#investing

All About Mutual funds

Ayush Arya, Leave a comment
mutual fund: Mutual funds shooting themselves in the foot? - The ...

Mutual funds industry has been booming from past some years as people are becoming more interested in investing their money in that because of easy accessibility to invest and high return,this sector has attracted thousands of investors towards it and due to much more awareness about mutual funds through commercials,advertisement this industry has been surge greatly.So,as many millennials are also interested in investing in mutual funds i have decided to start a series of blogs to cover almost everything important about it.

Before starting i would like to share some key facts about mutual funds :

  • Assets Under Management(AUM) of Indian Mutual Funds Industry as on Feb 29,2020 stood at 28.94 lakh crore
  • AUM of Indian mutual industry grown from 7.6 trillion on feb 28,2010 to Feb 27.23 trillion as on Feb 27,2020 ,which is more than 3.5 times in merely 10 years
  • The industry had created the milestone of 10 lakh crore for first time in may 2014.
  • Total number of accounts as on Feb 2020 at 8.88 crore
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what is mutual funds ?

Mutual funds are a pool of funds from various investors and is professionally managed by some experienced fund managers,who will further invest the accumulated amount into different sectors as per the financial goals of investors and other related factors.

There are different types of mutual funds scheme and as per the financial objective of investors,they should invest in mutual fund schemes. Mutual funds are become easy to invest option for investor as their is no more complexity related as compared to investing in share market,where one needs to proper analyse the stock fundamentally and technically and i agree that you still have to analyse before investing in mutual funds but there is more risk in losing money in share market as compared to mutual funds because of less volatility and also due to the fact that mutual fund are managed by more experienced and more knowledgeable manager, they can invest more properly than retail investors. The primary aim of a mutual fund scheme is to create wealth or earn income by investing in diverse assets.

Types of Funds

Open-Ended funds

Open-ended means one can enter and exit the fund anytime, at daily NAV(it is the value of per unit of mutual funds. For example, you can exit from equity funds, which are essentially long-term products, within 6 months.

For example : ICICI Prudential Banking and Financial Services Fund, Motilal oswal multicap 35 funds

Close-Ended funds

  • These funds are majorly used for long-term investments mainly for 3 to 5 years to avoid the volatility caused by huge redemption
  • It means one can exit after a certain period on expiry of the term, the portfolio is liquidated and the funds are distributed
  • Close end funds also has liquidity option these funds are listed on the exchange where one can sell their units to another at listed price,and list price is mainly lower than NAV

Interval funds

  • Investor funds are suitable for those who wants to invest for long term but also wants the liquidity feature
  • Interval funds are a type of close end funds that become open to transaction during a preset interval periods,for example first 5 days
  • Fees for interval funds tend to be higher than for other types of mutual funds, as do returns

To get the liquidity feature in close-ended funds, there is another category called ‘interval’ funds. Essentially, these are close-ended funds that become open to transactions during preset interval periods, for instance, first 5 days of every quarter.

Active vs passive funds

Active funds are those funds in which the funds manager actively buy and sell securities based on his knowledge,expertise on market,sector and economy.

  • Because of the fact that fund manager actively buy and sell security,the expense ratio is also higher than passive managed funds.
  • It also sees that sometime fund manager can able to outperform the market and generate higher return.

Passive funds are those funds which imitate the market indices such as S&P BSE sensex or NIFTY 50 means the return on your money invested in mutual funds is based on the market index if the index rises then your return also rise or vice-versa.

  • As passively managed funds doesn’t demand research and analysis,the expense ratio is also seemed to be lower than active funds
  • You can track the performance of your mutual funds by just analysing the performance of the market index,for example if the market indices rise to 2% than your money did the same thing.

Debt,equity and hybrid funds

Debt funds

A debt funds is a fund that invest in fixed income securities like bonds,commercial papers,debentures etc.

  • On average, the fee ratios on debt funds are lower than those attached to equity because the overall management costs are lower.
  • Debt funds are characterised by length of time period such as Money market funds or instrument are for shorter term mainly for 6-12 months and long term which has horizon for more than 1 year
  • Debt-funds are less riskier than equity funds

Types of debt funds

Liquid/money market funds

The money is invested in money market instrument like treasury bills etc which have a maturity period of 91 days,this funds offers lower return as compared to other long term horizon funds

Income Funds

Income funds invest in a mix of government and corporate fixed income securities such as bonds, debentures and commercial papers with extended maturity period.These funds have a stability than other funds.. The average maturity of income funds is around 5-6 years.

