Family Floater Or Individual Health Insurance Plan

How many times have you encountered the quote “Health is Wealth”? Probably many times.

Though we all know our health should be our top priority, we often ignore it. We know good health comes from healthy eating, routine exercise, health check-ups, etc. But why do we ignore health insurance?

Health insurance shouldn’t be ignored if you don’t wish to worry about arranging finances during medical treatments. With rising medical costs, taking a policy to cover such expenses has become a necessity.

While getting a health insurance plan, you must choose between opting for an individual or a family plan.

In this blog, we’ll cover some significant differences between the two to help you make a wise decision.

Meaning

Individual health insurance focuses on one person. It provides coverage to one person only. Neither the premium paid nor the sum insured can be shared with someone else.

Family floater insurance covers all family members in a single plan. This means that both the insurance premium paid and the sum insured can be shared among many family members.

Coverage

The coverage in the case of individual health insurance plans is provided to the policyholder who pays the premium. Let’s say you have taken health insurance for Rs. 5 lakhs. Then the health insurance company will compensate the hospital bills for your treatment only.

All family members are covered under a single plan in a family health insurance plan. For example, you opted for an insurance policy for Rs 5 lakhs for yourself, your spouse, and one child. Then your whole family members will have to share the sum insured, i.e. Rs. 5 lakhs.

Suitability

An individual health insurance plan is suitable for individuals with specific health needs. It is best suited for senior citizens.

However, a family plan may be suitable for couples or nuclear families with no senior citizens. It is because a hefty premium is charged for senior citizens, and they need an individual policy for their specific needs.

Advantages

The major advantage of choosing an individual plan is getting a specific sum insured only for your personal needs. Also, you can claim maximum coverage of your risks.

The major advantage of family floater plans is that the premium is more affordable than that of an individual one. It saves from taking too many individual policies.

Limitations

Lack of flexibility and high individual premiums are a few of the limitations of individual health insurance plans.

And family floater plans suffer from drawbacks like insufficient sum insured to effectively cover all the members of the family. Also, there is a higher probability of raising a claim under such plans. As a result, you won’t be able to experience a no-claim bonus. In simple words, if any of your family members claims during a year, no claim bonus would not be applicable.

Also, if your children reach a certain stage (18-25 years, depending on the type of policy), they won’t be covered in a family health insurance plan.

Which one should you take?

No single policy is perfect for all individuals or families. Many factors affect your choice besides the premium to be paid and the risk covered.

But if you can afford to take individual health insurance policies, you must go for them. These policies not only ensure that your specific health needs are met but also benefit you from a no-claim bonus. NCB means you would have more coverage or pay fewer premiums if you don’t claim benefits during a policy year.

But if you don’t have a medical history of severe health conditions, can’t pay huge premiums, or don’t have a senior citizen in the family, family plans would work for you.

Final words

No one policy is best for everyone. Whether you take an individual or family health insurance plan, make sure to check its pros and cons.

Also, do consider factors like health conditions/risk, family members, age, coverage of the policy, etc., before purchasing a policy.

Any policy that caters to your needs is best for you. Nevertheless, don’t forget to take a health insurance policy at any cost.

This blog is purely for educational purposes and not to be treated as personal advice. Insurance is the subject matter of solicitation.

Can NRIs Invest in Mutual Funds in India?
Are you an NRI looking to invest your money in mutual funds in India? Look no further!

In this blog, we will cover in detail if you can invest in mutual funds as an NRI, the process to invest, and the taxation and redemption process.

Are NRIs allowed to invest in mutual funds in India?
The short answer is yes, of course. The Foreign Exchange Management Act of 2000 has allowed Foreign Institutional Investors and Non-Residents of India to invest in mutual funds. The Reserve Bank of India (RBI) has put forward the rules for investing and redeeming from mutual funds in India. So if you follow certain rules/conditions, you can invest in mutual funds as an NRI.

Procedure to invest in Mutual Funds for NRIs
The procedure to invest in mutual funds for NRIs is not complicated. Let’s have a look at it.

