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Fixed Maturity Plans - What to look for before you invest
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Fixed Maturity Plans (FMPs)
While FMP offer several advantages over other fixed income products when interst rates are rising, there are still certain factors that investors should keep in mind before taking the plunge. Here are a few of them...
Time horizon:
Remember although Sebi rules mandate that all FMPs should be listed on the bourses, the ground reality is that there is practically nil liquidity in these instruments since there are hardly any buyer or seller in the market. So as an investor if you are investing in an FMP, be sure that if you want the money even in case of even an emergency, you are unlikely to get that back then. Instead you have to wait till the day of redemption to get the money invested in that FMP in your bank account.
Match fund manager's investment horizon to yours:
In FMPs, the fund manager takes a time horizon for his/her portfolio of investments and he/she buys the instruments the time horizons for which perfectly match with the time horizon of the plan. The investor too invests with exactly the same time horizon. This is not the same in case of short-term income fund. In these funds even if you invest with say three or five years time horizon, the same as the fund manager at the time of entering, but after a year the fund manager may still maintain a three or five year time horizon, and would have churned his/her portfolio. On the other hand, after you have remained invested for a year, your time horizon is two or four years. This is one of the major differences between FMPs and short term income funds that investors should keep in mind.
Tax advantage:
Like most mutual fund schemes, FMPs too come with certain tax advantages. If you invest in an FMP which matures after more than a year, say even a 367-day FMP, you stand to gain from long term capital gains options under the income tax act. Under this option, you can pay a 10% tax without indexation, or 20% with indexation benefits. So clearly this makes sense if you are in the highest income tax bracket, which is you pay income tax at the rate of about 33%. If you are in the 10% bracket, then investing in FMPs may not make much of a sense because then you will pay the same rate of tax for FMPs as well as FDs, but by investing in FMPs you would have less liquidity.
Portfolio:
The portfolio of an FMP is an indication of the risks you are taking by investing in a particular plan. If all of the portfolio is invested in bank certificates of deposits (CDs), then the risks are much lower. On the other hand, if there are commercial papers (CPs), that are likely to add to the total risks associated with the FMP. Seen from the other side, having CPs in the portfolio may mean slightly higher rates. So as an investor before investing in an FMP you should have a clear idea about the risks you are willing to take, and accordingly you should settle for the returns that you would get at maturity.
Liquidity:
This is one disadvantage for FMPs, thay once you are invested in it, there is almost no way you can come out of its prematurely. So keep in mind that you put only that part of your fund in this better yielding and tax efficient instrument that you will not need till the time of maturity of the instrument.
Fund house:
Although all FMPs look like the same, offering nearly the same level of indicative yields, the fund manager and the fund house from which the FMPs are coming make a huge difference. If you are investing in the FMP of a good fund house, the risks associated with your investments are reduced significantly. This is more apparent at the current scenario when the bond market is extremely volatile and several cor porates are stretched to their limits.
Happy Investing!!
