Compounding is magic but, patience is the key

15 x 15 x 30

INR 15,000 SIP at an assumed CAGR of 15% for 30 years can give you return of INR 10 Crores upon maturity. 

Simply by increasing your tenure by 15 years one can get 10 times more return. The investment amount is INR 54 lakhs & the amount accumulated will be INR 10 Crores.

This is why compounding is so powerful. But do note that 15% CAGR means 15% average return over a period of time and not 15% annual return.  

One can experience a 20% return one year and -20% the next year. The average will be 15% over the period of time. Equity funds have beaten inflation and all the other asset classes in the long term (10 – 15+ years).

                                                                                Benefits of SIP Investment

 

 Rupee-Cost Averaging

When a fixed amount is invested regularly over a period of time through different market cycles, one can get more units when the price is low and fewer units when the price is high. This reduces the average cost of investment in the long run.

Levels out market fluctuations

Since mutual funds units are being bought regularly by way of SIP, short-term market fluctuations are leveled out. Also, one has to ensure they are not investing in a SIP way too regularly. For example, weekly or fortnightly. If one has a weekly or fortnightly systematic investment plan, they will look at their investments too often. The short-term ups and downs might affect their investment decisions, which can be avoided by a monthly systematic investment plan.

Disciplined Investing

By investing a fixed amount out of regular savings, one is forcing themselves to get used to a fixed investment pattern. This will help them build a corpus for their long-term financial needs. Money not invested often gets spent on consumption and compromises the long-term goals of the investors.

Simple and easy to monitor

With a regular monthly investment, tracking of investments becomes easy and convenient. Also, SIP investment has become much simpler just at the click of a button.

Flexibility

A SIP can be stopped any time at one’s convenience. The SIP can be paused, or the SIP amount can be increased or decreased at any time during the SIP’s tenure.

Long-term gains

SIP gives return only over a period of long-term. Its important one sticks to an investment for at least a period of 10 years for higher returns. Patience is the key to success. Stay invested for long to earn higher returns. Focus beyond returns or performance & focus up on Goal Achievement.

“Compound interest is the 8th wonder of the world. He who understands it earns it and he who doesn’t pays it.” – Albert Einstein 

The value of the investment keeps growing at a geometric rate (always increasing) than at an arithmetic rate (straight-line). Your money keeps on multiplying over a period of time.

Be Smart, Be Wise & Act Now as its in your own interest. Instead of opting for Direct Plans focus on Regular Plans & look in for ethical, honest, unbiased professional.

Choice is yours, as money is yours. But, remember wealth & health both require professionals. 

 Warm Regards,                             

      Varun Vaid                                               

           

 +91-9814612907
 +91-0172-4623907

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Best time to redeem Mutual Fund Investments

Dear Investor,

Quite often we at Master Mind Financial Advisory come across with a question that what is the best time to sell our mutual fund investments. In this newsletter we have addressed our revert for your kind perusal.

• Your financial goal is falling due for fulfilment:

For example, you invested in mutual fund schemes to finance the higher studies of your child. In the next six months, your child is applying for a post-graduate programme. You should start redeeming your mutual fund investments under such circumstances to fulfil your goal.

• When your asset allocation has deviated significantly from your original allocation:

For instance, you originally invested 60% of your investable corpus in equity mutual funds, 30% in fixed income instruments, and 10% in gold. But last month you discovered that the proportion of your equity assets in your portfolio has gone up 80%. Under such circumstances, you might book some profit in mutual funds and reduce the weight of equity assets to 60%.

• When mutual fund schemes in your portfolio have been consistently underperforming their benchmark and peers:

You recently found that a mutual fund scheme in your portfolio has been underperforming its benchmark and the category peers consistently across time periods: 5-years, 7-years and 10-years. Perhaps this is the time to eliminate these schemes from your portfolio and replace them with better alternatives.

