Month: August 2022

Mid cap mutual funds are equity funds that invest most of your invested amount into mid-cap companies. These companies are ranked from 101 to 250 on the market capitalization chart and have a decent track record. These funds could be slightly riskier than large-cap but have the potential to deliver better returns.

Here’s what to expect from Mid cap mutual funds.

What Is The Investment Regime in Mid Cap Mutual Funds?

As mentioned above, Mid-cap companies are ranked from 101 to 250 on the market capitalization chart released quarterly by AMFI (The Association of Mutual Funds in India).

According to SEBI (Securities and Exchange Board of India) guidelines, these mutual fund schemes invest 65% of total assets into mid cap companies. The remaining assets can be allocated to large-cap or small-cap companies. Fund managers decide the allocation to maximize returns.

Top 5 Advantages of Mid Cap Funds

1. Significant Wealth Creation

Mid-cap companies may become large-cap companies in the future. With decent performance, lower risk than small-cap funds, and a high growth factor, you can expect handsome returns. If you hold your investment for 5 to 7 years or more, mid-cap mutual funds can grow your wealth significantly.

2. Diverse Investments

Equity mutual fund schemes allocate your invested amount to various companies. You will have stocks of diverse mid-cap companies from various sectors. 

3. Moderate Risk

These funds might be riskier than large-cap but are less risky than small-cap. Investors with an aggressive risk appetite can certainly consider mid-cap mutual funds. 

4. Liquidity

Equity mutual funds have no lock-in period. You can redeem your investment from mid-cap mutual funds whenever you want. But it is recommended to keep the investment for more than a year for tax benefits and even longer for better returns.

5. Low Investment Amount

You can start investing in mid-cap mutual funds via SIP with only INR 500-1000 per month. Equity mutual funds do not require a higher lump sum amount. You can always invest more when you have more money.

4 Important points to Consider Before Investing 

1. Long-term Investment Goals

Always consider your investment objectives and long-term goals before investing in any mutual funds. It’s important to check whether the fund’s objectives match your investment portfolio.

2. Risk Tolerance

Mid-cap equity funds are riskier than large cap. Even though the fluctuations might not affect the performance over a long period of time, it’s always better to evaluate your risk profile.  

Contact VNN Wealth Experts to get insights on your risk profile.

3. Returns and Investment Period

Mid-cap funds can deliver better returns if you hold the investment for 5-7 years or more. Short-term returns might not be consistent. So if you have a goal in mind, make sure to align the investment period to earn the desired returns.

4. Expense Ratio 

The expense ratio is nothing but a fee you have to pay to fund houses to handle your assets. Before investing in mid-cap funds, study and compare the expense ratio.  

Note-Higher expense ratio is not always bad. Compare the scheme performance, fund manager’s track record, and expense ratio. Many investors are willing to pay a higher expense ratio if the returns are superior.

Tax Implications

Like any other equity funds, Mid cap funds are taxed on Short Term Capital Gains (less than 12 months) and Long Term Capital Gains (more than a year).

Short Term Capital Gains are taxed at 20%. And Long Term Capital Gains are taxed at 12.5% above INR 1.25 lakhs.

Who Should Invest in Mid Cap Funds?

As mentioned above, Mid-cap funds are moderately risky. You can invest in these schemes if you can take moderately high risk. Investors who won’t panic-sell when the market falls can consider adding mid-cap funds to their portfolio. Keep in mind that you may want to hold your investment for 5 years or more to achieve desired returns.

Conclusion

Mid-cap mutual funds can be slightly risky, but you have an opportunity to earn superior risk-adjusted returns. As we always say at VNN Wealth, equity funds follow the trend of the economy over the long term.

Not sure where your portfolio stands and what your risk profile looks like? VNN Wealth experts can help you plan your investments better. We are just a call or an email away.

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Top 5 Benefits of SIP

Large Cap Mutual Funds: Basics, Advantages, Taxation, & More

Planning to invest in Equity Mutual Funds but don’t know where to start?

