5

How can I downsize my portfolio? – Part 2

Hi fellow Investors,

As discussed 2 weeks back (in our article - How many Mutual Funds should you have, an investor should not have more than 5-6 Mutual Funds in his/her portfolio. These should be restricted to 1 Mutual Fund scheme to invest in each Mutual Fund category based on your risk profile, goals, and other requirements. As a follow up to this, we told you that we shall tell you how to downsize/limit your portfolio to 5-6 Mutual Fund schemes.

The simplest way to do this is to first identify which Mutual Fund categories you need to invest in (based on your risk and goals) and identify the right schemes in each category (it is advisable to invest in schemes that are right for you and not look for the best schemes). This will give you your desired holding of Mutual Fund Schemes.

Once you have done that, it is important to take stock of mutual funds that you already have.

Make a list of all your investments in Mutual Funds. To do this, you can download your Consolidated Account Statement from CAMS Online. It will give you transaction wise details of all your mutual fund transactions provided you have used your existing email ID when doing the transactions. Otherwise, if you have an agent or use a platform for investing in mutual funds - you can ask them as well for a holding report.

Compare the existing holding of schemes with the list of desired holding schemes determined above.

SELL unwanted schemes

The way to downsize is to redeem the extra/unwanted schemes and invest the proceeds from the redemption into the desired mutual fund schemes. You can exit from some scheme and buy another scheme in the same category (hence, setting off your loss or gain). You will have to trim your portfolio to reduce it to 5-6 mutual fund schemes.

 

How should you decide what to sell?


Maintain your Asset Allocation

We always tell you to do this and this time around as well, it's the same solution.  Your investments in various asset classes should be made to achieve the right allocation. Even with Mutual Funds, your split between Debt & Equity should be based on your asset allocation. You can read more on this here - https://financial.wealthcafe.in/how-should-you-invest-right-now/


% of your portfolio - Small value funds
 

 You can choose to sell the schemes where the invested amount is low and they are only increasing the number of schemes you hold.


Underperforming funds
 
Analyze the performance of your invested funds and understand which are the funds you should have in your portfolio. Exit from risky funds and poor performing funds. This can be understood by checking the returns of your scheme with the underlying benchmark returns.   
Currently, almost all your investments pre-march would be performing poorly, hence it is important for you to check funds past consistent performance and not just last 2 months' results. 

Minimalism is the key to a cleaner and better portfolio as the reduced number of funds makes it easier for you to analyze your invested funds regularly and also, take a more informed decision with respect to your investments. Also, the cost of managing these funds is reduced.

Where you have just started investing, keep in mind that every time you want to invest more money, you need not invest that in a new mutual fund scheme. You can instead increase your SIP amounts in your existing schemes.


Consult an Advisor
 
Where you already have 15 - 20 Mutual Funds and are finding it difficult to select which ones to keep and which ones to let go, it is advisable to get the assistance of a financial advisor who will go through your risk profile and advise you exactly which mutual funds to hold and for how long. Where you need an advisor/financial planner for your specific financial needs, you can reach out to us at  https://ria.wealthcafe.in/



3

How Many Mutual Funds Should You Have? (Part 1)

This week I am back with some discussion around Mutual Funds. In one of my workshops, during our mutual fund's discussion, I had this one trainee ask me - So what's your number?

I stared at her for a while not knowing what I am supposed to answer to that. Well, she rephrased her question, 'What is the number of mutual funds you are invested in?'  I said, '6 Mutual Funds'.She had the bewildered look on her face wondering how I had so fewer funds. I decided to show her my portfolio.


How many mutual funds schemes should you own? 

Owning around 5-7 mutual fund schemes across various categories is enough. These many mutual fund schemes will help you diversify, do your asset allocation, and also map these investments to your goals. You can invest your savings in the mutual fund schemes as per the below categories:

  1. Large Cap Mutual Fund (Equity)
  2. Large & Mid-Cap Mutual Fund (Equity) (your ELSS tax saving schemes are generally a Large & Mid Cap Mutual Fund)
  3. Mid Cap Mutual Fund (Equity)
  4. Small-Cap Mutual Fund (Equity)
  5. Thematic Mutual Fund (where you understand specific sectors and have a higher risk-taking appetite)  
  6. Short Term Debt Mutual Fund (For your short term goals)
  7. Long Term Debt Mutual Fund (For your long term goals)

In addition to the above, I have one Liquid Mutual Fund where I park my Emergency Funds. You can park your Emergency Fund in a Bank Fixed Deposit as an alternative.


