How to become a more confident female investor and Planner - The Mutual Funds Way

Discussion in 'Money Matters' started by rachaputi, Aug 5, 2015.

  1. rachaputi

    rachaputi Platinum IL'ite

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    Hi,

    Thanks for response shown on first part of my series of postings to follow.

    As we are done with right type of insurance, in this session I will concentrate on reasons/facts why we need to choose Mutual Funds for long term investments.

    When we talk about equity, we have 2 categories available - namely shares and Mutual funds.

    Let us see why mutual funds come up as best option for individual investors.

    Shares Vs Mutual funds

    1. Assume, you are very small investor and can save say 1000 per month for long term and you done lot of research and found say 10 shares are very very good and can make lot of money if we invest regularly for a long time. But you can’t invest in all those 10 shares, because usually cost is very high even if you buy one each every month. Result is you will end up with buying 1 or 2 shares. Meaning if those 2 shares make losses you will end up with losses. There is no diversity in shares if you have very small amount of money to dispose every month.

    If it is a mutual fund, fund usually have more than 50 shares and whatever the amount you invest(usually min amount is 500) will distributed as per the fund portfolio and there will be lot of diversification and the chances for making losses are very very less though some of the shares individually make some losses.

    2. With shares, research need to be done by individual with very very limited knowledge and data and chances for making mistakes far high compared to Mutual funds. On the other hand mutual fund will be lead by very professional with a very big research and risk analysis team to take care of your investments.

    3.Most of the times, individuals invest in shares based on data which is already published and can expose to inside trading if any. Other hand, mutual fund companies used to get inside information of companies before they got published and react proactively rather than reactively.

    4. With shares, continuous monitoring of issues across the globe need to be performed and which is very unlikely with individual investors. Other hand mutual fund houses, constantly monitor every action across the globe with proper data and knowledge.

    5. Shares trading involves lot of emotional actions but with mutual funds its completely eliminated and it runs in auto pilot mode.

    6. Shares include lot of brokerage or transactional charges other hand mutual involves fund charges and which are usually far less compared to shares trading.

    7. Shares usually industry specific(like banking, chemical, pharma..) but mutual funds are very very diversified(usually they have shares across all industries with very little amount).

    8. Demat account is required but not required for mutual funds.

    With above back ground to choose mutual funds as best equity asset class for small individual investors, we will check how mutual funds can be used for long term investments(5+ years) in next post.

    Questions are very much welcome.

    Credit&Courtesy,
    Mr. Thavva friendssmiley
     
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  2. upfsabari

    upfsabari IL Hall of Fame

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    Hi Mr. Thavva,

    The information you provide is really valuable..

    I want to save Rs.2000 every month for another 3 years and then withdraw it. Suggest me some mutual funds so that I can gain maximum benefit..
     
  3. rachaputi

    rachaputi Platinum IL'ite

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    @Hakunamatata
    @predective

    Hi,

    As the timeframe is not long enough to choose a mid and small cap fund, I could not stand next by your decision. If we see the history of returns of Indian equity market since its inception, we don’t have any 5 years strap do not have negative returns with balanced fund but we have more than couple of instances where we have negative returns with mid and small cap funds with 3 years’ time frame.
    That to if it is the starting of the investments with equity and someone faces losses they will have 2 things may hit them badly. First is they will have money loss and the next big one is they will exit equity and to me it’ s the biggest loss anyone can have in an individual investor financial life.

    To me mid cap small cap should not be the core investment and it always play the role of satellite.

    Thanks
     
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  4. rachaputi

    rachaputi Platinum IL'ite

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    Thanks for following my series of post on Mutual Fund investments.

    With the previous post back ground of why mutual funds suits better for individual investors compared to direst shares, I try to deal with Long term investments in this post.

    Below are the suitable conditions to choose Large cap mutual funds.

    1. The time frame is above 5 years
    2. You understand that, market moves up and down as A part of parcel of its journey. Do not bother about. Just keep on invest.
    3. Ready to invest through systematic investment plan every month(even the amount can be 500 per month)
    4. expected returns - 12% (It is not guarantee on paper, but our wisdom with 30years of history proves it is above 12% for a period above 5 years)

    If you invest 100 in a stock market financial wisdom suggest you to put around 60% in large cap funds to form this category as core strength of your investments.