Selecting the right equity fund can be confusing for new investors. The process starts with having financial goals, knowing the risk, and regularly investing money.

The right knowledge and understanding of equity funds can help you align your portfolio with your financial goals.

If you are browsing equity funds for yourself, below are some common types you need to know. But before we dive into it, let’s get to know what exactly are Equity Mutual Funds.

What Are Equity Mutual Funds? 

Equity Mutual Funds AKA Growth Funds are different schemes of mutual funds that distribute the invested amount into stocks of different companies. The distribution takes place based on the objective of the scheme you choose. 

Equity mutual funds are useful when one wants to invest in stocks without worrying about market volatility. These schemes deliver superior returns and are perfect for long-term investments.  

Investing in stock markets can be intimidating for a beginner. In that case, equity mutual funds would be a safer option.  

Before selecting the funds, one should evaluate various scheme regimes. Below is a brief introduction to different types of Equity Mutual Funds. 

7 Types of Equity Mutual Funds 

Equity mutual funds are categorized based on various investment horizons and risk factors. These categories help you choose the suitable funds that match your financial goals.

Type 1: Based on Market Capitalization

1. Large Cap Funds 

Large-cap mutual funds invest around 80% of total assets into equity shares of large-cap companies. These companies are usually between 1 to 100th in terms of market capitalization. 
Large-cap funds offer stable returns and are less risky. It can be considered a safer investment option in your portfolio. 

2. Mid Cap Funds

Mid-cap mutual funds invest at least 65% of total assets into mid-cap companies. These companies stand between 101st to 250th on market capitalization. Mid-cap companies are slightly more volatile than large cap. However, it can generate better returns in the long run. 

3. Small Cap Funds

In this scheme, 65% of total assets get invested into small-cap companies (251st and above in terms of market capitalization). Small-cap funds can bring in superior returns, but these funds can be highly volatile and riskier than large and mid-cap mutual funds. 

4. Large & Mid Cap Funds

These schemes distribute a minimum of 35% of total assets in large-cap stocks and 35% of total assets in mid-cap stocks. The rest of the 30% can be allocated to either category and/or debt and money market instruments. A combination of large and mid-cap brings both decent returns and stability.

5. Multi Cap Equity Funds

Multi-cap mutual funds invest at least 75% of total assets in equity and equity-related instruments with a minimum of 25% of total assets invested each in large-cap, mid-cap stocks, and small-cap stocks. The rest of the 25% is invested in any or all of the above categories or debt and money market instruments based on the fund manager’s view. Multi-cap funds are useful for investors who want exposure in all categories but less risk than pure small-cap or mid-cap funds. 

Type 2: Based on Investment Style

6. Sectoral/ Thematic Fund 

Sectoral and Thematic fund schemes focus on a particular sector or theme of the investment.  Sectoral equity mutual funds invest at least 80% of total assets only in specific sectors. For Example- The pharmaceuticals, Technology, and Infrastructure sectors. The returns of these funds depend on the performance of the industries in that particular sector. 

Thematic, on the other hand, invests at least 80% of total assets in a specific theme of the sector. For example, if the sector is agriculture, the thematic funds can be invested in fertilizer companies, automobile companies, chemical companies, etc. 

These themes are well defined by the fund manager using SEBI regulations.

Type 3: Based On Tax Benefits 

7. Equity Linked Savings Scheme 

Equity Linked Savings Scheme Or ELSS is a tax-saving equity fund. An investment of up to 1.5 Lakhs in ELSS can offer tax benefits under section 80C of the Income Tax Act. With a 3-year lock-in period, ELSS invests 80% of total assets into equity and equity-related instruments. This scheme is highly suitable for anyone looking for tax benefits.

