Author: VNN Wealth

Corporate Fixed Deposits: A Smart Investment Choice

Post author By VNN Wealth
Post date October 21, 2022

What if you can get FD-like security but higher returns?

Guess what? You absolutely can.

Corporate Fixed Deposits or Company Fixed Deposits offer all the FD features but with superior returns. You can invest in these FDs for a suitable tenure and earn desired returns by the end of the tenure.

Now, you must be wondering, are Corporate FDs safe? How does taxation work? How to invest in a corporate FD?

You will find answers to all your questions throughout this article. Let’s dive into it.

What Are Corporate Fixed Deposits?

Corporate FDs are offered by Financial Companies or Non-Banking Financial Companies (NBFCs) such as Bajaj Finance, Mahindra & Mahindra, HDFC Ltd., etc. These companies raise funds from investors such as yourself and offer returns in exchange.

You can create an FD with financial companies or NBFCs for a specific tenure with the promised rate of interest. It’s a safer investment option with promised returns.

If you create a cumulative FD, you will earn interest on the amount as well as the previously earned interest. Cumulative FD can exponentially build wealth over the years.

4 Benefits of Investing In Corporate Fixed Deposits

1. Superior Returns Than Bank FDs

Corporate FDs often deliver 1-2% higher interest rates than Bank FDs.

Here’s an example of various Bank FDs vs Bajaj Finance Corporate FD for a 5-year tenure.

FD rates for 5-year tenure as of Nov’22

ICICI

Bank FD

SBI

Bank FD

HDFC

Bank FD

Bajaj Finance

Corporate FD

General

6.35%

6.10%

6.50%

7.60%

Senior Citizens

6.85%

6.60%

7.85%

2. Guaranteed Returns

If the corporate/NBFC promised 7% returns by the end of tenure, you are guaranteed to receive it.

However, keep in mind that only RBI-approved and higher-ranked Corporate FDs are safe to invest in. RBI has defined a set of rules that a corporation has to follow in order to raise money via FDs.

3. Flexible Tenure

Corporate FDs offer a flexible tenure between 1-5 years. You can choose a tenure suitable for your financial goals. However, the interest rate may vary based on the tenure.

The higher the tenure, the higher the interest you will earn.

4. Lower Premature Withdrawal Period

Both Bank and Corporate FDs have atleast 3 months penalty period for premature withdrawal as per RBI guidelines.

Corporate FDs often have a lower penalty period compared to bank FDs.

4 Things to Consider Before Investing In Corporate Fixed Deposits

1. Associated Risk

Not all corporate FDs are safe, at least not as safe as bank FDs. The performance of the Corporate/NBFC will affect the safety of the deposit.

With bank FDs, you get security on investments up to 1 Lakhs. Corporate FDs may not offer such security.

Invest only in companies that follow RBI guidelines, have public performance reports, and have higher ratings. This brings us to our next point.

2. FD Rating

Platforms like CRISIL often give ratings to various financial instruments. Corporate FDs also have ratings associated with them based on risk and performance.

Deposits with AAA to AA ratings are safer to invest in. Anything below the AA rating may have moderate to high risk.

3. Company’s Track Record

Before investing in Corporate FDs, you must check the track record of the company. You can either do your own research or seek help from financial advisors.

Financial experts at VNN Wealth are more than happy to help you select the right Corporate FD to invest in.

4. Inflation Adaptability

Even though corporate FDs offer superior returns, those returns may not beat inflation. It all depends on the tax slab you fall under.

There is a chance that the returns after tax deduction might not align with inflation. In such a case, you must plan your investment horizon accordingly.

Taxation on Corporate Fixed Deposits

The interest earned via Corporate FDs comes under your annual income. You will have to pay tax on the interest earned according to your tax slab. So if you fall under the 20% tax slab, you have to pay 20% tax on the profits earned via corporate fixed deposits.

Ready To Invest in Company FD? – Here’s How.

Corporate FDs are best suited for investors who are seeking secure and higher returns. You will get at least a 1-2% higher interest rate with a Company Fixed deposit compared to bank FD.