Setting up an account

If you’re an NRI wanting to invest in mutual funds in India, you must set up an NRO or NRE account. Fund houses don’t accept foreign currency payments, and you can’t park your money in savings accounts, so you’ll have to open one of the above-mentioned accounts.

Investing (either of 2 methods)

As an NRI, you have two methods to invest in mutual funds, i.e. direct method and through power of attorney.

• Direct method: You can directly invest in MFs in India through this method. You may be asked to furnish your KYC details and other documents, such as recent photographs, bank statements, resident proof of other countries, copies of PAN cards, etc. An in-person verification can also be asked for and done via the Indian embassy.
• Power of Attorney: You can invest in MFs through Power of Attorney by allowing a third party to make transactions on your behalf. You may need your and Power of Attorney’s signature on KYC papers for this.

Getting the KYC done

Your KYC process must be completed as an NRI to invest in MFs. To complete your KYC process, you may be asked to submit a few documents, such as photographs, current address details, copies of passports, etc. It is also possible that you will be asked to complete an in-person verification process.

Note: If you’re in Canada or USA, you may be asked to submit additional documents. Also, a few fund houses do not accept investments from NRIs in these countries. Hence, check for those who accept investments from these countries too.

Redeeming your investments

There is no one fixed redemption process that all mutual fund houses in India follow. Hence, it would help if you read the policies related to redemption before investing your money.

A basic process that each fund house follows is to credit your entire corpus, including the invested amount and gains, to your respective NRE or NRO bank accounts. The amount credited will be done after deducting taxes.

Taxation on Mutual Funds
The gains from mutual funds are taxable. The rate of tax depends on the holding period and asset class.

Taxation on equity-oriented funds

STCGs are taxed at a 15% rate when these funds are redeemed within 12 months.

LTCGs are taxed at a 10% rate (without indexation for amounts exceeding Rs 1 lakh) if withdrawn after 12 months.

Capital gains on debt funds

STCGs (i.e. when debt fund units are redeemed within three years) are taxed at your income tax slab rate.

LTCGs (i.e. when such funds are redeemed after three years) are taxed at a 20% rate after indexation and surcharges and cess as applicable.

If India has signed a DTAA, i.e. Double Taxation Avoidance Treaty Agreement with your country, you won’t have to worry about paying double taxes on your gains. However, TDS is deducted from capital gains when you redeem your investments.

Final words

As an NRI, you are allowed to invest your money in mutual funds in India, provided that a certain fund has allowed investments from your country. Hence, you must invest in mutual funds as an NRI only after performing detailed research.

This blog is purely for educational purposes and not to be treated as personal advice. Mutual funds are subject to market risks, read all scheme-related documents carefully.

What are Top-up Health Insurance Plans, and how can these be beneficial?

When you order a pizza, the billing executive usually asks whether you need any top-up of cheese, olives, chicken, or other toppings over the basic pizza you ordered. So, these toppings can be compared with the top-ups in the health insurance industry. Every mediclaim policy has a certain sum assured or coverages which one may exhaust, and thus to have better security, top-up plans come in handy at a reasonable cost.

How do top-up insurance plans work?

Suppose you have purchased a mediclaim policy which has a sum assured of Rs. 10 lakhs. However, given the ever-increasing cost of medical treatment and increased risk of chronic illnesses, especially after the pandemic, Rs. 10 lacks can get exhausted within a few days at the hospital. So, in this scenario, you can have two ways out. You can buy another insurance that has a higher sum assured, or you have a top-up plan to increase your sum assured, but the difference would be in the premium.

Top-up insurance comes into play when the primary insurance policy has been exhausted. Suppose you have this Rs. 10 policy and you fell ill with a chronic liver problem, and the bill amounted to Rs. 16 lakhs. Your primary policy will get completely exhausted, and the remaining Rs. 6 lakhs can be paid using the top-up policy.

Often people confuse top-up policies with riders while both are entirely different. Top-up policies are like primary insurance or reimbursement policies, but the difference is in the premium or the cost of having one.

