Why Should Balanced Funds Be Part Of Your Portfolio?

There are several types of mutual funds available in the market today that offer different exposure to various types of equities. These funds range from large-cap, mid-cap, small-cap to multi-cap, depending on the investment objective of the fund. On the other hand, there are various debt oriented funds that are structured to align with varying investment horizons of investors.

*Image Courtsey - Creative Commons

The bouquet of these funds do provide freedom to investors to customize their investment portfolio as per their goals but they fail to provide active management or dynamic allocation. In simpler words, an individual will have to manually adjust his/her portfolio to keep the asset allocation intact. A bull or bear rally in equities or debt can directly alter the asset ratio, which needs constant asset balancing. 

Balanced mutual funds offer a simple way to achieve desired asset allocation without compromising on returns potential. Balanced mutual fund schemes stand apart from plain vanilla equity schemes in terms of their exposure to equities. These funds invest at least 65% of their assets in equities and the remaining portion is invested in fixed income securities. The primary objective of these funds is to earn higher returns while limiting risks, hence providing a superior risk-return trade off over diversified equity offerings. 

Let’s look at other associated benefits of these funds that make them suitable to be a part of any type of investment portfolio.

1) Dynamic asset allocation - These funds can increase the equity exposure in their portfolio up to 75-80% when the equity markets appear to be undervalued and can similarly cut it to the lower range as and when the market becomes overvalued. This characteristic of balanced schemes gives them an upper hand over diversified funds that come with limited flexibility.

2) At par risk-adjusted returns - Balanced funds not only shield investors from market volatilities to a larger extent but also strive to match the performance yielded by large-cap or mid-cap equity funds. Here’s a snapshot of how balanced funds have fared against equity-oriented schemes over different time horizons.

	1-year	3-year	5-year
Balanced Funds	12.09%	12.19%	15.65%
Equity - Large Cap	14.15%	10.33%	14.76%
Equity - Mid Cap	17.27%	17.88%	23.29%

*Source- www.valueresearchonline.com

3) Tax advantage - Despite having exposure to debt instruments, balanced funds enjoy tax status of equity funds. Redemptions within one year of investment attract short term capital gain tax of 15% and those over one-year time frame are tax exempted. Similarly, dividends received from an equity-oriented balanced fund scheme is tax-free in the hands of investors.

Should you invest in a balanced fund?

Balanced funds should definitely be a part of your portfolio if you are a conservative investor or simply want to earn decent returns without taking too much of risk. Also, it is appropriate for investors who have little time to spare towards reviewing their asset allocation. Moreover, adding a balanced scheme to any portfolio will not hurt but only add stability.

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

Why You Must Invest In Tax Saver Funds Through SIP?

Come March and we all rush to make last-minute investments to save tax. These investments are mostly guided by the urge to save tax than to make the best use of the invested sum. We hardly take our tax investments as anything worthwhile than solving the basic purpose of claiming tax exemption. It is not surprising that those investments remain neglected thereafter and see some attention only when they are due to be redeemed or reused. 

But do you know that a little planning can make your investments do wonders. The key is not to wait till the last moment but to act as soon as the financial year begins - i.e. April. Again, you need not to invest everything at one go. Equity Linked Savings Schemes (ELSS), an eligible investment product under Section 80C, does away with the need to invest at one-go. These funds offer Systematic investment plan (SIP) option to let investors invest monthly in small portions. 

Let’s see what are all the benefits associated with SIP in a tax saver plan. 

1) Rupee-cost averaging - Investing through SIP comes with the benefit of rupee-cost averaging, meaning, you accumulate more units when the prices are low and vice-versa. This way of investing certainly favours your acquisition cost compared to one-time investments. 

2) Meeting your goals - It is worthy to reiterate that your tax investments can do more than just meeting your tax saving goals. You might be aware that the investments under tax saver funds are locked-in for a period of three years. Hence, these investments can be earmarked towards meeting your mid-term financial goals like buying a car or a foreign vacation. 

3) Added benefit of life insurance - Do you know that your monthly investments or sip can get you insurance benefit as well. Mutual funds have launched SIP schemes that give dual  advantage of tax saving as well as life insurance coverage. For instance, Birla mutual fund has introduced ‘Century SIP’, applicable on all of its tax plans, that combines tax saving with life insurance benefit at no extra cost. The minimum amount of SIP to qualify under this scheme is Rs 1,000 with no upper band applicable. Here are finer details of the scheme. 

