How mutual funds should be considered for long-term investment?

When it comes to investing for your future, there are a lot of investment vehicles to choose from. Although there is no specified formula or handbook that investors are expected to follow, there is one general rule that impacts your mutual fund performance: Invest for the long term.

When you invest for the long term your mutual fund performance harnesses the power of compounding. When you make a mutual fund analysis, your age and financial responsibility play an important part in your investment decisions. Since youngsters can afford to have an aggressive stance in investing as they have fewer financial responsibilities such as retired parents, a spouse, children, or car or home loans to pay off, they are encouraged to start their investments early. A young individual thereby, is able to withstand the market swings. Moreover, investing in equity for the long term allows you to take advantage of compounding in your mutual fund performance (i.e., the returns begin earning returns thereby adding to the principal).

Compounding involves two factors that make it work: the reinvestment of earnings, and time. The more time you give your investments, the more chance to build your wealth.

Although there have been ups and downs, historical mutual fund performance over the last 5 years and beyond needs to be reviewed before you align your portfolio for the long term.

Let’s understand the benefits of investing with a long term horizon:

Long term investments carry specific financial goals and give options to investors to invest small amounts at regular intervals per month which has the potential to provide long term risk adjusted returns. An SIP is one of the best investment vehicles.
When you make a mutual fund performance comparison, the rate of returns is likely to fluctuate and remain volatile. However in long-term investments have potential to provide risk adjusted returns.
You have the potential to correct investment mistakes in the long term. Anyone can be a long-term investor; you don’t have to be an investment expert to invest in well-run businesses for the long term. While it is natural that you will make mistakes; even the best investors have been wrong. But a regular review of mutual fund performance indicators every six months can help correct at least some of these mistakes. In addition, it is important to hold on to investments that have historically demonstrated strong growth.

Why an SIP in mutual funds is one of the best route to avoid market volatility?

The meaning of SIP in a mutual fund is Systematic Investment Plan. An SIP in a mutual fund is a mode of investing that helps you to invest regularly in order to meet your financial goals effectively. It allows you to invest the same amount, in a particular mutual fund scheme, at a specified frequency. For example, it may be daily, weekly, fortnightly, monthly, or quarterly depending on your choice.

Let’s look at a few interesting facts on starting an SIP in mutual funds.

Market timing becomes irrelevant:
One of the biggest challenges in equity investing is; when to invest? The other big question is, where to invest? While, mutual fund investment plans solve the issue of where to invest, an SIP in mutual funds due to its regular frequency, helps us overcome the problem of when to invest. the equity market is volatile and reaching new heights and lows. Disciplined Periodic investment can help you ride this movement and build wealth. When the markets are rising, it may not be wise to invest large sums at one go. An SIP in a mutual fund also involves disciplined investing irrespective of the state of the market as SIP investors buy even when the markets are low. This makes timing the market irrelevant, therefore lessening your worries about the state of your investments during market swings.

Reduces the average cost:
In an SIP in mutual funds one starts investing a fixed amount regularly. Therefore, one ends up buying more number of mutual fund units when the markets are down and fewer mutual fund units when the markets are rising. This is called rupee-cost averaging. So you can take of all your necessary expenses and not miss out on investing.

Generally, those who are not adept at managing the swings of the market would stay away from buying when the markets are down. They mostly resort to investing when the markets are rising. When you start an SIP, it brings discipline to our portfolio as SIP investors buy even when the markets are low, which actually is the best time to buy.

Does not strain our day-to-day finances:
An SIP in Mutual Funds investments helps us to invest in small amounts (starting from as low as Rs. 500/-), as against larger one-time investment required., if we were to buy equity stock directly from the market. This makes investing easier as it does not strain our finances especially in difficulr times like pandemic. SIP, therefore, becomes one of the convenient investment options for a first-time investor. You can use a SIP mutual fund calculator to assess how much you need to invest to achieve your future goals.

Those with surplus savings might opt for a larger SIP amount.

However, it is advisable to research before starting an SIP in a mutual fund in India. Do not select a fund merely on rankings and ratings which does not guarantee the performance of an SIP in a mutual fund. While investing, you can set a long-term approach and select the fund that matches your investment objective and financial goals or needs. Do consult your financial advisor for any further assistance.

Evaluating Debt Funds: Understanding Types of Debt Funds and the risks involved

Debt funds are mutual funds where the underlying assets are fixed-income securities that could range from bonds, treasury bills, Government Securities and money market instruments.

