Mutual funds and Volatility

Mutual funds and Volatility Investors typically tend to pick a fund that has delivered the highest return in its category in the past. But can the past point-to-point performance of the fund be the only factor in your choice of funds? What if the fund under performed the year after you picked it? While looking at the past performance of the fund is important, one also needs to look if the risks taken to achieve those returns were worth it. Rather than take very high risks in the hope of high returns (such risks can also result in steep falls) or settle for poor returns because of risk aversion, an investor can always have a balance between the two by going for funds with consistent performance. That is look for funds that do not have sharp swings in performance. One of the several metrics to test consistency is standard deviation. Higher the standard deviation of a fund greater is its variation in returns from its mean. If you can get above-average returns with less volatility, chances are that you will build wealth optimally. Standard deviation as a measure of volatility If a fund can provide you above-category returns for lower volatility, it can provide stability to your portfolio. The standard deviation of a fund needs to be seen in comparison with either its benchmark or its peer funds. If two funds perform similarly but one has a lower standard deviation, then the one that can deliver you similar returns for lower volatility is clearly preferable. In general equity funds tend to have higher volatility and hence exhibit higher standard deviation compared with debt funds, as the former carries higher risks. There are also more factors at play that influence the equity market than the debt market. Besides, the relatively high liquidity in equity also results in more volatility in their prices. Let us look at the table below to understand the standard deviation and the impact on returns. The first two funds (in the above table) from the Franklin and HDFC stable are multi-cap/diversified equity funds. You can see HDFC Equity sporting a higher standard deviation but delivered very high returns (the maximum returns over a rolling 1-year period, taken for last 5 years is higher for HDFC Equity). However, it can also be seen that the same fund did not contain declines that well (see minimum returns). As a result its rolling average is actually lower than Franklin India Prima Plus. Look at the standard deviation and you will know how the high swings has resulted in not only high returns but greater falls as well. Similarly, the mid-cap space, if you compare HDFC Mid-Cap Opportunities with Sundaram Select Midcap you will find the later losing out as a result of higher volatility (standard deviation). Debt funds, on the other hand have delivered lower returns and have lower standard deviation. The deviation from the mean (whether it is maximum or minimum returns) is also not high. Among those funds, you will see the MIP fund, which has small dose of equities has slightly higher standard deviation. The short-term debt fund is less volatile while the ultra-short fund (UTI Treasury Advantage) hardly has any volatility and is very stable. Of course, even within these funds, the deviation between them can vary but the difference is not as high as with equity funds. While picking a fund in a particular category it is always a better idea to choose a fund with a lower standard deviation even if it comes at the cost of a few percentage points of lower performance, as long as the returns have been consistent and above category averages. The same logic can be applied while constructing a portfolio as well.

Consistency of performance: What does that mean?

Any day is a good day for investing in a mutual fund. And whenever you invest, you need your fund to deliver well – i.e., generate returns better than the market. Funds, however, do not necessarily fulfil that requirement. This is why consistency in performance matters. What is it? Say you invested in DSP BlackRock Top 100, a large-cap equity fund in January 2015, as the fund’s one-year were 5 to 6 percentage points higher than the BSE 100 index. Come February 2016, the fund delivered returns lower than the BSE 100 by 1 to 3 percentage points. By June, this trend reversed with the one-year returns back above the BSE 100 index. Such sudden slips and recovery is not an aberration. This is why you need to ensure that a fund has kept ahead of its benchmark across market cycles and different periods before investing in it. In other words, you need to look at consistency in performance. A fund that delivers returns that are above its benchmark at all times is a consistent fund. Remember that the fund NAV may decline – declines or losses are perfectly fine as long as the decline is lower than the benchmark. Why is it important? Steadiness in performance is important because you should be able to earn market-plus returns no matter when you invest. A consistent fund ensures this. A consistent fund is always reliable. Secondly, you don’t run the risk that your fund is unable to make up its bad performance. Thirdly, consistency measurement also removes the drawbacks of looking at point-to-point returns (the traditional one, three, and five-year returns) and being influenced by current chart-toppers. A point-to-point return assumes a single date of investment and return. If the fund has been doing well of late, it can inflate the returns when in actuality the fund had been doing badly for a long time before that. The reverse can also happen. Looking at the fund returns at different points of time, or in different market cycles will tell you whether the fund was always doing well or not. How is it calculated? The ideal way to check for consistency is to roll the specific return at regular intervals over a number of years. For example, you can take a fund’s one-year returns and its benchmark every day for a period of three years. That is, you calculate the one-year returns as on July 1, 2013 for the fund and the benchmark. Then you calculate the one-year returns as on July 2, 2013 then July 3, 2013 then July 4, 2013 and so on until July 1, 2016. Then you measure how many times the returns of the fund are above the benchmark. The higher the proportion of outperformance, the better is the fund’s consistency. You can take any period and any frequency of rolling. On daily one-year rolling returns for a three-year period, here are a few examples of consistency among large-cap funds, using the Nifty 100 as a uniform benchmark. Check for consistency in debt funds as well; debt, like equity, goes through cycles and returns can be inconsistent. Compare consistency of a fund with its peers in order to make a correct judgement. Such rolling of returns is tedious for you to do, though not impossible (you have to separately download fund NAVs from the AMC website and index levels from the stock exchange website, and then match the dates). Instead, look at calendar returns, which you can calculate yourself or obtain from mutual fund aggregator websites. Fund factsheets also provide one-year returns for three consecutive years at the end of each quarter for all the funds and their relevant benchmark. That is, in the July 2016 factsheet, you will find returns of June 2015-June 2016, June 2014-June 2015, and June 2013-June 2104. In the April factsheet, you will find the returns ending in the March quarter. Pick up the factsheet in different quarters for different years to measure consistency. Use consistency together with risk-adjusted returns and volatility for the best idea of a fund’s quality.

Fincare services Explains : What to look for in a Scheme Information Document (SID)

