of your investments, hence will impact your earnings from the fund. Always chose the fund with a lower expense ratio, as it forms a smaller dent in your long-term earnings. The expense ratio of a regular plan tends to be more than a direct plan. This is due to the intermediary distributor in the value chain who would also need a piece of the pie. For example, if a regular plan has an expense ratio of 2%, 1% goes to the fund and 1% goes to the distributor. However, in the direct plan, you would be charged only 1% which is attributed to the efforts of the fund. While comparing two funds, ensure that you are comparing direct-direct and regular-regular plans. (Apples to apple comparison) Benchmark SEBI mandates that each fund declare a benchmark, as it promises the investor that it would aim at achieving a return that is higher than the market. For example, ABC fund has declared the Nifty 50 as its benchmark. When the market rallies by 15% and the fund have delivered a return of 12%, it indicates that the fund has underperformed. However, when the market falls by 12% and the fund declines only by 10%, it indicates that the fund has outperformed the benchmark. Hence, a fund should beat the benchmark during market upturns and should decline lesser than the market in case of a downturn. Hunt for funds that have consistently performed better than their benchmarks.  Risk measurement A typical thumb rule or mantra in the financial industry is that - higher risk implies higher returns (Bank FD interest rate < Stock Returns). However, measuring the risk with only the returns becomes complex in the case of mutual funds, as there are factors such as sector allocation and other market conditions which affect the returns of the fund. Alpha and Beta then come to your rescue. These Greek alphabets are your crystal balls which give you a fair idea about the risk involved. Alpha indicates the surplus return generated by the fund when compared to its benchmark. Beta indicates the volatility or risk involved in the fund. For example, Fund ABC generated an alpha of 1 and had a beta of 1.5 whereas Fund XYZ had an alpha of 1 and a beta of 2. Then chose Fund ABC, since the risk is lower and the return generated is the same – in finance parlance, the risk-adjusted returns of Fund ABC > Fund XYZ. Allocation of sectors within the fund Consider a large-cap fund, SEBI mandates it to invest over 65% of its portfolio into large-cap companies. However, there is no restriction on the sector in this case. The fund manager may choose to invest in the pharma sector which has seen a boom post-COVID or could invest in the FMCG industry or the financial sector. Sector exposure also determines the risk of the fund. Depending on your risk appetite, and your preference for the sectors - accordingly do a right swipe on your fund match. Category average One last factor to consider would be a comparison against the Category average. What is the category you ask? Large-cap, mid-cap, and small-cap would classify as the category. The category average is the median of all the data of the funds. This gives insights into how our fund has performed when compared to all the other players in the market. There could be cases where your fund has provided returns greater than the benchmark, but all the other funds in the category have also outperformed the benchmark. Comparing with the average in the same class (Category) gives you another realistic indicator of how your fund has performed. For example, if the category average is 33% and your fund has given you returns of 39%, it indicates that your fund has outperformed its peers.  FAQs How can I compare the best mutual funds? There are a few categories to consider when comparing mutual funds such as returns generated over 3 - 5 years, fund managers and their professional history, category average, asset allocation, and portfolio diversification, benchmark, risk management, and expense ratio. Where we can compare mutual funds? You can also compare the mutual fund performance manually, through online investment sites, or ask your financial advisor for help. What is the 15x15x15 rule in a mutual fund? The 15x15x15 rule in mutual funds is a popular rule in investment which says that investing Rs.15, 000 for 15 years at a 15% interest rate can make any investor a crorepati. When there are two mutual funds How will you compare and take investment decisions? By comparing mutual funds' Net Asset Value, you can determine their potential and make the right choice. You can also consult a financial advisor if you are new to the field of investment. Conclusion You can get detailed information on the performance and other aspects covered above on the EduFund app. You can start your investment journey with EduFund and even get advice from wealth experts to invest in the top mutual funds in the country.
Does a SIP of INR 500 really help?

Does a SIP of INR 500 really help?

What can you do with Rs 500 today? Get an amazing lunch or dinner for two at a decent restaurant in town? Or get a Pizza for two? Or get a cool T-shirt from an online store? Alternatively, with Rs 500, you could have a large pot of money to send your child to their dream college and fulfil their aspirations. One can choose the route of saving Rs 500/ month through SIP plans with mutual funds and have a considerable sum of money by the end. What is a SIP? A Systematic Investment Plan or SIP is a way in which you can choose to invest a fixed amount with the mutual fund at regular intervals (say a month or a quarter). SIPs aid in creating financial discipline and saving towards a goal. They reduce the burden on the investor by allowing them to invest small sums instead of a large cash outflow or lumpsum amount at once and provide the investor with decent returns. To forgo lifestyle expenditure and to start investing would be difficult for early boomers in the starting stages of their careers. Once the investor opts for a SIP (or more SIPs), the amount as specified by the investor automatically gets debited from the bank account that is linked to the SIP. Hence, you are investing for your future automatically without you making any separate effort towards it. Can I save Rs 500 and have something tangible in the end? SIPs in India allow for investing with a minimum amount of Rs 500. Hence, as an investor, instead of ogling at the stock/trading screens and making desperate attempts to time the market and fanatically buying and selling stocks, you could simply invest in Mutual funds. Mutual funds take care of diversification (putting your eggs into different baskets), invest in the best stocks, and finally earn you a decent return. Let us consider some scenarios - Case 1 As a very young investor, a graduate who has earned his or her first paycheck, you could start saving Rs 500 into a SIP. Even if you maintain this as your amount and invest for 35 years, by the time you are 56, you will have Rs 1.76 Cr in your investment pot. Hence with an investment of Rs 2.1 lakhs, you would be creating a wealth of Rs 1.7 Cr. SIPAmount500Expected Return18%Number of years35At the end of the time periodInvested Amount2,10,000Wealth Created1,70,79,403Final Amount1,72,89,403 Case 2 Even if you do not have 35 years till your child starts to go to college, you can still create a large amount of wealth by having this discipline for 20 or 25 years. The results are as follows. SIPAmount500Expected Return18%Number of years20At the end of the time periodInvested Amount            1,20,000 Wealth Created          10,34,427 Final Amount          11,54,427  SIPAmount500Expected Return18%Number of years25At the end of the time periodInvested Amount            1,50,000 Wealth Created          27,18,627 Final Amount          28,68,627  In both cases, the wealth created is 9x or 18x times the amount invested by you. As one can see in the above charts that a small difference of 5 years creates a great compounding effect where Rs 500 amounts to Rs 28.6 lakhs when invested for 25 years and amounts to less than half the amount of Rs 11.54 lakhs when invested for 20 years. Hence, by being an early saver, one can create a tremendous amount of wealth with minimal effort. You can start your investment journey today with a SIP in the top mutual funds in the country with EduFund. FAQs Is SIP really beneficial? Yes, SIP is one of the best ways to start investing in mutual funds, index funds, or ETFs. It allows you to invest in a systematic way over a long period of time. Can I start a SIP of 500 per month? Yes, many mutual funds allow investors to invest a minimum of Rs. 500 every month. It helps in growing your wealth over a period of time. Which mutual fund is best for 500 per month? There are many mutual funds that offer Rs. 500 per month such as Axis Long-Term Equity FundAxis Bluechip FundSBI Equity Hybrid FundParag Parikh Flexi Cap FundSBI Focused Equity Fund Consult our expert advisor to get the right plan for you TALK TO AN EXPERT
SIP
The 5 best mutual funds you can invest in today

The 5 best mutual funds you can invest in today

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