Why only 5-7 Mutual Funds?

When you invest in Mutual Funds, you already diversify your risk across the stocks of the companies a particular mutual fund has invested in. Hence, with a large-cap mutual fund, your risk is diversified across more than 70 stocks that particular large-cap mutual fund has invested in. Investing in three different large-cap funds is not going to reduce your risk further, it will only make your investment portfolio messy.

'Mutual funds investing is to diversify your risk and not to di"worsify" the same'.

Further, reducing the number of schemes to a minimum of 5 also reduces the cost of managing the same and the time that goes in keeping a track of it and analyzing it regularly.


What do I do when I have more savings to Invest?

Increase your investment in the existing mutual fund's schemes you own. 
Investing in a new scheme every time you have extra savings will just lead you to own 15-20 mutual funds schemes with no plan in sight. Hence, it is important to do your due diligence and identify the mutual funds you want to invest in and stick to them. 

Yes, you must review your schemes regularly to see how are they performing in various market cycles but know that all schemes will not give you the best results always. There are some time periods where mid-cap and small-cap schemes will do better, other times when large-cap schemes will outperform and sometimes your debt investments will be the best performer for the year. Hence, it is important to be diversified across categories.


'Every time I check for the best mutual fund scheme and invest in the ones that are on the top' 

Studies have proven that selecting mutual funds based on high-performance track records is naive. The Star rating of various mutual fund keeps changing, a fund that is top rated in this one year, is hardly the top-rated fund in the subsequent years. Tim Courtney, a chief Investment advisor of US-based Burns Advisory did backtesting of past performance of the funds most highly rated, he found that they usually performed poorly after they have gotten 5 ratings. Hulbert financial digest, an investment newsletter found that if investors continually adjusted their mutual funds' holdings to hold only the highest-rated funds, a total stock market index would have beaten them by 45.8 % in the past decade (he studied funds from 1994 to 2004 in the USA). In fact over the years, it has gotten even more difficult to beat the markets and get alpha on your investments.  - extracts from Millionaire extracts - How to build wealth living overseas by Andrew Hallam

Hence, just investing in top-rated schemes is not going to give you the desired returns but only make your portfolio messy and not even get you the best returns.

Wealth cafe Takeaway - While you are investing in 5-7 different schemes across the options stated above, ensure that you invest across various AMCs as well. This will ensure that you are diversifying your risk and your entire money is not with only one AMC.

We shall follow up this article with a part 2 on how to downsize your portfolio.

Until then, keep reading, if you find this helpful, do share it with your friends.

Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.



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Overnight Funds – What, When and Why to Invest in them

Overnight Funds are the least risky mutual funds. They are less risky than the Liquid Mutual Funds as well.

This is a type of debt fund with practically no interest rate fluctuation risk and credit rating risk and low credit default risk. Overnight Funds are like investing in your savings bank account with slightly higher returns. This money can be part of your emergency fund or just money that you want to keep aside for a while for whatever reason without worrying about gains.

What is an overnight Mutual Fund work?

It is a debt mutual fund that invests in bonds that mature in one day! So at the start of each business day, the entire AUM would be in cash, overnight bonds would be purchased, they will mature the next business day, the fund manager would take the cash and buy more overnight bonds and so on. So each the NAV increase just a little bit due to the interest income.

Interest Rate Risk – If a bond matures the next business day, its price will not be affected if RBI changes the (overnight) interest rate. Next day, your bonds mature and you will buy new overnight bonds at the new rate.

Credit Rating Risk – If the credit rating of the bond issuer changes, the bond price will not be affected as your bond will mature the next day.

Default Risk –  There is a risk only if the issuer of the bond absconds with your money or refuses to pay up: credit default risk.  To manage this risk, there is collateral from the bond issuer. However, not fully covered, it still offers some protection for this risk.

In what product do these funds invest in?