Scheme Information Document (SID) provides investors with much of the information that you need to know about a scheme. You would have read disclaimers in mutual funds, telling you to read the SID before investing. But a SID can overwhelm you, going by the information overload that it carries. So, here’s what we would recommend that you look for in a SID, to know about a fund. What to look for? The initial section of a SID gives the highlights and the summary regarding the scheme and the subsequent section goes on to explain the components of the summary in detail. The first page consists of the name of the fund and the nature of the scheme, whether the fund is open ended or closed ended. It also gives the NFO dates, from when the fund is going to be/was open for subscription and the closing NFO date along with when the fund will be open for subscription and redemption after the NFO. Indicative Asset allocation: One of the first thing to look out for is the indicative asset allocation section which gives the investment strategy of the fund. This describes the asset classes and the percentage range within which the fund manager will be investing in each asset class. The investment in an asset class by the fund manager cannot exceed the boundaries stated in the SID. The exceptional circumstances under which the fund may breach such boundaries will also be stated. You will notice that the asset classes and their boundary rangevaries across various types of fund. For example, a large cap equity fund may have the boundaries defined for equity between 75% to 100% and cash and cash related to be between 0% and 25%. The fund manager needs to adhere to these limits under most of the circumstances. When a situation like the crash of 2008 arises, and the fund manager feels the need to raise the cash levels beyond the 25% prescribed here, he will have to seek the permission of SEBI. Similarly a balanced fund may have the limits for equity investment to be between 40% and 75% with debt making up the rest of the fund. Likewise a debt fundwill have limits set for the range within which the fund manager can invest in various debt papers and money market instruments depending on the type of debt fund. Do look out for the assets the fund will invest in and their maximum and minimum limits in the case ofasset allocation funds, equity savings and arbitrage funds. Once you get a general idea regarding the basic asset allocation, further reading of the SID will help you understand how the fund defines stock categories, such as large, mid and small-cap stocks. for equity funds, and the averagematurity and credit quality for debt funds. Fund manager:Theinitial segment of the SID lists the fund manager and its co-fund manager if any, while in the later section one can look for detailed information regarding his past experience, his/her qualification and the list of other funds he manages/co manages. Tax implication:Tax implications on realised profits and dividends is the other important detail to look for in a SID. Irrespective of the type of fund, the tax implications on both realised profits, dividends payouts, and applicability of Securities transaction tax (STT) are explained in detail.Expense ratio:Expense ratio is another component that is explained in detail as well. This can be looked at under the head “fees, expenses and load structure”. A clear break up of all the expenses that constitute the expense ratio will be listed here. This will give a very clear picture of what will be the expenses that are charged to the fund.And at what levels of assets under management, the extent up to which the expense ratio can be charged.It is noteworthy that such a charge is before the NAV is declared. The NAV is net of all such expenses. Minimum investment and redemption limit:Look for the minimum investment and additional investment values for lump sum along with the minimum amount for SIPs to know how much you can invest. Also look out for the dates during the month when the SIPs can be set up. In online platforms like Fincare services, though, you can set up anyday SIP and also top it up with a step-up facility. SID also states the general risks affecting the equity and debt markets. Risks that may arise due to the use of derivatives and overseas securities in the fund would also be stated. Apart from these the SID also contains details regarding the fixed income, equity and derivatives market in India. SID is a very detailed document an investor can use to learn about a scheme, about mutual funds, their risks and how they are managed.

Fincare Services Explains – Systematic risk and Unsystematic risk

In our previous posts we discussed volatility and risk and also risk adjusted returns. But what are the types of risks to a portfolio and how do you mitigate them. We’ll discuss this in this article. Portfolio risks are classified as systematic and unsystematic. What is systematic risk? Systematic risk is that risk which leads to variation in returns of the portfolio due to macro-economicand market factors. Some of these factors are changes in interest rates and inflation rates in an economy, or any risk that arises due to the political environment, changes in the government policy or any natural disasters. These factors affect the entire market. For example the equity markets reacted adversely to the latest surgical strike carried out by the Indian army. This,even though India is currently fundamentally exhibiting strong economic growth. Likewise, during the Lehman crisis, equities around the world corrected sharply. From the examples, we can observe that this is a type of risk that the fund managers and investors do not have much control on. In other words, they are market risks. Having said that, there are means to mitigate this risk though it may not be entirely possible to eliminate it. Effective asset allocation with the right weights between various asset classes such as equity, debt and gold will help reduce this risk to some extent. Therefore, while building a portfolio, your advisor recommends an asset allocated approach. What is unsystematic risk? Contrary to systematic risk which is due to macro variables, unsystematic risk is the risk that is specific to a stock or a sector. This arises due to the risk inherent in the business or due to any specific reason attributable to a company. For example, holdings in pharma sector exposes you to unsystematic risks by of sudden cancellation of drug approvals. Typically, many mid and small-cap companies hold this risk.Recently, a court ruling that Noida Toll Bridge cannot collect user fee in an asset where it was collecting toll, is a sudden unsystematic risk that has transpired. While this risk is often mitigated by diligent stock selection and monitoring by fund managers, for investors, diversification across a portfolio of stocks (through mutual funds) and diversifying across market caps (through diversified funds or a holding of large, mid and multi-cap funds) is a good way to reduce this risk. It is because of these risks that diversification, whether across asset classes or across fund categories is usually recommended.

Fincare Services explains: What to do if your AMC shuts shop

Over the past decade, especially after many foreign players entered the Indian mutual fund space, there have been several instances of fund houses calling it quits and exiting their business by selling their business to other players. In such instances, as investors, the first question in your mind would be what’s going to happen to my money? Let us discuss what happens when a fund decides to shut shop and what you should do. Why fund houses shut shop Fund houses may decide to shut down for various reasons. Like it is with any other businesses, they may close down because the business is unviable, that is, they are unable to run it as a profitable business. Some of them may also have conflict of interest running this business along with other businesses as per regulations and decide to close their MF unit. Others, especially foreign asset management companies may also decide to take broader business calls and close down businesses in some regions/countries or sell their business at a global level. Whichever way, as an investor, you need to be rest assured that your money is not going anywhere. It will come back to you or move to the new fund house, if you choose to. What should investors do? First, a fund house being taken over is no reason for investors to panic. SEBI, the regulating body, acts as a watchdog for the safety of investors’money and has laid out clear guidelines on the establishment, functioning and shutting down of a mutual fund. At the outset, investors are sent a notice about a fund house shutting down and being taken over by another mutual fund. This will contain all the details regarding the taking over entity, the date on which the present entity will cease to exist, the state of the funds and the exit options for the investors. In the Indian context, fund houses have always been taken over. Theoretically, it is possible that a fund house simply returns your money at market value when it shuts down. But that has not happened thus far here. Look who’s buying: Once the announcement of a takeover or merger happens, you need to see which fund house is taking over and whether it has a sound track record of management schemes. Fund management team: One other thing to watch out for when a fund house is getting taken over is whether the fund management team is getting integrated with the new one or not. The fund management team getting integrated with the new team ensures continuity of the fund management processes which governed the funds being taken over along with the best practices of over the AMC that takes over. If this is not the case then the point we mentioned about the track record of the AMC which is taking over and the new fund manager has to be looked into. State and future of funds When such takeovers happen your fund may continue to operate or sometimes merge with another fund. In few cases, the new AMC’s fund may be merged with the fund you hold. All of these, depend on the AUM size and the performance of your fund. In such cases, you need to understand whether the fund strategy and attributes change or remain the same. Allotment in case of merger: When one fund is dissolved the current value of the investors’ investment will be subscribed at the current NAV of the existing fund and new units will be allocated. The new units allotted may be more or less depending on the NAV of the existing fund, but the investment value remains the same. Tax Implications Investors will not have any tax implications in case of any merger of the schemes and subsequently they are allotted units in the merged/surviving scheme. For the new units allotted, the date of merger and the cost on the date of merger, will be the date to be considered for capital gains purpose In case investors chose to use the exit option to redeem, they will be taxed based on the type of fund, their holding period and the tax bracket they fall under. Under all circumstances once the decision on the state of the fund house is finalised, an exit option will always be provided by the fund house within a specified time frame . An investor can also exit the fund even after this time frame. But after the timeframe specified, the redemption will have to be done with the new fund house. Not all takeovers have been successful at the same time not all takeovers have yielded bad results for investors. As an investor, if you are confident about the new fund house, you should give it a few quarters to perform. Otherwise, you have plenty of other schemes from other AMCs that you can always move to, in an open-eneded fund.