Features of top-up insurance policies

• As said above, these policies are similar to the primary health insurance plans, so you can also convert them into primary ones.
• If you have a top-up insurance plan covering both parents, the child can automatically get coverage in the same plan.
• There is no upper limit or sub-limits on expenses at the hospital like bed charges, doctors’ fees, and others.
• Many of the top-up plans offer cumulative bonuses on the sum assured for the years where no claims are made, Unlike basic health insurance, top-up plans don’t require you to go for health check-ups. You can avail of these plans based on your basic health insurance policy.
• The top-ups can be renewed every year without any limit.

Coverages provided by top-up plans

Top-up plans usually cover the following expenses:

• Pre-hospitalization expenses of 60 days before hospitalization
• Post-hospitalization cost of 90 days after discharge from the hospital
• Day-care procedures requiring less than 24 hours of hospitalization
• Some of the plans also cover the organ donor’s expenses
• Every hospitalization expense will be covered, from room/ bed charges to doctors’ fees, medications, nurse or attendants’ fees, OT charges, artificial life support machinery costs, implants, and diagnostic procedures as well.

Who should buy top-up health insurance plans?

While anyone can buy these plans, top-ups are more suitable for families with elderly people. As the health risks increase with age, the chances of exhausting basic health plans also increase when there are elderly people. So, having top-up and primary insurance can be beneficial for older adults. Also, if someone has some chronic diseases and requires hospitalization frequently, having a basic health insurance policy of a higher sum assured along with top-up plans can be beneficial.

Advantages of top-up plans

• Top-up policies can be a savior when you have exhausted your primary policy and still, there are many months before the policy renewal. Suppose you need hospitalization within this duration, and then you can use the top-up plan and not have to worry about the expenses at the hospital.
• While you can get the same coverage, the premium you will pay for top-ups will be much less than for primary policies.
• You can also avail of tax benefits under section 80D of the IT Act for the premium you pay for top-up policies.

Conclusion

While general inflation is scaring everyone, medical inflation is at some other level making many families lose their life savings. Thus, having top-up plans to secure your health and finances can be a wise decision to take at this moment.

This blog is purely for educational purposes and not to be treated as personal advice. Insurance is a subject matter of solicitation.

Why is investment significant for millennials?

If you are born between 1981 and 1996, you are a millennial. Millennials are highly ambitious and passionate about money and growth. At the same time, having bad spending habits and ‘living in the moment’ may not be good for your financial health.

Dreaming big is an inherent part of life, but it requires strategy and time for completion. Millennials have enough time to get things on the path and understand such an approach.

If you are a millennial and haven’t yet invested, in this article, we will give you some points on why it is essential to start investing as a millennial.

Changing the life of Millennials

Businesses are taking advantage of new advertising techniques like memes and short videos because they see how social media trends have changed in the last few years. These marketing trends are affecting millennials to buy products that are depreciating in nature.

Social media is not the only reason to start investing. There are many other obvious reasons why it is essential to start now.

Importance of building a Habit of Investing

1. Expensive Lifestyle

A few years back, it was an unnecessary luxury for the middle class to own a car or a house in the city of choice. Fast forward to the present, a car and a place in the town of choice is a need for most people belonging to the millennial generation. It is expensive to live a comfortable, safe, and secure life in today’s world.

That’s where investment plays a role to help in living a life of choice without stressing about inflation and expenses.

1. Lack of income source security

By analysing today’s economy, job security is a question mark for many organisations. It is necessary to secure your near future along with long-term financial objectives. You need to make strategic investments for a retirement plan, build an emergency fund, and have health insurance.

1. Achieve ambitious long-term objectives

Millennials are ambitious towards achieving their long-term objectives. Achieving such ambitious goals requires investing regularly in investment options that can generate high returns.

Starting with easy and hassle-free investment schemes with reasonable returns such as equity mutual funds. Manually increasing the SIP amount to reach goals faster can be better.

Before jumping to investment, analyse your risk tolerance and know your investment horizon. Also, you can start in an index fund that tracks the broader market and gives returns in line with the market.

