STP: SYSTEMATIC TRANSFER PLAN

 Published By:- 

Anand (B.Tech, M.Tech, MBA Finance) 

Mob :- 9415283904

SYSTEMATIC TRANSFER PLAN: Investment Strategy Explained

1.    A Systematic Transfer Plan (STP) is an investment strategy that allows investors to transfer a fixed amount of money periodically from one mutual fund scheme to another within the same mutual fund house. It is a disciplined approach that enables investors to reallocate their investment portfolio based on their investment goals, risk tolerance, and market conditions.

Here's how a Systematic Transfer Plan works:

2.  Choosing the Funds: 

The investor selects two mutual fund schemes from the same fund house: the source scheme and the target scheme. The source scheme is the fund from which the investor transfers funds, while the target scheme is the fund where the money is transferred.

3.   Transfer Frequency and Amount: 

The investor decides the transfer frequency (monthly, quarterly, etc.) and the transfer amount. The transfer can be a fixed sum or a fixed number of units. For example, an investor may choose to transfer Rs500 every month from the source scheme to the target scheme.

4.    Initial Investment: 

The investor needs to make an initial investment in the source scheme. This amount can vary depending on the fund house's requirements.

5.   Transfer Options: 

There are two types of STP options:

(a)  Capital Appreciation Option: 

Under this option, the appreciation in the value of units in the source scheme is transferred to the target scheme. The investor's capital remains invested in the source scheme, and only the profits are transferred.

(b)Appreciation and Redemption Option: 

With this option, both the appreciation and redemption proceeds from the source scheme are transferred to the target scheme. Here, the investor's capital is gradually moved from the source scheme to the target scheme.

(6)  Execution: 

The STP is executed by the fund house based on the investor's instructions. The predetermined transfer amount is deducted from the source scheme, and units are purchased in the target scheme at the prevailing Net Asset Value (NAV) of that day.

 

7.  Benefits of Systematic Transfer Plan:

Rupee Cost Averaging: 

STP helps investors implement the rupee cost averaging strategy. By transferring a fixed amount at regular intervals, investors buy more units when prices are lower and fewer units when prices are higher. This reduces the impact of market volatility and potentially improves returns over the long term.

Asset Allocation: 

STP allows investors to gradually rebalance their investment portfolio. They can shift funds from equity-oriented schemes to debt-oriented schemes or vice versa based on market conditions or their investment objectives. This flexibility helps in diversifying the portfolio and managing risk.

Systematic Investing: 

STP instills discipline in investors by encouraging regular and consistent investments. It eliminates the need for timing the market and reduces the impact of emotional decision-making.

Tax Efficiency: 

If the transfer is between two schemes of the same fund house, it is treated as a switch rather than a redemption and purchase. This can potentially provide tax advantages compared to selling and repurchasing units.

8.   It's important to note that while STP can be a useful investment strategy, when the stock market is at its peak. The funds that have gained substantial profit should be shifted to Debt funds in order to preserve the profits accrued. 

9.  Investors should carefully evaluate their investment objectives, risk tolerance, and consult with a financial advisor before implementing an STP or any investment strategy.

TER comparison of mutual funds and advantages of investing through a Advisor

 Published By:- 

Anand (B.Tech, M.Tech, MBA Finance) 

Mob :- 9415283904

TER Comparison of Mutual Funds and Advantages of Investing through a Advisor

1.  TER (Total Expense Ratio) is a measure of the total cost of managing a mutual fund. It includes various expenses such as management fees, administration expenses, marketing and distribution expenses, etc. The difference between TER of direct and regular mutual funds is mainly due to the commissions paid to intermediaries such as brokers or distributors in the case of regular funds.

2.     Direct mutual funds are those where investors invest directly with the fund house without the involvement of intermediaries. On the other hand, regular mutual funds are those where investors invest through intermediaries such as brokers or distributors.

3.  The TER of direct mutual funds is generally lower than that of regular mutual funds due to the absence of intermediary commissions. Let's take an example to illustrate this difference over a period of 5 years.

4.   Suppose there are two mutual funds with the following characteristics:

Fund A is a regular mutual fund with a TER of 2%

Fund B is a direct mutual fund with a TER of 1.5%

Let's assume an investment of Rs. 1 lakh in each of these funds for a period of 5 years with an annual return of 10%.

