ABW-601 Deepti Sharma

Project B.Com. (Hons)

Topic: Investor Awareness Program 1700432

“If you will save 10 rupee daily then at the end of the month you will end up saving 300 rupees. Invest
money today and get more money in future. Think about it.”

What are the different avenues of investment?

Fixed Deposits: FD, also known as Fixed Deposit, is a popular saving instrument provided by banks for
short-term and long-term investments. The rate of return on FDs is fixed and pre-decided by the
Government of India

Bonds or Debentures: Debentures or bonds are long-term investment options with a fixed stream of cash
flows depending on the quoted rate of interest. An amount of risk involved in debentures or bonds is
dependent upon which the issuer is.

Gold: One can buy in gold in various forms-physical, paper, and digital. These forms include jewellery,
bullion, sovereign gold bonds, digital gold etc. Gold prices usually go up during times of uncertainty.
Financial advisors recommend one should invest only a certain limited percentage in gold to hedge against
other risks and not much beyond this limit.

Stocks: Aggressive investors who understand the workings of the stock market and are willing to take risks
on their own could look at investing directly in equities. One needs to do due diligence before investing
directly in shares of a company. Investors might also find it difficult to know when to enter and exit the
stock market depending on domestic and global factors.
Mutual Funds: Mutual funds are an easy and tension free way of investment and it automatically diversifies
the investments. A mutual fund is an investment only in debt or only in equity or mix of debts and equity
and ratio depending on the scheme.

PPF: The Public Provident Fund (PPF) is one of the most popular investment options in India because of its
sovereign guarantee. Investment offers tax benefit under section 80C, interest earned and maturity are also
exempt from tax. The scheme has a lock-in period of 15 years.

NPS: Investors who wish to receive a pension in their retirement years can look to invest in the National
Pension System (NPS). It is a defined contribution system where your contribution is invested in various
assets - equity, bonds, government securities, and alternative investments as per your choice.

Real Estate: People buy a house either for self-occupation or to earn rental income and capital gains from it.
However, as per most financial advisors, investing in real estate to earn rental income is not considered as a
good investment. Before making an investment in property, one must evaluate based on safety, liquidity,
returns and other similar parameters.

Life Insurance and General Insurance: They are one of the important parts of good investment portfolios.
Life insurance is an investment for the security of life. The main objective of other investment avenues is to
earn a return but the primary objective of life insurance is to secure our families against unfortunate event of
our death. It is popular in individuals. Other kinds of general insurances are useful for corporates.

Which option is best?

By comparing the various investment options on

the basis of investment goals and risk tolerance,
we can easily find out that investing in mutual
funds is better than investing in other investment
alternatives.

Mutual funds not only help in capital preservation

but also in generating income and capital
appreciation as well.

Why Mutual funds?

 A Mutual Fund is the trust that pools the savings of a number of investors who share a common
financial goal.
 Anybody with an investable surplus of as little as a few hundred rupees can invest in Mutual Funds.
 The money thus collected is then invested by the fund manager in different types of securities. These
could range from shares to debenture, from Government Bond to money market instruments,
depending upon the scheme’s stated objective.
 It gives the market returns and not assured returns.
 In the long term market returns have the potential to perform better than other assured return
products.
 Investment in Mutual Fund is the most cost efficient as it offers the lowest charge to the investor.
Types of Mutual Funds:-