It is always advisable to take the help of financial advisors.

1. Keep a health check

One can easily see the relationship between bad eating habits and their effects on finances and health. Junk food has become an inseparable part of our lives. Also, it is eating our hard money savings and potential investments too.

During covid, we all realised the importance of health insurance, especially for those who had lost their only family member. After analysing your body type, eating habits, and family health history, getting health insurance is essential to keep your finances healthy. Insurance companies also offer consumers financial benefits and discounts on regular health care.

We can get prepared for what we cannot avoid, genetic disease or disease due to unavoidable pollution. Health insurance has a waiting period for various claims under different situations. Millennials must buy a health insurance policy before hospital bills eat their finances.

How to start investing?

By following a standard series of steps, a millennial can start their investing journey in any category of investment schemes.

1. Plan: Plan your finances by starting from analysing your current situation, and framing where you want to be must be the first step of investing.
2. Financial goal: Financial goals can be either long-term, medium-term, or short-term. You can decide where you need to invest according to your time horizon.
3. Expected rate of returns:Your financial goals will decide the required rate of returns and how much time you have to achieve such objectives.

Conclusion:

The habit of investing takes care of funds, emergencies, and loved ones. In this real world, where everything is growing with unmatchable speed, investment is the only way to grow money.

Habits, dreams, and macro-economic changes are the significant reasons millennials need to start investing.

Millennials still have the luxury of time to use the power of compounding. Starting with a small investment can be significant in no time. So let’s get started with the first investment.

This blog is purely for educational purposes and not to be treated as personal advice. Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

7 Facts About Mutual Funds That Will Impress Your Friends

“Mutual Fund Sahi Hain”

Almost everyone in the country has heard the above line in advertisements.

Mutual funds are professionally managed funds that diversify the portfolio and aim to provide reasonable returns per the scheme’s objectives. Mutual funds are available in various types per the investor’s risk appetite and time horizon.

Here we will be looking into some facts about mutual funds.

Fact 1. All you need is Rs. 500

Mutual funds are affordable, accessible financial products. Anyone can start investing with Rs.500 per month through a Systematic Investment Plan (SIP). The low minimum amount has made it easier for people to start investing a fixed amount every month.

Fact 2. Let the magic of compounding happen

Compounding is when interests or gains are reinvested to generate additional interest or gains over time. Compounding does its magic with consistent investment over the long-term period.

SIP is an excellent tool for beginners and young investors to start their investment journey. The magic of compounding occurs when the investments are kept untouched for a long time.

Fact 3. Your money is in the expert’s hand

Mutual funds are the pool of funds deposited by investors that experts manage in the matter. Experts analyse the various investment opportunities and invest funds to create a portfolio to generate reasonable returns per the scheme’s objectives.

Fact 4. Diversification and liquidity

Mutual funds are a great way to diversify your portfolio. Mutual Funds offer the incredible benefit of diversification by investing in different asset classes and sectors of a particular asset class. This helps to minimise risk.

Moreover, one can quickly redeem their money from their mutual fund folio and get it credited to the bank account.

Fact 5. Get a loan against mutual fund units

Did you know that you can pledge your mutual fund units to get a loan from a bank?

Getting a loan against the units of mutual funds you hold is easy, and a few banks offer it to process digitally. The feature enables you to pledge assets for Mutual Funds online and get an overdraft limit in minutes!

By pledging your mutual fund units as security, you can avail loan against mutual funds, whether debt, hybrid or equity mutual funds, at any bank or non-banking financial company (NBFC). The benefit of a loan against Mutual Funds is that your units do not need to be redeemed prematurely. You can keep your systematic investment plan (SIP) unchanged.

Fact 6. The investment horizon depends on the goal

The investment must be goal-driven, and by using the goal factor, you can decide the investment period. The same is the case with mutual fund investment.

So, if you have a short-term goal, you can invest in a debt fund per your time horizon. And, in the case of a long-term goal, you can invest in equity funds that have the potential to give good returns over the longer-term horizon.