Ultra Short Term/Short Term Funds :

Those investors who wants to invest for 6 months to 1 year can invest in ultra short term or short term funds because of the high maturity period the returns over this funds is also high.

Gilt funds

Gilts funds invest only in high rated government securities like treasury bills and government bonds. These funds are considered to have no credit risk since government securities are considered to be risk free.These funds offers lower risk as compared to others but it is suitable for those investors who wants their money to be safe.

Fixed Maturity Plans (FMPs)

Fixed maturity plan are a part of close end funds.They have a fixed maturity period ranging from 3 months to 5 years,these funds also invests in fixed income securities like corporate bonds and the government securities one should invest in this funds to keep their money safe but don’t expect a higher return.

Equity funds

An equity mutual funds is primarily invested in stocks.It can be actively or passively (index fund) managed.Equity mutual funds are more riskier than debt funds because of higher volatility in equity funds but equity funds have the potential to give you far better return than debt funds.

Types of Equity funds :

Large-cap equity funds :

  • These funds includes stocks of top 100 major companies as per market capitalisation(current price of stock 8 X no of shares issued) across all sectors,these funds are also called (BIG-CAP) and the market capitalisation of large cap funds is above 10,000 crore rupees
  • Because of their market capitalisation is so large,investor have to tend to believe on safety of invested money and further growth of company
  • These funds are  typically used as core long-term investments in an investment portfolio because of their stability and dividends

Mid-Cap Equity Funds

  • These funds includes stocks of emerging companies whose market capitalisation is lower than large cap funds but have a potential to grow and give higher return.The market capitalisation of mid-cap funds is between 2,000 to 10,000 crore rupees
  • Mid-cap stocks are useful in portfolio diversification as they provide a balance of growth and stability but they are more riskier than large cap funds

Small/Micro Cap Equity Funds

  • These funds invested in small companies having market capitalisation of below 2,000 crore rupees
  • These funds have potential to give higher return than the large and mid-cap companies but one need to choose it wisely because these funds are more riskier than large and mid cap companies you can even lose own money in these funds
  • These firms have experience higher volatility, even some of the small cap company can go bankrupt also.These funds are suitable for those who can bear more risk in return of higher potential.

Equity Linked Savings Schemes (ELSS)

These are the widely known funds for tax saving,many people invests in this fund to save the tax paid by him These funds offer tax benefits upto Rs 1.50 lakh under Section 80 C of Income Tax Act.

Hybrid Funds

  • Hybrid funds are the combination of equity and debt funds and due to that these funds have potential to  offers higher returns than a regular debt fund while not being as risky as equity funds.
  • One should invest in hybrid funds to achieve diversification and avoid the concentration risk.

Types of Hybrid funds

Monthly Income Plan (MIPs)

MIPs invest a large potion in AUM in debt securities for safety of investment and small portion in equity funds for higher returns.

Balanced Funds

Balanced funds are those funds which invest a significant portion in either debt securities or equity market. If a balanced fund has allocated more than 65% of its AUM to equity and equity related instruments, and rest in fixed income securities, it is called ‘Equity-oriented Balanced Fund’.

On the other hand if its investment in equities is less than 65% then it is called ‘Debt-oriented Balanced Fund’.

Well,mutual funds is better option for investment for people who doesn’t have good knowledge about stock market and also for investor who doesn’t want to take more risk as stock investing because investing in stock is very riskier as well as demand more capital.So,mutual funds are best suitable for millennial who just starts earning and wants to invest money anyone can start investing in mutual funds with as low as 500 rupees and it will creates value for you in future. So this is the first blog in the series about mutual funds we will back to you with further more.

References :

AMF- www.amfiindia.com › indian-mutual

How to do successful trading at stock market

Ayush Arya, , , Leave a comment
Stock Market: Why buy low, sell high is a dicey approach to making ...

You have to do some effort to be a successful investor—there’s nothing wrong about that fact.Previously,some people who don’t know much about stock market and how it works, they use to see it as a gambling opportunity where there is a equal chance of either winning or losing,they don’t do any fundamental or technical analysis before buying it.Sometimes Investors who buy or sell on their “gut or feeling” about a stock are maybe right but most of the time they will be wrong.