You have the flexibility to choose a suitable tenure. It will not only diversify your portfolio but will act as a cushion to your overall portfolio during bear markets.

Similar to bank FD, you can create a Corporate FD online. You will have to visit the website of the Company/NBFC to apply for the FD.

After completing the application and submitting the KYC details, you will be able to invest in the FD.

You may also like- FD vs Debt Funds: Where to Invest?

Blogs Personal Finance

Can Robo-Advisors survive without human intervention?

Post author By VNN Wealth
Post date September 2, 2022

What’s the first thing you do when you wake up? You check your phone.

Be it social media, news apps, or finance, every other field is dominated by technology.

Not only millennials or Gen-Z, almost every generation relies on smartphones for day-to-day activities.

Fintech apps are no surprise in a world where everything is digital. Robo advisory, for instance, allows anyone to automate an investment portfolio. Doesn’t that sound awesome?

But is it really reliable?

The questions everyone should be asking right now are-

Can Robo Advisors handle complex investment portfolios?
Is it safe to trust an AI algorithm that runs on limited data?
And does Robo Advisory guide you when the market falls and panic strikes?

Let’s answer each question, shall we?

What Is a Robo Advisor?

A Robo-advisor is an algorithm-based automated financial advisor that manages investments and provides investment advice with little to no human intervention.

They usually work by asking a series of preset questions such as goals, risk appetite, income, assets, liabilities, etc. through questionnaires to understand investment behavior and accordingly make investment recommendations.

This software enables buying and selling of assets and the periodic rebalancing of portfolios.

However, in reality, Indian Robo-advisor apps do not depend on self-learning algorithms but instead are quite simplistic wherein a human consultant codes certain algorithms based on pre-set questions and answers, to understand investor behavior.

Types of Robo Advisors

1. Simple Robo-Advisors

Simple Robo-advisory asks a set of questions much like a quiz to understand the investment’s risk preference, goals, net worth, liabilities, time horizon, etc.

These are more like surveys with options to pick from 3-4 different choices of answers and once the investor makes his pick, he’s then recommended certain investment products to invest into.

Most Indian advisor platforms use this method for providing investment recommendations and according to Indian rules and regulations, one has to initiate transactions on their own.

2. Evolved Robo-Advisors

Evolved Robo-advisors focus on artificial intelligence and data learning to provide investment advice.

These robots basically dig deep into your financial transactions and assess the spending patterns on your credit/debit card as well as banking transactions, rather than focusing on the claims you’ve made by simply picking one of the few available options.

This method helps to fill gaps by having verified information on what you’re spending, any liabilities you may have failed to remember as well as any other patterns related to your decision-making.

These mathematical algorithms then use this available data to help provide tailor-made solutions for each individual.

They also allow you to permit auto-pilot mode, which enables auto buying and selling of assets on your behalf.

However, the concept of Robo Advisory in its current form i.e. simple Robo advisors is not new to India. These platforms are more Do It Yourself (DIY)/ Digital platforms.

Platforms like ICICI Direct have existed for almost 2 decades now with basic DIY functioning. We personally believe that the current platforms addressing themselves as Robo advisors, is mostly a marketing gimmick, burning private equity money with hardly a new invention at hand.

In fact, even independent human financial advisors use similar digital platforms to manage your portfolio and at the same time let you log in, filter, select, buy/sell and track funds on your own.

The big difference is that there is an experienced human being handling your investments for you using technology versus a call center executive or a sales executive with hardly any experience in wealth management and a pre-written script on the call trying to add the human touch to these Robo advisory platforms.

When there’s an option for both digital and human interactions, why limit your possibilities with Robo advisors?

Why Are Investors Trusting Human Advisors Over Robo- Advisors?

Being able to achieve financial goals via online platforms sounds enticing. Then why are many investors still reluctant about Robo-Advisors?

A study published on ResearchGate compared the perception of Human vs. Robo advisors. In the study, the respondents were randomly assigned to human advisors (both high/moderate experience) and Robo advisors.