How do debt funds deliver returns?

Let’s understand how debt funds make their returns. Once that is done, it’s easy to see how risks in debt funds come up and how to manage it. Capital appreciation Bonds are traded on the market just like equity, though the debt market is nowhere near as liquid and all bonds aren’t listed. Now, a bond carries a specific interest rate or coupon. If interest rates move lower, new debt instruments issued will consequently have lower interest rates. But older instruments that are already issued still carry the old – and higher – interest rate making them more attractive than new instruments. Therefore, their prices move up. Take, for example, a bond with a face value of Rs 100 and an interest rate of 10 per cent. Then say interest rates moved down and new bonds issued carry an interest rate of 9 per cent. The old bond, in order to bring its yields in line with the new rate, will see its price move up to around Rs 110. If a debt fund holds this bond, it will see its NAV rise as the bond rises. The reverse happens when interest rates go up. Bond prices will move down, in turn lowering debt fund NAV. Now, the debt fund can sell bonds when prices rally; that is, it gains from capital appreciation of the bond. Such price changes are the most in government bonds as these are the most liquid. When debt fund managers anticipate a downward rate cycle, they usually up holdings of long-term government bonds and make neat gains through capital appreciation. In a static or upward rate cycle, they can move into short-term debt. The strategy of playing the interest rate cycle is called a duration strategy. Dynamic bond funds (long-term funds) are the ones that typically do this, actively juggling their portfolios between long-term and short-term, corporate or government debt. Gilt funds also follow duration, which is why they work well only when rates fall. So what’s the risk here? One, these funds have higher volatility as they are driven by bond price changes. Prices react to interest rate changes, potential government borrowing, foreign inflow, and the like. Two, the duration call can take a longer time to play out than expected (this is what has been happening for the past several months, affecting funds following a duration strategy). So if you’re holding such funds, don’t be spooked by volatility in returns. Income accrual The second way a debt fund makes its returns is through holding the bonds and accruing the interest due on them. This is called an accrual strategy. They aim at delivering returns across rate cycles and do not bet on directional changes in interest rate as duration funds do or actively trade their debt instruments. Liquid funds, ultra-short term funds, and most short-term funds follow such a strategy. Sometimes, short-term funds may pull a duration play, but they will not get into it as much as long-term dynamic bond funds. Typically, fund managers will look for bonds that provide them the best yield. Higher-yielding instruments are mostly in corporate debt. When interest rates are moving south – as it is starting to now – it gets harder to have a high portfolio yield. Funds may thus start looking at lower credit-quality companies (recall our explanation on credit risk last week) to generate higher returns. So what’s the risk here, other than payment delays? A change in the company’s fundamentals can either improve or worsen the credit rating of a company. When the credit rating is lowered, the company will have to pay higher rates if it is to borrow as it becomes riskier. This higher risk perception and the fact that the existing bonds have lower rates results in a mark-down of the bond’s value. The fund’s NAV will thus reduce as the fund adjusts the value of its holding to the new value, or marks it to market as it is officially termed. This is what happened recently to funds from the Franklin and ICICI stables as steel major JSPL, which was widely held by these two AMCs, was downgraded by rating agencies. When downgrades are steep, as it happened with Amtek Auto last year and JSPL now where the downgrade was 2-3 notches, the mark down in value is greater. But here’s the important point. The NAV change is a result of fall in bond prices or book value only – it’s notional. The fund may still hold the bond. A credit downgrade does not mean the company has completely defaulted on its payments or even that default is definite. It’s just that the risk has moved up. If the company continues to pay the interest and principal payment, the fund will recover its entire investment. The loss in NAV due to market price will then neutralise eventually after the bond matures. Unless the fund manager sees a risk of default or further downgrades, such bonds will continue to be held in the portfolio. All you have to do wait it out. The reverse can also happen; a company can see a credit rating upgrade. Its existing bonds carry higher interest rates and the lower risk perception sends bond prices higher. The fund’s NAV will therefore move up as it marks to market. The fund can book capital appreciation in such cases. Even if the fund held an unlisted instrument, it will enjoy higher coupon in such a bond (as it entered earlier), as fresh issues would come at lower rates. So understand the kind of credit risk you are taking. If you cannot, stick to funds that invest in top-rated debt only, even if you are a long-term investor. Remember, debt funds, like equity funds, require specific time-frames for investing. If you have a horizon of two years or lower, stick to short-term funds, ultra short-term funds, or liquid funds. Go for long-term debt funds only if your horizon is longer than at least two years. This brings us to the end of our debt fund discussion. Do let us know if you need anything else explained!

How do mutual funds take active sector calls

When we look at some of the mutual fund factsheets or market presentations or listen to a fund manager speak, we often come across the term Overweight/Underweight a sector or a stock holding. Let’s discuss what this means. An index has a fair representation of all the important sectors in the economy. And all actively managed equity mutual funds would be benchmarked to an appropriate index. Just because a fund is benchmarked to an index does not mean all the sectors of the index have a similar representation in the fund as well. If they did, then they will be more passively managed index funds and not active funds. A fund manager seeks to generate higher returns than the benchmark by taking active calls beyond the benchmark. Hence funds tend to be overweight or underweight sectors and stocks compared with the benchmark. The term overweight/underweight a sector implies that the fund may be holding a higher or lower proportion of a sector when compared with the benchmark. When would a fund manager be overweight a sector? A fund manager would be overweight a sector when he is bullish about the prospects of a particular sector and is of the opinion that the sector will do well; or when the stocks in the sector are expected to deliver better results compared with other sectors going forward. By how much the fund manager is overweight a sector depends on its future prospects and outlook. The top overweight sector would be that sector where the difference between the weight of the sector in the fund and index is the maximum. When the fund manager is significantly overweight on a sector, it means he is taking a bet that the sector will deliver more than what it presently does. Similarly, a neutral representation of a sector in the fund indicates that the fund manager expects a status quo on the sector’s performance and simply wants to play safe by holding the sector as much as the index holds. Conversely, a fund manager may have a negative view on certain sectors that are there in the index and may therefore either reduce weight or completely not hold stocks in those sectors. The more a fund manager goes underweight on a sector, the fewer prospects he/she sees in that wither because it is overvalued or its propsects seem diminished. It can be noticed in the above table that the fund manager has overweight positions in cement, industrial products and industrial capital goods indicating that he expects these sectors to do well going forward. Similarly, he appears to be less sanguine about sectors such as IT, consumer non durables and pharma and does not expect these sectors to perform as well. Why would the fund manager be taking such calls? This is one of the methods of generating returns more than the index. By being overweight in a sector the fund manager seeks to increase contribution of sector towards the funds’ overall return, when compared with the benchmark. This, of course if the call pans out well. The reverse is also true when the fund manager reduces exposure. When such positions work well, the fund outperforms its benchmark handsomely. There may also be instances when the fund manager may go wrong with his sector calls. He may be underweight an outperforming sector and overweight a badly performing sector. In such circumstances the funds tends to underperform. So the underweight and overweight positions of a fund vis-à-vis its benchmark helps to broadly gauge the thought process of the fund manager regarding the performance of the sectors and his expectation regarding the sector.