Overnight funds invest in debt instruments with one day to maturity. When the bonds mature, the fund reinvests the proceeds in the next set of one-day instruments. The risk from default or fall in value within a day is negligible. Typically, the funds invest in collateralized borrowing and lending agreements (CBLO), a short term borrowing facility backed by securities of the central government through which mutual funds lend to banks and others, and reverse repos. Both of these are protected from credit risk since they are backed by collateral securities. The schemes may also invest in money market instruments such as treasury bills, certificates of deposit and commercial papers with residual maturity of not more than a day. If the interest rate for the day is high, the returns from overnight funds are up and vice-versa, with no impact on the value of the securities.

Who should choose overnight funds?

Anyone who wants to park money with the least amount of risk without worrying about returns.

A business owner who has a current account and thus, does not earn any interest on the cash lying in his/her account can invest in overnight funds to make some gains on their working capital.

Liquid Funds or Overnight Funds

Liquid funds holding securities with the highest credit quality will still earn better returns than overnight funds given that they hold securities with 25-30 days to maturity, while overnight funds cater to the need for a liquid investment with negligible risk for investors looking to park their funds for very short periods of time (a day maybe). 

Many liquid funds allow investors to withdraw up to 50,000 instantly, and offers useful online features, looking for a steady short-term ride or parking funds for your emergency needs – liquid funds are still preferable.

However, recently SEBI has announced certain changes where they have said there will be an exit load associated with liquid funds. However, the exact % and the impact of it is not yet announced. Once that is there, the investor will have to take an overall call based on the returns and the cost of investment.

Wealth Cafe Actionable – If you can manage a little risk, invest in overnight funds every Friday and withdraw the same on Monday earning gains over the weekend.

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What is SWP? How it works?

What is a Systematic Withdrawal Plan?

Systematic Withdrawal Plan is used to redeem your investment from a mutual fund scheme in a phased manner. Unlike lump-sum withdrawals, SWP enables you to withdraw money in installments. It can be viewed as the opposite of SIP. In SIP, you channelize your bank account savings into the preferred mutual fund scheme. Whereas in SWP, you channelize your investments from the scheme to the savings bank account. It is one of the strategies to deal with market fluctuations.

With the Systematic Withdrawal Plan, you can customize the cash flow as per your requirement. You can choose to either withdraw just the capital gains on your investment or a fixed amount. This way you will not only have your money still invested in the scheme, but you will also be able to access regular income and returns. The money that you withdraw can be used to reinvest in some other fund or can be retained by you in the form of cash.

Types of SWP –

There are 2 types of SWP

  1. Fixed SWP – where a fixed sum is withdrawn from the mutual fund on the set date, irrespective of the fund’s performance, hence, this method can erode your capital when the fund has not performed very well.
  2. Appreciation SWP – where only the gains (appreciation) that have happened in the scheme are redeemed on the set SWP date. Avoiding erosion of capital but can lead to erratic numbers each month.

How does SWP work?

An SWP gives surety of a stable payout to the investors at predetermined intervals. This implies that at some stage the investments will be completely repaid along with the gains in the hand of a mutual fund investor.

Hence, an investor is assured of getting a fixed amount at his/her pre-determined frequency through an SWP.

  • If the fund’s performance is good, the SWP will last longer.
  • If the performance is poor, it’ll finish sooner.
  • If your annual withdrawal is less than what the fund generates every year, you can continue earning from this mutual fund forever.

Why do I need to set up an SWP?

  • Manage the market risk  – SWP like SIP helps you to reduce your market volatility risk by averaging your return over a period of time. If you withdraw/deposit lumpsum amount at a given point of time, you are bearing the risk of markets going up or down after that. Through SWP, you are distributing it over a period of time. Where the markets are up, you make higher gains and vice versa. SWP is automatically doing that for you, you do not have to keep a continuous tab on the market.

Just as Systematic Investment Plans (SIP) avoid market risk at the time of investment, SWPs lower market risk at the time of redemption.