For Fund A:

Investment = Rs. 1,00,000

TER = 2%

Annual return = 10%

After 5 years, the value of the investment would be = Rs. 1,61,051

For Fund B:

Investment = Rs. 1,00,000

TER = 1.5%

Annual return = 10%

After 5 years, the value of the investment would be = Rs. 1,67,290

5.   As we can see, even though the difference in TER between Fund A and Fund B is only 0.5%, the difference in the final value of the investment after 5 is not significant and is seen that it is not more than 1%. It is also seen that individual investing on their own in direct funds without any advice, happen to get into non performing funds which overall affects their combined fund performance.

6.   Therefore, investors can benefit by investing in direct mutual funds as they offer lower expenses, resulting in higher returns over the long term. However, it is important to note that investing through intermediaries can have its own benefits such as convenience and advice, and investors should weigh these factors before making an investment decision.

Benefits of Advisor

7.  While investing in mutual funds, investors can choose to invest directly with the fund house or through intermediaries such as advisors or distributors. While direct investing in mutual funds can be cost-effective, intermediaries can provide a range of benefits to investors, such as:

8.  Expert advice: 

Advisors or distributors can provide expert advice and recommendations to investors, based on their investment goals, risk profile, and market conditions. This can help investors make informed investment decisions and select the most suitable mutual funds for their portfolio.

9.  Convenience: 

Advisors or distributors can make the investment process more convenient for investors by handling the paperwork, documentation, and other formalities on their behalf. This can save time and effort for investors and ensure a smooth investment experience.

10. Regular monitoring and rebalancing:

 Advisors or distributors can monitor the performance of the mutual fund portfolio and rebalance it regularly, based on the changing market conditions and investor's requirements. This can help investors maintain a well-diversified portfolio and maximize returns.

11. Access to new fund offerings:

 Advisors or distributors can provide access to new mutual fund offerings and investment opportunities that may not be available to direct investors. This can help investors diversify their portfolio and take advantage of new market trends.

12. Tax planning: 

Advisors or distributors can provide tax planning advice and guidance to investors, helping them optimize their tax liabilities and maximize their after-tax returns.

13.   In summary, while direct investing in mutual funds can be cost-effective, intermediaries such as advisors or distributors can provide a range of benefits to investors, including expert advice, convenience, regular monitoring and rebalancing, access to new fund offerings, and tax planning. Investors should weigh the costs and benefits of investing through intermediaries and choose the option that best suits their needs and investment goals.

NFO and it's Advantages

Published By:- 

Anand (B.Tech, M.Tech, MBA Finance) 

Mob :- 9415283904

NFO (New Fund Offer) in Mutual Funds. and it's Advantages

A new fund offer (NFO) is a process through which mutual fund companies offer new mutual fund schemes to the public for the first time. It is a process by which a new mutual fund scheme is launched, and investors can subscribe to it during the subscription period. NFOs offer investors the opportunity to invest in a new mutual fund scheme at the initial offer price.

Advantages of New Fund Offer:

1.   Lower Initial Investment: One of the biggest advantages of investing in an NFO is that investors can buy the units of the fund at the initial offer price. This means that investors can invest in the mutual fund scheme at a lower price than the market value.

2.  Diversification: NFOs often offer a new theme, sector or investment strategy that may not be available in existing mutual fund schemes. By investing in an NFO, investors can diversify their portfolio with a new theme, sector or investment strategy.

3.   Potential for Higher Returns: Investing in an NFO can provide the potential for higher returns, as the fund manager has a clean slate to invest in stocks or bonds, unlike existing schemes that may already be fully invested.

4. Attractive Offers: Mutual fund companies often offer attractive offers and incentives to investors during the NFO period, such as a waiver of entry load or a discount on the initial offer price.

Example:

5.   Let's say a mutual fund company launches a new fund called "ABC Equity Fund" and offers investors the opportunity to invest in the NFO. The NFO has a subscription period of 15 days, during which investors can invest in the fund at the initial offer price of Rs. 10 per unit. After the subscription period, the fund will be listed on the stock exchange and the units can be bought or sold at the prevailing market price.

6.   Suppose an investor subscribes to the NFO and invests Rs. 10,000 in the ABC Equity Fund at the initial offer price of Rs. 10 per unit. The investor will get 1,000 units of the fund. After the subscription period, the market price of the units may go up or down depending on the demand and supply of the units. If the market price of the units goes up to Rs. 12 per unit, the value of the investor's investment will be Rs. 12,000, resulting in a profit of Rs. 2,000.

SWP: Earn Regular Monthly Income on your investment through SWP(Systematic Withdrawal Plan)

Published By:- 

Anand (B.Tech, M.Tech, MBA Finance) 

Mob :- 9415283904

SWP in mutual funds and How it works.

