Business Laws you should be aware of

Posted on December 10, 2019October 6, 2020Categories Education, Entrepreneurship, Executive Courses, Indian Economy, Mergers & Acquisition, Mutual Funds, Public policy   Leave a comment on Business Laws you should be aware of

Your business might be a separate entity on paper, but it is always going to be close to your heart. After all, your business is the bread and butter for all practical purposes.

So, what makes a business run smoothly in the longer run? A lot of you might say “sales”. Of course, sales is important and growth in sales every year is a positive sign. This is only possible if the business is doing business ethically as per the law of the land.

Business’ engaging in unethical practices come under the radar at some point of time, leading to a mega boycott by its consumers, suppliers and Government – which eventually making it a business from the past.

Different countries have different business laws. There are a few laws that are common, and a few that are different in each and every country.

Following business laws is very important as –

  1. You want your business to continue for a long time
  2. You don not want to end up in jail
  3. Your business has to be eligible for local, national and international contracts.

When in India, there are few business laws that every single business owner must know.

Business Formation Law

Before you start a business, you need to choose the type of business you wish to run. Are you planning to run a company that is public, a business with limited liability, sole proprietorship, or family business.

Once this is done, the owner must register his company with his regional Registrar of Companies (RoC).

Finance laws

Business runs on money and during the early days it is important to invest sufficient amount of money to keep your ship afloat.

Mainly, there are 3 ways to fund your business:

  1. Equity: By selling equity shares of your business, you bring cash in return which will help you grow your business.
  2. Debt: You incur a debt by taking out loan for your business at a fixed interest rate.
  3. Self-finance: This doesn’t need an explanation. You take money from your savings to fund your business.

Employment laws

You might be the only person working for your business during its early stages, but eventually when your business grows, you will have to start hiring.

When you have employees working for you, you must abide by labour laws and have agreements in place to ensure there are no conflicts in future. Ensuring you meet all labour/ employee law requirements may sometimes require you to hire consultants.

Intellectual Property Laws

If you have A business that invests heavily in research and development and builds new proprietory products – you need to be careful about Intellectual Property laws. It is necessary that you have a copyright, trademark, or patent it so that others cannot copy it.

Information technology laws

The use of technology in almost every single business is mandatory. It is also important to adapt to new technologies so that your business doesn’t lose out on efficiency.

Technology is the life blood of businesses now, but that comes at the risk of online threats. This is why the Government of India has introduced the IT act so that your identity and privacy is legally protected.

Contract laws

This is one of the most important laws to know. The laws that we spoke about until now thrive because of the contract law. This is a contract where both the parties unanimously agree to the stipulated conditions mentioned in the and agree to work together.

This needs to be communicated rightly so that there’s no dispute later on.

Conclusion

All major business players in the Indian market are known to abide by business laws to conduct business in India and the World. Only with clean books of accounts can the local and national population trust   a business. This is important for bidding for local, national and international contracts. This ensures longevity and a stable growth for the business.

BSE Institute Limited’s Executive Program in Securities and Business Law is all you need for building a stable empire, built on sound legal guidelines and trust. Join now!

 

Financial success with Fundamental analysis

Posted on December 4, 2019Categories Analytics, Corporate Finance, Education, Financial Markets, Investment Banking, Mutual Funds   Leave a comment on Financial success with Fundamental analysis

How do you evaluate a human being? We usually tend to do a background check, look at the person’s past records, his current status, and finally come to a conclusion.

Its the same with a company. An investor, before investing, looks into the financial data of the company before coming at a valuation. This method of financial analysis where every basic detail of a company is studied is known as Fundamental Analysis.

Why is fundamental analysis important?

  1. Evaluation of management

Management is the final decision making body that holds together an entire organization. Fundamental analysis will help you understand the management of an organization, and how efficient they are.

  1. Company and its competitors

A thorough fundamental analysis will not only tell you if a company is profitable, but also about its market share and how it fares as compared to its competitors. If a company cannot outperform its competitors, it won’t last in the longer run.