  • Regular Income for your family on retirement or otherwise – For retirees with huge corpus and need for regular income, SWP is a great option. Through this, the retirees can invest in mutual funds and set up SWP  equivalent to the amount they need each month for their regular expenses.
  • The second stream of income – For someone who wants additional income each month and has a large corpus that they have invested. SWP can work as a good option.
  • Reduced Taxation as compared to the dividend option – the redemption from SWP is taxable based on the mutual fund – debt or equity. Each SWP gains are taxable. However, even the dividends that you shall receive from the dividend option mutual funds are taxable. Hence, it is important to consider the tax impact before taking an investment decision.

Spreading investment over the right time period is the key. The STP can be done over a time period of three to four months or across several years. Investors are frequently at a loss as to how many monthly installments to break up the investments into. Since there is no underlying inflow as in the case of a salary that feeds a SIP, this is entirely at the discretion of the investor.

Consider the example of someone who came into R20 lakh in December 2007 and then invested it all in an equity fund. In four months, the money would be reduced to less than R10 lakh. In some cases, funds could have gone down to R5 or 6 lakh. After taking such a big hit, a person may never invest again. It will take about six years for him to break even. However, suppose this investor had invested gradually over 12 months. In that case, only about a tenth of the money would lose a lot of its value. Overall, averaging over a year, the acquisition cost would be such that the investment would hardly ever be in a loss. Of course, I’ve taken an extreme example to illustrate the concept, one that takes the investor from an all-time high peak to a low point. You could have started a little earlier, say in 2006 and then spread the investment over a longer period.

However, if you actually look back at the markets over the last decade, you will realize that while an STP generally helps one avoid a market peak and average costs, they are not a foolproof device.

Equity is equity and there’s no way of doing away all risks. However, based on what has happened over the last two decades in India, stretching an investment over two to three years is likely to capture enough of a market cycle to significantly reduce risk.

An Example of SWP

You have a corpus of INR 3 lakhs that you have decided to invest in a debt mutual fund and set up SWP of INR 10,000 each month. SWP of INR 10,000 will be redeemed from the mutual fund each month on the set date and that money will be transferred to your bank account. After the redemption, the balance amount in the mutual fund will be invested to grow.

Wealth Cafe Actionable – SWP works better when a person has invested and accumulated a significant sum (with respect to the withdrawal one is seeking). In a small investment, if the return generated is less than the regular payouts, it will fast erode capital. Also, when the markets are doing good, SWP will erode your capital and your invested amount will be redeemed. Balanced Funds are a good option to invest in while doing an SWP as it is taxed like a debt mutual fund but has 35% equity to help the corpus grow faster.

 

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What is an STP and how does it work?

What is STP?

Now almost every investor is familiar with the Systematic Investment Plan (SIP).  While SIP is the transfer of money from savings to a mutual fund plan, STP means transferring money from one mutual fund to another.

STP is a smart strategy to stagger your investment over a specific term to reduce risks and balance returns. For instance, if you invest ‘systematically’ in equity, you can earn risk-free returns even during volatile market scenarios. Here, an AMC permits you to put a lump sum in one fund, and transfer a fixed amount to another scheme regularly. The former fund is called source scheme or transferor scheme, and the latter is called the target scheme or destination scheme.

How does STP work?

One opts for an STP when there is a lump sum to invest and want to spread the risk of investing in one go over a period of time. Like a SIP, an STP helps spread out investments over a period of time to average the purchase cost and rule out the risk of getting into the market at its peak.

While Investing

However, with an STP, you invest a lump sum in one scheme (mostly a debt scheme) and transfer a fixed amount from this scheme regularly to another scheme (mostly an equity scheme).

The basic idea behind an STP is to earn a little extra on the lump sum while it is being deployed in equity since debt funds provide better returns than a normal savings bank account.

While Redemption

STP is also done from an Equity Fund to a debt Fund when you are approaching your long term goals for which you had invested in Equity Funds, you do not wait till the last day to redeem your investments. You start transferring your funds 2-3 years before the goal date to your debt fund. Now, where the markets are not at its best, you can do an STP from equity to debt. Where the market is very good, you could opt for a lumpsum transfer.

How to make the most of your STP investments?

As we had discussed in the Article – Why you should avoid timing the markets for your SIP and SIP’s automatically make the most of the market changes and help you average the cost of making mutual fund investments.  STP’s work on similar lines. STPs are also a method of making regular investments in mutual funds.