    How to choose:

    There are so many ways of selecting this. The best way I found is using fund selector tool in valuereaserchonline.com

    URL: https://www.valueresearchonline.com/funds/

    In Fund Performance search: select below:

    Top-10
    Open-ended
    Equity Large Cap
    5-Years

    And click on GO

    Select any fund in that list with 4 or 5 stars and invest for a long term to create wealth. I just tried before trying this post and I found below. Choose which ever you like. All are good.

    UTI Equity Fund -- 5years returns- 15.92%
    ICICI Prudential Focused Blue-chip Equity Fund -- 5years returns - 14.57%
    UTI Opportunities Fund -- 5years returns -- 14.40%
    Axis Equity Fund -- 5years returns - 12.79%
    Franklin India Focused blue chip -- 5years returns - 12.3%

    Compound Interest note this point

    Always invest in GROWTH OPTION. Never choose DIVEDEND OPTION for creating wealth.

    Questions welcome

    Credit&Courtesy
    Mr. Thavva friendssmiley
     
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  5. rachaputi

    rachaputi Platinum IL'ite

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    @upfsabari

    Hi,

    Any time less than 5 years and above 3 years should sit in balanced funds. These are expected to generate a returns of 12% post tax. You can choose below 2 balanced funds. Invest 1000 each through systematic investment plan.

    ICICI Prudential Balanced Fund - Direct Plan- Growth Option ---- (https://www.valueresearchonline.com/...schemecode=686)
    HDFC Balanced Fund --- Direct- growth Option --- https://www.valueresearchonline.com/...schemecode=844

    Happy Investing!!!!!

    Thanks
    Thavva
     
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  6. joylokhi

    joylokhi Platinum IL'ite

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    Hi rachaputi,
    thanks for this very useful thread. I am a regular investor since 7 to 8 years, and i find your approach very good and balanced. Can learn a lot from this. Thanks and happy investing to all.
     
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  7. rachaputi

    rachaputi Platinum IL'ite

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    @joylokhi

    Thank you so much for stepping in joylokhi. Actually the credit goes to Mr. Thavva. Glad that even a 7 to 8 years investor acknowledging his efforts ...Thanks for following the post....Let us keep continue our happy investing long!!!!!!!
     
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  8. joylokhi

    joylokhi Platinum IL'ite

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    @rachaputi,
    Yes, sorry to have not mentioned Mr. Thavva. Since the thread was by you, i replied to it. I am sure many will be benefited by both your contributions. Thanks again.
    Ever since the markets are very volatile, i have stopped investing/trading in equity directly and even mutual funds - for about 10 months now. Only recently the new fund offering of Axis bank equity saver fund looks promising and i put in a small amount(Rs.10000/-). Looking forward to more information from you.
     
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  9. rachaputi

    rachaputi Platinum IL'ite

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    @joylokhi

    The best time to invest and get maximum benefits is when the market is volatile and it is going nowhere(Buy when everyone is selling and sell when every one is buying). Never stop you SIP by seeing the market movement because no one can predict it. The best way to get maximum benefits from the market is keep on invest at all market levels with SIP route and cost averaging will automatically took place and you will end up with making profits over a long period.

    Coming to NFO, never ever invest in NFO because you don’t know the history, the caliber of fund manager and its portfolio. We have numerous number of proven funds already available for all types of investments. The best choice is the fund which have the track record of minimum 5 years and performed above the bench mark in all market conditions.

    Happy Investing!!!!!

    Thanks
    Thavva
     
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  10. joylokhi

    joylokhi Platinum IL'ite

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    @rachaputi - I had invested thro' NFOs earlier and they have yielded good results over a three year period. However i think you are right, there is no guarantee and it could work either way. Other cases i had gone for diversified equity known funds and that too lumpsum. I have yet to try the SIP route although there were many suggestions. It seems a good thing to do when markets are not good. Thanks again for your feedback.
     

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