We can help. Call 0 94 8300 8300 (India)
Leave your comment with mail ID and we will answer them
OR
You can write back to us at PrajnaCapital [at] Gmail [dot] Com
---------------------------------------------
Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online
Tax Saving Mutual Funds Online
These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs
Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
- ICICI Prudential Tax Plan Invest Online
- HDFC TaxSaver Invest Online
- DSP BlackRock Tax Saver Fund Invest Online
- Reliance Tax Saver (ELSS) Fund Invest Online
- Birla Sun Life Tax Relief '96 Invest Online
- IDFC Tax Advantage (ELSS) Fund Invest Online
- SBI Magnum Tax Gain Scheme 1993 Invest Online
- Sundaram Tax Saver Invest Online
- Edelweiss ELSS Invest Online
Best Performing Mutual Funds
- Largecap Funds Invest Online
- DSP BlackRock Top 100 Fund
- ICICI Prudential Focused Blue Chip Fund
- Birla Sun Life Front Line Equity Fund
- Large and Midcap Funds Invest Online
- ICICI Prudential Dynamic Plan
- HDFC Top 200 Fund
- UTI Dividend Yield Fund
- Mid and SmallCap Funds Invest Online
- Reliance Equity Opportunities Fund
- DSP BlackRock Small & Midcap Fund
- Sundaram Select Midcap
- IDFC Premier Equity Fund
- Small and MicroCap Funds Invest Online
- DSP BlackRock MicroCap Fund
- Sector Funds Invest Online
- Reliance Banking Fund
- Reliance Banking Fund
- Tax Saver MutualFunds Invest Online
- ICICI Prudential Tax Plan
- HDFC Taxsaver
- DSP BlackRock Tax Saver Fund
- Reliance Tax Saver (ELSS) Fund
- Gold Mutual Funds Invest Online
- Relaince Gold Savings Fund
- ICICI Prudential Regular Gold Savings Fund
- HDFC Gold Fund
Invest In Tax Saving Mutual Funds Online
Long Term Funds
While your portfolio should be tilted in favour of shortterm funds, given the sharp rise in yields, some experts feel this is an opportunity for high-risk takers to earn extra returns by investing a small portion of their portfolio in long-term income funds. Though these funds are down now, they may offer a good investment opportunity, as bond yields could head lower in the coming months.
The 10-year G-Sec is close to a peak and should not sustain above 9%. Over a threeto-six month period, it should gradually come down to 8.5%. As volatility in the forex markets settle down, the RBI would be forced to focus on boosting growth. If this happens, investors may see bond prices move up and thereby get a capital appreciation in their portfolio.
Happy Investing!!
We can help. Call 0 94 8300 8300 (India)
Leave your comment with mail ID and we will answer them
OR
You can write back to us at PrajnaCapital [at] Gmail [dot] Com
---------------------------------------------
Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online
Tax Saving Mutual Funds Online
These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs
Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
- ICICI Prudential Tax Plan Invest Online
- HDFC TaxSaver Invest Online
- DSP BlackRock Tax Saver Fund Invest Online
- Reliance Tax Saver (ELSS) Fund Invest Online
- Birla Sun Life Tax Relief '96 Invest Online
- IDFC Tax Advantage (ELSS) Fund Invest Online
- SBI Magnum Tax Gain Scheme 1993 Invest Online
- Sundaram Tax Saver Invest Online
- Edelweiss ELSS Invest Online
Best Performing Mutual Funds
- Largecap Funds Invest Online
- DSP BlackRock Top 100 Fund
- ICICI Prudential Focused Blue Chip Fund
- Birla Sun Life Front Line Equity Fund
- Large and Midcap Funds Invest Online
- ICICI Prudential Dynamic Plan
- HDFC Top 200 Fund
- UTI Dividend Yield Fund
- Mid and SmallCap Funds Invest Online
- Reliance Equity Opportunities Fund
- DSP BlackRock Small & Midcap Fund
- Sundaram Select Midcap
- IDFC Premier Equity Fund
- Small and MicroCap Funds Invest Online
- DSP BlackRock MicroCap Fund
- Sector Funds Invest Online
- Reliance Banking Fund
- Reliance Banking Fund
- Tax Saver MutualFunds Invest Online
- ICICI Prudential Tax Plan
- HDFC Taxsaver
- DSP BlackRock Tax Saver Fund
- Reliance Tax Saver (ELSS) Fund
- Gold Mutual Funds Invest Online
- Relaince Gold Savings Fund
- ICICI Prudential Regular Gold Savings Fund
- HDFC Gold Fund
Invest In Tax Saving Mutual Funds Online
Stay invested if the scheme is merged into a broad- based fund with low volatility
With the Securities and Exchange Board of India expressing displeasure at the rising number of similar- themed schemes, mutual fund houses are making a conscious effort to merge schemes. In 2012- 13, 27 mutual fund schemes were merged compared with 46 in 2011- 12, indicates Value Research data.
