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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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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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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De-Jargon SIP, STP and SWP

SIP, STP, SWP

Net Asset Value

NAV stands for Net Asset Value. Generally, the “net” arrives only when you remove the cost incurred from the price.

For example: Imagine there are 100 investors and each invested Rs 1,000 in an Equity fund. Each unit price will be Rs 10. Then the sum of Rs 1 lakh is invested in various stocks of mutual funds. A year later the value of Rs 1 lakh will be turned out to Rs 1.5 lakhs, giving a profit of Rs 50k.  If the cost of 10k is removed, then the profit earned is 40k. Then, the unit price will go from Rs 10 to Rs 14. Now, your 100 units worth is Rs 1.400.

Thus,

  • Investors can access the performance of the fund through the NAV differentials.
  • NAV helps to identify potential investment opportunities.
  • One can also use NAV to view the holdings in their portfolio.

Systematic Investment Plan

Why everybody is talking about SIP? What’s this cool new thing that you should know about.

SIP is a Systematic Investment Plan. This is the same as your Recurring deposits where you make periodic investments into mutual funds. Fixed money will be deducted from your bank savings account and will be directed towards the mutual fund for which you have opted for.

The two things which are good about SIP:

  1. Some people make a target for saving in SIP and spend the rest. Thus it’s very useful in building the habit of regular investment.
  2. SIP allows you to average out your price as you invest over the years, either monthly or quarterly.
  3. Also, SIP helps in reducing the risk of the market as it spreads the money throughout the various market cycle.

How SIP is different from a one-time investment:

SIP One- time investment
Periodic investment Lump sum investment
Earns better even when markets are low Earns when markets are high
Protect investment from a market crash Investments will be affected due to the market crash

MyWay Wealth

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Remember, Systematic Investment Plan is a vehicle, not a goal, you use a SIP to make investments and you can choose to have financial adviser if needed.

You can start investing in SIP with just Rs 100. Here, you have the best investment platform- MyWay Wealth.

STP- Systematic Transfer Plan:

Investors worry about making lump sum investments because of risk appetite. This is where STP helps you to mitigate the risk. In SIP, you will move your money from saving to a mutual fund whereas, in STP,  you will move your money from one fund to another. Instead of investing all in one go, you can put money in a liquid fund and set up a monthly/ weekly/ yearly transfers into different equity schemes.

SWP- Systematic Withdrawal Plan:

Here, you can either choose to withdraw capital gains on your investments or a fixed amount.this way you will not only have money still invested in the scheme but also it can be part of your regular income and returns.

Why SWP?

  1. With the SWP, you can time your withdrawals as per your financial needs. It ensures the availability of funds at the right time.
  2. With this plan, an investor can create a flow of income from an investment that is regular.

Hope this article helped you to understand the various ways of investing. Remember to make a thorough analysis of each before you make your choice. However, the most recommended option is SIP as it allows you to get into the habit of saving and provides the benefit of compounding.

Think Smart! Think MyWay Wealth!

Expose your money to Equity!

Equity investment earns you the best returns when compared with the other investment options. Now, let’s understand the true nature of all the investment options.

Investment options Initial investment Finally earned

(principle+returns)

Fixed deposit 1 lakh 19.35 lakhs
Gold 1 lakh 16.10 lakhs
Public Provident Fund 1 lakh 32.78 lakhs
Equity 1 lakh 2.3 crores

 *A period of investment is considered as 30 years for all the investment options.

Then what are these Equities?

Equities are the stocks/ shares that are listed in the stock exchanges which are traded at the market price. You can invest in Equities in two ways:

  1. Direct investing in Equities-You will directly purchase stocks of listed companies through a demat account.
  2. Investing in Equities through mutual funds.

Why one should not buy Equities directly?

Think, how do you know which companies equities to buy?

Because, if you are new to investing, then opting for the wrong equities will cost your money and peace of mind. When you decide to buy equities through mutual funds, you outsource your decision to the Stock Experts. As an investor, one only needs to invest the desired amount and become a part of the fund holdings, and the professional managers will do this job.

Key advantages of investing in Equities through mutual funds:

  • They are professionally managed by expert professionals spend quality time in researching about the future performance of companies.
  • You get an exposure to various stocks when you are invested in an equity mutual fund scheme
  • They offer you an opportunity to redeem your investments at any time (Except for Equity Linked Saving Schemes-‘ELSS’ which has a lock-in period of 3 years).
  • Equity mutual fund schemes avail you a facility to invest small sums at regular intervals through systematic investment plans (SIP).

How to invest in equity mutual funds through?

You can start investing in Equities Mutual funds through MyWay Wealth. MyWay Wealth provides you smart recommendations to build your wealth scientifically and financially.

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Thus, be smart in choosing your investment option. Always opt for investment that matches your financial goals and risk appetite, choose the scheme that matches your profile. Equities will end dependency on gold, real estate, and FDs.

It is not market timing but time in the market that matters!

You have to make it count

Good Financial Plan

Everyone will have money to save- from a poor lady who sells vegetables on the roadside to the Big shots in society. We simply don’t have a clue on “How to look for it”. This article will help you to become “A Good Financial Planner”, where you will be able to organize your money and stay stress-free about “Right Investments”.

Generally, we hear people saying- “I have no idea where my money goes”, “I don’t have anything left to save” or they will be worried about not making “good decisions” on investments or considering not having enough for their children and for themselves in the coming years. One of the reasons why we make such a statement is because we don’t have an efficient cash flow system.

The right way to track your money is to have “a good cash flow system”. You would have seen individuals who will record each penny they go through consistently which is an extremely boring job, eventually they get obsessed about money and will stop enjoying their life. Always note that your planning for money what you have isn’t just about spending, it’s also about monitoring all our cash inflows and outflows.