  1. Fair value

Analyzing a company’s past and present is important to understand its fair value. Fundamental analysis can help in arriving at this value by evaluating the company. This will help in understanding if the company is overvalued or undervalued.

This analysis will help you understand the fair value and pick stocks for investment.

  1. Future pricing

The most important factor an investor is concerned about is the future value of his investment. A company’s business model will help understand if it’s going to make money in the near future.

Fundamental analysis helps in forecasting the future price of a stock. If an analyst finds a favourable future, he will decide to invest his money into the company and vice versa.

How do you conduct fundamental analysis?

  1. Company website

A company’s website is the first place you need to visit. This will give you an idea about the company, its business’, board meetings, objectives, investor information and much more. This will help in getting an overview about the company and understanding if its worth considering.

  1. Company’s financial statements

Any company’s financial statements are readily available on the internet. It is important you go through its profit and loss statements, balance sheet, forecasts, etc to understand it’s health and future prospects. If this shows a year on year increase in sales and profits constantly, it should be a good investment.

  1. Debt ratio

A company’s debt ratio will help you understand if its a good long term investment. A company having a debt ratio of less than 1 is usually seen as a good investment. It means that it is not heavily under debt and can grow quite fast.

It is the duty of an investor to conduct fundamental analysis of a company by looking at various factors that influence its market share, longevity,valuation, and profitability.

Conclusion

Fundamental analysis involves an in depth understanding of a company’s competitors, industry and finances. This is important from an investor’s perspective as it’s his money that will be involved in the business.

To understand how stock markets work, why and how fundamental analysis impacts a company’s shares, opt for BSE Institute Limited’s Basic Program in Stock Markets.

Art of Portfolio Management

Posted on November 21, 2019Categories Corporate Finance, Executive Courses, Financial Markets, Global finance, Indian Economy, Investment Banking, MBA, Mutual Funds   Leave a comment on Art of Portfolio Management

When you look at a financially stable person, you often wonder, “how do they do that”? What differentiates a financially stable and unstable person is their respective investment portfolios.

Today, if you are young and reading this, consider it to be your lucky day. Investing young and building an investment portfolio can take you places. If you know the power of compounding, you will realize how important investing is.

So, where do we begin?

Planning your investment portfolio is not easy. It is quite challenging, even more if you are not good with your personal finance. First of all, managing your portfolios is not simply about, “which stocks to buy”, and “which stocks to sell”. Portfolio management requires self discipline, patience, and a bit of knowledge about the companies you wish to invest in.

I’m not going to talk about the stocks to buy today, instead I will talk about how to build your portfolio and stand out!

Risk taking ability

The first question you must answer before investing and building your portfolio is, what is your risk taking appetite. The stock market today is like a restaurant which offers you variety of food to choose from.

You need to understand that some might have higher risks,but at the same time has the potential to give higher returns.

Similarly, there are shares that come with lesser risks, but the returns could be comparatively lesser. It is up to you to decide your appetite and hand pick the right stocks.

Another important step that you need to take, while deciding your risk taking appetite is to decide your short, medium and long term goals. This will help you construct your portfolio in a better way.

If your appetite for risks is extremely low, you could simply invest in mutual funds which is a much safer option. There are various types of mutual funds in India, starting from equity funds, debt funds, index funds, etc.

Assessing the external financial situation

The next step is crucial- to come up with an investment strategy. By assessing the economic situation of the market, you will be able to predict about the future. This assessment combined with your needs could help you plan for the future.

Since, the market landscape is bound to change with time, it is important that you always keep an eye on it and adjust your portfolio accordingly to reduce losses and maximize gains.

Build your portfolio

Now to the final step. Once you have done your analysis, you can finally start building your portfolio by allocating the necessary asset classes and securities. You can always hire a portfolio manager for expert suggestions. It is important to understand that the whole objective is to minimize the risks and attain your investment goals.

You should not see your investments as a source of long term income. Instead, look at it as a business which could help you make money without actually participating in any business. Once you look at it through a business’ perspective you will realize the impact it could have on your wealth and the benefits that are meant to follow.

