direct-vs-regular

Difference between Direct & Regular Plan Mutual Funds

“One of the only ways to get out of a tight box is to invest your way out.”
-Jeff Bezos

A Mutual Fund is divided into two categories:

  • Direct Plan Mutual Funds
  • Regular Plan Mutual Funds

And in this topic, we will dive deeper into these two broad categories to understand how they work and who should invest in them.

Direct Plan Mutual Funds

The Securities And Exchange Board Of India (SEBI) introduced Direct Plan Mutual Funds in January 2013 making is compulsory for all the Asset Management Companies (AMCs) to provide an option to invest in Mutual Fund scheme directly. When an investor invests in a Mutual Fund directly with an Asset Management company(AMC) without the help of any broker, distributor, banker or any kind of intermediary, that is known as Direct Plan Mutual Fund. One can apply to Direct Plan Mutual Fund just by visiting the Mutual Fund house or visiting the company’s official website or through an online app such as MyWay Wealth that provides the option on investing online.

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Mutual Funds

Mutual Funds – The right investment option

“An investment in knowledge pays the best interest.”
Benjamin Franklin

What are Mutual Funds?

A mutual fund is formed when money is been collected from different investors and invested in the company shares, stock or bonds. A mutual fund is managed collectively to earn the highest possible returns. The person driving this instrument vehicle is a professional fund manager.

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stock market

Get to know more about Stock Market and Index

“Patience is the key element of success.”
-Bill Gates

What are the stock indices?

A stock index is a statistical measure that shows the changes happening in the stock market. The criteria for selection of stock could be the type of industry, size of the industry, and market capitalization. The value of the stock market index is to be calculated using the values of the underlying stocks in the market. If any changes happen in the underlying stock prices it will impact the overall performance of the index. If the price of the underlying security falls the index will also fall and that could be also vice versa. In this way, a stock reflects the overall market view and direction of price movements of the financial products and commodities in the market.

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Make your money work for you

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It is good to have Mutual Funds in your portfolio. Mutual funds will help the investors to build wealth with a small amount of money with the help of earning good returns. Before you make investments in any investment option you have to decode the cost. Cost doesn’t really matter in the fixed return products like FDs. The bank will rate your deposits after considering the cost and profits.
Bonds and traditional plans too work on the same logic. You need to consider certain factors such as the rate of interest, final payback, and current inflation rates. You need to think about cost in a market-linked product where the returns are linked to market conditions.

Market-Linked products carry 3 kinds of cost.

  1. Entry cost
  2. Ongoing cost
  3. Exit cost

Entry cost:

It is the cost to enter the product, also called “Front Load”. If you invest Rs 100, Rs 2 is cut-out so that Rs 98 is invested, the Rs 2 is called “front load”. A loan is a part of the price of the product which is invisible not usually disclosed.

Ongoing cost:

This is the annual fee that you need to pay to have experts to manage your money. This is also called as “Expense Ratio”. This is the fee charged by the company to manage the funds of the investors. The expense ratio depends on the amount of money you invest in the product. The market regulator “SEBI” has put a ceiling on charges.

  • Liquid funds- 14 paise to Rs. 10/- for every Rs 100/-.
  • Debt funds- 25 paise to Rs. 1.5/- for every Rs 100/-.
  • Equity funds- ranges between Rs. 2/- or Rs 3/-.

These numbers may look small but it forms huge amounts over the years. The fund with a lower expense ratio will get you a net return of 14.5 to 16% and the higher expense ratio will give you 13 to 15%.

Exit cost:

Third, an exit cost- it is the cost of selling the product. Funds will levy exit charges. This is a percentage of your corpus. The fund manager takes care of the cost of exit. Debt funds have zero exit cost and equity funds have an exit cost of 1% if you leave even before one year.
Always think on the cost that incurs to redeem your product after one, two and three years.

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Thus, the best way to evaluate a fund is by digging a bit deeper into the fees and also looking at the turnover ratio prior to investing. One can also invest in Mutual Funds and build wealth with Zero Fees and Zero Commission. Yes! That’s right. With MyWay Wealth, you can invest in Direct Plan Mutual Funds and start your journey to fulfill your financial goals. Remember! The probability of a successful portfolio increases dramatically when you do your piece of homework.