In STPs, you transfer funds from one mutual fund scheme to another, periodically.

Every month, a fixed sum flows into the investment, leading to cost averaging and eventual high returns. However, when it comes to investing a lump sum amount, you are faced with the challenge of how to manage the market risk. For anyone who has understood the efficacy of SIP, the right way to go about this kind of an investment is to put it into a liquid fund, and then do a monthly transfer from there.

Taxation of an STP

When you transfer from one mutual fund scheme to another, it is considered as sale and the same is taxable as per Mutual Fund taxation provisions.

In case of debt funds, if your holding period is less than 36 months, then the amount that you withdraw will form a part of your income. It will then be taxed according to your income slab. On the other hand, if the holding period is more than 36 months, then the long-term capital gains will be taxed at 20% with indexation.

In case of equity funds, if your holding period is less than 1 year, then the withdrawn amount will be taxed at the rate of 15%. On the other hand, if the holding period is more than 1 year, then the long-term capital gains will be taxed at 10% without indexation.

Wealth Cafe Actionable: Where you are a regular SIP investor and want to distribute your market risk and make use of cost averaging, Invest your lumpsum gains such as bonus, wedding gifts, etc into a liquid fund and set up an STP into an equity Fund

informed-decision

Things to check in your Mutual Fund Account Statement?

A mutual fund statement is pretty much like your bank account statement. It is a complete summary of your mutual fund investments. While formats and layouts may vary across fund houses, the basic components remain the same.

The account statement is emailed to you occasionally or you can download the same from the respective Asset Management Company’s (AMC) website. You will have to go to the AMC (mutual fund company) website and register yourself if you have made investments from other aggregators. It is important to know that in spite of making investments from any source, you can always access the same on their website and sell/buy more from there.

The account statement looks like this:

1. Keep a record of your folio number. It is your reference number for the investment made. Each time you make an additional investment in an AMC, ensure that the folio number is the same. This will make it easier to track all your fund investments with a particular fund house. If you don’t use the same folio number, you will have many folio numbers over time and this will make tracking your investments difficult.

2. Ensure that the name of the bank and the account number are correct to avoid facing problems at the time of redemption.

3. Make sure you are KYC compliant and have made your FATCA declaration. FATCA is a US law and as per an India-US treaty, Indian fund investors have to declare if they are US citizens or not.

4. If you have invested through an agent, his/her name code and EUIN number will appear in the account statement. Take a note of it.

5. See your transaction summary. This section mentions the types of transactions that you have opted for, which also include purchase, SIPs, SWPs, etc.

6. Check the NAV date on your account statement. If you invest before 12 pm,  then same days NAV is used, if you invest around 3 pm, it is possible that your investments would be made on the following date. Hence, you must verify the same.

6. Understand your load structure. It gives you details about the entry and exit cost of your investment.

A fund statement is generated within two to three days of your investment in a particular scheme. You receive it within seven to ten working days if you have opted for a physical copy or in three to four working days on your registered email address. If you have not received one, you can always get in touch with the AMC that is managing your fund.

Wealth Cafe Actionable – You should verify your account statements after you have made investments. It is prudent practice to save the same regularly for any future reference.

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When is the right time to start your investments?

In our workshops, we have discussed with so many people who say that they are waiting for the markets to go down to start their investments or they are waiting to have enough before they start. Some may even argue to say that they want to enjoy life today and will invest tomorrow (in spite of having enough savings in their bank account). Some feel they are just waiting for the right time to start investing.

The RIGHT time to start your Investments is NOW

The best time was yesterday, but now that is gone right time is today. With every day you push to invest your money, you are reducing your money from growing and making wealth for you.

If you are following the basic rules, you will definitely get it right. It is quite usual for you to feel a bit nervous when you are investing in unfamiliar instruments for the first time. But you will learn on the way. So, don’t let your nervousness delay your investments further.

To help you understand what you are missing every time you are delaying your investment choice, we have tabulated below an example:

PriyaShreya
Sip50005000
SIP start Age2530
SIP Stop Age3060
Investment till Age6060
SIP done for how long (in years)530
Amount Invested 25,0001,50,000
At the age of 60, returns they got22,32,12521,73,726

In the above example, Priya started at the age of 25 and invested for only 5 years, until she was 30. However, she did not withdraw her investment out until she was 60.