 Top 5 Benefits of Investing in Equity Mutual Funds 

1. Mutual funds diversify your money into various stocks thereby offering better risk-adjusted returns.

2. You can take advantage of tax benefits from ELSS mutual funds under section 80C of the Income Tax Act.

3. If you don’t have a lump sum amount, you can opt for a Systematic Investment Plan (SIP).
Equity mutual funds offer flexibility and ease of investment.

4. You only have to invest money and fund managers/experts take care of managing the funds. 

Key Takeaways

Equity mutual funds are perfect for long-term investments. You can choose the right fund(s) based on your financial goals and investment preferences. Since Mutual Funds are a great medium to build wealth over the long term, it’s best to start investing when you are young. If you are new to equity funds, go with lower-risk schemes and gradually explore the others. 

Funds based on market capitalization are best suited for beginners. Sectoral and Thematic can be added whenever you feel ready to expand your portfolio. We would recommend starting a SIP. 

For further guidance on investment options and portfolio management, contact VNN Wealth experts today. 

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The first half of 2022 flew by as equity markets stayed under pressure. Will the rest of the year lift the profits? Let’s find out.

After 3 months of steep correction, S&P BSE Sensex and NIFTY 50 saw the sharpest rise this year with 8.58% & 8.73% gains respectively in July 2022 on the back of commodity prices and crude oil prices stabilizing. Exporters benefitted from rupee depreciation, and agriculture production would boost as the monsoon began on a healthy note. 

Corporate earnings so far, are in line with expectations. 

FIIs who were aggressive sellers this year but turned net buyers in equities in July 2022 after a gap of almost 9 months.

However, while many analysts believe that most of the damage seems to be done, signs of a mild recession in the US, Global central banks struggling to maintain a balance between inflation & growth, and future interest rate hikes will keep markets on the edge.

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Now the real question is – What is the best mutual fund for YOU in the current market scenario?

Considering the market volatility so far, Balanced Advantage Funds and Flexi-cap funds might be the saviors.

While choosing Mutual funds, you should consider starting a Systematic Investment Plan (SIP) for long-term gains. Because the market can be uncertain due to various
reasons such as inflation, changes in commodity prices, or geo-political tensions. In such scenarios, SIP is always a safe investment method.

We have curated a list of funds that you can consider depending on your current portfolio. But don’t just pick a fund to put your hard-earned money in.

There are a few parameters that will help you choose a suitable Mutual Fund. 

Let’s shed more light on it.

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What are Balanced Advantage Funds?

These are a type of hybrid funds that distribute investments in both equity and debt funds with no restrictions.

There is no threshold for asset allocation. Fund managers can decide whether to allocate maximum funds into equity or debt. These decisions can be dynamic and are made based on the model followed by the mutual fund house factoring the stock market condition, price to book (PB), price to equity (PE), etc.

But, in simple words, when the stock market goes down, the fund manager invests more money into equity instruments in these funds. Otherwise, they explore fixed-income instruments.

As these funds are dynamic, you may receive superior risk-adjusted returns over a period of time.

We have already shortlisted some Balanced Advantage Funds (BAF) for you to explore.

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List of Balanced Advantage Funds (BAF) in No Particular Order

 

Similar to any Mutual Fund, you can check past performance but don’t rely on it. There could be ten different reasons behind the fund’s past performance.

In the case of BAF, take a look at stock exposure.

Let’s say the investor inside you peeks up and says- the market will fall further. In that case, you’ll need Balanced Advantage funds with low stock exposure so that the
market correction affects the fund less as compared to a fund with higher stock exposure.

A quick glance at the stock exposure field in the above table will give you the list of three funds. DSP Dynamic Asset Allocation Fund, SBI Balanced Advantage Fund,
ICICI Prudential Balanced Advantage fund. These three schemes have low stock exposure. That will be beneficial if the market falls further.

Now, let’s say your calculations tell you that the market will go up from here on. Then you will benefit from the schemes with higher equity exposure. So, Edelweiss
Balanced Adv Fund and HDFC Balanced Advantage Funds are better suited for you. 

