Investment in NCD

Despite equity investment grabbing the headlines and sound-bites, it is yet to capture the major population of investors in India. The reasons are not hard to guess. Equity investment is risky. Coupled with weak regulation and poor implementation of standards, equity investment, apart from in few blue chip and few well-governed smaller firms, turns out to be a losing proposition for majority of investors. I am not advocating that investors stay away from equity investment but they should mix their portfolio with right exposure to equity, mutual funds, and debt to achieve a stable return which suits their risk profile.

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Interest Rate Risk and Debt Mutual Funds

Anup is a financial advisor and a sincere one. He advises people on mutual funds investment as per their requirement. Anup, in his interaction with many clients, has come to realize that many of the investors want to preserve their capital as well as earn an average return. It is fine for them to receive average returns as long as the capital is preserved. Investors, however, do want better returns than the banks. Anup realised that there in the market there is a significant set of investors who are risk averse and want a fund that not only preserves their capital but provides returns at least as good as banks. Anup, to satisfy and to do justice with the requirement of his clients started suggesting debt funds to his clients. It was all good. Debt funds usually don’t lose money. They provide periodic returns as well as chances of capital appreciation when interest rates go down.

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Asset Allocation Funds

The advantage of mutual funds over pure equity, bonds, precious metals, or real estate investment is that they have inbuilt risk management system. They invest in a set of assets to fend off any risk that arises because of single asset or a set of assets which are facing temporary slowdown. They also have someone, the fund manager, who is keeping a track of your investment and changes the assets depending on how they perform and the future prospects. Let’s look at asset allocation fund which is growing in popularity.

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Things to know about Mutual Fund

Mutual funds are managed by fund managers and hence investors do not have much say in where the fund managers choose to invest. What investors can do is to choose the mutual funds that match their investment philosophy. There are equity funds which invest in large blue chip companies. There are equity funds that take little more risk by investing in mid cap and small cap companies expecting better returns. Then there are debt funds which do not pose much risk to customers and give moderate returns. There are hybrid funds which invest a part in debt and a part in equity. These funds expose investors to higher risk than debt funds but lower risk than equity funds. Despite availability of information and despite being passive investors, most of the investors still manage to make mistakes which prove harmful for their investment and results in dissatisfaction, unnecessary arguments with their advisors, and loss of investment.

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Investment in Exchange Traded Funds

Exchange traded funds or ETFs are mutual funds that invest in the stocks of the index. There are many types of ETF covering a gamut of investment assets which can be traded in the market just like stocks. ETFs are pretty popular in matured market like USA and it has been a part of portfolio of many investors. In fact ETFs are considered the best bet in mutual funds for passive investors. In India, however, ETFs did not impress the investors. The situation is slowly changing. Burton Malkiel, a professor of economics in Princeton University, says that buying and holding index fund is the best way to build wealth in the long term. He is well known for his book, “a random walk down wall street”. In this article, we will discuss the ETF and its importance in investors’ portfolio.

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Debt Mutual Funds

Debt funds have been gaining popularity since 2008 when market crashed. Even after 4 years, the market has not touched the level it was in 2008. What this means at a high level is that the market has given negative returns over the last 4 years. An investor would have earned at least 30% had he invested in debt funds starting from 2008.There are few fund houses that are now encouraging SIP option in debt funds. It doesn't make much sense from investing perspective but it is a good option from discipline perspective. Let's look at the different types of debt fund available in the market for investment.

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