Once you have built your investment portfolio, you can relax and continue to keep an eye on the market. Make the appropriate changes as per the market scenario and stick to the strategy.

All the steps we saw are part of a cycle, therefore an investor must ensure that he keeps going about the same steps during suitable intervals. This will ensure that your portfolio is stable and your graph is moving towards your goals.

Conclusion

The world could be a much better place if everyone was financially literate and focused on making their money work for them instead of working for money.

When it comes to the stock market, the potential is endless. BSE Institute Limited’s Executive Program in Wealth Management is a course built for you to exploit the potential of the stock market and multiply your portfolio. This is your chance to learn something incredibly important and secure your future.

Investing in Small-Cap Mutual Funds

Posted on November 13, 2019Categories Financial Markets, Global finance, Indian Economy, Investment Banking, Mutual Funds   Leave a comment on Investing in Small-Cap Mutual Funds

Every person who begins earning is given one common advice,“You become rich only when you consume less than what you produce”.

This doesn’t happen with a salaried job, but by investing regularly in stock market.

Any professional will underscore the importance of being financially independent. You can’t be financially independent just because you have a nice job with a 6 figure salary. Your needs grow faster than your salary. This is where financial intelligence is important. If you can make your money work for you, all your goals shall seem attainable.

That brings us to the Indian Stock Market. An ambitious person will look at the best investing options and diversify his investments. Small-cap funds are popular among investors who are willing to take risks and go big. It is always advisable to have a small portion of your portfolio dedicated to these small-cap mutual funds which might give you some great returns in the longer run.

What are small-cap mutual funds?

Small-cap equity mutual funds invest in equity shares of companies that have a smaller market capitalization. These have potential to give higher returns because of the fact that these companies are young, and tend to expand aggressively. At the same time these are vulnerable to economic slowdown when compared to larger companies. Investors who have an appetite for risks can go for such funds in the market.

What makes it popular?

Small-cap funds are bound to generate higher returns in years to come. There are over 2000 small-cap funds available. When it comes to the BSE small cap index, there is a lack of proper coverage and information. Since the options available in small-cap funds are diverse, it continues to be a great option – as there are many companies which can give you great returns on investment.

Who should invest in small-cap funds?

As we said before, investing in small-cap fund tends to carry greater risk when compared to other mid or large cap funds. An investor who has an appetite for taking risks and is willing to invest for upto 10 years should definitely look at these funds. Someone who has a long term goal like buying a luxury product, a home, education or any such product that could involve lot of money- should keep an eye on small-cap funds.

A good strategy while looking at small-cap funds is to invest through SIPs (Systematic Investment Plans).

Things to consider before investing in small-cap funds?

  1. Risk: Small-cap funds are lesser established companies who can go out of business in case of a market crash. This is one major reason why people avoid investing in such high risk funds. At the same time if everything goes well, the gains could be enormous.
  2. Return on investment: This is better left unsaid. Every single investor has returns on their mind when investing. They look at potential gains before investing and hope that they get best returns in the longer run. No other fund offers better returns than a small cap fund.
  3. Investment period: The market is bound to fluctuate throughout the year. There are times when the downfall is unbearable to an investor. If you cannot manage to stay invested for over 5 years, don’t think about investing here.
  4. Goals: Historically speaking, the market has always seen small cap funds generate better returns. The scope for growth is immense. You could end up making some staggering returns, that can help you retire fast. For someone with a long term financial goal, this is the perfect investment and one that could pay handsome dividends.

Conclusion

Being financially literate is a must, no matter who you are. Master the art of financial investing with BSE Institute Limited’s GFMP Edge Financial Markets Program. With modules that cover basics about capital markets and financial markets, make your money work hard for you and ensure you retire young!

Spread your wings, with mutual funds

Posted on October 1, 2019Categories Financial Markets, Global finance, Mutual Funds, Short term programmes   Leave a comment on Spread your wings, with mutual funds

It is said that only two things in life are unavoidable – death and taxes! Both may be unpleasant, but can be comfortable if you learn to plan well.

