New to Mutual Funds? Tips for a beginner

First time investors in Mutual Funds act in the face of imperfect information and often get overwhelmed by uncertainties characterizing the investment situation. But there’s more to Mutual Fund investing than market timing.

First things first..

The first thing an aspiring unit holder must do is to establish what type of portfolio he wants to build. In other words, to decide the right asset allocation. Asset allocation is a method that determines how you invest your money in different investments with the proper mix of various asset classes. Remember, the type or class of security you own i.e. equity, debt or money market, is much more important than the particular security itself.

The popular thumb rule for asset allocation says that whatever the investor’s age, he should keep that percentage of his portfolio in debt instruments. For example, if an investor is 25, he should have 25% of his investments in debt instruments and the rest in equity. However, in reality, different circumstances and financial position for each individual may require different allocation. Portfolio variable is another factor that one needs to understand to practice asset allocation. These are age, occupation, number of dependants in the family. Usually the younger you are, the more riskier the investments you can hold for getting superior returns.

How to pick the right fund/s?

Next, focus on selecting the right fund/s. The key is to select the fund/s based on their investment philosophy and consistency in terms of returns. To ensure you are selecting the right type of funds that are appropriate for your needs, consider following:

* Determine what your financial goals are.
* Are you investing for retirement? A child’s education? Or for current income?
* Consider your time frame. Do you need money in three months time or three years? The longer your time horizon, the more risk you may be able to take.
* How do you feel about risk? Are you in a position to tolerate the ups and downs of the stock market for the possibility of higher returns? It is necessary to know your own risk tolerance. It can be a guide for choosing the right schemes. Remember, regardless of the potential returns, if you are not comfortable with a particular asset class, you should consider other options.

Fund Candy

* Diversified equity funds
* Index funds
* Opportunity funds
* Mid-cap funds
* Equity-linked savings schemes
* Sector funds like Auto, Health Care, FMCG, IT, Banking etc.
* Balanced funds for those who are not comfortable with 100% exposure to equity

If selected properly, these equity and equity-oriented funds have the potential to deliver returns that could be far superior to other asset classes.

Remember, all these factors will have a direct impact on the fund you choose and the return that you can expect to get. If you are a long-term investor with some appetite for risk and are looking for returns to beat inflation, equity funds are your best bet. MFs offer a variety of equity and equity-oriented schemes (See table ‘Fund Candy’). For a beginner, it makes sense to begin with a diversified fund and gradually have some exposure to sector and specialty funds.

Investment Strategies that will help you make the best of your MF Investment and Traps that you should avoid.

Keeping track..
Filling up an application form and writing out a cheque is not the end of the story. It is equally important to keep an eye on how your investments are performing. While having a qualified and professional advisor helps both in terms of making the right decision as well as measuring performance, it makes sense to know how to do yourself with a little help from these sources:

Fact sheets and Newsletters:
MFs publish monthly fact sheets and quarterly newsletters that contain portfolio information, a report from the fund manager and performance statistics on the schemes managed by it.

Websites:
MF web sites provide performance statistics, daily NAVs, fund fact sheets, quarterly newsletters and press clippings etc. Besides, the Association of Mutual funds in India, AMFI, website, contains daily and historical NAVs, and other scheme.

Newspapers:
Newspapers have pages reporting the net asset values and the sales and redemption prices of MF schemes besides other analysis and reports.

Remember, it is very important for you to be well informed. To achieve this, you need to spend a little time to understand and analyze the information to enhance the chances of success. Even if you spend one percent of the time that you spend on earning money, it’ll be a good beginning. Above all, take help of a professional advisor to select the right fund as well as the right mix of one time investment, SIP and the STP.

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Understanding Mutual Funds in Five Minutes

Everybody talks about mutual funds, but what exactly are they? Are they like shares in a company, or are they like bonds and fixed deposits? Will I lose all my money in funds or will I become an overnight millionaire? Big questions that get answered in just five minutes. Read on.

What is a mutual fund?
A mutual fund is a pool of money that is invested according to a common investment objective by an asset management company (AMC). The AMC offers to invest the money of hundreds of investors according to a certain objective – to keep money liquid or give a regular income or grow the money long term. Investors buy a scheme if it fits in with their investment goals, like getting a regular income now or letting the money accumulate over the long term. Investors pay a small fraction of their total funds to the AMC each year as investment management fees.