Advantages of Mutual Funds:-

 Liquidity: Unless you opt for close-ended mutual funds, it is relatively easier to buy and exit a
mutual fund scheme. You can sell your units at any point (when the market is high). Do keep an eye
on surprises like exit load or pre-exit penalty. Remember, mutual fund transactions happen only once
a day after the fund house releases that day’s NAV.
 Diversification: Mutual funds have their share of risks as their performance is based on the market
movement. Hence, the fund manager always invests in more than one asset class (equities, debts,
money market instruments, etc.) to spread the risks. It is called diversification. This way, when one
asset class doesn’t perform, the other can compensate with higher returns to avoid the loss for
investors.
 Expert Management: A mutual fund is favoured because it doesn’t require the investors to do the
research and asset allocation. A fund manager takes care of it all and makes decisions on what to do
with your investment. He/she decides whether to invest in equities or debt. He/she also decide on
whether to hold them or not and for how long.
 Less cost for bulk transactions: You must have noticed how price drops with increased volume
when you buy any product. For instance, if a 100g toothpaste costs Rs.10, you might get a 500g pack
for, say, Rs.40. The same logic applies to mutual fund units as well. If you buy multiple units at a
time, the processing fees and other commission charges will be less compared to when you buy one
unit.
 Invest in smaller denominations: By investing in smaller denominations (SIP), you get exposure to
the entire stock (or any other asset class). This reduces the average transactional expenses – you
benefit from the market lows and highs. Regular (monthly or quarterly) investments, as opposed to
lumpsum investments, give you the benefit of rupee cost averaging.
 Suit your financial goals: There are several types of mutual funds available in India catering to
investors from all walks of life. No matter what your income is, you must make it a habit to set aside
some amount (however small) towards investments. It is easy to find a mutual fund that matches
your income, expenditures, investment goals and risk appetite.
  Cost-efficiency: You have the option to pick zero-load mutual funds with fewer expense ratios. You
can check the expense ratio of different mutual funds and choose the one that fits in your budget and
financial goals. Expense ratio is the fee for managing your fund. It is a useful tool to assess a mutual
fund’s performance.
 Quick & painless process: You can start with one mutual fund and slowly diversify. These days it is
easier to identify and handpicked fund(s) most suitable for you. Tracking mutual funds will not take
any extra effort from your side. The fund manager, with the help of his team, will decide when,
where and how to invest. In short, their job is to beat the benchmark and deliver you maximum
returns consistently.
 Tax-efficiency: You can invest up to Rs 1.5 lakh in tax-saving mutual funds which is covered under
Section 80C of the Income Tax Act, 1961. Though a 10% tax on Long-Term Capital Gains (LTCG)
is applicable for returns above Rs.1 lakh after one year, they have consistently delivered higher
returns than other tax-saving instruments like FD in recent years.
 Automated payments: It is common to forget or delay SIPs or prompt lumpsum investments due to
any given reason. You can opt for paperless automation with your fund house or agent. Timely email
and SMS notifications help to counter this kind of negligence.
 Safety: There is a general notion that mutual funds are not as safe as bank products. This is a myth
as fund houses are strictly under the purview of statutory government bodies like SEBI and AMFI.
One can easily verify the credentials of the fund house and the asset manager from SEBI. They also
have an impartial grievance redressal platform that works in the interest of investors.
 Systematic or one-time investment: You can plan your mutual fund investment as per your budget
and convenience. For instance, starting a SIP (Systematic Investment Plan) on a monthly or quarterly
basis suits investors with less money. On the other hand, if you have surplus amount, go for a one-
time lumpsum investment.

Investing in Mutual Funds through SIP……..

A Systematic Investment Plan (SIP), more popularly known as SIP, is a facility offered by mutual funds to
the investors to invest in a disciplined manner. SIP facility allows an investor to invest a fixed amount of
money at pre-defined intervals in the selected mutual fund scheme. The fixed amount of money can be as
low as Rs. 500, while the pre-defined SIP intervals can be on a weekly/monthly/quarterly/semi-annually or
annual basis. By taking the SIP route to investments, the investor invests in a time-bound manner without
worrying about the market dynamics and stands to benefit in the long-term due to average costing and power
of compounding.