• The fundamental attributes such as risk profile, investment preferences of the schemes have changed:

Assume, after the implementation of SEBI’s reclassification norms, a mutual fund scheme decided to convert its mid-cap oriented scheme in a multi-cap oriented scheme. You being an aggressive investor, the fund might have become unattractive to you. Under such circumstances, you might redeem a mutual fund scheme.

At Master Mind Financial Advisory we believe it’s not only important to carefully select the mutual funds but to know which funds suit your portfolio best after availing services of an advisor. 

Before you invest in mutual funds, you should know: 

• The age bracket you are in

• Your current financial health

• Your risk profile

• Follow advice of an unbiased advisor

• The estimated ballpark figure for your financial goals

• Time horizon in hand before financial goals befall

• Chart out a personalised asset allocation chart, which is done by the professional

• Performance track record across timeframes and market phases to invest in best mutual fund schemes, where in expert will be better guidepost.

Aren’t sure which mutual fund scheme you should invest in? This is where a professional plays a vital role. The key to your investment success is quality advice and astute selection of mutual fund schemes by an advisor. You should choose your advisor after due diligence only.

Cost of Investment in Mutual Funds are expected to reduce

Dear Readers,

Earlier scenario for Mutual Fund houses was difficult as far as business beyond, Metros and tier-1 cities. It changed over a period of time. In the recent past, B15 cities have recorded faster growth as compared to that recorded by T15 cities. 

As per the AMFI (Association of Mutual Funds in India) data released for February, contribution of B15 in the Assets under Management (AUM) of the mutual fund industry grew by 41.7% as compared to that during the same time last year. Between February 2017 and February 2018, industry’s total AUM grew at 25.3%.

The rationale behind is falling interest rates in bank deposits and subdued performance of gold and real estate. Mutual fund houses are reaping the benefits of various investor education initiatives. 

Reaching out to investors from the smaller towns was always a challenge. To overcome this, Securities and Exchange Board of India (SEBI) allowed mutual funds to charge 30 basis points (bps) additional expense ratio on new inflows on them satisfying the following criteria:

New inflows from B15 cities shall be at least 30% of gross new inflows in the scheme.

Or

New inflows from B15 shall be 15% of the average assets under management (year to date) of the scheme.

Now as per recent amendment issued, SEBI circular dated 2^nd Feb, 2018, the capital market regulator decided to substitute T15 with T30 and B15 with B30 respectively in relevant places.

In other words, the reward of additional 30bps in the Total Expense Ratio (TER) will be given to a mutual fund house only if it garners the pre-specified percentage of total AUM from beyond the top 30 cities.  

The regulator is also going to push the mutual fund industry to further reduce its TER.

Usually bigger schemes enjoy economies of scale; but when the AUM decreases, they start losing out economies of operation and start charging existing investors higher TER.

To deal with this loophole, SEBI had asked mutual funds to plough back the exit load to the scheme, which until then was going into the profit and loss account of the Asset Management Companies. And to compensate for this loss, it allowed mutual funds to charge additional expenses of 20bps.  

Now that mutual fund inflows are extremely stable and the investor base is also expanding, SEBI feels mutual funds can easily absorb the redemption pressure without being compensated by 20bps of additional expenses. This in general happens whenever the market is in bull phase, though vice versa has never been witnessed.

At the board meeting scheduled on March 28, 2018, SEBI will take up this topic for discussion. The capital market regulator is expected to reduce the compensation fee from 20bps.

Let us suppose if its 5bps then, as a result investing in mutual funds is likely to get cheaper by 20%. The impact would be felt prominently on equity schemes. TER of equity diversified schemes (under regular plan) ranges from 3.31% and 1.09%. This range might shift lower to 2.65% to 0.87%; which will be a sure shot positive for the industry overall. 

For direct plans the TER of equity diversified schemes currently range from 2.65% to 0.22%. Now their TER may revolve in the range of 2.12% and 0.18% depending on the AMC and the scheme AUM.

