Investment in Equity is always considered to be complex. The reason being, lack of knowledge and/or fear of loosing hard earned money due to market volatality.

You really need to have time, knowledge and money to invest and make profits in Stock markets.

Though we agree with the above statement, we feel you can make profits and become rich with good investment strategy.

After the SEBI banned mutual funds from charging entry load which is used by MFs to pay commissions to their distributors/agents, investing in Mutual Funds became more attractive.

So, how do we pick the mutual funds from the lot?

It’s simple, just analyze the returns given by various fund categories over the past say 5 years.

History says that FMCG(Magnum FMCG fund), Banking(Reliance Banking fund) and Pharma(Reliance Pharma) sectors were always on top. (Data as on July 2010)

Often, top analysts advice investors to buy equity diversified fund but the above mentioned categories always topped and gave much more returns than equity diversified funds.

We believe it’s better to diversify by putting our money equally in the above sectors we mentioned.

It’s also relatively safe to invest in good equity diversified mutual funds such as HDFC Equity, HDFC Top 200, Reliance Growth through Systematic Investment Plan (SIP).

These funds have been in market from very long and has shown consistent performance. There may be funds which are doing very good currently but can you trust them for long term investment such as for retirement?

Disclaimer: Please consult a investment expert before making any decisions as they suggest you based on your risk appetite, tenure you wanted to stay invested etc.

It depends..!

It’s easy to say depends but difficult to give accurate figure at any given point of time and the reason being each fund house or an Asset Management Company (AMC) like SBI Mutal has the freedom to charge a maximum of 7% on the invested amount as exit load (now that the entry load is scrapped)

So each of these AMCs have the freedom to define exit load for each of their schemes and the duration till which they expect the investor to stay with them popularly called as lock-in.

So, always know the exit load and the lock-in period before investing into a mutual fund. It will be a available on AMCs website or some popular websites.

This way, they are safeguarding interst of their other clients who stay invested because every time there is a withdrawl or redemption from a customer, that fund house has to sell shares in effect bringing down the share price. Now the problem is..when you wanted to sell, people ask for a lower price and when you wanted to buy, they demand higher price.

With lot’s of complications on Mutual funds, it may be wise for a short term investor to buy Index funds or even better ETFs where commissions are less and easy to transact.

Please read our articles on ETFs to know more about this area. (You can simply search ETF in our site.)

What is Mutual Fund?

Mutual Fund is a SEBI registered entity that collects money from individuals or corporate investors and invests the collected fund in a variety of financial instruments such as equity, bonds, debentures etc.

Mutual funds issue units to the investors and the appreciation of the mutual fund’s portfolio leads to an appreciation in the value of the units held by investors. There are many mutual funds for each AMCs and each of this Mutual Fund has definite investment objectives as mentioned in its prospectus so investors with common investment principles choose to invest in a fund. This mutual fund is managed by a Fund Manager who is considered to be expert in this area. These fund managers also charge huge fees for managing the money. Typically mutual fund charges entry load of up to 2.25% and this sum goes to broker. However, you can avoid paying entry load by directly investing with AMCs. Some AMCs even allow online investing.

We have many varieties of mutual funds. Variety may vary in terms of open ended or close ended funds, equity or debt funds, tax saving or non-tax saving funds, diversified or sector funds etc.

Investors choose Mutual Funds either because they don’t have the time or the expertise to manage their money. No fund manager will tell you when is the right time to exit the fund so you will have to decide based on performance and market information.

We will soon come with best mutual funds to invest in various popular categories. Stay tuned…!

What is Exchange Traded Fund or ETFs?

An exchange-traded fund is an investment instrument traded on stock exchanges just like equities. An ETF holds assets such as stocks, bonds or commodities such as Gold and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day.

Advantages of this instrument is, ETFs track an index and are attractive investments because of their low costs and stock-like features. An ETF has the valuation feature of a mutual fund which can be purchased or redeemed any time during trading hours unlike mutual funds which can be purchased at the end of each trading day on its net asset value.

ETFs are similar in many ways to traditional mutual funds, except that units or shares in an ETF can be bought and sold throughout the day like stocks on an exchange through a broker. Exchange Traded Funds in India listings include gold, silver, currencies, index etc.

With market at it’s lowest levels, how do you determine which is good stock that gives you best returns? Wouldn’t it be better to simply invest in the our BSE or NSE index?

Let me explain a scenario when you can go for this, when you know the market is attractive and wanted to invest and you don’t have time to analyze stock valuations but wanted to invest in country’s best large cap stocks and you don’t want to get into mutual funds for it’s inconsistent performance, high fund management charges and applicable loads on entry and exit, you go for ETFs.

For ETFs, there’s no entry load, no exit load but there’s some brokerage charge by the broker who is selling you the index. Just like you pay brokerage charge when you buy stocks, you pay for this too but this brokerage charge is relatively higher as you are purchasing the basket of stocks representing index. One goes for ETFs for short term investments or long term systematic investments and wanted to avoid the hassles of a mutual fund.

One more advantage of ETF is, you can buy the index at a particular time of the day when you feel the index is down say because of some bad news and you feel it’s going to recover by closing time. But in a mutual fund, you can buy only the nav determined at end of each trading day.

Basically, you are buying stocks of all the top 30 companies representing index - Sensex. Or stocks of all top 50 companies representing index - Nifty.

For example, the Nifty BeES ETF from Benchmark Mutual Fund invests in the same stocks that comprise S&P CNX Nifty Index. (BeES : Benchmark Exchange Traded Scheme)

Examples of ETFs in India: Bank BeES, Gold BeES, ICICI SENSEX Prudential ETF, Junior BeES, Kotak Gold ETF, Liquid BeES, Nifty BeES, PSU Bank BeES, Reliance Gold ETF, UTI’s SUNDER, UTI Gold ETF

ETFs are not Mutual Funds but have similarity with it. The difference being, mutual fund units cannot be sold on the exchange at any time, however as the name says, ETF units can be bought and sold in the exchange at any time during market trading hours.

Just like you need DMAT account and trading account for trading in equities, you need these accounts to trade in ETFs.

Why should we choose ETFs to other Mutual Funds?

God only knows whether our Fund managers will outperform index. ETFs score over mutual funds as they are returns are market linked, you can buy or sell during market hours and the charges are very less but watch out for Expense ratio among ETFs – Cheaper the best.

If you believe in the golden words that “equities will outperform all other assets classes in the long run”, then simply start investing some amount in the market regularly on every crash say in every month. Once you feel, the market has peaked, just reduce your investments and start booking profits and move this profits to Debt instruments. Once the market corrects, start investing again regularly.