The data was gathered from respondents based on various parameters and it showed the following results:

The Trust factor of various advisors was measured on a scale of 1-100. Expert Advisors scored 68.14 whereas Novice advisors and Robo advisors scored 61.24 & 52.25 respectively.
Additionally, the Performance Expectancy was measured on a scale of 1-7. Here again, Expert advisors scored 5.39 while Novice advisors and Robo Advisors scored 4.92 & 4.73.
Furthermore, the Intention to Hire was measured on a scale of 1-7. Based on the above findings, it’s no surprise that Expert advisors scored the highest, which is 5.33. Novice advisors and Robo advisors scored 4.98 & 4.81 respectively.

Findings:

From the table below, you can see that there’s not much difference between Novice advisors and Robo advisors on the basis of performance expectation, and intention to hire. Yet, respondents preferred Novice advisors over Robo advisors.

Expert advisors clearly scored the highest due to their knowledge and ability to build trust by maintaining transparency.

After analyzing data on various factors such as trust, performance expectation, and intention to hire, it is evident that most respondents chose experienced human advisors over Robo advisors.

(Image Source- researchgate.net)

Another study released by Vanguard found that many investors prefer human advisors to tackle complex portfolios. Especially when the markets are volatile, panic-struck people craved human connection instead of an algorithm.

The Vanguard Study also revealed that – 93% of investors working with human advisors said they wouldn’t switch to Robo advisors. On the other hand, 88% of Robo-advisor users said they would consider switching to human advisors for comprehensive portfolio analysis.

(Image Source- Vanguard’s Study on Robo or Human Advisors?)

It’s clear that – Most investors are trusting human advisors more than Robo advisors.

Robo advisors may be suitable to manage small investments. But when it comes to real market scenarios, most people would rather go with human advisors.

Let’s dig deeper into the topic.

Why are Robo Advisors not trusted by many investors?

As an investor, you must be aware of realistic market scenarios. The market can change quite often, thereby creating uncertainty.

Even though Artificial Intelligence can do unbelievable things, there are certain things that Robo-Advisors might not be able to do.

1. Flexibility and Personalization

Robo-advisors do claim flexibility and personalization, but there are limitations to it. The algorithm molds itself based on the questionnaire you answer.

That means the recommendations are suitable for investors like you- not you in particular.

Besides, most investors are not fully aware of their personality when they answer these quizzes. They may get confused and select unsuitable options.

In our experience, while answering such quizzes, most people often select options based on what they want to be and not based on who they really are.

For example, the majority of investors think they have an aggressive risk appetite. They assume that they can invest aggressively without getting intimidated by market volatility, but that’s not always true. Many investors panic-sell when their portfolio falls.

2. Robo Advisors Do Not Have Feelings

Why would feelings matter, you may ask?

Well, you are human and you have feelings. You are most likely to panic when the market falls and would need someone to talk to. Someone with experience, who handles market volatility.

Robo-advisors have no idea what to do when investors push the panic button. They have no feelings, hence, they cannot give real-time advice.

You have no one to manage your investments and your feelings on digital platforms.

On the contrary, human advisors can identify gaps in your portfolio. Also, They can assist you during market volatility, help you understand your risk profile better, and guide you to make suitable investments.

3. Limited Human Intervention

Who would you rather call? An experienced human advisor or a sales executive with limited knowledge?

Some Robo-advisors have the option to talk to sales executives or communicate with a chatbot. Both options, even though convenient, aren’t logical.

A sales rep or a chatbot cannot give you ‘real’ advice. They are following a script given to them. So while they may have answers to your basic questions, they cannot tackle complex portfolios.

There’s very limited human intervention, which can endanger your financial goals.

4. Algorithm Bias

Robo-Advisor algorithms only follow implicit values provided to them. It’s a piece of code designed after gathering limited and in some cases, biased data.

There are many reasons why an algorithm might reflect biased responses. Social agendas, financial revenue-sharing schemes (kickbacks), conflicts of interest, and many more.

Basically, the algorithm will only respond in a way it has been trained to respond.

The bottom line is Robo-advisors can kickstart your investment portfolio. You can create a simple portfolio with a small amount of investment within a few clicks. But when your investment portfolio grows and risk profiles expand (which is inevitable), these digital platforms cannot guide you any further. That’s why most investors even today, seek professional financial advice from humans, most of whom, are anyway equipped with digital platforms to enable ease of transaction.