How mutual funds pay dividends

Many investors assume that mutual funds pay their dividend from the dividends they receive in the stocks they hold. They also ask us during corporate dividend season (post annual results), why mutual funds are not paying out that dividend. But this is not the only means by which mutual funds pay you dividend – if you had opted for the dividend option. Let us understand how mutual funds pay dividend. Where the dividend comes from A fund can declare dividends only from the realised profits on its portfolio. When we say realised profits, the fund manager should have generated returns from instruments by selling them and booking profits or receive dividend or interest (in the case of debt funds) from the instruments he/she holds. The paper profit (unsold) from the instruments is not considered as realised profits. Such profit is added to the NAV. These receipts may be again deployed in buying stocks or debt instruments or be declared partly as dividend. Whose money? The dividend that is declared by a fund is simply from the profits accrued to you from that fund. It is simply stripped from your own NAV and given to you. This is why you will see that a fund’s NAV falls when it declares dividend. In other words, you are cashing out a part of your money in the fund. This is the reason why it does not make much sense to buy funds just because they are about to declare dividends. Only a part of your own money comes back to you. You do not get any profit that is not yours. When dividends are declared It is entirely a fund manager’s discretion to declare dividends. Both the decision on when to declare and the quantum of dividend is the fund manager’s call. Typically, equity funds may seek to declare dividends when the market rallies a bit and the surplus cannot be deployed in too many new opportunities. Or they may declare dividend simply as an annual exercise. In down markets, you will see that the quantum of dividend, if declared, may be lower as the fund manager may have lower surplus or prefer to be buying more stocks in down markets than distributing dividends. In the case of very short-term debt funds, like liquid funds, many have even daily/weekly dividend options as they invest in very short-term instruments which fetch them frequent interest. With respect to the monthly and quarterly dividend paying options, the distributable surplus is gradually built in the fund keeping in mind the frequency of paying the dividends. While the monthly and quarterly options gives time for a fund manager to build a surplus this cannot be the case with respect to daily dividend option. In such cases, the fund manager has in his portfolio instruments such as REPO and CBLO that are bought at a discounted rate and sold at par the next day thus generating returns. Having discussed how dividends are paid, we need to realise that these are not the most optimal way to building wealth; as the compounding benefit is lost every time a dividend is paid, unless the received dividend amount is invested in further higher yielding assets. Dividend options in equity are more suitable for an investor who is very risk averse. In case of a requirement for regular cashflow from debt funds, unless you are in the 30% tax bracket, a dividend option may not be the most optimal of solutions since these dividends are subject to a dividend distribution tax (DDT) of 28.84% including surcharge and cess.You can always consider a Systematic Withdrawal Plan (SWP) if you are in the 10 and 20 per cent tax brackets If you hold funds for over 3 years, then dividend is a poor option as your get indexation benefits on your capital gains. In such cases, going for the growth option with systematic withdrawal will make your investment tax efficient.

International funds

You have an option to invest in international markets through the mutual fund route. Indian mutual funds offer a host of funds that invest internationally. Called international funds, these funds invest in international equities or bonds and money market instruments. Let us look at the types of international funds and some of the pros and cons of investing in them. Types of International Funds and where they invest International funds offered by Indian mutual funds can be classified based on the type of exposure they take. For example, there are country specific funds, that invest in a particular country like US, China or Brazil. Then there are region-specific funds such the ASEAN fund or emerging markets fund which invest in the countries in the respective region. Apart from country specific and region-specific funds, there are theme-based international funds as well. Commodity funds for example, invest in commodity-linked companies such as mining companies and metal trading companies. Then there are also international funds that invest in themes such as world energy, global consumption, agriculture and so on. Mode of investment Indian mutual funds invest in international markets either directly or invest in other funds in those markets. The latter is called feeder route and is typically in the form of a fund-of-fund. The good thing about your investing in these funds is that you invest only in your own currency, that is, rupee, whether the fund invests directly in international markets or through the feeder route. Investing in these funds have pros and cons. Let us look at some of them. Pros of Investing in International funds Diversification and hedge: One of the key arguments in support of investing in international funds is the diversification they provide to your portfolio. As not all markets behave alike, at the same time, it helps to spread your money across different markets. For example, in 2016, when the Indian Equity markets struggled to return 3%, the US markets returned over 13% and some country specific funds even delivered in excess of 20%. Hence diversification into other markets can help reduce portfolio volatility. Access to broader markets: International mutual funds provide access to markets that may otherwise be difficult for an investor to gain access to. For example, if you want to take exposure to US blue chip stocks, it may cost you several lakhs of rupees to even own one of them. And not all brokerages in India provide access to international markets. Also, while markets like the US are open there could be other emerging markets that require additional regulatory compliance. More importantly, the kind of companies/opportunities available abroad (say a Google or a Microsoft) may not be available in the Indian markets. Hence whether it is a matter of hassle-free, convenient investing into other country markets or tapping unique opportunities elsewhere, with the limited money that an investor may have, international funds are a good option. Limitations and risks International funds generally carry all the risk that pertains to investing in the markets, but additionally carry two other major risks as well. Currency Risk: Currency risk arises from fluctuation in the value of other markets’ currency against the Indian rupee. While you will be investing in the rupee, the fund house will have to take exposure to international stocks in different currencies. As a result, fluctuation in the currency equation can cause volatility in your NAV. For example, if your fund invests in US markets and the rupee depreciates against the dollar, you will get more rupees for every dollar invested in that country and to this extent, your NAV will be higher. However, if the rupee appreciated against the dollar then you get fewer rupees for every dollar invested there and your NAV will take a hit to that extent. Political and economic risks: Adverse political and economic developments in the country of investment would lead to a volatile market in that country. As a result the NAV of the fund may get impacted negatively. Lack of information on underlying funds: Most of the International mutual funds invest either through a fund of fund structure or through a feeder fund. Hence most of the time there may not be adequate information available for Indian investors on the underlying funds. Taxes: When it comes to taxation, international funds are treated on par with debt mutual funds. This is because to qualify as an equity fund, for tax purposes, a fund has to hold at least 65% in Indian equities. Since these funds invest in international stocks, they do not qualify as equity fund for tax purposes. For a holding period of less than three years, the investor is required to pay short term capital gains tax on the profits at his/her tax slab. When the fund is held for more than three years, the investor will get indexation benefit as the profit is treated as long term capital gain. Post indexation, the gain is taxed at 20%. International funds provide an opportunity to diversify one’s portfolio. However, understanding of the foreign market is one, entering and limiting the exposure to such markets may be necessary to gain benefits while lowering the risks.

Mutual fund Fact sheet: What is in it?