Fact 7: You don’t need a Demat account to invest in mutual funds

Unlike investing in the stock market, you don’t need a Demat account to invest in mutual funds. When you complete the investment formalities, and the fund house opens a mutual fund folio where investment units and the investment amount are credited. When you redeem from mutual funds, the units and the investment amount gets reduced from your investment account.

Conclusion

Over the last decade, mutual funds have gained immense popularity in India among all people and investors. Mutual funds are the most favoured investment option for beginner and retail investors.

Mutual funds are a simple, accessible yet powerful tool to create wealth and reach financial milestones. Mutual funds allow investment in various asset classes per your risk tolerance and time horizon. Start your investment journey with a small step like mutual fund investing through SIP.

This blog is purely for educational purposes and not to be treated as personal advice. Mutual funds are subject to market risks, read all scheme-related documents carefully.

How to get excited about savings?

Everyone wants to have some savings, but most are unable to achieve their goals, primarily because the journey can be lengthy and monotonous because it requires discipline. You can, however, change this by making the financial savings journey exciting and keeping you on your toes.

Here are some of the ways you can achieve that.

Save for your goals

The most important thing to add excitement to your saving is mapping it with your goals. This adds purpose to your savings and thus keeps you motivated. For instance, if you plan to have a foreign vacation next year and are saving for that, tag that portion of savings with that goal. This will add that bit of incentive to your savings when you have to make your periodic investments and deter you from dipping in to that portion of the savings for another reason.

Break your bigger goals into smaller sections

It can be a little intimidating to achieve a big goal as it might seem out of reach. But, planning your goals with regular investments, such as investing in a mutual fund through a Systematic Investment Plan(SIP), can make it easier to achieve those goals.

You can talk to an expert who can help you figure out the amount you can save regularly. 

Add dexterity 

Now dexterity, by definition, is building skills for a task, but here we mean to say that individuals should add skills to their savings and investment patterns. This dexterity gives an additional kick to your investments and keeps you excited. And the simplest thing to do is invest in the right products as per your risk-return profile and horizon. For instance, if you plan to buy a second home five years from now, you would be better off investing in hybrid mutual funds to generate a better return on your investments compared with the traditional instruments.

Track progress 

Another essential thing that individuals can do to be excited about savings is tracking the progress of their savings and investments. By doing this vital step, you can track where your savings are headed and feel connected to them. The former is essential since it helps you tweak your savings strategy basis your position in the financial journey, while the second aspect helps you remain connected with the original goal for which you were saving. This is important for you to remain not only updated on your savings but also excited for the end outcome.

Reward yourself 

It is also important to treat yourself with some reward to keep yourself motivated on the savings journey. Imagine it like the cheat day you binge on when you are on a strict regimen. That one day not only keeps you excited but also helps reduce the stress from the other days. In financial parlance, this cheat day could be the day you spend on things you want if you can achieve one leg of your financial savings journey. It would be better to plan and note these rewards so that you don’t go overboard with them.

Summing up 

The financial savings journey should not be an unknown and uncharted path leading you nowhere. Not only do investors not benefit from it, but they also usually tend to get astray from their goals. By adding excitement to their savings and investments, investors can keep themselves hooked on this financial journey while also aiming for their goals in a planned manner. Individuals can apply the methods detailed in the article to keep themselves motivated and excited about their savings.

This blog is purely for educational purposes and not to be treated as personal advice. Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

Mutual Funds – Expectation vs Reality

Mutual funds are no more an unknown tool or hidden investment option. Investing your savings in today’s day and age can be pretty overwhelming. Investment through mutual funds is so accessible to the public. At the same time, the significant population in India is not financially literate, which creates few specific expectations regarding investment in mutual funds.

Investment is definitely a game of facts, data, and information but the journey to investment starts with clarity and a positive mindset toward money.

Let’s explore the expectation and establish the reality regarding mutual funds investment.

Expectation – Mutual funds givers constant returns year on year at the investment.

Reality – Mutuals can’t always give equivalent or constant returns. Usually, the websites show the return on mutual funds from the date they have been started, but that doesn’t imply it gives the same returns every year. Mutual fund returns can be low at some point or at an all-time high, depending on various market factors.