There are many things you need to learn in life, but none can be as important as investing. No one can work forever or live off their savings forever. This is why it’s important to know what to invest in and how to profit from it.

Availability of multiple schemes can be a bit confusing, and that is why we are writing to highlight the best bets out there.

Mutual funds is a set of money pooled in by investors who could be individual investors, companies or other organizations. This fund is managed by an Asset Management Company (AMC), who go on to invest the same in stocks, bonds and other investment vehicles.

The Net Asset Value (NAV) is the price of individual mutual fund unit, and an AMC can buy or redeem these units.

 

Benefits of mutual funds

  1. Diversification: One of the golden rules of investing is to diversify. This reduces the risk that comes with investing. When you invest in mutual funds, your funds are invested in a variety of industries. So, even if one of the industry experiences a downfall, the other industries will still keep your fund flying high.
  2. Simple to understand: The world of financial products is quite complex, diverse and most of them are difficult to understand. On the other hand, mutual funds demand no prior experience or knowledge in financial markets. Simple industry knowledge is enough to invest in them.
  3. Investment expertise: Investing in stocks is not easy. You need to be really experienced to do well in the market. Mutual funds are managed by experts with decades of experience of picking the right stocks at the right time.
  4. Variety: Mutual funds offer investors a variety of schemes which suit their risk appetite. Equity funds are schemes for investors with a high risk appetite. Debt funds are suitable for investors with a medium risk appetite. Balanced or hybrid funds are best for people with a low risk appetite.
  5. Affordability: Mutual funds schemes are usually a cheaper option for diversifying your portfolio. In cases where investors opt for SIPs (Systematic Investment Program), they end up investing a very small amount every month. This makes the mutual funds scheme attractive and affordable for any person.

 

Types of Mutual funds

There are many of mutual funds available in the market. We’ll mention a few that will help you get familiar with the schemes available.

  1. Equity funds: The money that you invest in equity funds are used to buy shares/ stocks of companies. The returns are determined by how these shares perform in the market. The chances of quick growth are high.
  2. Debt Funds: These are funds that are invested in bonds, securities, etc. These are suitable for people who are looking for a long term investment plans which gives regular returns.
  3. Balanced or hybrid funds: These are funds that invest in both, equity and debt funds. Basically, its a mixture of the first two funds. It’s the AMC which decides the ratios of the funds allocated to each one.
  4. Open ended funds: These funds don’t have any limitations on the period of time or the number of units. You can enter and exit whenever you like at the current/ existing NAV.
  5. Close ended funds: The name suggests what you can expect from a close ended funds. These funds have a predetermined sum that needs to be invested and at times, a lock in period is also put in place.

 

Conclusion

Be wise with your money and invest in only those assets that match your risk taking appetite. With mutual funds the options are many and that makes it easier for you to choose a specific plan as per your needs.

Putting your money to work sounds easy, but it’s not. BSE Institute Limited gives you the opportunity to do just that with a Basic Program on Mutual Funds Fact Sheet. Understand Mutual Funds to be a master investor and let your money do the talking.

 

Disciplined Investing

Posted on August 21, 2019Categories Executive Courses, Financial Markets, General, Mutual Funds   Leave a comment on Disciplined Investing

 

“History shows you don’t know what the future brings.”  – G. Richard. Wagoner Jr.

What’s worse than losing the money you invested? Throwing more money behind it, in the hope of recovering all the money.

As Warren Buffett says, “never test the strength of the current with both your feet”. Dividing your investments among different asset classes – stocks, bonds, gold, mutual funds and anything else as per your financial goals is known as asset allocation. It’s necessary to invest in multiple asset classes, in order to reduce our dependence on any one investment.

Why is asset allocation important?

Your asset/ investment prices could move in opposite or the same directions on any given day.It is difficult for seasoned investors and industry watchers to predict an asset’s value at any point of time. Therefore, it is important to invest in different assets in order to protect yourself from a sudden drop in investment value.

By investing in products having different risk profiles, you can insulate yourself from volatile market fluctuations, that could seriously hurt your net worth. This will minimize the risk of losing money and increase your chances of decent returns.