As a mutual fund investor, you would like to get comprehensive information on your fund. A single document provides this information for you – the factsheet. What is it? A factsheet is a document put out by each fund house that contains information pertaining to each of its funds as well as the general overall market. The factsheet is updated by the Asset Management Company (AMC) on a monthly basis and becomes available on the AMC’s website around the 10th of each month. In order to provide uniform information across AMCs in a consistent manner, AMFI has clear guidelines on the information that should be presented in the factsheet along with the methodology of calculation for the portfolio metrics. How is it useful? The information contained in the factsheet helps you understand how your fund has performed over the long term and where its investments are. Broadly, the information are of two types – information that doesn’t change each month, and information that is more dynamic. Static information covers the basic characteristics of the fund and thus, this rarely changes. What’s important to you is the category of the fund, or what type of fund it is – a large cap equity fund or a thematic one, or a short-term debt fund, or an income fund and so on. Then there is the fund manager and how long he or she has been managing the fund. The longer the tenure in managing the fund, the better it is. Then you have the benchmark – important because a fund’s aim is to beat its benchmark (for more understanding on the benchmark and its usefulness, read this). Then you have the date of inception of the fund (it’s better to go for funds with at least a three-year track record). Another bit of very useful information is the riskometer, which indicates the riskiness of the fund. Other information includes the types of plans and options available and the minimum amount for one-time or SIP investments. Then you have the all-important information that relates to the performance and portfolio of the fund. Obviously, this changes from month to month and will tell you what your fund is up to, and how it’s been faring. Take the data on fund performance. The fund and benchmark returns for multiple time periods is available – since inception, for the last 1, 3, 5, 7, 10, or 15 years if the fund has been around for that long, and the last 3 calendar year performances. This gives you a very good perspective on the how the fund has fared in different periods and market cycles. A good fund outperforms its benchmark and its category across all timeframes. Let’s say a fund, in the one year period has not done well. Its returns in the longer time period will help you understand if the underperformance is only recent. In such a case, you can retain holding your fund. Or, say the one-year performance happens to be outstanding. If it is a consistent performer, the long-term returns should also be good. If not, the good return may just be a one-time occurrence. In the past few years, each calendar was more or less either an uptrend or a downtrend so calendar year returns will, for the moment, also show performance in different market cycles. How much a SIP of Rs 10,000 in the fund and the benchmark would have grown is shown across timeframes, as well as the SIP yield. This data is updated on a quarterly basis. Note that the various returns may not all be available under each fund where the static information and portfolio details are shown. Some AMCs put a part of the performance figures for all funds bunched up at the end. Also important is the fund’s holdings and sector classification. The percentage of the portfolio invested in the top 10 stocks indicates how concentrated the holdings are in the fund; if it’s over 45 per cent, holdings are concentrated. Significant movement of a single stock in either way can influence the fund’s returns much more if it is a concentrated portfolio. Sector classification is another data point to watch; a diversified exposure to sectors helps reduce risk. Higher holding in sectors with good growth potential obviously will help boost returns. For debt funds, sector classification takes a backseat. What is important is the ratings (AAA, AA, A, A1, etc) of the instruments held. It indicates the quality of papers the fund holds and the risk level. Lower quality papers (A and below) bring in higher yields but are far riskier than a fund that holds AAA papers. Here too, look at the extent of exposure to each instrument. High concentration in lower rated papers raises the risk level even more and may not be a good idea. Allocation to instruments – debentures, CD, CP, gilts is also important information. Finally, you have the risk-return metrics of standard deviation, beta, and sharpe ratio. Some AMCs may give additional metrics as well. Lower beta and standard deviation figures are preferable. Sharpe ratio, on the other hand, should be higher. These figures need to be compared with similar funds for you to draw meaning from it. Apart from all these, the factsheets also carry a monthly market commentary on the equity and debt along with their outlook. Dividend history of all schemes since inception will be listed at the end of the factsheet. For the wealth of information that it provides, the factsheet is one document that cannot be ignored.

Sharpe Ratio: How to understand risk and returns

Couple of weeks ago we looked at volatility and consistency of returns of a mutual fund and how to choose a mutual fund based on these parameters. We discussed about standard deviation, which is a measure of risk. But how do you know risk delivered returns? sharpe ratio helps know this. It simply tells you the excess returns that you earn over a risk-free instrument for every unit of risk taken. A higher ratio means the fund delivered more for the quantum of risk it took. By excluding the risk free return that you would get in a government instrument, the ratio actually takes the excess returns generated by assuming risks. And this excess return per unit of risk (measured by volatility – standard deviation) is the sharpe. Sharpe explains whether you are compensated well enough for the risk taken. Let us take a look at some fund example and see how it works. As we look at the illustration, it is important to note that comparisons across categories will not be meaningful as different categories assume different levels of risk. Now let us look the first two funds from the above table: Franklin Prima Plus and HDFC Equity are multi cap funds. It can be seen that the Franklin fund delivered higher average returns with lower volatility (read standard deviation) hence has a significantly higher sharpe ratio compared to the HDFC Equity fund. In a similar way, it can also be inferred that the DSP Black Rock fund which is a micro cap fund has delivered better returns with lower volatility compared with the Sundaram fund thereby returning a higher sharpe ratio. You can notice the debt fund in the above illustration has a higher sharpe as a result of lower standard deviation. In other words, they take very little risk. But this cannot be compared with the equity category; as you will see that the actual returns in a debt fund is lower than with equities. This only indicates that a high sharpe ratio can also be a result of very low volatility and consistent returns above the risk free rate and precisely the reason why it should not be used to compare across categories. While Sharpe ratio is a good measure to understand if a fund is delivering returns commensurate to the risks taken, it does have some limitations. Some of the shortfall of this ratio is that: (i) Since this is a standalone ratio it will not tell you much. It has to be seen in comparison to its peers or the fund’s benchmark. Also, it needs to be compared with the right peers to help you in your decision. (ii) Sharpe ratio per se does not talk of the volatility of the fund, instead it indicates how well you are compensated for the risk taken. Hence, if a fund is very volatile in the short term but still delivers over the long term, it might still have a high sharpe ratio. However, if you cannot stomach such short-term volatility, then this ratio may mislead you. It is important to use a single source for comparing the Sharpe ratio across peers and its benchmark. The shape ratio in the fund fact sheet may differ from what is stated in a rating website. This is so since different sets of data (time frames and also frequency of testing) would be used by different sources that give Sharpe ratio. Hence stick to one source and make the comparison within the right categories to use this metric well.