	Insurance Cover	Example SIP Amount	Applicable Insurance Cover
Year 1	10 times the monthly SIP	5000	50000
Year 2	50 times the monthly SIP	5000	250000
Year 3	100 times the monthly SIP	5000	500000

Max Cover* 20 Lac

Max Age* Upto 55 Yrs

The insurance benefit comes along with the potential for your investments to earn higher returns. This factor alone makes SIP investments stand out from term plans or other conventional insurance plans. Also, the plan has an upper hand over unit-linked insurance plans (ULIPS), which have higher costs associated with them. 

4) Tax free returns - Another key advantage of investing in tax saver funds is that being equity-oriented, these funds enjoy tax-free returns. Let’s look at the average returns delivered by tax saver funds over the last few years. 

Tax Saver Funds	1-Year	3-Year	5-Year
	18% -24%	18%-20%	19%-22%

*Source - www.valueresearchonline.com

The stellar returns generated by these funds are unparalleled and cannot be compared with other tax saving options with scanty returns.

These points should be good enough for anyone to kick-start their tax planning right away rather than waiting for the financial year to end. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

Income Tax Return Filing - Check Out These Changes

Final countdown to income tax return filing for AY 2018-19 has begun. Here are few of the critical changes introduced this year that you should take care before filing your returns. 

1) Aadhar-Pan link - It is now mandatory to link your Pan No with Aadhaar for filing income tax returns. You can visit the income tax website to check or link your Aadhaar with Pan no. If you have applied for Aadhaar then the 28 long Aadhaar Enrolment number needs to be input while linking the Pan. 

2) Benefit for investing LTCG in Startups - Tax exemption under section 54GB has been handed out to those who have invested their Long Term Capital Gains (LTCG) arising from the sale of land or property into the equity shares of a start-up venture. Investment should be made before the filing of income tax return on the due date as per the condition set for this exemption. 

Also, the startup company is required to use the received investment towards purchasing plant and machinery within one year from the date of investment. Apart from this,         taxpayers will also have to obtain proofs from the startup company to establish that their investment has been used for the said purpose. Bank payment, purchase invoice or agreement will qualify as valid proofs in this regard. 

3) Rebate u/s 87A - Now individuals whose taxable income is below Rs 5,00,000 are allowed a rebate of up to Rs 5,000 under section Section 87A. The rebate will be restricted to the tax liability if the same is less than Rs 5,000. 

4) Cash deposits during demonetization - Aggregate cash deposits exceeding Rs 2,00,000 (new and old currency notes) between 9th November 2016 to 30th December 2016 needs to be reported during income tax return filing. 

5) Mandatory filing if LTCG exists - The income tax return filing is mandatory even if your taxable income is below the exempted limit of Rs 2,50,000 but has surpassed the limit after considering the LTCG. For example - If your taxable income is Rs 2,00,000 and the LTCG is 1,50,000 then the total amount is Rs 3,50,000, which is above the exemption limit, hence making the necessity of filing returns mandatory. 

Lastly, make sure to cross check TDS certificate with the Form 26AS available on the income tax website to ensure that no mismatch arises later. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

5 Ways To Make Market Highs Investment Friendly

Stock markets are making new highs each day, leaving investors in a tight spot about their next investment move. Investors are dawned by mixed emotions of euphoria as well as utter confusion - what if market tanks down again. In the wake of this uncertainty, here’s some help for you to make the market highs investment friendly.

Photo by David Ohmer

1) Go dynamic with lump sum - Break down your lump sum investments into smaller chunks and invest it at different time periods. In this way, you will be able to buy at lower levels. Else you can wait to buy during market dips that are likely to happen around corporate results or change in interest rate cycle. However, it is a tough call to predict or identify low buying levels for a common investor, who should opt for dynamic asset allocation funds. These funds cut down their equity allocation during high market valuations and increase it when the valuations drop. 

2) No stopping of SIPs - Steer away from the urge to stop or pause your Systematic Investment Plans (SIPs) during market highs. You can potentially miss on accumulating more units during volatile market conditions if you stop your SIPs in an effort to prevent buying at higher NAVs. Let’s take a look at what can happen if you discontinue your SIPs even for a while. 

