Wednesday, December 25, 2019

Which is the best mutual fund to invest in 2020?

New investors start their investment journey with this question ‘Which is best mutual fund to invest’. Normally the search ends with asking their friends and colleagues to find out the answer or to find the answer to the query online with the help of a search engine. In short, most new mutual fund investors want a ready-made list of mutual fund schemes to invest.

The below list of mutual funds picked for the January 2020 under appropriate category. Don’t consider these picks as recommendations. Investors should be cautiously invest in these schemes based on their risk appetite and consult with their financial advisor before investing.

Overnight Funds:
 
Overnight funds can be invested for one day or above. Here the investment is made for no risk, so don’t expect any returns. Always invest in Direct plans with growth option.

Liquid Funds:
 
Liquid funds can be invested for month or above duration. Investment nature is conservative which has low credit risk and low interest rate risk. Ideal alternative for Savings bank account.



Equity Arbitrage Fund:
 
Equity Arbitrage funds are ideal for short term savings which has low credit risk and low interest rate risk.

Ultra short term:

Ultra short term funds are ideal for investment of more than 1 year. Ultra short term fund normally will have low to medium credit risk and low interest rate risk.

  
Gilt Funds:

Gilt funds invest mostly in government bonds. These funds will have low credit risk and high interest rate risk. Ideal for investment of more than a decade (10 years).

 

ELSS Fund:
 
Ideally all ELSS fund are equity funds with 3 years lock-in. However it is recommended to invest in equity funds minimum of 15 years, else don’t invest in equity.


Large Cap:

Nifty 50 stocks are part of large caps of Indian Equity. It is better to invest in these index funds. Pick anyone.



Small Cap:

Ideally it not recommended to invest in small cap. If still you want to invest in, then pick SBI Small Cap. Reason to pick is because Fund manager has consistency.


International Fund:

International fund is ideal for people who look to invest in Foreign stocks. PPFAS Long Term Equity is international fund with Indian Taxation. 


Index Fund:

Index investing is picking up track in India due to Buffet’s low cost investing. If you want to pick in India, pick UTI Nifty index fund which has low cost and low tracking error with its peer.


I hope above picks are good enough to start investing in mutual funds.
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Sunday, December 15, 2019

Why Bharat Bond ETF is better than Bank FD, Debt Funds?

Bharat Bond ETF is better than Bank FD, Debt Funds. Please find the comparison and pick your funds based on your asset allocation.

Description Bank FD Debt Funds Bharat Bond ETF
Liquidity Minimum Two Business days
 (Might need to visit Bank branch to preclose) 		T+2 Days T+1 on FOF (T + 2 on ETF)
Interest Rate Around 6% 6 to 9%  6.6% for 3 years & 7.52% for 10 years
Taxation Your income tax slab rate calculated as per Capital Gain calculated as per Capital Gain
Indexation benefit No Yes Yes
Expense Ratio (charges) Pre closure charges applicable. up to 1% 0.0005%
Risk upto 1,00,000 protected Medium Risk Low Risk due to PSU bonds
Haircut due to default
Yes, you will lose everything above 1 Lakh
Yes Almost Nil
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Sunday, December 8, 2019

What Happens when an IPO is oversubscribed in India?


When the IPO over subscription happens, the applicant may or may not get the allotment of the shares or the number of lots applied. Depending on the category in which you have applied, the IPO allotment differs in over subscription case:
  1. IPO Share Allotment to Institutional Buyers (QIB)
In the QIB category, shares are allocated proportionally. So, if the issue is subscribed by 5 times, then an applicant who has applied for 10 lakh shares will receive 2 lakh shares only.
Merchant bank holds the authority to allot shares with regards to QIBs. Shares in any case are always allotted proportionately to applicants. So, if the shares are oversubscribed by 4 times, then an application of 10,00,000 shares will receive only 2,50,000 shares.
  1. IPO Share Allotment to High Net worth Investors (HNI)
HNI also receives allotment on a proportionate basis.
Non Institutional Investors are also categorized as High Net worth Individuals (HNIs). These types of investors usually pump in a large corpus in an IPO. Even financial institutions provide funding to HNIs to invest in an IPO. Although these investors invest a large amount of money in an IPO, it does not necessarily provide them with an advantage of availing the exact number of shares that they have applied for in case an oversubscription scenario. For example: A particular HNI client has applied for 10 lakh shares and the HNI quota is oversubscribed by 150 times. The total shares that will be allotted to him will be 6666. This number is ascertained by dividing the total number of shares applied for by the number of times that it has been oversubscribed.
  1. IPO Share Allotment to Retail investors (RII)
The process of allocation differs when it comes to retail individual investors (RIIs). There is an upper limit of Rs 2 lakh for any retail investor who is investing in an IPO. With an aim to calculate the total demand for shares in the retail investors’ category, all the candidates are grouped together and the total number of candidates are calculated. While calculating, if the number of applications are more than the number of shares offered for retail investors, the maximum RIIs who are eligible for the allotment of the minimum bid lot are determined. The total number of equity shares available for allotment to RIIs is divided by the minimum bid lot. This gives the maximum number of RIIs who can be allotted the shares.
For example - If shares worth Rs. 20 lakh need to be allotted to the retail segment and the minimum lot size is Rs. 10,000, only a maximum of 200 applicants will be allotted the shares with the minimum lot of Rs. 10,000.
However, if the number retail investors surpass the maximum RII allottees, then the eligibility for the minimum bid lot will be ascertained on the basis of draw of lots. This is automated and computerized process, leaving no room for partiality.

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Saturday, November 23, 2019

Which one is better, NPS, PPF, or EPF?

PPF is better than EPF and NPS.
 

Why I won’t pick EPF, NPS? Check the above table first.
  1. Tax Status of EPF - You need to employed till the age of 60 to get EEE tax status. If you wish to start your business and leaving your job, then you fall into ETT tax status since your accumulation is taxable and withdrawal is taxable as per Income tax act.
  2. Tax Status of NPS - Your accumulated corpus of 40% is taxable and rest 60% is tax free. You need to take an annuity for 40% to avoid tax while withdrawing. But Annuity income is taxable as per Income tax act.
  3. Premature Withdrawal from EPF is not so easy whereas NPS it is not possible
  4. Liquidity of both EPF and NPS are poor when compared to PPF.
  5. Safety of EPF is slightly riskier than PPF. Because EPF is managed by EPFO (which is backed by govt) and private trusts. EPFO (part of money managed by SBI, HSBC, etc) and Private trusts can lend to other companies where default can happen like DHFL, IL& FS etc.
  6. Withdrawing EPF is troublesome, not so easy and patience tested process. There are several forms available, one need to aware which form to submit which might delay the whole process.
Why I choose PPF?
  1. Tax Status - EEE irrespective of Employed or Salaried.
  2. Safety - Sovereign guarantee backed by Government of India
  3. Liquidity is better, can be extendable in block of 5 years with or without contribution.
  4. PPF account can be opened easily by online unlike EPF, where employers only can able to open.
  5. Overdraft facility available over PPF account.




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