Expectation -SIP can only be done on a monthly basis

Reality -Majorly people create monthly SIP on Mutual Funds, though SIP can be done on a daily, quarterly, or even half-yearly basis. Most investors automate SIPs as it simplifies the investing process and builds a discipline for constant investment. Automation of investment through SIPs encourages monthly investing. Moreover, investors have the option to create SIPs at different regular intervals. The interval between two SIPs is a personal call by an investor depending on their access to funds for investments.

Expectation – Mutual funds are equivalent to the stock market.

Rality-That’s something most beginner investors think that mutual funds are the same as the stock market. The stock market is for investing in equity shares, whereas mutual funds consist of

investing in different companies at varying proportions.

Expectation – Mutual funds are risk-free.

Reality- Many people are under the impression that mutual funds are entirely risk-free. This is not totally true, and one of the main risks is that you could lose money if your mutual fundhas a wide market exposure.

Mutual funds are made up of stocks, bonds, and cash in proportions that vary with each fund. The amount of risk associated with a mutual fund depends on the type of assets it owns. The more stocks and other volatile investments in its holdings, the greater the risk.

Generally speaking, large-cap funds have less risk than small-cap funds because there is less chance for rapid changes in their underlying value. Likewise, bonds have less risk than stocks because their value does not fluctuate as much. Cash holdings also tend to be very stable.

Expectation -Multiple Mutual Funds will always generate higher returns.

Reality – Mutual funds are already a diversified form of investment, so investing in multiple mutual funds of the same category won’t help to diversify. Investing in multiple mutual funds neither help to diversify the portfolio nor generate higher returns. It can also backfire on the investor by lower returns and stress of managing diverse mutual funds. Returns on mutual funds depend on various market factors that apply to all mutual funds.

Expectation -It needs a considerable amount to start investing in mutual funds.

Reality- Still, a sector of the population thinks investing in mutual funds requires a large sum of money. It doesn’t require much money to start investing; all it needs is a will to invest and the mindset to create wealth. One can start investing in mutual funds for as low as Rs. 100 per month by investing in mutual funds through SIP.

A reality check is always needed to start something new, and even the things are known. It helps to grow and think strategically. So don’t make random expectations at the start of the investment journey; focus on disciplined and strategic investing.

This blog is purely for educational purposes and not to be treated as personal advice. Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

Bond Funds That Play “Duration” For Capital Appreciation

Dynamic, meaning it can change according to your requirements. But, you might be wondering how such a word can apply in the context of investments.

Before understanding Dynamic Bond Funds’, we need to know about Dynamic Mutual Funds.

A dynamic mutual fund is a mutual fund that is dynamic in nature. It means that the fund manager can change the fund’s underlying instruments, such as stocks and bonds, to align with the current and future expectations of the fund. 

The objective of this fund is to deliver optimum returns in falling and rising market cycles. Unlike a regular fund that looks to buy and hold the instruments for the long run, a dynamic fund aims to make the best out of the current market situation.

What are the Dynamic Bond Funds?

Dynamic bond funds are debt mutual funds that invest in debt or fixed-income securities such as government and corporate bonds. These funds are always open to investment and redemption.

The fund managers invest for different lengths of time depending on how they think interest rates will change.

Most of the time, dynamic bond funds are riskier than short- and medium-term bond funds. Still, they have the potential to give better returns in different interest rate scenarios and for long enough periods.

How do Dynamic Bond Funds work?

The Macaulay duration is the average weighted term to maturity of a fixed-income security’s cash flows. Macaulay Duration is, in simple terms, the weighted average number of years an investor must hold a position in a fixed-income instrument until the present value of the cash flows from the fixed income instrument equals the amount paid for the instrument. Macaulay duration is similar to another measure of duration called Modified Duration, often called Duration. Modified Duration is the change in the price of a bond for every 1% change in the interest rate. In other words, Modified Duration measures how sensitive fixed-income security is to changes in interest rates.