On the other, Shreya started her investment only at the age of 30 and continued to invest until she was 60. She invested around INR 150,000 and Priya invested around INR 25,000.

You would obviously expect Shreya to make more money than Priya. But, it is Priya who has made great returns from just an investment of INR 25,000. This is the power of starting early.

When you start your investments today, you have to invest less and you will reach your goals sooner.

START NOW !!

It is possible that some of you may be anxious as to how should you start your investment and where to put your money. For all of you do not worry, doing a SIP for your mutual fund is a great start and we have written many blogs on how should you invest and are writing more.

Always try to match your goals with your investment choice. This will help you eliminate unwanted choices, and identify the right ones. It will also save you a lot of headaches later. As a rule, avoid risky investments like stocks, equity mutual funds for short-term goals (3 years and less than 3 years). This is because equity can be extremely risky and volatile in the short-term. You should try to preserve your capital and try to secure stable returns for short-term needs. However, if you have time in hand, you can be a little adventurous and invest in equity. It will help you earn a few extra percentages. This is because equity has the potential to give higher returns than any other asset class over a long period of time.

Don’t forget to review your investments periodically. Investing and forgetting all about it is not a great strategy. You should regularly check how your investments have done over a period of time.

Wealth Cafe Actionable – Where you are investing in Equity for long term goals, do not forget to sell your risky investments at least three years before your goal and park the proceeds in a safe avenue. This is to ensure that you have the money safely parked somewhere when you need it and the market risk will not hamper your goals. Start your investments now!!

 

 

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Timing the market for your SIP investments?

Many of us keep waiting for that right time to invest.

A popular stock-market adage is Time in the market is more important than timing the market’. It may be a popular principle but unfortunately not many observe it in practice. Many people based on the basic discussions, newspaper articles or just their basic reading believe that they understand the trends of the market and start timing the market to make investments.

The curious thing about market timing is that the market almost unfailingly moves in the opposite direction to what you would expect. If you buy shares in a company thinking that ‘this’ is the right time, you are appalled by the fact that the stock starts to fall just after you buy it. Similarly, if you sell out your shares in a company because you have a strong gut feeling that it’s going to collapse, you find it racing ahead of just about everything. It must have happened to the smartest of us.

Timing the investment in Mutual Funds

If you think you are immune to this behavior just because you invest in mutual funds rather than directly in stocks, you are mistaken. Mutual funds investors frequently try to time their systematic investments in response to the market’s ups and downs. When the market is falling, they stop their SIPs. When it is rising, they increase their SIP amounts. This invariably backfires.

SIPs work best when the markets are volatile. When the markets are high, you buy fewer units of your mutual funds through SIPs. When the markets are down, you buy more units for the same amount. This enables you to average your investment cost over time. But if you stop SIPs when the markets are down, you miss out on lowering your total investment cost. And if you increase your SIP amounts when the markets are on the rise, you keep averaging your overall cost upwards.

Now you may say that the solution to this problem is to do just the opposite: stop with SIPs when the markets are rising and increase the SIP amounts when they are falling. Unfortunately, timing the market in this manner is just as unfruitful. First, it is counter-intuitive. Many investors will have difficulty in carrying through their decision to invest when the markets are down and sell when they are up. And second, you can never really know how long the market may keep going up or falling. All in all, it’s quite unproductive to time the market.

How SIP Works to make the most of the market trend

When the market goes down – you get more Mutual Fund units
When the market goes up- you get lesser Mutual Fund units
Hence, the SIP helps to average the cost over a period of time and makes the most of our money. We may not always know that the market is down now, we should buy more or otherwise, SIP is automatically taking care of that for us.

The beauty of SIPs is that by definition they prevent you from timing the market. SIPs are about discipline. You decide an amount and a frequency, which in most cases is monthly. Then you keep investing in the mutual fund of your choice, irrespective of where the market is. Of course, you can increase your SIP amount yearly as your pay increases but then invest it evenly till the next revision. Since the markets are volatile, you will naturally benefit from the power of rupee cost averaging, which will increase your returns.