How many categories of mutual funds are there in the market?
There are three broad categories of funds in the Indian market – money market, debt and equity. A money market fund invests in short-term government debt paper and is good for parking money for the short term since the principal is safe, returns better than a bank deposit and liquidity high. Debt funds invest mainly in debt instruments like government securities, corporate and institutional debt paper. They are also called income funds since people buy them for their income needs. Equity funds invest in the stock market and suit long term investors who want capital appreciation. Commodity, property and gold funds are yet to come into India.

Why should I invest in a mutual fund?
Investors with small portfolios may not have the necessary expertise nor get the required diversification across debt and equity products. For example, equity-seeking investors may find their money insufficient to buy enough companies to spread their risk. Or they may find funds insufficient to spread between cash, debt and equity products. Mutual funds offer a way out, for as little as Rs 1,000, an investor can approach most schemes and get well-diversified portfolios, across product classes and instruments. The money is invested by market experts. As markets mature, funds begin to customise products according to need. It is possible to match a unique need to a specific scheme from a fund house.

How do I make money?
There are two ways of making money from a mutual fund – through dividend or through capital appreciation. Suppose a mutual fund scheme collects Rs 500 crore by selling units priced at Rs 10 each. The fund invests this in stocks and debt paper. After a year the corpus grows to Rs 600 crore. This Rs 100 crore can now be distribted amongst the unit holders as dividend. Or it can remain in the fund, taking the net asset value (NAV) or the price of the unit, higher, to say Rs 12. Investors can now sell and realise a gain of Rs 2 per unit or can hold on for future appreciation. (We are ignoring costs in this simplification) But mutual funds do not guarantee performance or returns. Risk depends on the type of fund bought and its performance. So, a debt fund is less risky than an equity fund. But within equity, an index fund is less risky than a sector fund.

Is investing in Mutual Funds safe?
The mutual fund industry is well regulated in India. The market regulator, the Securities and Exchange Board of India (SEBI) has ensured that a repeat of the vanishing companies does not happen here. Therefore, mutual funds in India are in the form of a Trust. This means that the money belongs to the investors and is only held in the name of the Trust. The investment arm, the AMC, acts as a fee-for investment manager and does not own the money. This does not mean that the investments are risk-free. Investors need to take the risk of volatility or bad management and money can grow or lose value depending on the market and investment decisions. However, sensible mutual fund investing is a good way to include equity and debt in individual portfolios to see realistic growth.

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Improve your Communication Skills…

Here are 6 great tips you can use!

 1. Awareness of your own interaction with other people is the first step in improving your communication skills.

Learn to identify which types of situations make you uncomfortable and then modify your behavior to achieve positive results is a critical step in improving your communication skills.

You can learn to become aware of behaviors in other people that prompt you to respond in negative ways and modify your own behavior to turn the situation into a positive experience.

2. You must accept responsibility for your own behavior and do not fear apologizing for errors in judgment or insensitive actions.

Asking others for honest feedback about the way you interact with others can be very helpful. Accept the negative feedback along with the positive and make changes accordingly.
3. Your non-verbal communication is equally as important as the things that you say. Positive body language is extremely important in your interactions with other people.If your words and your actions do not match, you will have a difficult time succeeding in social situations.

4. In order to learn how to improve your communication skills, you must become a great listener. You must fight the urge to respond immediately and really listen to what the other person is trying to communicate.Offering suggestions or criticism before you are certain of the other person’s intent can only lead to frustration for both parties.

5. Improving your communication skills is a process and cannot be accomplished overnight. Trying to improve or change too many things at once will be counter-productive. You will become discouraged and overwhelmed if you attempt to change your entire personality all at once. Choose one or two traits at a time and work on those over a period of time. Learn to take advantage of your personal strengths and make a positive impact on others.

6. Maximize your positive personality traits and use them in your interactions with others. Good communication and great listening skills are the most important tools you can use in improving your communication skills.
You can learn how to improve your communication skills by developing excellent listening skills, learning to resolve problems and conflicts, understanding body language, and accepting responsibility for your own negative behavior.

Determination and self-awareness will make your desire to improve your communication skills a reality.

You can change your life and now is the time to start.

Exceptional communication skills can be Learned…and Mastered!!!

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