1.  SWP stands for Systematic Withdrawal Plan, which is a facility offered by mutual funds to investors that enables them to withdraw a fixed amount of money at fixed intervals from their investment. Essentially, an SWP is the reverse of Systematic Investment Plan (SIP), which allows investors to invest a fixed sum of money at regular intervals.

2.     With an SWP, investors can receive a regular stream of income from their mutual fund investment while still keeping the invested amount intact. It is a useful option for those who want to earn regular income from their mutual fund investments, such as retirees or those looking for a steady income stream to supplement their salary.

Here's an example of how an SWP works:

3.      Suppose an investor has invested Rs. 10 lakhs in a mutual fund, and they want to receive Rs. 5,000 every month as a regular income. They can opt for an SWP of Rs. 5,000 per month, and the mutual fund company will sell units worth Rs. 5,000 every month and transfer the money to the investor's bank account.

4. SWP is an excellent option for investors who want to generate a steady income stream while also keeping their investment intact. As per the performance track CAGR seen over a period of 25 years, Funds gives more than 10% returns per year in most cases, returning 5000 per months to investor amounts to returning 6% yearly to investor. Hence left 4% return adds on to the original corpus amount which ultimately grows at the rate of 4% despite giving 5000 to investor each month. 

5. For more info on the very safe SWP Scheme of mutual fund contact me on mobile number 9415283904 and seek professional advice before opting for it.

Basics of Mutual Fund and common Parameters.

Published by:-Anand(B.Tech, M.Tech, MBA Finance) 

Whatsapp 9415283904

Mutual funds have different types of parameters, which can help investors evaluate and compare different funds.

Here are some common types of parameters in mutual funds:

1.   CAGR (Compound Annual Growth Rate):

 CAGR is a measure of the rate of return on an investment over a specific period of time, taking into account the effects of compounding. It is calculated by taking the ending value of an investment, dividing it by the beginning value, raising the result to the power of 1/n, where n is the number of years, and then subtracting 1.

CAGR = (Ending Value / Beginning Value) ^ (1/n) - 1

For example, if an investment had an initial value of 10,000 and grew to 15,000 over a 5-year period, the CAGR would be:

CAGR = (15,000 / 10,000) ^ (1/5) - 1 = 8.14%

2.   XIRR (Extended Internal Rate of Return): 

XIRR is a measure of the annualized return on an investment, taking into account the timing and amount of cash flows. It is used to calculate the rate of return when the cash flows are not evenly spaced over time. XIRR can be calculated using spreadsheet software or financial calculators.

For example, if an investment had an initial value of 10,000, received a cash inflow of 5,000 after 2 years, and another cash inflow of 7,000 after 4 years, the XIRR would be the rate at which the net present value of these cash flows is equal to zero.

3.   IRR (Internal Rate of Return): 

IRR is a measure of the profitability of an investment, taking into account the time value of money. It is the discount rate that makes the net present value (NPV) of the investment equal to zero. IRR can be calculated using spreadsheet software or financial calculators.

For example, if an investment had an initial value of 10,000 and generated cash flows of 2,000 per year for 5 years, the IRR would be the rate at which the net present value of these cash flows is equal to zero.

The IRR is often used as a tool to compare different investment opportunities or to evaluate the feasibility of a new project. Generally, the higher the IRR, the more attractive the investment or project is considered to be.

4.   Absolute return: 

It refers to the total return or profit that an investment generates over a certain period of time, regardless of market conditions. It is a measure of the actual gain or loss of an investment, rather than its performance relative to a benchmark or index. Absolute return strategies aim to generate positive returns regardless of whether the overall market is going up or down. These strategies typically involve using a range of investment techniques, such as short selling, leverage, and derivatives, to achieve their objectives. Absolute return is often used as a performance benchmark for hedge funds and other alternative investments.

5.  Net Asset Value (NAV) - 

The value of one unit of the mutual fund scheme.

6.   Dividend Payout Ratio - 

The percentage of profits that are distributed as dividends to the investors.

7.   Exit Load - 

The fee charged by the mutual fund company if an investor exits the fund before a certain period of time.

8.   Expense ratio: 

The expense ratio is the annual fee charged by a mutual fund to cover its expenses, such as management fees, operating costs, and administrative expenses. A lower expense ratio can be beneficial for investors as it can increase their net returns.

9.   Assets under management (AUM):

 AUM is the total value of all the investments in a mutual fund. Higher AUM may indicate that the fund is more popular and has more resources to invest in a wider range of securities.