Invest in MyWay Wealth to make your money work for you!

Active vs Passive Funds

Passive funds or active funds

In Equity funds, we have different kinds, Active and Passive funds are one among them. Generally to brief on these funds:

“Passive funds: A lazy man’s strategy to earn money
Active funds: weathered the storm to earn money.”

Before having these two in your portfolio, let’s understand the concept.

Active Funds:

Active funds usually incur high cost because investors pool money and hand it over to a fund manager whose job is to select investments based on scientific research, intuitions and his experience. The investors take risk of investing in these funds because the outcome will be more effective.

Passive Funds:

It eliminates humanly ideas in predicting market moves. Passive investing means owning the market rather than trying to beat the market. It sounds uninteresting, but it is a desirable investing.
There is no difference between passive funds and index funds. All the index funds form the part of passive investing.

Beating or matching the market?

Passive investors consider that beating the part is impossible whereas, on the contrary, active investors believe that they can beat the market by selecting the good stocks. But with an aim to overcome the market and beat the benchmark, the fund managers end up substantially raising the cost of buying and selling the stocks.
The idea behind passive investing is to take advantage of market moves and compensate for the risk with the returns.
Don’t look at investing as a medium to make more money in a short span. The successful investors are those who invest for the longer term and understand that the returns are compounded over a period of time along with risk. This is the strategy used by investors to build the money.

Balanced funds:

The fund manager will always try to handle the asset allocation to safe the fund of the investors. And balanced funds are new kinds of funds launched and gaining huge popularity. Let’s understand the balanced funds in deep. There are 3 kinds of balanced funds-

  1. Conservative Funds.
  2. Balanced Funds.
  3. Aggressive funds.

Conservative funds have 10-25% in Equity, balanced have 40-50% in Equities, aggressive funds have 65-80% in Equities.

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Balanced funds are marketed as “Monthly Income Plans”. MIPs don’t offer any assured incomes, these are just the combination of debt funds with a small unit of equities that offer slightly higher returns than the pure debt funds.
Start investing in MyWay Wealth– to see the fractions on your gains.

“Don’t gamble- take all your savings and buy some stocks, hold it till it goes up, then sell it. If it doesn’t go up, don’t buy it”

– Will Rogers

A Range of Debt Funds

Debt-funds

The categorization of debt funds is simpler than the Equity Funds. Debt funds are the debt papers/ bonds issued either by the government or the firms or both. When a company needs money for both short term and long term purpose, they have the option of issuing the bonds. A bond will pay regular interest to the lenders, and then at maturity, it will repay principal- same as FD’s. There is a wide range of debt products available in the market with different maturity periods. Long term bonds are generally issued by the governments and short term bonds are issued both by the companies and the governments.

Don’t buy the bond directly from the company.

Generally, the bond that we buy from companies is “company deposits”. We shouldn’t buy because as an individual, it will be difficult for us to analyze the moves of the company and we buy bonds from 2 or 3 companies and in the mutual fund, we will have a bond of at least 25 to 30 companies.

Even if one out of three bonds performs badly, the entire profit will be affected and this will not happen when we hold bonds in mutual funds, any hit on one bond will be a fraction. This is what we called diversification of funds- we reduce the risk by increasing the number of products in our portfolio.

Always remember the bond which we are planning to buy should always match up with the time horizon because we make investments to meet the future needs. We will buy short term bonds if need our money in the near term and vice versa.

Alternative: Debt Mutual Funds

Debt Mutual Funds are those funds where the investments are made in debt or fixed income securities such as government securities, corporate bonds, and money market instruments. Investors who can invest in these funds are those who are risk averse and want to maintain stability in their asset portfolio. And these Debt funds come up with tax deductions and are highly liquid. They are “Safe investment instrument”

Types of Debt Funds:

We can classify the debt funds based on time and returns. Firstly, we should decide upon the holding period of the bond and then the returns that we are expecting. There are plenty of debt funds available in the market, before buying, use the logic and look for the products that satisfy your needs.

We can see the ups and downs in the value of the bonds. When there is a fall in the interest rates, the older bonds that are locked for higher rates will have more value and vice versa. So, what’s more, important is the “Residual Time”- the time left until the date of redemption.

Why is “Residual time” is important?