	Scenario 1	Scenario II	Scenario III
	Regular SIPs	SIP Stopped During Market Highs	SIP Stopped During Market Lows
SIP Per Month	5000	5000	5000
Investment Tenure	10 Yrs	8 Yrs	7 Yrs
Returns	12%	14%	11%
Investment Value	₹ 11,21,070.25	₹ 8,53,982.78	₹ 6,20,401.41
Takeaway	Highest corpus accumulated for all due to regular and disciplined investing	Lower corpus despite higher returns as the amount invested is lower than Scenario I	Lowest corpus accumulated at lowest returns as the benefit of low valuations not availed.

3) Don’t chase lucrative strategies - There is no quick money in the market so there is no point in falling for fancy strategies that keep pouring from all around. The only way to be a successful investor is to stay focused and disciplined and ignore the market chatters completely. You do not need to respond to market movements by doing something, rather treat it as another normal market phase. 

4) Stick to asset allocation - Downsizing equity exposure or even upsizing it is uncalled for. Your financial plan need not be fine tuned to market swings. A financial plan is made keeping in mind market movements, be it ups or downs that leave no room for altering it every now and then.

5) Monitoring is a must - Surely market highs might have helped almost all investments to deliver robust returns. But, it does not relieve you from the task of monitoring them periodically. In fact, it becomes imperative to understand if equity funds in your portfolio delivered better returns than the benchmark or not. You should continue to replace and take timely decisions about funds or investments that are not performing up to the mark. 

Knowing your way to wisely deal with market highs can go a long way in maximising your wealth.

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

Longevity And How To Fix It Up In Your Retirement Planning?

Life expectancy is one element in retirement planning that remains highly unpredictable. You might have made just the right assumptions about inflation, rate of return or the corpus required for other goals but the uncertainty about your own life expectancy is likely to impede your retirement planning. Particularly when life expectancy in India is climbing up with every passing year. This should not come as a surprise that Indians are living longer than before due to improved health amenities. 

Photo By Pixabay https://pixabay.com/en/old-age-park-retirement-enjoy-164760/

The Union ministry of health and family welfare reported an increase of five years in the average lifespan of males and females during the period between 2001-2005 and 2011-2015. The life expectancy in males has improved from 62.3 years to 67.3 and from 63.9 to 69.6 years in females during the period. Resultantly, the chances are higher that you may outlive your retirement savings. 

That should leave you with one question - “How to afford a lengthy post-retirement period?”

While there is no accurate way to predict life expectancy but there are certain ways to narrow the gap that may arise between your retirement savings and your actual post-retirement life horizon.

1) Get real with numbers - Family history, your current health and several other factors play a vital role in deciding your life expectancy. Why not try a retirement calculator like livingto100.com to know how many years you can live and then readjust your retirement plans accordingly. 

2) Start investing early - The sooner you start planning your retirement, the better are the chances that your accumulated investments will be sufficient to support your long retirement. Try to target a percentage of annual income solely towards retirement planning. You might not have too much to invest in your earlier years of career but you can surely step up the contributions as you progress. One of the biggest advantages of starting early is that it gives you more time to overcome down market cycles and gain potentially higher than those who start off late. 

3) Revisit of asset allocation periodically - Revisit and review your asset allocation periodically irrespective of the fact that your retirement is two decades away or just around the corner. Your asset allocation should always stay in line with your risk appetite, liquidity needs, time horizon and investment philosophy. It is possible that negative returns from equity might have pushed down the equity composition of the asset class lower than the required or planned one and vice versa. Also, ensure that all your assets are fetching returns over and above the inflation rate. 

4) Take very good care of yourself - You can ditch the expensive medical costs as well as physical infirmities in your grey years by starting to take care of yourself right now. Several studies have established that physically active people are less likely to become physically dependent on others that can mean saving a lot that might go towards healthcare costs. 

5) Delay using up your savings as long as possible - Another important way to avoid outlasting your savings is to delay drawing from it. You can decide to work a bit longer to fund your post-retirement years or look for other ways to supplement your income. Also, you can adjust or downsize your lifestyle needs to make your savings last longer. 

Remember, retirement is not really the finish line but a start of a new phase. All it takes is a careful and systematic planning now to save you from the financial dilemma in your golden years. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

Visit www.facebook.com/Inverika to learn more.

Are You Prepared to Retire or Richtire?

India boasts of world's largest youth population, a key driver in attracting start-ups and foreign investors home - promising them the infinite potential of growth. Census data reveals that over half of the population of India is below 25 years of age. Not just the demographics but an exponential rise of India's middle class lately has earned it a claim to be the country of ‘Big Savers and Spenders.’