I know there are many people and their blogs out there in which they tell you about some awesome strategies and things about stock market like how to earn more money,how to choose stocks etc and some of them are really good but some of them are long enough that i lost of my interest and i myself as a beginner needs some simple yet effective knowledge about it but in concise format so i started reading about it through many books,blogs,interviews and make it in a simple format which make it more understandable to me and i know there are many people who most of them are beginners want to indulge in and try to make money through stock market but sometime they struck,to how to start it what is the first step toward trading,so i try to share what i learn as a beginner about stock investing and also strategies that you can use while trading.So,here we go

First,get some knowledge

You know many people see stock market as the easiest and fastest route to double your investment,but in the pursuit to earn more money they forget to learn some fundamental knowledge about trading and investing and as a result they lose money,and its a real truth that many people have lost their huge sum of money.So,basically i just want to tell you first get some knowledge then start investing and believe me its not a simple thing to earn money from stock market on consistent basis without proper knowledge,and for knowledge you have to read books on finance and investing to really understand the business and also know about how to do fundamental and technical analysis by your own

some recommended books – The intelligent investor by Benjamin Graham,security analysis by Benjamin Graham,Rich Dad poor dad by Robert kayosaki

VALUE AND GROWTH INVESTING

Companies that consistently manage to grow their profits faster than their industry peers are called growth stocks. Their faster growth is generally the result of some sustainable competitive advantages. Since they need to constantly fund their growth, they typically pay out little or no dividends. The investors get reward in form of appreciation in stock price,a trader can really earn profit by investing in growth stocks these are the top 50-100 stocks in the stock market but these stocks are also risky

Value stocks are those stocks which are trading at lower price than its intrinsic value but these shares have potential to increase your wealth in future.Some big investors like graham bell also called father of value investing focuses more on value stocks for a long-term gain and others investors like warren buffet,rakesh jhunjhunwala are the renowned investors who had make their fortune through value investing.So,try to invest more on value stocks which have a potential growth in future

ITS ALL ABOUT STRATEGIES

You can pick a stock based on fundamental analysis but stock market is of very volatile nature you can’t 100% sure that the price of a particular stock would surge.So,now its all depend on your strategies,which can make you or break you.So,it would be great to have well-versed with your strategies beforehand.I will mention some of the strategies which have been implied by many and also takes a benefits from it.

Averaging down

When the stock price falls,you can use this strategy,to reduce the Average price of stock and also the break-even point(i.e.,the point where get no profit no lose).Try to understand with the following example:

Buy 200 share @200 – 40000 .If there will be a fall in price of 50 rupees

Now, the 200 share is trading @150 – 30000

Then,but additional 200 shares at trading price i.e., 150 per share

Now,you have 400 shares,and your break even point is also decrease from 200 to 175,means now you can even sell your shares @ 175 without bearing a loss.

OR,if you believe that the stock price will rise to 200 then you can earn a profit of 10,000 rupees.

Averaging up

This strategy is also widely used by many traders to reduce the losses and increase their winning chances.you can use this strategies

  • When price starts to rise to increase the profit
  • use it in bull market
  • When there is a significant potential in the stock

Let understand this with the following example

A’s invested in 1000shares of ITC ltd. @ 1200 rupees,then the price starts to increase so A buys additional 1000 shares @ 1500, then again price starts to rise and again A buys additional 1000 shares @ 1800,Now lets sum up,A has 3000 shares with the average cost of 1500.

Now there is also a another investor B who also invested in 1000 shares @ the price of 1200 per share Now lets calculate how much profit will they earn if they sell it at 2000

A has 3000 shares with the average price of 1500 so if sells at 2000 he gets a profit of 15,00,000.On the other side A has 1000 shares with the price of 1200 and if he sells @2000,he gets a profit of 8,00,000

 This clearly demonstrates how averaging up strategy can be profitable if made use of in a bull market.

The risk arises for trader A when there is a reversal in trend since he has pushed the average price per stock higher with each successive purchase.

There are many more strategies available which you can apply in your trading and soon after getting some trading experience you can develop new strategies according to your trading plan and goal and if you are a beginner and don’t have enough confidence first try trading in a trading simulator and practice it well before try to trade in a real market.This will surely improve your confidence,and keep it in mind that stock trading is not a quick rich scheme its like any other profession which demands knowledge,skill,dedication towards work.

Additional Tips

  • Bought share with 50% of total capital then after analysing it for sometime if you see it can grow then buy additional share
  • Focus on reducing the break-even point to reduce your loses
  • Also,try to balance your emotions while trading don’t let your emotion take over you while trading.Frequently faced trading emotions like greed,regret,hope etc.
  • Try to make a trading plan then act accordingly it.
  • Never trade with other’s money because stock market is very volatile
  • Only trade with enough money that you can bear in case of loss.

If you like this blog then please share this to your friends and groups and let me know in comments section that you like it or not.We will be continue to providing you some more awesome content.