SEBI is trying to make it more transparent, especially the disclosures about TER. The capital market regulator has already made it mandatory for mutual fund houses to declare the TER of all schemes on daily basis under a separate head – “Total Expense Ratio of Mutual Fund Schemes.”

What investors should do?

Although, investing in a scheme that manages its costs well is important, lower TER shouldn’t be the sole criterion to invest or not to invest in a scheme. Impeccable track record is the most important parameter when selecting one mutual fund scheme over others.

Thumb Rule: “Always focus on your financial goals, risk profile & opt for availing the services of a professional before investing in mutual funds.” – Varun Vaid

Regards,

Varun Vaid & Master Mind Financial Advisory Team

+91 – 9814612907; +91 – 0172 – 4623907

Twitter: @vaid_varun

Email: director@mmfa.in; operations@mmfa.in

www.vaidvarun.blogspot.in

www.facebook.com/MasterMindFinancialAdvisory

www.indiamart.com/mastermind-financial

3 reasons why you should opt for Monthly SIPs over Daily SIPs

Dear Readers,


As per analysis done over the five-year period starting from March 1, 2013, Master Mind Financial Advisory compared the Daily SIP returns with the Monthly SIP returns of 147 equity-oriented schemes, in terms of returns, there is hardly much difference between a Monthly SIP and Daily SIP. The quantum variance in returns will change over different market cycles. Hence, you need to choose an option that is simple and convenient.
Here's is where Monthly SIPs score over Daily SIPs.

1.       Convenience – Over a five-year period, there will be over 1,200 Daily SIP transactions. This compares to just 60 transactions through a Monthly SIP. Imagine viewing your bank statement with daily entries on entries because of mutual fund investments through a Daily SIP. If you invest in multiple schemes through Daily SIPs, the number of entries multiplies.

You certainly do not want important bank transactions to get lost in sea of SIP entries. The same goes for your mutual fund transaction statement. Imagine the inconvenience of reading through the statements in order to identify non-SIP transactions.

2.      Better tracking – With a reduced number of entries under Monthly SIP, you will be able to track your investments better. Imagine comparing your bank statement to your mutual fund statement to check if all transactions were successful. This would be easier to track if you invested through the Monthly SIP route. Also, when it comes to calculating the returns, you would be able to do it faster with investment through a Monthly SIP.

3.    Ability to plan better – If you are salaried, you get a monthly salary credit. Thus, you can smoothly plan what proportion of your salary can be invested every month. And this can be effortlessly being converted into a mutual fund investment through a monthly SIP. Many opt for a Monthly SIP date that is a few days after their salary credit. Unplanned expenditures towards the end of the month may lead to a lower bank balance; hence, nobody wishes to take the risk of the SIP installment getting returned. This can get a little tricky with a Daily SIP. Hence, with a Monthly SIP, you should be able to plan your finances better.

In times of volatility, a SIP would undoubtedly be a prudent route as compared to investing your corpus as a lumpsum. As seen in our analysis above, a Monthly SIP will be a prudent choice.

When investing in equity, it is important to keep a long-term investment horizon of five to seven years or more, even if you are investing via a SIP. The returns may be a few percentage points lower as compared to a lumpsum investment, but it will still be sufficient to meet your financial goals.

It is important to note that there are several benefits of investing via a SIP as a regular form of investment.

The top three reasons why you should invest in mutual funds through SIPs:

1.       A hassle-free investment route

2.      Deals with market volatility

3.      Devoid of behavioral biases

Clearly, SIP-ping into mutual funds, with all these benefits and much more, will help achieve your financial goals.

Regards,

Varun Vaid & Master Mind Financial Advisory Team

+91 – 9814612907; +91 – 0172 – 4623907

Twitter: @vaid_varun

Email: director@mmfa.in; operations@mmfa.in

www.vaidvarun.blogspot.in

www.facebook.com/MasterMindFinancialAdvisory

www.indiamart.com/mastermind-financial