Why Should You Choose Human Advisory Services?

1. In-Person Interactions

The major difference between Robo Advisory and Human Advisory is the conversation. Sure, Robo advisors listen to you too, but to a certain extent.

When you seek answers to complex financial queries, only human advisors can help you.

Human advisors can align your portfolio with your long-term financial goals. They can talk to you whenever you want any financial advice.

2. Sensible Recommendations and Credible Results

No advisor- neither human nor robot, can guarantee higher outcomes. In fact, they are not supposed to create an illusion of higher returns when it is clearly uncertain.

Nevertheless, human advisors can give you sensible recommendations which can deliver credible results.

For example, we believe that the stock market follows the economy. So, in the long run, as the economy grows, so will your investments, irrespective of everyday market volatility. All you have to do is wait, have patience, and not panic-sell anything.

These and more such recommendations may not be possible with Robo-advisors who may recommend a sell call in a falling market, when a stop-loss is triggered based on the algorithmic code. Thus, making you book a loss, which may have been avoided if you would have stayed invested.

3. Trust and Transparency

How much would you trust a predefined algorithm? At some point, it ought to deliver inconsistent results thereby losing your trust.

You don’t know what’s going on at the backend of Robo advisors. There’s no transparency.

Human advisors have nothing to hide from you. They can analyze your portfolio in front of you. They can pinpoint gaps and assess risk profiles. At the end of the day, you trust a person who talked to YOU about YOUR portfolio.

If you have any financial queries about your investment portfolio, VNN Experts are just a call away. Give us a call at +91 8408020995 to plan long-term financial goals.

Key Takeaway

If you are a new investor and would like to kickstart your investment portfolio, Robo-advisory might seem like an easy choice. However, relying completely on the algorithm will not help you achieve your financial goals.

There will come a time when Robo-advisors won’t address all of your questions. There’s a gap between what an algorithm can do, what’s really happening in the market, and your evolving risk appetite, which requires frequent portfolio reviews.

That’s why the data in the studies above show that many investors prefer to communicate with Human Advisors.

Human advisors can offer you suitable recommendations. You can communicate with them effortlessly and seek advice that aligns with your long-term goals.

You may want to read these 6 tips before choosing the right financial advisor for you.

Now, if you already have signed up for Robo-advisory, do not worry. You still have the opportunity to seek professional advice.

At VNN Wealth, we offer a thorough analysis of your investment portfolio and risk profile and help you set financial goals. Give us a call or send us an email whenever you are ready to take your investments to the next level.

Blogs Mutual Funds

What Are Small Cap Mutual Funds?

Post author By VNN Wealth
Post date September 1, 2022

Small cap mutual funds are the type of equity mutual funds that invest the majority of assets into small-cap companies. Companies from 250 and above rank on market capitalization fall under small-cap. These are relatively new companies trying to grow rapidly.

Compared to large-cap and mid-cap, small-cap companies are rather unstable and riskier to invest in. But small-cap funds may offer you higher returns than any other equity funds.

If your portfolio can take up some risk, and if you prefer returns over stability, small-cap funds are for you. Before you invest, below are some things that you need to know about small-cap equity mutual funds.

What is the Investment Regime in Small-Cap Mutual Funds?

As per the quarterly released market capitalization chart by AMFI (The Association of Mutual Funds in India), small-cap fund companies are ranked 250 and above. Fund houses follow SEBI’s guidelines to allocate at least 65% of total assets to small-cap companies. Fund managers analyze the market to decide whether to allocate remaining assets into large-cap, mid-cap, or other equity funds.

Top 4 Advantages of Small-Cap Mutual Funds

1. Possibility Of Higher Returns

As small-cap companies are in the process of expansion and diversification, there’s great potential for growth.

These companies, even though slightly unstable or riskier, may offer higher returns.

2. Stocks at a Reasonable Price

Some of the small-cap companies are underrecognized. The stocks of these companies have high growth potential. Investors can buy units at a reasonable price and earn a superior risk-adjusted return over the years.