Apart from Balanced Advantage Funds, Flexi-cap mutual funds are another good category to consider in the current market scenario. If you are planning to explore
mutual funds, we’ve also shortlisted some Flexi-cap schemes for you.

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What Are Flexi-Cap Funds?

As the name suggests, Flexi-Cap funds have the flexibility of investing in a broader spectrum of market capitalization. These funds have the freedom to invest money in
large, mid, and small-cap companies without any restrictions.

How is it different from Multi-cap funds, you may ask?

In multi-cap funds, the fund manager needs to invest at least 25% of total assets into each category – Large cap, Midcap, and small-cap companies. Whereas, Flexi-cap
funds do not have any threshold restrictions. Fund managers have the freedom to explore any market capitalization based on their analysis.

Having said that, below is a list of Flexi cap funds that we have created for you.

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List of Flexi-cap Mutual Funds in no particular order

Now, if you see the above table, almost all schemes have decent returns over a 3-year period. Past performance can give you hindsight on the returns on the scheme.

BUT…it is not the only important parameter.

When it comes to evaluating the Mutual Fund scheme, consider looking at:

• Cash Holding and Asset Allocation
• Portfolio Risk
• Fund Manager’s Strategy

 

Take a look at cash holding under the asset allocation field in the above table. The schemes with more cash holdings will be able to buy more stocks when the market falls.
For example, Axis Flexi-cap has 12.49% of cash holdings. If the market goes down, this scheme will have more cash to buy more stocks.

But again, if you think the market has fallen enough and will only go up from that point on- consider lower cash-holding funds. 

And if you are still unsure which scheme to choose, you can seek professional advice from our experts. 

By now, you might have shortlisted a few schemes. To narrow it down further to figure out which one(s) to add to your portfolio based on your financial objectives, current holdings, risk appetite, etc.

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Key Takeaway

Even though half of 2022 is gone, you still have the opportunity to explore the equity markets, which may perform well in the second half of the year. As mentioned earlier, crude and commodity prices have normalized, rupee depreciation may Favour exports, and agriculture may boost consumption due to a good monsoon.

This means the rest of the year might have the potential to lift the markets. 

If you are planning to invest in mutual funds, don’t forget to evaluate all the above factors. Shortlist Mutual Funds based on parameters that suit your goals. Don’t get influenced by past performance. Instead, focus on asset allocation and risk profile with respect to your portfolio.

If you have any queries regarding investments, VNN Wealth experts are just a call away. Get in touch with us and plan your financial goals with us.

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Top 5 Benefits of SIP Every Investor Must Know

7 Types of Equity Mutual Funds to Invest in India

A Mutual fund (MF) is a pool of money collected from various investors with common financial goals to be invested in different investment opportunities. These opportunities could be equities, bonds, gold, or any other financial instruments. Fund managers use various mutual fund schemes to invest money on behalf of the investors. The return earned on the pool of money then gets distributed among all the investors based on their investment proportion. 

Unlike the stock market where investors invest in each stock individually, mutual funds are a combination of stocks that help diversify your portfolio. There are different types of mutual funds and various ways in which investments take place.

Let’s find out.

Different Types Of Mutual Funds In India

Type 1: Based on Strategy Used By Fund Managers

     1. Active Funds

In active funds or actively managed funds, fund managers regularly work on the fund’s portfolio. Managers continuously analyze the market and use their expertise and judgment to allocate assets based on market conditions.

     2. Passive Funds

Contrary to active funds, passive funds replicate the market index. (For example NSE Nifty 50, BSE Sensex, etc.) Here, fund managers don’t make frequent changes to asset allocation. Investors don’t have to rely on constant market analysis and expert judgment.

Type 2: Based on The Structure of The Funds

     1. Open-Ended Funds

Open-ended funds are available to purchase/subscribe to with no maturity period. Investors can buy/sell units as they please. The NAV is declared every day for investors to track and modify their investments as and when they want.