There are different types of Debt Funds in mutual funds: overnight funds, liquid funds, ultra-short duration funds, short-duration funds, corporate bond funds, credit risk funds, gilt funds, fixed maturity plans, long duration funds and dynamic bond funds. Debt Funds are relatively less volatile than equities. However, they are subject to different risks. Credit and interest-rate risks are the primary types of risk in debt funds. Credit risk is the risk of default of the issuer of the security in repaying the principal and/or interest, it occurs, for example, when a MF scheme invest in low-credit quality bonds that carry high credit risks. An interest rate risk is when the bond prices fall due to an increase in the rates of interest, thereby exposing the investor to losses. To avoid interest rate risk, investors can consider short-duration funds or liquid funds. To avoid credit risk, investors can consider high-rated corporate bonds or gilt funds that invest in government securities.

Let us understand in detail the different types of debt funds in India:

Overnight Funds Overnight fund is a type of debt fund that Investment in overnight securities having maturity of 1 day.. These funds are often considered safe investments given the short duration, where interest fluctuations are minimal.
Liquid Funds Liquid fund is a type of debt fund that invests in instruments with a maturity period of less than 91 days. These funds are ideal to park one’s emergency funds as they are liquid and can be redeemed as per need.
Ultra Short-Duration Funds Ultra Short-Duration Fund is a type of debt fund that invests in debt and money market instruments such that the Macaulay duration of the portfolio is between 3 months – 6 months.. Such funds carry a relatively lower interest rate risk than long-duration funds.
Short Duration Funds Short duration fund is a type of debt fund that invests in debt instruments such that the Macaulay duration of the portfolio is between 6 months- 12 months . these funds are typically not subject to high-interest rate fluctuations.
Corporate Bond Fund Corporate Bond Fund is a type of debt fund that invests at least 80% of their corpus in the highest-rated corporate bonds.. However, investor need to assess the credit risk associated with downgraded ratings.
Credit Risk Fund Credit Risk Fund is a type of Debt fund that invests 65% of its assets into debt instruments rated below the highest credit quality. Unlike other types of debt funds that are focused on determining the duration, these funds vary their proportion in high interest yielding low-rated bonds. Hence, they may be relatively riskier than other debt funds.
Gilt Funds Gilt Fund is a type of debt fund that invests at least 80% of their corpus in government securities (G Secs) across maturities. They carry relatively low credit risk.
Fixed Maturity Plans (FMPs) Fixed Maturity Plans is a type of close-ended debt fund that can only be invested in the initial offer period. They are locked in for a specified tenure.
Long Duration Funds Long Duration Fund is a type of debt mutual fund that invests in long term instruments that includes G Secs, Bonds, Debentures etc, such that the Macaulay duration of the portfolio is greater than 7 years.
Dynamic Bond Funds Dynamic Bond Fund is a type of debt fund that invests in instruments varying across different issuers and maturity periods. Depending on the environment, the fund manager takes a call to vary the duration/ credit risk depending on the fund’s objective.
By investing in debt fund which is invested in high credit quality instruments and investing in short duration, an investor can potentially reduce interest rate and credit risk. Longer duration funds can be opted for depending on the risk appetite and duration of the investment.

You Need a Fundraising Consultant

There are many benefits to working with the fund raising consultant not to mention the fact that you earn substantially more funds for your favorite charity organization. If you do not possess the proper skills of planning and working with local community leaders you may benefit greatly by hiring a fund raising consultant. This article looks at some key aspects hiring the right person or company for your project.

What Is a Track Record?

Obviously one of the first aspects to consider is how well established the fund raising consultant or company is within your community. Also you want to make sure that they do have a clear vision of where you plan to go in the next year, five years, and ten years down the road.

There Are Ready in the Door

The number one benefit of working with a fund raising consultant is the fact that they will often have open door relationships set up with many of the local private foundations in your area. Private foundations are set up to help area groups with their funds. However if you approach them inappropriately you may lose the opportunity to have their support.

Funds for Future Projects

The benefit of having well-established donors is that you will be set up to launch new projects with ongoing support already in hand. This type of relationship can be well handled by fund raising consultant, who knows there stuff.

Organization and Planning

Another wonderful benefit to the well-trained, fundraising consultant can bring to your organization or group is the fact that they will have the ability to work with each of you were volunteers to put them in the right positions of responsibility. This one fact will help you reap benefits many times over for future fund raising events.