3. Diversification

Small-cap funds can diversify your investment portfolio if you are willing to take some risk. Investors who have an appetite for risk and can trade off stability will benefit from small-cap funds. These funds have the scope to outperform large or mid-cap funds, thereby generating alpha in your portfolio.

4. Possibility of a Merger or an Acquisition

It is possible that a well-performing small-cap company will get merged/acquired by a larger company. A merger or acquisition can boost the value of a small-cap company. This opportunity may deliver more than expected returns.

4 Important Points to Consider Before Investing in Small-Cap Mutual Funds

1. High Risk

Small-cap companies may or may not perform well. There is also a chance of these companies shutting down or going into financial ruin. Invest in small-cap funds only if you are aware of the higher risk factor associated with them.

2. High Volatility

Small-cap funds can boost up overnight or can go down drastically. The fluctuations in price range can be rapid, making these funds highly volatile. To stabilize your returns and minimize risk, we recommend starting a SIP with small-cap funds. SIP may safeguard your returns during market ups and downs.

3. Lack of Transparency

Small-cap companies may or may not publish information about their performance. As an investor, you cannot get enough information about the small-cap company compared to large or mid-cap. In most cases, fund managers do the research to shortlist small-cap companies for the funds. But you might not receive these updates, which creates a lack of transparency.

4. Expense Ratio

Some fund houses may charge higher expense ratios to handle highly volatile small-cap funds in your favor. Compare the expense ratio with the net returns you might earn. Note that a higher expense ratio can be beneficial in terms of total returns. In some cases, even if the expense ratio is high, the returns are also higher. When comparing the expense ratio, mapping it with returns will give you a better idea of the scheme.

Taxation In Small-Cap Funds

The taxation on capital gains earned after redeeming the small-cap funds is taxed similarly to all equity funds. It is based on how long the investment was held.

Investors have to pay a 20% tax on Short Term Capital Gains (investments held for less than 12 months). And only 12.5% on Long Term Capital Gains above INR 1.25 lakhs (investment held for more than a year).

Who Should Invest in Small-Cap Funds?

You should only invest in small-cap funds if you have a high-risk appetite and at least 5 years of the investment horizon. Your portfolio must be able to tolerate small-cap volatility without causing severe losses. Allocation to small-cap funds should ideally be restricted to 10% of your overall equity portfolio.

Conclusion

Small-cap funds diversify your portfolio by allocating assets to growing small-cap companies. Investors are most likely to receive higher returns with small-cap funds. We would recommend only 8-10% of your total investment in small-cap funds. Large-cap funds are supposed to be the core part of your investment whereas small-cap can be the satellite.

Note: Core and Satellite is a portfolio construction strategy to balance risk, returns, liability and taxation. The core investments are passively managed and are safer. Satellite investments are actively managed and may have slight risk associated with them.

To understand more about equity funds and how to construct your investment portfolio, get in touch with VNN Wealth Experts.

Blogs Mutual Funds

What Are Mid Cap Mutual Funds?

Post author By VNN Wealth
Post date August 23, 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.

What Are Large Cap Mutual Funds?

Post author By VNN Wealth
Post date August 22, 2022

Large cap mutual funds are the type of Equity Mutual Funds in which most of your invested amount is invested in large cap companies. These are the top 100 companies in terms of market capitalization and are well-known in their domain.

As these companies have a great track record, you may receive promising returns over a period of time. And most importantly, large-cap funds are the safest among all equity MF schemes.

Here’s everything you need to know about large-cap funds before you invest in them.

What is the Investment Regime in Large cap Mutual Funds?

Large-cap companies are ranked in the top 100 on the market capitalization chart released quarterly by AMFI (Association of Mutual Funds in India).

Mutual funds schemes follow this chart to allocate your invested amount to stocks of appropriate companies. As per the Securities and Exchange Board of India (SEBI) regulations, Large-cap funds must invest at least 80% of total assets in large-cap companies. Fund managers use analytics and experience to allocate remaining assets to either small or mid-cap companies.

Investing in Large-cap funds has many advantages, some of which are listed below.