Dynamic bond funds can put their money in bonds with different maturities. The duration of a Dynamic Bond will depend on the types of securities the fund manager chooses to buy based on how they think interest rates will change in the future. If the fund manager thinks that interest rates will go down in the future, they will put money into bonds with a longer term (longer duration) to make money from the price going up. If the fund manager thinks that interest rates will go up in the future, they will buy shorter-term bonds to lower the risk of interest rate changes and re-invest the money from the bonds when they mature at higher interest rates.

How do Dynamic Bond Funds help in capital appreciation?

Dynamic asset allocation: Dynamic bond funds can invest in securities with a wide range of investment durations. In contrast to other debt funds, they are not subject to any investing mandates. They are not limited in their ability to invest in either short- or long-term securities. Their dynamic asset allocation also enables them to profit from changes in interest rates. They can buy long-duration securities in the event of lowering interest rates. They may invest in short-term securities in the event of rising interest rates. 

No debt fund requirement: Dynamic funds don’t have to follow an investing mandate like other debt funds. For instance, only short-term securities may be purchased by short-term bond funds. Dynamic bond funds, on the other hand, are not subject to this limitation. They can also make a one-month investment in long-term securities. Interest rate changes are the center of the overall approach.

Advantages: Tax on Long Term Capital Gains(when debt fund remains invested for a period of 36 months or more) is taxed at 20% after allowing indexation benefits, thus leading to a huge reduction in taxable income and saving a large chunk of income tax.

Ideal for: These funds are ideal for investors who don’t want to actively take calls in making a decision based on interest rate movements.

This blog is purely for educational purposes and not to be treated as personal advice. Mutual funds are subject to market risks, read all scheme-related documents carefully.

Whether to go for mutual funds or PMS?

Portfolio Management Services (PMS) may sound like mutual funds. Are you confused between PMS and Mutual Funds? While there are similarities, they are not the same.

Before understanding the differences between the two, we need to understand mutual and PMS.  

Mutual Funds

When an entity invests money in stocks, bonds, money market instruments, or other securities after collecting funds from several investors with similar investment goals, such a financial instrument is known as a Mutual Fund. And by determining a scheme’s “Net Asset Value,” or NAV, the returns earned from this collective investment are distributed proportionately among the investors after considering any applicable expenses and levies.

Portfolio Management Services

PMS is a financial service provided by the portfolio manager to achieve the required rate of return while maintaining the desired level of risk. A portfolio manager is a qualified investment professional with extensive knowledge of the market’s various instruments who focuses on analyzing the investor’s investment goals. Stocks, fixed income, commodities, real estate, other structured products, and cash can all be included in an investment portfolio.

PMS is a customized service offered as per the investor’s return requirements and the ability and willingness to assume the risk. A PMS drafts an Investment Policy Statement (IPS) to understand the financial position and needs of the client. The portfolio manager ensures that the return requirements coincide with the risk profile.

Now that we know all about mutual funds and portfolio management services, there are a few ways in which you can decide on what type of investment avenue suits you the best.

1. Mutual Funds work in a rigid framework by their mandate and invest in instruments as per the scheme’s investment objective. However, PMS offers a customizable regime to their investors, where the portfolio is constructed at a macro level.
2. The cost of a PMS is higher than that of mutual funds. Mutual funds are more cost-effective and more suitable for retail investors.
3. As mutual funds are pooled investments, other investors’ actions can impact the mutual fund’s performance. For example, suppose an investor withdraws a considerable sum of their invested amount from the fund. In that case, the fund manager might have to sell good papers to cover the liquidity requirements. In such a case, the NAV of the scheme might fall due to redemption pressures. But in PMS, the actions of individuals do not affect the returns and investments of other investors.
4. Investors may choose funds as per their financial goals and risk appetite. In mutual funds, you can start investing at as low as Rs 500 monthly. In PMS, a minimum investment of Rs 50 lakh is required.
5. You pay short-term or long-term capital gains on every transaction. Long-term capital gains in equity mutual funds are taxable at 10% per annum, including cess and surcharge without indexation on gains above Rs 1,00,000 in a financial year. Short-term capital gains are taxable at 15%, including cess and surcharge. Moreover, mutual fund scheme owners have to pay tax only on redemption. The tax on Portfolio Management Services is not as efficient.
6. The investing process in mutual funds is easy. The investment process for Portfolio Management Service is more tiresome considering the higher value of transactions.
7. PMS must make timely disclosures to the client for transparency, as these are not freely available to the public. Moreover, it is not easy to assess and compare the performance of different PMS products. But in the case of Mutual Funds, they are strictly regulated, and all the information is public. You can easily compare performances.
8. A PMS can focus on performance and can make investment decisions such that the absolute returns are maximized. They can focus more on returns as compared to MFs that have to take care of diversification rules, valuation guidelines, and redemption-related regulations.