     2. Closed-Ended Funds

Closed-ended funds are available to purchase only for a specific period of time at the launch of the scheme. These funds have a maturity period of usually between 3 to 5 years. They are available to purchase only during New Fund Offer (NFO).

Type 3: Based on Asset Class

     1. Equity Mutual Funds

Equity Mutual Funds invest in companies that belong to different market capitalizations (small-cap, mid-cap, large-cap), sectors, or themes. ELSS offers tax benefits under Section 80C of the Income Tax Act.

These funds are more likely to deliver better returns than other schemes but can be riskier. 

Read more about- 7 Common Types of Equity Mutual Funds

     2. Debt Mutual Funds

Debt funds, also known as bond funds, allocate assets to bonds such as corporate bonds, government bonds, commercial papers, treasury bills, etc.

These funds are further classified based on duration into Liquid Funds, Corporate Bonds, Banking and PSU, Gilt Funds, Short Term funds, Long Term funds.

These funds are safer to invest in but deliver lower returns compared to equity funds. However, debt funds deliver superior tax-adjusted returns as compared to Fixed Deposits. 

Read more about- 15 Common Types of Debt Funds

     3. Hybrid Mutual Funds

Hybrid mutual funds distribute assets in both equity and debt instruments depending on the scheme’s objective. 

While equity allocation can bring decent returns, debt allocation offers security against volatile markets thereby creating a perfect balance. 

These funds can be further classified as Dynamic Asset Allocation funds, Aggressive Hybrid funds, Multi-Asset Allocation funds, or Monthly Income Plans. 

How Are Mutual Funds Taxed?

The capital gains (total return) of mutual funds are taxed based on the type of scheme and the holding period.

     1. Capital Gain Taxation on Equity Funds

Investments redeemed before 12 months fall under Short Term Capital Gains (STCG). Investors have to pay a 20% tax on short-term capital gains of mutual funds.

On the other hand, investments redeemed after 12 months fall under Long Term Capital Gains. In this case, the capital gains over INR 1.25 lakhs will be taxed at 12.5%. Capital gains below 1.25 lakhs are tax-free. 

     2. Capital Gain Taxation of Debt Funds

Capital gains on debt funds sold before 24 months are considered short term, otherwise long term. As per new rule, both short and long term capital gains on mutual funds are taxed as per investor’s tax slab.

Top 5 Benefits of Investing in a Mutual Fund

     1. Diverse Portfolio

As mutual funds allocate your money to different stocks, it makes your portfolio diverse and delivers superior returns over the years.

     2. Liquidity

You can sell/redeem mutual funds units quite easily on any business day. The money gets credited to your account in T+1 day in case of liquid funds. T stands for transaction day. For example; if you redeem the liquid fund on Monday, the amount is credited to your account on Tuesday.

For other debt funds, the TAT (Turnaround Time) is T+2 and for equity mutual funds, it’s T+3.

     3. Professional Management

Once you invest your money, you don’t have to worry about which sectors to invest in, which companies within those sectors, what proportion to invest in, and how much exposure to take in debt and equity, etc. Fund managers take those calls and handle asset allocation to ensure superior returns.

     4. Affordable Investments

You can start investing in mutual funds via a Systematic Investment Plan with as low as INR. 500 per month.

     5. Tax Benefits

ELSS mutual funds offer tax benefits on investments up to INR. 1.5 lakhs under Section 80C of the Income Tax Act. You can also gain indexation benefits on debt mutual funds if you hold them for 3 years or more.

Conclusion

Why select individual stocks and spend hours analyzing markets when you can just invest in mutual funds?

Mutual funds are suitable for anyone who wants to explore multiple stocks without actually managing them. Fund managers can handle and may multiply your money with their market analysis.

There are various types of mutual funds that can align with your financial goals. You can start a SIP of INR. 500 per month and gradually build wealth for retirement. 

Don’t wait anymore. Start investing in mutual funds. For in-depth insights on your portfolio and risk profile, contact experts at VNN Wealth, and we will help you meet your financial goals.