When interest rate falls the older high-rates bonds will have more value. And also, one which has 10 years left for maturity will have more value than the one which has a maturity of 1 year because we will be getting paid the higher returns for the next 10 years. Thus, Residual maturity determines the risk and return of the bonds.

  • Liquid funds:

Investment in debt and money market instruments ( treasury bills, call money, and government securities) with maturity up to 91 days only. These funds are highly liquid and the offers a low return and risk associated with these funds are very less.

  • Overnight funds:

Investors who are risk-averse can buy overnight funds because these are not subjected to high market fluctuations and a period of maturity is only one day.

  • Ultra-short-duration funds:

These come up with the maturity of not more than one year. These are suitable for investors who are ready to take up a marginal risk to have high returns.

  • Short term funds:

Investments are made in these funds for not less than one year and more than 5 years and it best suits the investors who are ready to take moderate risk.

  • Dynamic funds:

These are the funds with a variety class of bonds with different maturity levels. They are dynamic because the portfolio which includes these funds varies dynamically with the changing interest rates.

  • Durational funds:

Funds are classified based on durations.

Bonds  Duration 
Low term 6-8 months
Short term 1-3 years
Medium term  3-4 years
Medium to Long term 4-7 years
Long term More than 7 years 
  • Income funds:

Investments in securities with an average maturity period of more than 4.5 years.they are highly vulnerable to the change in interest rates. These are suitable to the investors who are ready to take high risk and willing to have investments of the longer term.

  • Corporate bond funds:

These are high rated bonds where 80% of the corpus will be invested in corporate bonds.

  • Credit risk funds:

Here, a minimum of 65% is invested in corporate bonds. The returns earned from these are tax exempted. However, the returns earned within 3 years are taxable (short term capital gain).

  • Gilt funds:

80% of the investments will be made in government securities. “Guilt” is the securities which are issued by the government. they provide a considerable return and are not subject to market fluctuations.

  • Floaters funds:

These bonds will have floating interest rates. The investors will earn when the interest rate goes down and the price of bonds moves up.
Now that you have a fair idea about Debt Funds, take some time and evaluate your needs and financial goals, choose and match the right fund that would serve your investment purpose and yield suitable returns.

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Invest in MyWay Wealth– a top rated Mutual fund app in India!

save tax

Where should I invest to Save Tax?

There are various reasons why people invest their money. Some invest to earn returns for their Children’s education/ marriage, some to buy a house or vehicle and some invest to save for their retirement. Now amongst these are people who want to invest so that they can “Save Tax”. Various investment options are available to save tax such as Public Provident Fund (PPF), Employees’ Provident Fund (EPF), Sukanya Samriddhi Yojana (SSY), and so forth. However, amongst these, one of the most recommended and promising options is Equity Linked Savings Schemes (ELSS).

What are ELSS Funds?

The only mutual fund eligible under 80C deductions is Equity Linked Savings Schemes, commonly known as ELSS. It falls under the category of equity mutual funds and invests at least 80% of its total assets in equity and equity-related instruments. It is one of the best schemes that offer tax benefits. Let’s find out!

Why is ELSS better?

1. Tax Benefits

  • Under the Section 80C of the Income Tax Act, ELSS funds are eligible for tax exemption up to a maximum of Rs. 1,50,000.
  • Tax-free returns on long term capital gains (LTCG) up to Rs. 1 lakh. ( 10% tax on returns > Rs. 1 lakh).

2. Better Returns

ELSS Funds not only provide tax advantage but also try and generate higher returns, anywhere between 15%-17%, because they leverage the benefit of equity markets. These are also safe for investors rather than investing directly in the stock market. So if you are wondering how to have equity exposure for your investments, it’s simple, opt for ELSS funds. However, remember to remain invested for a long period (over and above five years) that’s the secret of getting high returns with equity funds.

3. Less Risky

ELSS Funds are safe for investors than investing directly in the stock market. Also, the fund managers make sure to choose securities of companies which have a high growth prospect. However, remember to remain invested for a long period (over and above five years) that’s the secret of getting high returns with equity funds.