By comparing mutual funds and PMS, you can make investment decisions according to your financial objectives and ability to take risks.

This blog is purely for educational purposes and not to be treated as personal advice. Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

Should you invest in business cycle funds?

Like the climate, which has seasonal cycles, the economy also goes through cycles. Business cycles are a sort of variation that may be seen in the overall economic activity of a country. A business cycle comprises expansions that occur roughly simultaneously in many different economic regions and sectors, followed by similarly widespread contractions (recessions). The series consists of growth followed by a boom or peak, then recession and troughs (when the economy is in deep depression).

Although not periodic, this series of adjustments occur frequently. These changes can be triggered because of many factors such as inflation, interest rates, government policies, foreign countries’ actions and policies, changes in the demand, and supply of money, etc.

Different business cycle phases might appear at various points in time in various economies. Consequently, there may be occasions when a specific business cycle in one economy offers business chances for other economies.

Now, what is a business cycle fund?

A business cycle fund identifies economic trends and invests funds in the sectors likely to outperform by deploying the business cycle approach of investing. During the expansion phase, it’ll buy stocks of firms that might benefit from the business cycle or market/sector leaders.

Business cycle funds invest in various companies irrespective of the same sector, while sector funds invest only in one sector-specific sector company. For instance, a technology sector mutual fund will invest only in technology-related companies. In contrast, a business cycle fund will invest in all those companies that might be positively impacted at any particular phase of the economy.

Advantages of investing in a business cycle fund?

It is critical to comprehend that sector performance fluctuates across an economic cycle. For instance, the financial sector would perform better during the recovery and boom periods. Still, industries like pharma and FMCG will probably perform significantly better than other industries during phases like the recessionary phase. For example, the pharmaceutical and communications industries were profitable throughout the pandemic even while the economy was in a slump.

A fund manager is better positioned to decide due to the large research team at his disposal because not all the companies in a sector would perform well even at the best of times. Investors can feel secure knowing that their portfolios will be strong enough to ride through market cycles and take advantage of market opportunities thanks to this investing strategy.

The scheme’s investment goal is to produce long-term capital appreciation through allocation between sectors and stocks at various business cycle stages while investing with an emphasis on riding business cycles.

• It will buy stocks of industry leaders or businesses that do well when one sector does well. This will happen during an economic expansion.
• It will invest in businesses from industries that offer protection against downturns during a contraction phase.

Business cycles have gotten shorter, and a portfolio must respond swiftly to shifting conditions.

Risks involved in a business cycle fund

The major risk in investing in business cycle funds is timing. The phases in the business cycle might change quickly, and in this situation, the fund managers have to consider the changes and make appropriate investment calls.

Another risk is a cyclical risk. It is the risk of business cycles or other economic cycles adversely affecting the returns of an investment, an asset class, or an individual company’s profits.

Should you invest in business cycle funds?

The decision is subjective, but it is important to keep in mind the returns and risks involved. You can take calculated risks to exploit the profits offered by the funds.

If you are a new investor, staying away from thematic funds and investing in diversified equity funds will be better. To know more, you can contact us.

This blog is purely for educational purposes and not to be treated as personal advice. Mutual funds are subject to market risks, read all scheme-related documents carefully.