An investor may invest in different type of assets depending on the –

  1. Funds available
  2. Risk taking ability
  3. Financial objectives

A wonderful example of investment diversification/ asset allocation is that of Piramal Fund Management.

The Piramal Fund recently informed investors that they would extend the tenure of its Real Estate Management Fund by a year. The fund has a tenure of 6 years extendable by another 2 years.

Out of the 10 residential projects, it has fully recovered investments from 4 projects and are awaiting funds from 6 other projects. The reasons that were mentioned for this delay ranged from delays in government approvals to land acquisition and drop in land prices.

The extension was done to ensure that they recover all the funds invested and protect the fund from early claims of other fund investors.

The Piramal group has a wide range of business investments ranging from healthcare, life sciences, real estate and many more. This diverse platform enables them to build a portfolio strong enough to withstand any major market fluctuation in one of their asset allocated sectors. Therefore, any fluctuations in one segment allows them to rejig their investments in the market, thus protecting their total sum invested.

How does an investor decide his/ her asset allocation?

A thorough assessment has to be done before investing. Let’s say you’ve got a portfolio of Rs 1 Crore. You decide to invest 50% of this in mutual funds, 30% in gold and 20% to equity, .i.e. 50:30:20. Once the investments are done, you need to track this closely.

If you see a rise in the value of your mutual fund investments, but a drop in the price of stocks, the share allocation of your portfolio changes. Let’s assume it becomes 60:30:10, you need to rebalance or reinvest it in a way to protect yourself from losses.

This is because the value of your investments could fall at any time in the future and at that point the loses could be higher. Similarly, when the value of your allocation decreases significantly, you can switch asset classes in order to protect yourself from heavy losses.

Conclusion

The goal is to stick to the asset allocation plan. This will help you reduce the risk in your portfolio and pave way for smoother flow of income.

Reviewing your portfolio at least 2 times a quarter would be a healthy plan.

BSE Institute Limited’s Executive Program In Wealth Management gives an in depth knowledge of the current market investment scenario. It is most suitable for investors and fund managers looking to build large portfolios using a solid investment strategy.

Personal finance, as easy as personal hygiene

Posted on August 13, 2019Categories Education, Executive Courses, Mutual Funds   Leave a comment on Personal finance, as easy as personal hygiene

“Money compounding is one concept that does not hit you unless your stars are aligned”

Manoj Arora

Managing personal finances is an underrated life skill. It hits you right on your head when your responsibilities start piling as you get married. It is common to see youngsters, who start earning, spend the money without a care in the world. However, that changes the moment they become parents or have any medical emergencies.

A set of personal finance rules will make sure you’ve funds for your luxuries, debts, emergencies and all the other expenses one might incur.

It is always better to plan for the future instead of regretting when its too late.

For all of us who wish to begin building a strong portfolio, here are a few tips that you can follow easily:.

  1. Set a budget

The first thing you need to learn when you start earning, is to budget your expenses. Budgeting means planning your finances.

Keep a track of all the things you do throughout a month. Divide your earnings in such a way that your expenses are lesser than your savings. This will not only help you gain control over your earnings but also help you keep track and plan for the future.

The future is unpredictable and you never know which month might end up being expensive. You must be financially ready for these moments.

These are the few things you need to keep in mind when you budget your earnings:

  • Earnings
  • Savings
  • Expenses
  • Investment

Your earnings are the total amount you receive at the end of the month, which is divided into 3 funds. You need to divide it in a way to make sure that the average of your investments and savings is more than your expenses.

  1. Investing

After planning your budget, decide the investment amount.

Any person who invests, expects a return sometime in the future.

We do this for multiple reasons, from supporting our family needs to buying luxury items and many more.