Top 5 Advantages of Large Cap Mutual Funds

1. Low-Risk and Stable Investment

Large-cap companies usually have a consistent track record. Being financially stable, these companies offer stability to investors as well. It’s very unlikely for these companies to drastically fluctuate with market conditions, making them safer to invest in.

2. Ease of Information

Large-cap companies are well-established. The financial statements, profitability, and performance of these companies are easily available for you to check. Having thorough information about these companies can help you make a good investment decision.

3. Capital Growth

Stock prices of large-cap companies are not as volatile as mid and small-cap stock prices. If you keep the investment horizon for 5+ years, large-cap funds offer higher capital growth.

4. Liquidity

It’s quite easy and faster to liquidate your assets from large-cap funds. Most equity mutual funds do not have any lock-in period, except for ELSS.

Know more about types of Equity funds.

5. Fight Recession

The effect of recession or falling market is relatively lesser in large-cap stocks. When such a scenario hits, large-cap investment can safeguard your financial goals.

4 Important Points to Consider Before Investing in Large Cap Funds

1. Align Your Financial Goals

Always make sure to match your financial goals with the fund’s goals. Every mutual fund has a fund manager to handle the investments. Make sure the goals set by fund manager for the scheme are suitable for you.

2. The Investment Period

Large-cap mutual funds offer better results for a longer investment period. If you are planning to invest in large-cap, keep your investment horizon between 3-5+ years. You can start a long-term SIP for mutual funds.

Know all the benefits of SIP.

3. Expense Ratio

The expense ratio is a fee charged by the fund house to handle your investment. Please note that a lower expense ratio does not mean higher net returns. Compare the expense ratio with respect to the performance of the fund.

4. Fund Managers

See the investment history of the fund manager to track their success rate. One of the reasons some mutual funds perform better than others is the fund manager. They use industry knowledge and analysis to your benefit.

Tax Implications

As large-cap funds come under equity mutual funds, the taxation will be the same as any other 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 large-cap 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%.

Who Should Invest in Large Cap Funds?

Investors who are looking for long-term, low-risk, and stable investments can invest in large-cap funds.

Large-cap funds can be a good start for new investors who are not comfortable with market volatility or investors with a moderately aggressive risk profile.

Conclusion

Large-cap funds can turn out to be a valuable investment for your long-term goals. If you have just begun investing and want safer investment options, definitely consider Large-cap funds.

You can also start a SIP and gradually build wealth to achieve your financial goals. The good thing with most equity mutual funds is that there is no lock-in period.

VNN Wealth experts help you build a sustainable investment portfolio. Reach out to us and we will get back to you with suitable advice.

Also Read
What Are Small Cap Mutual Funds?
What Are Mid Cap Mutual Funds?

Blogs Mutual Funds Personal Finance

Top 5 Benefits of SIP Every Investor Must Know

Post author By VNN Wealth
Post date August 18, 2022

Small but consistent efforts can magnify results over the years. That’s exactly what SIPs are.

SIP or Systematic Investment Plan is one of the safest and smartest investment methods. It’s convenient and consistent, and you can start investing with only 500 INR per SIP cycle.

We can say that SIP and long-term gains are pretty much synonymous with one another. It’s perfect for beginners as the longer you stay invested, the more you’ll gain. It’s never too late to start a SIP.

Besides, one should always have a couple of SIPs to take advantage of compounding and rupee cost averaging.

Why do financial advisors recommend it and what are the advantages of SIPs? Let’s find out.

What is a Systematic Investment Plan?

A Systematic Investment Plan or SIP is one of the simplest methods to invest a fixed amount of money in your choice of mutual funds at a regular intervals. You can invest money on a Monthly, Quarterly, or Semi-annual basis based on your preferences. It can be done for a specific period and allows you to diversify your investment portfolio with a smaller amount.

Top 5 Benefits of Mutual Fund SIPs

Whether to go with a lump sum amount or start a SIP has always been a question among new investors. While both methods have their own benefits, SIPs are more disciplined.

Why? Because you put a certain amount of money aside each month without thinking about market ups and downs. It doesn’t affect your decisions. So, in the long run, you can see your portfolio grow.
For a lump sum investment, you need a larger amount at once. But with SIPs, you only need a smaller amount per month to start.