Short-term and long-term gilt funds

What they are? Where they invest? Gilt funds are debt mutual fund schemes that invest in government issued bonds and securities of varying maturities. The various types of gilt funds include long-term gilt funds and short-term gilt funds. Long-term gilts funds invests in long dated government bonds with maturities, typically greater than 5 years up to even 30 years, while short-term gilt funds invest in short term government bonds as well as long-term bonds with short term residual maturities. Though long-term gilt funds are more risky and volatile compared to short-term gilt funds (reasons for which we will look at later in the article), the long-term gilt funds are more popular, especially among institutional investors. This is because they are most sensitive to interest rate changes and therefore allow such investors to bet on rate cycles. There are not too many short-term gilt funds as the theme can be played with other short-term debt funds as well. How they work Gilt funds predominantly generate returns through interest rate risk. Interest rate risk and credit risk are two of the major risks that tend to affect bonds. Since gilt funds entirely consist of government bonds they carry zero credit risk. These bonds are backed by the government, hence the probability of default is nil given the sovereign guarantee. But gilt funds derive their risk from interest rate movements. A bonds’ price movement is inversely correlated to the movement of interest rates in the economy. And it is more sensitive when it has a longer residual maturity. As interest rates rise, the prices of the existing bonds will fall to adjust themselves to the new coupon. This is because investors will prefer the current higher coupon paying bond as opposed to holding on to a lower coupon paying bond. But as interest rate moves up, the fall in price of a bond that is slated to mature 10 years hence will be much more sharper compared with a bond that is likely to mature in the next two years. This is so since the investors purchasing the old lower coupon paying bonds will have to forego the higher coupon for longer period. Therefore the fall in price of a longer maturity bond is greater than a shorter maturity bond. The opposite holds true as well, where a fall in interest rates will cause an increase in the price of long-term bonds greater than that of short-term bonds. Apart from that, Government bonds are the most liquid of bonds and are heavily traded. This makes their price movements extremely sensitive to the changes in interest rate in the economy. So any change in interest rates are immediately reflected in the prices of these bonds. Apart from that the inflation expectation and the fiscal deficit in a country are some other factors that affect the yields and prices of government bonds. These factors make gilt funds volatile. How they generate returns Unlike most of the other bond fund strategies which typically generate income through accrual, gilt funds predominantly generate returns taking duration calls and by trading in the underlying instruments. Depending on the interest rate outlook, a fund manager will tend to trade in and out of gilts with varying maturities, thereby generating trading returns in the fund apart generating returns on the coupon (interest income). By this we mean that the fund manager takes a view on the future movement of interest rates in the economy and invests either in short or long duration gilts. When a fund manager expects the interest rates to fall, a major part of the portfolio will be loaded with gilts with longer maturity. As discussed earlier, when interest rates are expected to fall, the price of the existing long-term bonds tend to rise and also rise greater than those gilts with shorter maturity. Since gilts are marked to market on a daily basis, the price movement is reflected in the NAV of the fund. In short, gilt funds generate their returns mostly from the capital appreciation arising from rate movements. Typically with respect to other corporate bond funds, yield to maturity can be a good indicator of the returns an investor can expect from the fund, but this is not so with respect to gilt funds. An understanding of interest rate movements and their impact of the returns of a portfolio (defined by modified duration) is required to understand the return potential of gilt funds. How their returns are over the long term Long-term gilt funds have potential to generate abnormal returns over short periods of time; and equally sharp losses in adverse rate situations. Hence, their returns tend to normalise and look ordinary over longer time frames. This is evident from the fact that when we look at their returns over 3,5 and 10 year time periods, their average returns have been 11.6%, 9.7% and 8.5% respectively (average performance of long-term gilt funds as of 31 Mar 2017). At the same time they had returned an average of 15% in the calendar year 2016 when the interest rates were falling. Such normalising of returns happen as the underlying gilts approach their maturity (funds reduce their average maturity once rate fall cycle is at its end), their volatility reduces and they trade closer to their par value and as the underlying bond matures, they earn their stated coupon. How they differ from dynamic bond funds Dynamic bond funds, as the name suggests, have the flexibility to invest in a host of bonds – gilt and corporate – across varying maturities.Depending on the interest rate cycle the fund manager, as he/she deems fit, will either choose to invest a major portion of the fund in gilts or corporate bonds, with long or medium-term or short-term maturities, while gilt funds will stay invested only in government bonds and securities. Hence in a downward interest rate cycle a dynamic bond fund will consist of a majority of gilts and as the cycle turns the fund manager may choose to move to an accrual strategy, with higher exposure to typically top-rated corporate bonds. However in a gilt fund, a fund manager can only choose to invest between short-term gilts and long-term gilts depending on the rate cycle and the fund’s mandate Who can invest Gilt funds are meant for astute investors who can take a call on the interest rate cycle and dynamically enter and exit these funds based on such cycles to capture returns optimally.

Should you choose the dividend option or the growth option?

“Should I go for growth option or take out the dividends in my fund?” - is a question frequently asked by many of you, when venturing into mutual fund investments. We have already discussed how dividends are paid out and how your NAV reacts in our last week’s article What are dividend and growth options in a mutual fund. We also summarized what to choose. This week, we elaborate on which option to go for, based on your cash flow need. Which one to choose? Two key factors will determine what is appropriate option is for you: Cash requirement and time frame Tax efficiency Most people base their decisions on tax efficiency. While it is a key deciding criteria, let us also look at how other factors too will play a role in choosing between dividend and growth. Equity funds Let’s take on the easy one first. Equity funds are meant for the long term. Your reason for choosing an equity fund must be to build wealth towards some goal which is perhaps at least few years away. That simply means you should stay invested in the fund and not take the cash out (unless you will invest the dividends back diligently)to help compounding work for you. Since, long-term capital gains are free of tax, the solution here is simple: As a general principle, go for growth or dividend reinvestment in equity funds. But there are exceptions: One, in case of theme funds or sector funds that you hold tactically, you may wish to either opt for dividend payouts or book profits as the fortunes of themes can take a turn after one good cycle. Two, in case of ELSS, given that your money is locked in, you may wish to go for a dividend payout if you are in say your 50s and are a bit averse to risk and wash some profits in cash during the lock-in. Young investors should allow their tax saving fund to grow with growth option. Debt funds This category gets a bit tricky because the dividend suffers dividend distribution tax (DDT).DDT is nothing but the tax on your dividend. While it is not deducted on your dividend directly in your hands, it is reduced from your NAV. Given this tax component, dividend payout and dividend reinvestment can be tax inefficient. Let us look at whether you need to opt for it. You need some cash flows from your debt fund:In this case, you can choose the dividend payout or the systematic withdrawal plan (SWP) under growth option. Look at the table below. The SWP is a clear winner for those in the 10% and 20% tax brackets. But please ensure that you do not end up paying exit load. Opt for SWP post the exit load period if you wish to avoid the load. Those in the 30% tax bracket, can go for dividend payout, if you intend to hold the fund for less than three years. But if you are invested for more than 3 years and redeem post that then growth option makes sense, since you will get capital gains indexation benefit. In such a case go for SWP for regular cash flows. Each such redemption will get capital gain indexation benefit if your investment is over 3 years old. Remember, switching between options will also unnecessarily entail capital gains tax if you have profits. Hence, get your investment time frame right when you start your investment. You don’t need cash flows from your debt fund: In this case, dividend payout and SWP are not needed since you have no cash flow need. You therefore have 2 options – to go for growth or dividend reinvestment. Look at the table below - growth option scores in most cases, except when you are in the 30% tax bracket and redeem in less than 3 years. This will be true in case of liquid funds or ultra-short-term funds that you may park for a short while. In that case you will suffer DDT of 28.33% (including surcharge and cess) on the dividend reinvested. This will be slightly lower than the income tax slab of 30.9% (including cess). Consider your fresh investments through the above routes. But if you make your switches now,do take into account the exit load and the capital gains, (will vary for each fund) if any,you may suffer on the fund now.