The greatest dilemma for any investor is, “where to invest”? Here are some of the most sought after and common investment options for investing-

  • Stocks- When you buy a stock of a company, you’re entitled to a share of the profit, whichever is incurred. This type of investing has its own risks but at the same time it could be a very profitable scheme for you.
  • Fixed Deposit- For people who don’t have the appetite for risks, this is your safest bet. Expect a return of around 6% on your investment. The returns are lower than stocks, but definitely risk free.
  • Mutual funds- Mutual funds have lesser risks when compared to individual stocks or bonds. Funds accept investments and invest in individual stocks on their own. Your money is invested by fund managers, who have a few decades of experience in managing funds.
  1. Get rid of your debts

Once you start budgeting your expenses and investing, you’re half way there. People start struggling when they can’t get rid of their debts after using credit cards. Compound interest is the biggest trap you could fall into, so our advice is to avoid credit cards.

Now, if you’re the sort of person who can’t resist a credit card, make sure you pay more than the minimum amount due each month. This could help you save huge chunks of money in the long term.

On other hand you’ve certain debts like the ones incurred while purchasing a home can be seen as a good debt. There are 2 crucial reasons why it could be a good debt. Firstly, make sure you invested into an asset whose value is set to increase. Secondly, opt for lower rate of interests which will be beneficial in the long term.

High interest rates will make getting out of debt a huge task in the longer run, so make sure you look into these fine details.

  1. Insurance

You might think that everything is has been covered from budgeting your expenses to investing and getting rid of debts, but don’t forget that you’ve built something very important here and this fortune needs to be protected.

There are certain unexpected disasters that could leave you in ruins. If you’re not insured, it could leave a huge hole in your pocket. In order to stay protected during such situations it is important to have a permanent or term life insurance as per your needs.

Conclusion

No matter who you are, or what your current financial situation is, if you can follow these few tips, you can secure your financial future. Differentiate between your needs and wants, and then build on it.

BSE Institute’s  Executive Program in Investment Management helps professionals learn basic and advanced concepts of investing and portfolio management. It can help you be a top notch investor in no time.

 

When and where can you invest?

Posted on July 17, 2019Categories Financial Markets, General, Mutual Funds, Short term programmes   Leave a comment on When and where can you invest?

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”   -Warren Buffet

Investment in the stock markets is believed to be one of the best ways to build a portfolio and a retirement fund. However, the challenge for most is the ability to identify the right companies/ stocks to invest in. It is this ability that sets apart the serial investors from the casual ones.

A small-cap company is one where the total market value of all it’s shares is less than Rs 5,000 crores.

A mid-cap company is one whose total market value is between Rs 5,000-20,000 crores.

A large-cap company is one which has a market value of over Rs 20,000 crores.

Many equity market watchers believe that now is the right time to take interest in the mid- and small-cap segments. The valuations in these segments have been become attractive in the last one-year. By attractive, these advisors mean that they expect the prices of these shares to increase to highs unseen before. The main role of financial advisors is to help decide whether an investor should invest in certain market segments or not.

The mid-cap universe of stocks comprises of stocks that are ranked from 101 to 250 based on their market capitalization. The small-cap segment consists of stocks that are ranked from 251 to 500. Mid and small-cap stocks are most likely to do well in a phase of economic recovery when interest rates are low and there are growth opportunities to exploit. Their smaller size makes them more responsive to changes and opportunities. At the same time, they are most vulnerable when there is a downturn in business cycles. Their revenues and profitability are likely to take a greater hit and, with lower financial muscle to withstand such slowdowns. They are more susceptible to market instability. In a market downturn, these stocks are likely to see a greater cut in stock prices. Mid-caps are in a good spot between large- and small-caps. They still have the flexibility of the small-cap and also have the relative stability of a more established business.

For you, the retail investor, mutual funds are the best way to invest in equity markets, including the mid- and small-cap segments. The categorization of mid-cap mutual fund schemes specifies mid-cap funds as those that invest not less than 65% of the assets in the mid-cap segment. Meanwhile, small-cap funds are those that invest not less than 65% of total assets in the small-cap segment of the market.