1. You Can Start Investing with a Small Amount

You can start SIPs from as low as INR. 500 per month. Many mutual funds allow you to invest in installments as low as INR. 500-1000. Anyone can start an SIP without worrying about funds. You can increase the monthly amount whenever you have more funds to put aside.

By investing a small amount each month, SIPs gradually build your wealth for the future.

2. SIPs Encourage Disciplined Investment and Savings

Quite often, financial goals remain inconsistent due to irregular investments. SIPs encourage you to have disciplined investment to keep building your wealth.

You can set your bank account to auto-debit SIPs each month. So even if you forget about monthly installments, auto-debit can take care of it. Disciplined investment is one of the most important pillars to meet your financial goals.

3. SIPs Aren’t Necessarily Relevant to Market Timing

Many investors spend hours analyzing market timing to find the perfect day to invest money. While in some cases, it can bring high returns; you can’t get lucky all the time.

Mapping the market timing with your investment can affect your decisions. With SIP, you simply invest a fixed amount without worrying about market volatility. In fact, SIP is a straightforward method to deal with market ups and downs.

4. SIPs Enable Rupee Cost Averaging

Rupee Cost Averaging is another benefit of investing in SIPs. It averages out your investment by adjusting the purchase of units based on the current price (Net Asset Value).

In simple words, it buys fewer units when the NAV is high and more units when the NAV is low. You don’t have to worry about the market rising or falling. Averaging takes care of adjusting investments and boosting returns.

5. You Can Benefit From The Power of Compounding

Compounding can exponentially increase your returns through mutual funds. It’s a simple process of re-investing the returns earned on your principal invested amount back into the funds until maturity.

Even if you invest INR. 500-1000 each month, you can take advantage of compounding. This process provides even better returns and growth.

For example:

Let us say, you started an SIP of INR. 5,000 per month at an average return of 12% per annum. By the end of the year, your invested amount will be 5000 x 12= INR.
60,000, and the profit earned will be INR. 7,200.

Now each year, you keep reinvesting the profit on investment. This is how your returns will look over the years.

In 25 years, a SIP of 5000/month with a 12% compounding return can turn your INR. 15,00,000 into INR. 79,80,000.

Note: This is an example. The actual scenario might vary with market changes.

Now let us say, Rhea, Rohan, and Sakshi are three friends who started a SIP of INR.

5,000 with 12% compounding interest till age 60. Rhea started investing at age 25, Rohan at 30, and Sakshi at 35.

By the time Rhea, Rohan and Sakshi turned 60 years old, Rhea had built more wealth than Rohan and Sakshi.

Notice how Rhea only invested INR. 3,00,000 more than Rohan and INR. 6,00,000 more than Sakshi in over 10-15 years but her total corpus grew INR.

1.5 crores more than Rohan’s corpus and INR. 2.2 crores more than Sakshi’s corpus. That’s the benefit of starting early and the true power of compounding.

Tip – If you start early, the power of compounding can turn your lakhs into crores in the long term.

Key Takeaway

With SIPs, it is certainly possible to create a large corpus over the years. In fact, it’s one of the best ways to achieve your financial goals. You can invest in various types of equity mutual funds to diversify your portfolio.

Whether you are just starting your career or nearing retirement, SIPs are one of the safest investment options. You can explore the stock market and other asset classes, but always keep a couple of SIPs in your portfolio.

Now that you know why SIPs are so important, take a pen and paper and choose the right mutual funds. Or simply call VNN Wealth experts to help you build a solid portfolio.

7 Types of Equity Mutual Funds to Invest in India

Post author By VNN Wealth
Post date August 17, 2022

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.

Best Mutual Funds to Invest in 2022

Post author By VNN Wealth
Post date August 17, 2022

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.

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.

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.

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.

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.

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.

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.

Also Read-

Top 5 Benefits of SIP Every Investor Must Know

7 Types of Equity Mutual Funds to Invest in India

Blogs Mutual Funds

Types Of Mutual Funds In India

Post author By VNN Wealth
Post date August 10, 2022

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.

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