This is good news for investors. After all, it isn't easy to choose from 2,500- 3,000 schemes. If the fund it's being merged into is already a strong one, its returns will remain steady, irrespective of the merged scheme being weak or underperforming.
Also, it's better if the scheme merges with a broad- based/ diversified equity fund in which volatility is less.
Sample this: When thematic fund Reliance Natural Resources Fund was merged with Reliance Vision, a largecap fund, an exit was feasible for investors who believed in natural resources as a growth story and didn't want the investment objective to be diluted.
For those investing without particular investment preference, a merger doesn't make a difference. Suresh Sadagopan of Ladder 7 Financial Advisory Services recommends one should ensure he/ she isn't investing in something the portfolio concerned already has enough exposure to. In other words, if you would end up with a large- cap fund ( after a merger) and if you already have some money locked into a similar fund, weigh your options and take an investment call accordingly.
If both the schemes that are being merged are underperforming and weak, one should not think twice and clearly opt out of it Serious investors might also consider an exit from a merged scheme in case the fund manager changes. While this is an important factor, your investment decision can't depend solely on this parameter. It's the fund house's track record that needs to be taken into consideration, not just the choice of fund manager. If you have confidence in the fund house and it has some good performing funds, stay invested, irrespective of the fund manager.
Usually, the fund house will intimate their investors at least 45 days before taking a decision on a merger. The fund house doesn't levy any exit load to such investors during that period. Therefore, investors should use this time to evaluate their options and take calculative decisions.
From a fund house's point of view, the recent reduction in securities transaction tax (STT) from 0.25 per cent to 0.001 per cent is an attraction towards a merger.
Happy Investing!!
We can help. Call 0 94 8300 8300 (India)
Leave your comment with mail ID and we will answer them
OR
You can write back to us at PrajnaCapital [at] Gmail [dot] Com
---------------------------------------------
Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online
Tax Saving Mutual Funds Online
These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs
Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
- ICICI Prudential Tax Plan Invest Online
- HDFC TaxSaver Invest Online
- DSP BlackRock Tax Saver Fund Invest Online
- Reliance Tax Saver (ELSS) Fund Invest Online
- Birla Sun Life Tax Relief '96 Invest Online
- IDFC Tax Advantage (ELSS) Fund Invest Online
- SBI Magnum Tax Gain Scheme 1993 Invest Online
- Sundaram Tax Saver Invest Online
- Edelweiss ELSS Invest Online
Best Performing Mutual Funds
- Largecap Funds Invest Online
- DSP BlackRock Top 100 Fund
- ICICI Prudential Focused Blue Chip Fund
- Birla Sun Life Front Line Equity Fund
- Large and Midcap Funds Invest Online
- ICICI Prudential Dynamic Plan
- HDFC Top 200 Fund
- UTI Dividend Yield Fund
- Mid and SmallCap Funds Invest Online
- Reliance Equity Opportunities Fund
- DSP BlackRock Small & Midcap Fund
- Sundaram Select Midcap
- IDFC Premier Equity Fund
- Small and MicroCap Funds Invest Online
- DSP BlackRock MicroCap Fund
- Sector Funds Invest Online
- Reliance Banking Fund
- Reliance Banking Fund
- Tax Saver MutualFunds Invest Online
- ICICI Prudential Tax Plan
- HDFC Taxsaver
- DSP BlackRock Tax Saver Fund
- Reliance Tax Saver (ELSS) Fund
- Gold Mutual Funds Invest Online
- Relaince Gold Savings Fund
- ICICI Prudential Regular Gold Savings Fund
- HDFC Gold Fund
| Mutual Fund Application Forms | Download Any Applications |
| Invest in Tax Saving Mutual Funds | Invest Online |
| Infrastructure Bond Application Forms | Download Applications |
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