10.   Minimum investment: 

Some mutual funds require a minimum investment amount, which can range from a few hundred to thousands of rupees. Investors should check the minimum investment requirement before investing in a mutual fund.

11.   Investment objective: 

The investment objective of a mutual fund specifies the type of securities the fund will invest in, such as stocks, bonds, or a combination of both. Investors should choose a mutual fund that aligns with their investment objectives and risk tolerance.

12.   Performance: 

Mutual fund performance is the return earned by the fund over a specified period, such as one year, three years, or five years. Investors should consider the fund's historical performance when evaluating its potential returns.

13.   Risk: 

Mutual funds can have different levels of risk, depending on their investment objectives and the types of securities they invest in. Investors should consider the risks associated with a mutual fund and determine if it aligns with their risk tolerance.

14.   Dividend policy: 

Some mutual funds may pay dividends to their investors, while others may reinvest the dividends called IDCW.

15.   Fund manager: 

The fund manager is responsible for managing the mutual fund's investments and making investment decisions. Investors should consider the fund manager's experience, track record, and investment philosophy when evaluating a mutual fund.

Old v/s New Tax Regimes, which one to opt.

Published by:-Anand(B.Tech, M.Tech, MBA Finance) 

Whatsapp 9415283904

Old vs new tax regimes.

The decision of whether to opt for the old tax regime or the new tax regime depends on various factors like income level, expenses, investments, and tax-saving goals. Let me explain the differences and benefits of both regimes.

Old Tax Regime:

Under the old tax regime, taxpayers can claim deductions and exemptions on various investments and expenses under Sections 80C, 80D, and 80G, among others. However, the tax slabs and rates are higher in the old regime, and the tax-saving options are limited.

New Tax Regime:

The new tax regime offers lower tax slabs and rates but does not allow taxpayers to claim deductions or exemptions on investments and expenses under Sections 80C, 80D, and 80G, among others.

To decide which regime is better, taxpayers need to calculate their tax liability under both regimes based on their income, expenses, and investments. If the deductions and exemptions claimed by taxpayers under the old regime are more than the tax savings under the new regime, then the old regime would be more beneficial. However, if the tax savings under the new regime outweigh the deductions and exemptions claimed under the old regime, then the new regime would be more beneficial.

Additionally, taxpayers need to consider their financial goals and priorities while choosing between the two regimes. If tax-saving is a primary goal, then the old regime could be more beneficial.

In conclusion, there is no one-size-fits-all answer to whether the old or new tax regime is better. Taxpayers need to analyze their financial situation and tax liability before deciding on which regime to opt for. It is advisable to consult with a financial advisor or tax expert to make an informed decision.

INFLATION & Calculating Indexation

Published by Anand(B.Tech, M.Tech, MBA Finance) Whatsapp 9415283904

Inflation and Inflation Index. 

How to calculate indexation.

1.   Inflation is the rate at which the general level of prices for goods and services is rising and, subsequently, the purchasing power of a currency is decreasing over time. In other words, inflation is the percentage increase in the price level of a basket of goods and services over a given period.

2.   An inflation index, also known as a price index, is a measure of the change in the general price level of goods and services in an economy over time. Inflation indices are used to track the inflation rate, which is a critical macroeconomic indicator.

3.   The most common inflation index used in India is the Consumer Price Index (CPI). It measures the change in the price level of a basket of goods and services consumed by households. The Reserve Bank of India (RBI) uses the CPI to calculate the inflation rate.

4.   Indexation is a technique used to adjust income or the value of an asset to account for inflation. It is a method of linking the value of an asset to an inflation index, such as the CPI, to maintain its real value over time. Indexation is commonly used in tax laws to adjust the cost of an asset for inflation.

5.   To calculate indexation, you need to follow the steps below:

(a)   Determine the base year: Choose the year when you purchased the asset, and you want to adjust its cost for inflation.

(b)   Calculate the cost inflation index: Use the following formula to calculate the cost inflation index for the current year:

(c)   Cost Inflation Index (CII) = (Current Year's CPI) / (Base Year's CPI) x 100

(d)   Calculate the indexed cost of the asset: Use the following formula to calculate the indexed cost of the asset:

(e)   Indexed Cost = (Actual Cost) x (Current Year's CII) / (Base Year's CII)

6.   By using indexation, you can calculate the real value of an asset by accounting for the effects of inflation, which helps to avoid paying taxes on inflationary gains.