A look at the performance of these funds shows that in bullish markets they have outperformed the larger segments significantly. For example, in the bull market of 2014, the average return from the top five funds in the small-cap segment was 85% higher than that from the large-cap funds. Similarly, in 2017 also their returns were stated to be 45% higher than to the large-cap segment. The out performance of the mid-cap segment over large-caps in 2014 has been 56% while it was a more moderate 10% in 2017. On the flip side, in bear markets, they see a steeper fall in prices.

Over five-year and seven-year investment horizons, it has been observed that the mid- and small-cap funds have outperformed the large-cap segment in terms of returns, the higher volatility in returns, especially in the small-cap segment makes them a bit more risky. The Sharpe ratio, which measures the return generated for every unit of risk taken, was at just 0.56 for small-cap funds, and while mid-cap funds had a lower Sharpe ratio of 0.55. Large-cap funds, on the other hand, had a much higher Sharpe ratio of 0.85, indicating that the returns generated for the risk taken were much higher in large-cap funds, while small-cap and medium-cap funds are unable to generate higher returns commensurate with the risk they take.

Conclusion:

The slowing economic trends pose greater risks to this sector and it is important to be able to identify sectors and companies that can sustain in this scenario. If you are willing to ride out the volatility, you can consider some exposure to these segments through mid- and small-cap funds, but there are caveats to be followed.

A well-diversified mid and small-cap portfolio can reduce the risks faced, though the returns will be lower too. Some funds .

At BSEvarsity.com, we offer specialized courses on building wealth with mutual funds, in order to help individuals and professionals be masters at stock market investing.

 

Why choose index mutual funds over other mutual funds?

Posted on July 9, 2019Categories Mutual Funds, Short term programmes   Leave a comment on Why choose index mutual funds over other mutual funds?

“To make the most of your money, I recommend sticking with mutual funds that don’t charge a commission when you buy or sell.”

Suze Orman

 

Let’s not confuse some effort/ activity with progress!  We regularly see mutual fund advertisements, but investing in any mutual fund scheme is not a sure way to multiply your investments. You still need to pick a right investment/ mutual fund to get a desirable on investment.

For the best possible returns on investment, it is a must to read the mutual fund fact sheet, follow the industry the fund is investing in and track the record of the fund manager meticulously. Doing these three regularly is difficult for working professionals. So how can one take advantage of the market linked funds? How do we benefit if the stock market appreciates?  If you cannot track the 3 mentioned above, you can simply invest in index funds.

Index mutual funds aims to mimic returns of benchmarks, like Nifty or Sensex, and have seen their assets rise over 60 percent over the past one year. An index fund invests only in the stocks of companies which are performing very well. Ex: A BSE sensex index fund consists of investments made only in stocks which make up the BSE or NSE sensex. As an index fund, the Mutual Fund can invest only in these stocks. If any stock falls off the BSE sensex, the fund has to exit that stock and reinvest their money. There are many other funds, which invest solely in top performing stocks in certain industries.

The stocks which form a part of a stock exchange’s index are stable companies, which have given fabulous returns over a period of time. These companies have stable, reliable managements, that have a reputation for establishing and growing businesses into multi national corporations. These stocks are used for a variety of indexing and other macro-economic indicators This is because it offers better returns than schemes that invest in a broader set of stocks have drawn smart investors to them. As per data compiled by ETIG database, Index funds (excluding Exchange Traded Funds or ETFs) saw their assets jump from ₹3,773 crore in April 2018 to ₹5,275 crore in April 2019.

Index funds aims to invest in fixed set of stocks which generally comprise of key market gauges like the Sensex and the Nifty. This requires minimum skills of the fund manager. In the past one year, it has been noted that actively-managed schemes and portfolios decided by fund managers have under performed their benchmark indices like the Sensex and Nifty.

Many fund advisors and financial planners believe that index funds are likely to make their presence felt in India in the coming years. As many large-cap funds need to invest a minimum of 80% of their portfolio in the top 100 stocks by market capitalization, the category could struggle to beat the indices. Earlier, many such large-cap funds took exposure to mid- and small-cap stocks and managed to beat their benchmarks.