Wealth Cafe Actionable – As we have said, SIPs is an easy way to invest your money and it on its own makes the most of the market trend. Once you have started SIP, just keep reviewing your asset allocation occasionally and let them be.

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How to Invest through your Mobile Phone in a Mutual Fund?

Interbank Mobile Payments Service (IMPS) Facility: IMPS is a platform provided by National Payments Corporation of India (NPCI). IMPS allows existing unitholders to use mobile technology/instruments as a channel for accessing their bank accounts and initiating interbank fund transaction in a with convenience and in a secured manner. It allows investing 24*7 via mobile phone.

How does it work?

  • Unitholder needs to register for Mobile Banking with his Bank
  • The bank issues a unique MMID (Mobile Money Identifier) which is a combination of his bank account and bank code and also issues an M-PIN, a secret password.
  • Unitholder can now perform a transaction using a mobile banking application or SMS / USSD facility as provided by his Bank. For example: If unitholder wants to invest Rs. 10,000 in a mutual fund scheme using the mobile application, he needs to follow the following steps – In the mobile application; provide the
    • MMID of the scheme
    • His Mutual Fund Folio No.
  • Amount to Invest/transfer
  • MPIN issued by the bank remitting bank validates the details and debits the account of the Unitholder. It passes on the information to the beneficiary party (AMC in this case) via NPCI.
  • AMC shall, after validating the details, credit the folio/scheme account with the appropriate units and shall also provide an SMS/email confirmation to the Unitholder informing of the allotment

Wealth Cafe Actionable: Unitholder should ensure that the Mobile number registered with Bank for IMPS facility is the same as mobile number registered with Mutual Fund for the folio.

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What you need to start and how to be KYC compliant.

Once you have decided your goals and arrived at the amount you want to invest or you have your savings in place and you just want to get investing. You will need help to understand the following things to start your mutual fund investment journey.

We have discussed what is a mutual fund and different types of mutual funds.

Here, we are going to discuss how you can actually get investing and the very basics of doing that.

This guide is going to cover the very basic questions that our trainees have asked us about starting their first Mutual Fund investment.

Things you need before you start your mutual fund investments

To start investing in a fund scheme you need

  • a PAN,
  • bank account and
  • be KYC (know your client) compliant.

The bank account should be in the name of the investor with the Magnetic Ink Character Recognition (MICR) and Indian Financial System Code (IFSC) details. These details are mentioned on every cheque leaf and it is common for an agent or distributor to seek a canceled bank cheque leaf.

How to get your KYC ?

The need for KYC is to comply with the market regulator SEBI in accordance with the Prevention of Money laundering Act, 2002 (‘PMLA’), which undergo changes from time to time.

The KYC process is investor friendly and is uniform across various SEBI regulated intermediaries in the securities market such as Mutual Funds, Portfolio Managers, Depository Participants, Stock Brokers, Venture Capital Funds, Collective Investment Schemes, and others. This way, a single KYC eliminates duplication of the KYC process across these intermediaries and makes investing more investor-friendly.

Documents required to be submitted along with KYC application

  • Recent passport size photograph
  • Proof of identities such as a copy of PAN card or UID (Aadhaar) or passport or voter ID or driving license
  • Proof of address passport or driving license or ration card or registered lease/sale agreement of residence or latest bank A/C statement or passbook or latest telephone bill (only landline) or latest electricity bill or latest gas bill, which are not older than three months.

You will need to submit copies of all these documents by self-attesting them along with originals for verification. In case the original of any document is not produced for verification, then the copies should be properly attested by entities authorized for attesting the documents.

How to check your KYC status?

Given that KYC is a common process across various investment platforms. If you have submitted your documents earlier for opening a D-mat or any other investment, it may be possible that you are already KYC compliant. You can check your existing status and the application status on the following portals:

  1. National Stock Exchange
  2. CAMS Investor Services Private Limited
  3. KARVY KRA
  4. CDSL Ventures Limited
  5. Mutual Fund Companies – you can also process your KYC with the mutual fund company. However, you have to make an investment in the mutual fund. They will not process your KYC without any investment.

Wealth Cafe Actionable – Where you are a first-time investor, it is advisable to process your KYC along with your mutual fund application. It will reduce the time that goes into the same.

 

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