What is Systematic Investment Plan (SIP)?
SIP refers to periodic investment in an MF. In this option, you commit to invest apre-decided amount, at regular intervals, and you get allotted Units based on an MF’s NAV.E.g. Suppose you do an SIP of Rs. 1,000. If, for the 1st month its NAV is Rs. 15, you get66.67 units. For the 2nd, the NAV is Rs. 25, so you get 40 units. For the 3rd, the NAV isRs. 20, you get 50 units. At the end of 3 months, you have invested Rs. 3,000 and received156.67 units at an average NAV of Rs. 19.2.
What is a direct plan?
A Direct Plan means you investing directly thru' an AMC/MF website. As there is noDistributor involved, returns generated by this plan will be higher by the percentage feespaid to a Distributor. We, at MoneyWorks4me, encourage investors to invest in Direct Plans.
What is a regular plan?
Regular Plan is when you invest in an MF scheme through a Distributor or Broker. This meansyou will end up paying some fees to the Distributor. The fees are directly paid by the AMCto a Distributor. For you as an investor, it is reflected in the lower NAV values, andhigher Expense Ratio than a Direct Plan
What is an Asset Management Company (AMC)?
It is the Fund House or the company responsible for managing investors’ money, and in turn,all the MF schemes.
What is an Asset under Management (AUM)?
The money collected by an MF Scheme is invested across asset classes like stocks, debtFunds, gold and cash. The market value of these investments at any given time minus the MF’sliabilities is known as the Fund’s AUM. (E.g. If a Fund’s value of investments is Rs. 100 Crand liabilities Rs 5 Cr., then AUM is Rs. 95 Cr.) Though, a large AUM denotes a Fund’spopularity and success, it also means restrictions on investing (Fund will have to investmainly in large companies) and difficulty in replicating past high return performance.
What is Net Asset Value (NAV)?
It is the price per unit of the MF scheme. On any given day, NAV is the price at which anyinvestor invests in an MF scheme. NAV = [the market value of all the securities held by thescheme minus its liabilities] ÷ the number of units. Since, market value of securitieschanges every day, NAV of a scheme also changes every day. Similar to a stock price, a highor low NAV does not affect our investment decision.
What is a Benchmark Index?
A Benchmark is a popular index like the SENSEX, NIFTY or BSE 100, against which a Fund’sperformance is gauged. A Fund is supposed to choose a Benchmark based upon themarket-section it invests in. E.g. a Mid-Cap Fund may use NSE Midcap Index as its Benchmark.It makes sense to invest in an MF, only if it has consistently beaten its Benchmarkperformance over a 3-5 year period.
What is Expense Ratio?
The Expense Ratio is the fee charged by a Mutual Fund for managing its investors’ money. Itis shown as a percentage of the Assets Under Management (AUM). E.g. if you invest Rs. 10,000in a Fund with an Expense Ratio of 1.5%, then you are paying the Fund Rs. 150 to manage yourmoney. As a general rule, you are told to avoid Funds with high Expense Ratio. However, itcan also turn to be a good investment, if it consistently generates excess returns (Alpha)over its Expense Ratio.
What is Load or No-Load Fund?
Load is the fees charged for buying (i.e. Entry load) and selling (i.e. Exit load) MF units.SEBI has scrapped the Entry load wef August 1, 2009. Some Funds may charge Investors an Exitload only on early exit (e.g. within a year of investment) to encourage long-term investmentbehaviour.
What is Rolling Return/Alpha?
Rolling Returns consider performance on every day or week (or any specified frequency) of adefined period, and hence, tell you how you would have fared regardless of when you chose toinvest. E.g. A monthly five-year Rolling Return is return from 1-Jan-2013 to 1-Jan-2018,1-Feb-2013 to 1Feb-2018, subsequently for all months. For 3-yr or 2-yr rolling, the yearchanges respectively. We advise our users to look at Rolling Alpha, because it allows you toevaluate the consistency of a Fund’s performance over time - including the ups and downs ofmarket cycles.
What is Growth Scheme?
Choosing growth option means you will not receive extra units for Dividend declared by theFund. Instead, the amount will stay invested in the Fund, thereby compounding your returns.Choose this option, if you prefer capital appreciation over regular income from yourinvestment.
What is Open-ended Scheme?
An Open-ended Fund or Scheme is one that is available for subscription and re-purchase on acontinuous basis. These schemes do not have a fixed maturity period. Investors canconveniently buy and sell units at Net Asset Value (NAV) related prices which are declaredon a daily basis. The key feature of open-end schemes is liquidity. The opposite is closedended where the fund cannot be sold very easily.
What are the Color-coded tags or buttons that accompanyeveryfund?
Every fund is assessed on the following:
How do you select the fund for SIP?
Select the fund that is Green on Performance which showsit hasconsistently outperformed the index. Select one with ahigh average 3-year rolling returns - the number in the first button. And select one with aGreenrating on Quality-thesecond button.
How do you find the best funds within acategory?
Use the FundsScreener and select the category. It shows thefunds with Green on Performance and Quality right on thetop. The ones with the higher average 3-year rolling returns are ranked the highest. Fundswith lessthan 5 yearsreturns history are colored Grey on Performance. Since the track record is not for anadequatelylong period theyfeature lower in the list.
How do you build a portfolio with funds?
Build a well-diversified portfolio with funds thatassures youof a stable growth through market and economic cycles andfunds that enhance your portfolio returns over the long run.
- Core Funds: Choose from Large cap, Large and Mid cap and Flexicapfunds.
- Booster Funds
- Choose from Mid and Small cap funds.
- Select a Sector or Thematic Fund that is likely to outperform in the long term.
How do you analyze your current fund portfolio?
Use the Fund Portfolio Analyzer, Sher-ya-Billi to checkif yourportfolio will deliver healthy returns or disappointyou. Go to FundPortfolioAnalyzer. You can also upload details of your funds in the Portfolio Manager and seethereport on this page.
What must you be careful about when add a new fund toyourexisting portfolio?
When adding a new fund check how different is the fundcomparedto your portfolio by using the link in the Rightallocation box on the Fund Decision Maker.
What are the main problems in a Fund Portfolio?
Most investors have more, many more funds that theyshould-overdiversified. This tends to reduce returns. Manyinvestors have more of the same i.e. they have funds that have very similar portfolios andhence thefund portfolio isnot well-diversified. Either there are too many large cap dominated funds or far too manymid andsmall cap funds. Whatyou require is a good, balanced mix. Finally investors don't know when to exit a fund andend upcarrying it even thoughthe future upside potential is very low.