Financial planners believe the biggest advantage of an index fund is its low cost with passively managed funds costing as low as 20 basis points (0.2%) in regular plans — those advised by distributors. In contrast, actively-managed equity funds could charge 150-225 (1.5-2.25%) basis points in the regular plan. ETFs, are a substitute for index funds and are cheaper than index funds. However, you need to maintain a demat account and pay brokerage when buying or selling these units.

Fund houses have increased passive investment products over the past couple of years. Recently, Indiabulls launched the Nifty 50 ETF, while DSP Mutual Fund has launched the DSP Nifty 50 Index Fund, DSP Nifty Next 50 Index Fund ; a mix of active and passive management funds.

As these funds have outperformed most fund managers in the market, it can be safely said that exchange traded funds and index funds are safe investments that give you great returns.

BSE Institute is a 100% subsidiary of BSE India, the world’s largest stock exchange. We offer multiple courses that help students, investors and working professionals move up the corporate ladder and invest better. Our short term course on Building Wealth with Mutual Funds helps you invest better in mutual funds. It is available online on bsevarsity.com, and can be learnt via live sessions. Use BSE’s experience of the stock markets to build a bigger and a better portfolio.

With debt mutual funds, you always win!

Posted on July 3, 2019Categories General, Mutual Funds   Leave a comment on With debt mutual funds, you always win!

“Mutual funds were created to make investing easy, so consumers wouldn’t be burdened with picking individual stocks”

– Scott Cook

With the BSE Sensex crossing the 40,000 mark – the Indian stock market has witnessed and created wealth for millions of retail investors in India. A big bull run which has been in progress for the past few years is now bound to continue for the next few years due to the positive economic fundamentals of our country.

 

For a majority of Indians who find stock picking and investing difficult, mutual funds have been the vehicle of choice for value creation and maximization. Having said that, choosing a certain mutual fund, out of the few hundred schemes that are available is again tough. For those unsure about equities, investments in debt mutual funds has been a favored path for mutual fund investments.

 

Then again, the field is far too wide and understanding a mutual fund fact sheet is tough! However, there are simple ways to track and multiply your debt mutual fund investments. Here are a few important points which a debt investor should always remember:

  • Know your categories well

To start with, one must have proper information about the different investment categories and the risks involved with each of them. Always plan to avoid credit-risk funds if you don’t want risk in your portfolio. If you want to bet on corporate securities, with good returns, bet on corporate bond funds.

 

  • Check the mutual fund fact sheet regularly

Top mutual fund advisers think that retail investors, must keep a proper check on the investments your schemes make. Large fund houses usually send a fact sheet on your registered e-mail id every month. You must always track the changes in the fact sheet. Which debt instruments have been added to the scheme? Which have been dropped? Has there been any change in investing strategy?

Mutual fund fact sheets may take time to read and understand, but once you are clear, it is quite easy to read and track it. Plan and educate yourself properly if you are investing by yourself.

 

  • Quality of the portfolio:

It is a fact that high rated instruments have lower chances of defaults. So always check if your scheme portfolio is betting on low rated securities to earn better returns. The allocation changes and the ratings of the instruments added in the portfolio should always be monitored.

AAA-rated securities have a negligible chance of default. An IL&FS type of default is very rare and unexpected. However, one must always stay vigilant.

 

  • Background of the mutual fund house and portfolio manager:

Many mutual fund advisers believe that new investors and self-taught investors should always choose bigger fund houses. Those fund houses which are already established and have a good track record have low chances of taking risky bets. For larger fund houses, the cost of taking a wrong or a risky call is too expensive as they stand to lose thousands of crores.

It affects their reputation, which takes years to build. Hence, it is always a good choice to invest in an established fund house with a good track record.

BSE Institute is a 100% subsidiary of BSE India, the world’s largest and the fastest stock exchange. BSE Institute offers a variety of classroom and online courses which help investors to gain more knowledge, working professionals to move up the corporate ladder and students to launch their careers.

Our short-term online course on Building wealth with Mutual Funds is best suited for individuals who wish to learn about and invest in mutual funds. All course lectures are taught live, online and can help you learn fast in a matter of few weeks.