Advantages of SIP:-

 Encourages regular investments (just like recurring deposit schemes)

 A convenient way to invest regularly
 Lower initial investment without cutting into regular expense
 Long term perspective
 Rupee cost averaging benefit to counter volatility - it brings down the average cost of your
Investments
 No timing the market!!!
 Meet investment objective with investment needs
 Helps to match the risk / return profile
 Power of Compounding

When you invest regularly through SIP and

invest for the long term, the benefits are
magnified by the compounding effect.
Compounding effect ensures that you earn
returns not only on your principal amount
(actual investment) but also on the gains on the
principal amount i.e. your money grows over
time as the money you invest earns returns. And
the returns also earn returns.

SIP of Rs. 1000 invested per month @ 8% pa

till the age of 60.

Power of starting early

The earlier one starts saving and investing

regularly, the easier it is to achieve your goals. The
graph shows the impact of beginning to invest
Rs.5,000 monthly at various stages of life till the
age of 60 years (assuming a return of 12% p.a.). If
you start SIP at age 25, as per the illustration
shown a corpus of approximately Rs. 2.76 crores
can be generated at retirement. If you would have
waited 5 years and started SIP at age 30, a corpus
of approximately Rs. 1.54 crore would have been
available to you at retirement i.e. a difference of
Rs. 1.21 crore – which is the ‘cost of delaying starting SIP’.

SIP Calculator

A SIP calculator is a simulation, which allows individuals

to estimate the return on their mutual fund investments
made through SIP. Investing through SIPs in mutual funds
has become one of the most popular investment options
for millennials these days. SIP calculators are designed to
give potential investors a heads up on their mutual fund
investments.

A SIP calculator works by the values entered by the users.

The users are to enter their amount of investment,
frequency of investment, duration of investment, and the
expected returns. The SIP calculator is designed based on
the compound interest formula. The compounded interest
powers the mutual fund returns.

How to buy?
Criteria of selecting the best Mutual fund:-

 The total Corpus, or the asset size, of the mutual fund is large. 500 Crore is a good reference point.
Of course, there are outstanding mutual funds that do not have 500 Crore in assets, but if you're a
newcomer, this a good general rule of thumb.
 The mutual fund has been in duration for at least 5 years (the longer, the better).
 Always choose a reputed fund house. There are several fund families or fund houses in India such as
Reliance, HDFC, SBI, Birla Sun Life etc. So, if you are able to recognize any of them, you are
probably good to go.
 SIP should be in conjunction with your bank. If it is not, you need to contact the relationship
manager of your bank and he will get you set up.

3 SIP Investment Mistakes You Should Avoid

Be mindful of the following mistakes while making a SIP mutual fund investment so that you can create and
appreciate your wealth to maximum levels:

 Investing too small or too big amount: It is often observed that many investors invest a very small
amount via a SIP. It is fine to begin with a small amount in the beginning, however, the investment
amount should be gradually increased to reap in substantial gains. Similarly, many investors begin a
SIP investment with considerably huge amounts. This approach must be avoided and huge sums
must be invested once the investor has enough confidence about the performance of the fund. An
investor should always try to invest an amount optimal according to their financial position and
investment objectives
  Not investing for long term: Investors often withdraw their investment as soon as it starts giving a
decent return, failing to realise that the value of a SIP investment also depends on the SIP time
period. A SIP investment is capable of giving its maximum returns over a long tenure. Thus, it is
advisable to remain invested for at least 3-5 years in order to earn some real good returns
 Not increasing SIP amount with time: Another mistake which investors often end up committing is
they fail to increase the SIP amount with time. With an increase in disposable income, an investor
should increase the SIP contribution in order to continue receiving inflation-beating returns. This
must be done when an investor is confident about the fund’s performance.

Top 10 Mutual Funds to invest in:-

 ICICI Prudential Bluechip Fund

 DSP Tax Saver
 Franklin India Equity Fund
 ICICI Prudential Value Discovery Fund
 Axis Long Term Equity Fund
 Nippon India Tax Saver (ELSS) Fund
 DSP Equity Opportunities Fund
 Motilal Oswal Long Term Equity Fund
 Aditya Birla Sun Life Pure Value Fund
 HDFC Equity Fund