The aim of having a good cash flow is to separate your savings and spending so that you can keep track of your money. There are 3 accounts where you split your money- Income, Spending, and Saving and let’s give 3 different names to these accounts i.e.,

  • Income Account.
  • Spend-it Account.
  • Invest-it Account.

Now, what happens in these accounts?

Once your salary hits Income Account within a short span you will move certain money, keeping the view of all your possible expenses to Spend-it Account and the money left will be moved on to Invest-it Account.

  • The source of money for your Income Account can be your salary, cash gifts received from relatives, bonus, interest earned from investments, rent received, dividends, etc.
  • Next, you are supposed to move money to Spend-it Account. Have a rough figure of all the expenses, including expenses which you may incur in the future. Rent payment, bills, fuel, etc. these are some of the examples of general expenses. Assume in your family there is an aged old man, you can figure out his medical cost, for such costs you can move more cash additionally.
  • Now, whatever left in Income Account, move it to the Invest-it Account. Remember you should be able to move at least 15%-20% of your income to Invest-it Account.

What we are actually trying to do?

By dividing your money, we can create a system where once your money is in its place, you can easily go on with your monthly moves. In the initial stages, you may find it difficult to adopt and following this system, however, eventually, you would adjust to it and develop a steady financial habit.

Table showing the inflow and outflow for 3 different accounts:

Type of Account Percentage Inflow/ Outflow
Income 10%-15% can be maintained as a cash reserve Salary received, rent received, dividends earned
Spending Not more than 45%-50% EMI, credit card bills, utilities
Saving At least 15%-20% Online investments (or) any future investments.

Is it okay to have Joint Accounts?

Always begin with yourself and you might feel getting everyone into the system is a difficult exercise.

Type of Account Individual joint Description
Income yes No It’s good to have a separate Income Account in case your partner is not helping and not supportive.
Spending No Yes Spending can be joint where both of your credits can equal your monthly spendings.
Saving Yes No Each will have different Invest-it Account, even it can be joint, where the primary holder should be the same on whose name the investment will happen.

Keynote:

Moving money from Invest-it to Spend-it is not allowed. Always try to stick to this rule. In the first three months of this practice, you’ll know what’s going on with your money. You will have an idea about your spending. In case, your Invest-it Account is empty, you’ll know that your spending are more.

Outcomes of the system:

  • You’ll start questioning your spending and you’ll realize how much your spending are going to be.
  • Your Invest-it Account will start growing and you can track your spending capacity.

Putting a label on your money will stop you from using it for other purposes. This is what we call “Mental Accounting” which means that separating money based on the purposes and not using it for any other use. Mental Accounting stops us from seeing the same money for two different purposes. We’re training our brains into doing the right things. We have a good and well-established cash flow. Remember we are not investing yet- so the money in your Invest-it Account is ideal.

What do you do with your savings?

You can’t keep your savings idle, so being constructing your wealth. The first thing you do when you have extra cash is creating an emergency fund to meet the unseen future expenses. Then, later you can start investing in various financial products. Things you can do with your savings are:

  1. Plan for goals like child’s education, child’s wedding, vacation
  2. Investing in fixed-income securities
  3. Put money in high-yield products
  4. Invest in mutual funds
  5. Plan for retirement

With MyWay Wealth, you can make all your dreams come true. MyWay Wealth app helps you to save money for a specific purpose and helps the investors to get into the habit of making “goal-based investing”.

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Every Investor has a need, every need leads to a goal and at MyWay Wealth you can have an investment for all your goals such as Mutual Funds for high returns, Term Insurance to Protect Your Family, National Pension Scheme for your Retirement and various other needs.

Don’t Delay, Start Now!

Know more on Growth and Dividend Option

Growth-or-Dividend

There are different kinds of mutual fund options available in the market. Every mutual fund scheme you choose will have two options: growth or dividend option. You can differentiate them based on their Net Asset Value (fund’s per share market value). Always remember, the various factors such as the behavior, objective, fund manager are all the same but the performance and results delivered are different.

Growth Options:

Under the growth options, you have to stay invested for a longer period to see the growth. The returns you earn are not realized immediately. You will not receive any payment in the form of dividends. The returns are realized only when you sell the units. The NAV on the date of the investment will be your cost price and the NAV on the date of sale becomes a selling price. The difference will be your returns.

The profit your funds make remains in the market and you get the benefit of compounding over the years. The number of units you buy remains the same, but the price or NAV keeps going up. It best suits for the investors who don’t need an income from their investments today but are targeting a corpus for future use.

Dividend Options:

The dividend options allow you to book profits periodically. This option is good for investors who need periodic income from their investments. The amount of dividend is not certain. When the NAV reaches a certain level, the fund house pays out the dividend. The dividend-reinvestment is different from your dividend options. In the dividend reinvestment option, profits are booked, but instead of declaring a dividend, the fund’s house buys more units at the current price. So your number of units goes up but the NAV remains the same.

Which option is best to choose?

This depends on factors like your investment objective and tenure. For Equity Mutual Funds, the growth option would be the best because you can make compounding earnings. If you plan to invest in the short term, Debt mutual funds will be the best. For short term investment in debt funds, you can go for a dividend option.
Thus,

  • Long-term needs: Equity Mutual fund with growth option is better.
  • Short-term needs: Debt Mutual funds with dividend option is advisable.
  • Mid-term needs: Debt Mutual funds with growth options can be better.

MyWay

You can invest in hand-picked funds through MyWay Wealth– India’s most trusted Mutual fund app for Direct Plans.

So start investing in Mutual funds to make your dreams come true.