4. Lock-in Period

ProductsReturnsLock-in Period
ELSS Mutual Funds~15%-16%3 years
Bank Tax Saving FD7%-8%5 years
National Saving Certificate8%5 years
Insurance Policy4%-5%10 years
Public Provident Fund8%15 years

The above table clearly shows that amongst the tax saving products (under Section 80C), ELSS has the shortest lock-in period after which you can redeem or reinvest. However, since ELSS is equity-linked, investors who have long term goals and are willing to remain invested are likely to benefit the most from ELSS funds.

5. Flexibility

Most of the tax saving instruments say for example tax saving FDs accept only lump sum deposits/ one-time investment. However, ELSS funds give you the flexibility to choose One-time or Systematic Investment Plans. For investors who want to cultivate the habit of regular investments and are comfortable to deposit small amounts, ELSS funds are the best option. All that you need is an investment as low as Rs. 500 and you can start SIPs with ELSS Funds.

So if you are wondering how to:

  • Have equity exposure for your investments
  • Save a substantial amount of salary from taxes
  • And get high returns for your long term financial goals, then

  it’s simple, opt for ELSS Funds!

Save Tax and Grow Wealth with ELSS

ELSS

Those who pay the taxes will be familiar with this product called Equity-Linked saving schemes. If you are the person who is looking to save and invest to save the tax, ELSS could turn out to the best rewarding investment option. The ELSS funds have been superior to the other tax saving investment options.

If you invest in certain products like premium of life insurance policy, Public Provident Funds or units of an ELSS scheme, you can get a tax deduction on your taxable income. Thus, ELSS is a type of Mutual Fund which has a lock-in period of 3 years along with the tax exemption under section 80C of the Income Tax Act.

How is ELSS better than other tax saving instruments?

Here is a comparison of ELSS with other tax saving investments options.

  • Lock-in period: ELSS has a minimum lock-in period of 3 years when compared with the other tax saving instruments.
Instruments Lock-in period
ELSS 3 years
FD 5 years
NSC 5 years
PPF 15 years
NPS Till retirement

 

  • Returns: ELSS have the potential to generate good returns when compared with other instruments.
Instruments Returns earned
ELSS 15-18%
FD 6-8%
NSC 7-10%
PPF 8-10%
NPS 9-11%

 

  • Taxation: Like all other tax saving instruments, the amount invested in ELSS is tax deductible under section 80C of the Income Tax Act and allows a maximum deduction of Rs 1,50,000. Unlike other tax saving instruments, the returns generated through investment in ELSS and NPS are partially taxable and are not fully taxable. Capital gains on ELSS up to 1 lakh is exempted from tax.
  • SIP option: In a few tax saving instruments like FD and NSC, only a lump sum amount is acceptable. Whereas you can invest in ELSS through SIP(Systematic Investment Plan) which allows you to deposit a small amount at regular intervals (weekly, monthly, quarterly, yearly) which can be as low as Rs 500.
  • Risk: ELSS will involve a higher amount of risk when compared with the other instruments because they are Equities are subjected to market fluctuations.

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Now that you know ELSS is better than other tax saving instruments and start investing through MyWay Wealth.

Mutual Funds & its Types

Mutual_Funds

Mutual Funds are the collective money of different investors who aim at saving money and making money through investments. The collected money will be invested back in various funds to earn returns. The Mutual Funds are categorized based on investment objective, structure and asset class.

Types of Mutual funds based on Asset Class:

  • Equity Mutual Funds: These funds are mainly invested in the Stock market. They are also called as “Stock Funds”. Equity Funds generate higher returns when compared with other fixed-income instruments such as FDs and Debt Funds. These funds best suited to those investors who are willing to see growth along with higher returns.
    These funds are further categorized into large-cap funds, mid-cap funds, small-cap funds, sectoral funds, index funds, etc.
  • Debt Mutual Funds: These are the kind of mutual funds where the investments are made in debt or fixed income securities such as government securities, corporate bonds, and money market instruments. Investors will invest in these funds because they are more risk averse and want to maintain stability in their asset portfolio. And these Debt funds come up with tax deductions and are highly liquid. They are “Safe investment instrument”
    There are different kinds of Debt funds such as Guilt funds, credit risk funds, floater funds, etc.
  • Hybrid Mutual Funds: Hybrid funds are both the mixture of Equity and Debt funds. The investors invest in these funds to avail the benefits of investing both Equity and Debt. It enables investors to have a diversified portfolio and can have access to different asset classes.
    The different kinds of Hybrid funds are balanced hybrid funds, Aggressive hybrid funds, and conservative hybrid funds.