How much insurance amount do I get from a SIP insured fund?

The insurance amount is linked depending on AMC's requirement and the SIP's monthly installment. Please find the breakdown for the insurance eligibility based on SIP Reliance Birla 1st year 10 x SIP amount* 10 x SIP amount 2nd year 50 x SIP amount 50 x SIP amount 3rd year 120 x SIP amount 100 x SIP amount On SIP Equal to fund value Equal to fund value Discontinuation after 3 years Maximum limit 21 Lakhs 25 lakhs SIP amount refers to monthly SIP amount If the SIP is discontinued before the completion of 36 installments, insurance cover will lapse.

Active Vs.passive management of funds

Active management In active management, the fund manager seeks to pick stocks with the aim of beating the benchmark and generating alpha. A fund manager cannot possibly invest in the same stocks as the/she has to take a call on picking stocks outside the index or keeping the exposure of sectors different from the index. Similarly, when the fund manager deems fit, he can raise cash or move some assets to money market instruments if he finds the markets are over-valued or too volatile. Passive management A fund is passively managed if the fund manager replicatesthe inde with exactly the same stocks and in thr same proportion. Here the fund manager is trying to replicate the index performance with as little tracking error (we will have a post on tracking error soon. Suffice to say that it refers to the deviation of the performance of the fund from its benchmark) as possible. Since the fund manager has to mimic the index he will have very little cash and that too, only to meet redemption proceeds. Index funds and ETFs are examples of passively managed funds. While ETFs are traded in the stock exchanges and can be bought through a demat and brokerage account, index funds can be bought like any other mutual fund. We will now look at how these categories of funds vary in their characteristics: Expense ratio: Passively managed funds sport a lower expense ratio as these funds need less management, given that they simply have to mimic the index. Identification of right stocks and sectors and opportunities are not needed with passive fund management. On the other hand, an actively managed fund will have a a team of analysts and fund managers who will study the various parameters of the economy and take calls on sectors and stocks in order to generate higher returns. Turnover ratio: Turnover ratio in an actively managed fund will be high compared to a passively managed fund. This is so since a lot of active stock calls are taken continuously in active management while in a passively managed fund, the churn is only when there is a change ina stock in the index or when the fund has huge inflows and the same needs to be deployed in the index stocks. Performance and volatility : Though in actively managed funds the fund manager aims to create alpha there is also a possibility that the fund may underperform the if its calls go wrong. Active management also at times lead to higher volatility in returns compared with benchmark. Since a passively managed fund mirrors its benchmark in every aspect, the possibility that the fund may underperform its index by a huge margin is Low. At best the return differential could arise as a result of tracking error. Active funds would generally score over passive funds in terms of the flexibility and diversification they offer. You can choose funds from different marketcap segments or funds using different strategies (such as growth or value). You can also choose funds with a combination of equity and debt or those that invest based on market valuations. On the contrary, passively managed funds offer little choice in the Indian context. There are very few index funds/ETFs that are based on mid cap indices and none exists in the small cap space. Nor is there is a fund that will invest in a combination of asset classes. You cannot also have a passive fund reducing its equity allocation or upping it based on market valuations. Under unforeseen scenario such as 2008 or 2002 market crash, actively managed funds can sell the stocks in the fund and move the money to cash or money market funds to prevent further erosion of investment. While passively managed funds such as index funds and etfs will not be able to do so. In inefficient markets like India where there information dissemination is asymmetric and not all information regarding the stocks and markets are available to all, at all times, well managed active funds tend to outperform the markets, handsomely generating alpha. For those wanting to build wealth for the long term, actively managed funds do a better job than passive funds.

SIP ready reckoner

We often talk of the virtues of investing through the systematic investment route (SIP). When you invest a monthly sum, how much can you expect at different rate of returns, over different time frames? Here’s a ready reckoner that will help you quickly know if you are investing adequately and where you are likely to be over different time frames. Please note that this is not a forecast on returns. Based on your own return assumptions (for the asset allocation you have chosen), you may refer this for your investment time frame to know where you will be. Clearly, you will see the significance of investing a sizeable sum if you want to save for large goals or build sufficient wealth. Also, it also tells you the need to invest a reasonable sum in equity, if you want your money to work for you. Just take the case of an 8% IRR (a return you might typically get in bank FDs). An investment of Rs 30,000 a month leaves you with a corpus of just Rs 4.5 crore in 30 years. However, a 12% IRR (which you can achieve with even a 40-50% equity allocation) leaves you with a substantially higher sum of Rs 10.6 crore! That is the kind of returns that you can achieve even with some amount of equity exposure. Internal rate of return or IRR is the annualised returns for investments made over regular frequencies. If you notice beyond the 12% IRR, your money almost doubles every five years and with returns beyond that, it more than doubles. What returns to expect What returns to expect would depend on two factors: one, your asset allocation ratio and two, the past returns and potential of such asset classes. The higher the equity, the better the chances of your earning double digit returns over 5 years or more. Historically if you look at the past 20 years that is since 1996, it can be noticed that the broad indices have delivered around 12% to 13% IRR. But at the same time, if we look at some of the good, steady funds that have existed since then, they give a very promising picture. For example: Franklin India Bluechip, Franklin India Prima and HDFC Equity fund have all delivered in excess of 20% IRR over the last 20 years. Disclaimer: Returns given here are based are calculations based on said time frame, amount and returns. They should not be construed as being forecasts. Mutual funds are subject to market risks. Please read the scheme information and other documents carefully.