The other side of the coin

While all this paints a rosy picture for India, there's something more to it that often goes unnoticed. We cannot turn our backs to the apparent reality that the youth of today will age over time.The World Economic Forum (WEF) has already raised an alarm stating that India will have the world’s largest population of retirees by 2050. 

Again, lifestyle needs of middle-income groups are improving but are the current savings or investments enough to sustain such affluence is one mind boggling question. The WEF estimates that India is far off from its goal to achieve adequate retirement savings. The gap is widening by 10% yearly. Better health care and improving longevity can further dampen the scenario, reports suggest. 

Perplexing realities

What is even more intimidating is India’s ill-preparedness to deal with financial needs of its greying population. Efforts from both the government and individuals remain negligible so far. A report by the United Nations Population Division underscores the shortcoming as it mentions that only 25% of India’s total ageing citizens have some form of pension cover. 2016 Melbourne Mercer Global Pension Index puts India in bottom 3 of 27 countries, accentuating its incompetence to meet financial obligations that are fast approaching as India grows old. 

Currently, employer-provided pension programmes and provident fund schemes are all that stands between the millennials and $85 trillion retirement savings shortfall that is expected to arise by 2050. The government appears to be responding to this wake-up call by fixing retirement needs of the unorganised sector, but the middle-class remains largely neglected. 

Clearly, it is the need of the hour for this particular income group of the society to take matter into their own hands before it is too late. It’s time to replace outdated savings systems such as bank deposits and gold with newer and higher return seeking alternatives.

There is no better time than now for millennials to exploit the opportunities available to them in the form of equities while they are themselves an influential driver of India’s growth story. Also, it's about time to shed our image of ‘Big Savers and Spenders’ and become ‘Big Investors’ to Retire Rich (Richtire) or else we have to settle for a scanty lifestyle in our grey days. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

Visit www.facebook.com/Inverika to learn more.

Simplifying Your Dilemma Between Dividend And Growth Plans

Dividend or Growth? If you still struggle in choosing one of these while making mutual fund investments then here’s some help for you. Let’s first understand the basic difference between dividend payout, dividend re-investment and growth options available under mutual fund schemes. 

Dividend payout option

Dividend is simply part of the profit paid out to investors periodically. The net asset value is reduced in line with the dividend declared each time. From tax angle, equity funds enjoy tax-free dividends but the asset management company (AMC) pays dividend distribution tax (DDT) on debt funds before making dividend payouts. That means dividends earned by you on debt funds is after deducting DDT of 28.84%. The option works well for those seeking a regular monthly income and retirees. 

Dividend re-investment

Equivalent units against the dividend declared is bought under dividend reinvestment option. That means investors do not receive any direct payout but dividends are used to buy more units in the scheme. Like dividend payout option, the NAV too falls under this option, however, it more or less functions just like growth option. 

Growth option

Unlike dividend payout, profits earned in a growth plan are reflected in the NAV of the scheme. One of the reasons why capital gains in growth option seem to be higher than those under dividend option. Conceptually, the only difference is that you have already claimed profits under dividend option while the same gets accumulated in growth option. This option suits investors looking to maximize their wealth and are not concerned about periodical payouts. 

After knowing the basic difference between the three options, it’s time to understand which option works best for whom and when. 

When is dividend payout apt?

• If the investible surplus is sizeable and you wish to take advantage of both regular income and capital appreciation throughout the duration of your investment. 
• Investments in theme-based or sectoral funds can be made under dividend payout option as the profits earned under these schemes can quickly reverse after a while once the favourable phase is over. 
• Investors falling in the tax bracket of 30%, who want to invest for less than three years in a debt fund can opt for dividend payout plan as their tax incidence will be marginally less under this plan. 

When is growth plan apt?

• Growth plan works wonders for long-term goals like retirement or child education, where the end objective is to create a corpus and not to spend the scheme’s profits towards less-related activities.  
• The plan also does away with the hassle of reinvesting the dividend amount back into the scheme as all the profits are automatically accumulated.
• Investors with less than three years of investment horizon and falling in the tax bracket of 10% or 20% should invest in growth plan of debt funds as otherwise, they will end up paying DDT of 28.84% under dividend payout option.

Growth plan should be preferred mode when investing in equity funds and equity-oriented balanced schemes except the conditions mentioned above. Since long-term capital gains will not apply to equity funds held for more than a year, therefore, investors can save big on taxes by avoiding DDT under dividend option.  

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

Visit www.facebook.com/Inverika to learn more.