Mutual Funds versus equities: Which is the better tax saving option?

Equities as an asset class have not only emerged as a wealth creating asset class over the long term but they are also extremely tax efficient. As a stock market investor you have two approaches to equities. You can opt to directly open an equity trading account with a broker and buy equities into your demat account. Here you can select the stocks you want to buy and also take decisions on churning your portfolio. The second method is to invest indirectly through equity mutual funds. Here you allocate a certain corpus to the equity mutual fund and the fund manager decides what stocks to buy and what stocks to sell. Of course, this is a transparent process and you can see the portfolio of your fund each month in the fact sheets published by the fund. While equities have a stock price, the mutual fund will have an NAV (net asset value). Both equities and equities have emerged as solid wealth creating asset classes over the long term. For tax purposes, an equity share and an equity mutual fund are given similar treatment. But there are some very subtle differences between the tax treatments of direct equities versus equity mutual funds. Continue reading

Advantages of investing in a Mutual Fund

Over the last 3 years, mutual funds have emerged as an important source of investments for the retail investors. The assets under management (AUM) of mutual funds overall has touched a high of Rs.21 trillion with equity AUM touching a high of Rs.7.1 trillion. While that is still very small by global standards, it shows growing conviction for mutual funds with respect to retail investors. There are some unique advantages that mutual funds proffer. Here are 10 key advantages which make it quite attractive to investors as an asset class Continue reading

MF New Fund Offerings (NFO) are back in the market…

According to a recent report, there are nearly 35 new fund offerings (NFOs) lined up from various mutual fund houses. For starters, an NFO is the equivalent of an IPO. While companies raise money through an IPO, a mutual fund raises fresh money through an NFO. But the question is that a mutual fund is always available on tap and one can go and buy any fund from the AMC at any point of time. So what is the idea behind a mutual fund NFO? Basically, mutual funds use an NFO to launch a new idea or a new scheme altogether. The NFO helps them to create the market visibility and excitement to ensure that it is fully subscribed. Interestingly, the last time we saw such a large number of NFOs was at the peak of the previous bull market in 2007. Post 2009, mutual funds in India were seeing redemptions continuously till 2014. It is only after mid-2014 that the tide changed and Indian mutual funds again started getting inflows. The question therefore is what should investors do in the midst of this barrage of NFOs? Continue reading

Why are 10-year bond yields headed downwards?

Since the beginning of the calendar year the yield on 10-year G-Sec bonds has fallen from a high of 7.87% to the current level of 6.6%. The last time the 10-year G-Sec touched such a low level was back at the peak of the financial crisis in 2009 when central banks across the world were on a rate cutting spree to make adequate liquidity available at cheap rates. But, scratch the surface and the difference becomes a little more surprising. During the 2009 crisis, the repo rates were at a level of 4.75%. So the 10-year G-Sec yield at around the 6.5% level was perfectly understandable. But currently, the repo rates are at 6.25% (after the October monetary policy) but yields are already at the same level as 2009 when the repo rates were at 4.75%. So what exactly has driven this sharp fall in yields? Continue reading

What must investors track in Exchange Traded Funds (ETFs)?

Exchange Traded Funds (ETFs) are one of the best forms of investing passively in a variety of asset classes. When we say passive investing, we are referring to a situation where there are no active fund managers sitting and taking buy/sell decisions. To that extent, the expense ratio in an ETF is substantially lower compared to a normal equity fund. Over a longer period of time, this lower expense ratio adds up to quite a bit. You have ETFs on gold, silver and also on indices like the Nifty and Sensex. An ETF differs from a typical mutual fund in the sense that an ETF is a listed security like a stock. On the contrary, mutual funds have to be redeemed with the AMC and therefore any purchase or sale impacts the AUM of the fund. On the contrary, in case of ETF buyers and sellers the AUM of the fund does not get impacted as these are market transactions. Continue reading

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