Type of Mutual funds based on the Structure:

  • Open-Ended funds: These are the investment instruments that deal with the “Units” that are purchased or redeemed throughout the year. The purchase or redemption is based on the NAV (Net Asset Value). These instruments are highly liquid.
  • Close-Ended funds: These instruments deal with the “Units” which can be purchased only during the initial stages and can be redeemed only on the specific maturity date, and these are highly liquid.

Types of Mutual funds based on Investment Objective:

  • Growth funds: Here, the investors will always opt of “Equity Funds” because these funds come up with higher returns along with capital appreciation. Investors invest in these to see growth in their wealth and prefer to have an investment for the long term.
  • Income funds: Investments are made in “fixed-income instruments” such as debentures and bonds because they offer regular income along with capital protection.
  • Liquid funds: Liquid Mutual Fund investments are made in short term instruments such as commercial papers and treasury bills because they offer moderate returns and they have a low-risk factor with high liquidity.

Types of Mutual funds based on Investment Goals:

Investments are made by the investors in Mutual funds with a specific goal set.

  • Aggressive growth funds: These funds have a great chance of sudden growth and fetch higher returns. The risk involved is very high because they see high price fluctuations. It suits the investors who are willing to have an investment for more than 5 years.
  • Growth funds: Investors prefer growth fund because they want to make use of growth along with the profits.most of the time it is proved that growth funds are profitable.
  • Balanced funds: These funds are the fusion of income and growth. These funds provide investors with income and at the same time offers the possibility of growth. And income and growth will be moderate.
  • Income funds: These funds best suits for the investors who are retired. These are the funds where the investment is made in fixed-income securities that offer moderate returns and they are less risky.

Then what are you waiting for? Start investing in Mutual funds. It’s never too late to start. Install the MyWay Wealth app in your phone and start your investment with just Rs 100.

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Choose between Direct and Regular plan

Direct_plan_Vs_Regular_plan

When you buy something, you will always try to cut expenses. Suppose if we buy any product online, you prefer to have free delivery. Why you do that? In order to reduce costs, you’ll try to cut the additional expenses which you don’t want to incur. Here, you do the same with the Mutual Funds.

In the market, we can buy Mutual funds in 2 ways:

  1. Directly from Asset Management Company (AMC) – Direct Plan
  2. We choose to buy through an intermediary – Regular Plan

In Regular plan, you buy mutual funds through an intermediary such as brokers, distributors or advisors. And these agents will charge a commission for the services they provide where your expenses on investments will be high. As you know that these brokers will never sell you the products that you need. They always try to push the schemes which earn a good profit to them.

Now let’s look at Direct Plans. Direct Plan is a new regulation which is enforced by SEBI on January 1, 2013. In the Direct Plan, as an investor, you can directly buy the mutual funds from the Asset Management Company (AMC), where there will be no involvement of any brokers or intermediaries and these funds which you buy are commission free.

The great advantage of Direct Plans is that NAV (Net Asset Value i.e., the value per share) is more when compared to Regular Plan which means that you earn more on your investments.
For example, if you invest Rs 10 lakhs in both the Direct Plan and Regular Plan. The direct plan offers 17- 19% of returns whereas the Regular Plan offers 14-15% of returns. Thus, With Direct Plans you can earn 1-15% more returns than Regular Plans.

And here you have a platform to make an investment in Direct Plan- MyWay Wealth with zero commission and zero fees. MyWay Wealth offers you a wide range of funds and helps you to choose the right one that suits your investment needs. To look into more features of MyWay Wealth – download the app, complete KYC and get access to top recommended funds.Screen_Shots

How to decide on Direct plan and Regular Plan?

  • If you already have an experience of investing in mutual funds, it is recommendable to go for Direct Plan, since you will have enough knowledge on mutual funds.
  • If you are a beginner then you can opt for Regular Plan and it is recommendable that you can switch to Direct Plan once you gain knowledge and experience in investing.

So don’t miss out on those 1.5% extra return. Choose MyWay Wealth and begin your journey to fulfill your dreams.

You are unique and so is your Investment!