Structure of mutual funds in India

Over the last couple of months we have been looking at various aspects mutual funds, whether it is about their portfolio or performance or how to compare them. We however did not discuss some fundamentals – on how a mutual fund house is structured. Here it comes, a bit late but hopefully useful for you to understand the product better. Mutual funds in India are regulated by the Securities and Exchange Board of India (SEBI). Since running of a mutual fund involves managing of investors’ money, SEBI prescribes comprehensive set of guidelines in the functioning of a mutual fund through the “SEBI MF regulations 1996”. These regulations stipulate that a mutual fund must be a three-tired structure consisting of: A Sponsor A Trustee An asset management company (AMC) While the above mentioned play the most important roles in creating and running a fund house, the custodian, registrar and transfer agent (RTA), auditors and the fund accountants play a vital supporting role in aiding the smooth functioning of a mutual fund. Fund Sponsor – The Sponsor is the main body that establishes the Mutual fund. The Sponsor can be compared to a promoter of a company. The responsibility of the sponsor includes appointing the trustees with the approval of SEBI and setting up an AMC under the Companies act 1956 while getting the trust registered with SEBI. Since the Sponsors play the most important role in the functioning of a mutual fund, SEBI has a set of strict guidelines for the eligibility of a sponsor. Some of them are as follows: the sponsor should have a sound track record of carrying out business in the financial services space for not less than five years. A Sponsor also needs to have made profits in at least three of the five years including the latest year. During the same period, it is also important that the sponsor has had a positive net worth. It should be contributing a minimum of 40 per cent net worth of the AMC. it is also important that the sponsor has a good track record of fairness and integrity in all its transactions. For example ICICI Bank and Purdential Plc are sponsors for ICICI Mutual Fund. For Birla Sun Life Mutual Fund, Aditya Birla Financial Services and Sun Life (India) AMC Investments Inc. are sponsors. Trustee – The main role of a trustee is to ensure that the interest of the unit holders is protected while making sure that the mutual fund complies with all the regulations of SEBI. Either, the sponsor should appoint four trustees or establish a trustee company with at least four independent directors. Additionally, at least two thirds of the trustees or the directors should be independent not associated with the sponsor in any way. Some of the key responsibilities of the trustees include, entering into an investment management agreement with the AMC to define its functioning. They are also responsible for ensuring that the AMC has all the required process, procedures and systems in place while making sure that all the key personnel such as the CEO, CIO, the fund managers and the analysts are appointed after through due diligence. All the schemes launched by the AMC have to be approved by the trustees prior to launch. The trustees will be reviewing all the transactions of the AMC on a quarterly basis wile filing reports to SEBI on a half yearly basis. Asset Management Company (AMC) – The AMC is the investment manager of the trust. It takes care of the day today operation of the mutual fund and managing the investors money as well. The AMC is appointed either by the trustee or the Sponsor after obtaining the approval of SEBI. The AMC consists of the Chief Investment Officer, the fund managers and analysts, who are together responsible for managing the various schemes launched. The compliance officer ensures compliance of all the activities of the AMC in line with SEBIs rules and regulations. For example; HDFC AMC is the Asset Management Company for HDFC Mutual Fund. Custodian – The custodian has the custody of the all the shares and various other securities bought by the AMC. The custodian is responsible for the safe keeping of all the securities. The custodian is liable for keeping the investment account of the mutual fund. Registrar and Transfer Agent (RTA) – The RTA maintains and updates all the investors records. The main function is investor servicing through its office and various other branches. Its functions includes processing of investor application, purchase and redemption transactions by investors in various schemes and plans. The auditors are responsible for auditing of the AMC’s accounts while ensuring that the accounts of schemes are maintained independently from that of AMC. The fund accountants are responsible for calculating the NAV of the schemes based on the information regarding the assets and liabilities of each scheme. Thus we can note that the mutual funds in India are a well regulated entity with clearly defined structure comprising of several components whose roles and responsibilities are properly defined under the preview of SEBI. The benefit of such a structure, especially the trust form, ensures that nobody, other tha the sponsor or the AMC can mishandle your money. In the event of a fund house closing down, your money is safely returned to you. In many other cases, where a fund house does not want to run the business, it sells out to another AMC and investors are given a choice to exit or to stay with the new AMC. Thus, while your money does undergo market risks, there is no risk of losing money to the AMCs.

Thematic and Sector funds

Most equity mutual funds invest across sectors and industries. But some funds choose to restrict this to certain segments. They are called thematic and sector funds. Though thematic and sector funds come across as more risky compared to your , diversified funds, they can add another arm to your portfolio in terms of investment avenues especially for those investors who are can afford to take that additional risk in their portfolio. Let us look at what thematic and sector funds are, how their risks compare with diversified funds and whether they are suitable for you. What are they? Sector funds tend to take focused exposure to a single sector or related sectors. For example an IT, FMCG or a pharma fund will particularly be invested only in these sectors alone. Over 90% of ICICI Prudential Technology fund, is invested in the IT sector alone. Similarly SBI pharma fund has around 10% of its AUM in healthcare services while the rest 80-85% of the fund is invested in the pharma sector. Thematic funds, on the other hand, invest in themes. This would typically be a host of sectors woven around a particular theme. For example infrastructure, manufacturing or MNC are all themes. Hence a thematic fund is more diversified than a sector fund. Sector funds are viewed as being defensive or cyclical depending on the sectors they invest in. For example FMCG, consumer goods or pharma funds are typically considered defensive as they weather various economic phases well. But others such as banking or infrastructure remove with economic cycles and are considered cyclical. But then timing the entry and exit of a sector or thematic fund becomes crucial and SIPs can only do so much to average. For example, no amount of averaging would have helped infrastructure in the prolonged downturn between 2008-14. Similarly, while an FMCG fund can weather down markets well, it may lag other sectors in a rallying market. Thematic funds, on the other hand, are less impacted and do not require too much of market timing and they are more diversified. For example: an MNC fund may hold stocks across defensive sectors such as pharma and FMCG or cyclical sectors such as capital goods and engineering. Similarly a broad theme like ‘Build India’ may weather falls better than pure infrastructure funds. Risks Among the various categories of funds, sector funds are the riskiest since these funds deviate from the basic premise that mutual funds are meant for the purpose of diversification. In the event of a down turn in the sector, the fund manager has no option but to move into cash, and only to the extent of 35% to maintain equity taxation for the fund. In the case of a diversified fund, the manager not only has the option to move to cash at the event of a down turn, but also has the option to avoid an underperforming sector and invest in other other sectors as well. Though thematic funds are less riskier compared to sector funds, they still are not as diversified as a diversified fund as they still have restrictions on where they can invest. To this extent, they are riskier than diversified equity funds. Who should invest? Investors who know the sector/ theme well and know when to invest and exit should be the ones taking bets on sector/thematic funds. These funds are also for investors who would like to take concentrated bets on a particular sector or theme but are unable to decide which stocks to invest in. By buying such a fund, they buy the entire basket of stocks in that sector. In all, sector and thematic funds are meant for seasoned investors who have domain knowledge regarding a sector or theme and know when to enter or exit. Even if they fulfill this, they would do well to hold not more than 10-15% of their overall holdings in such funds. This is because, they would be getting exposure to those sector through diversified funds as well.

Top down and Bottom up approach to portfolio construction

You may have read about fund managers talk of a top-down or bottom-up approach to building their portfolio. Does he start with the first stock with highest weight and proceed down or pick the smallest stock in his portfolio and move up? Well, none of these actually. Let’ discuss what these approaches really are Top down approach The top down approach involves looking at the big picture(macro economic factors), such as GDP growth of an economy, inflation, interest rates and a host of other parameters that define the strength of the economy. The fund manager will then look at which segments/sectors of the economy are doing well or are expected to benefit more, given the macro picture. These sectors will have the highest weight in the portfolio. Correspondingly, the sectors that are expected to perform moderately will have lower representation. Having decided the sectors and their respective weights, the fund manager will then pick the stocks that are well placed to gain from the fortunes of that particular sector. Bottom up approach In contrast, bottom up approach focuses completely on individual attributes of a company and the assumption that backs this approach is that a good company will perform well irrespective of the sector it operates in. While picking a stock, the fund manager looks to pick fundamentally strong companies with good cash flows and sound management keeping in mind that its present valuation may provide room for appreciation in its stock as opposed to its future potential Who uses what It can be noted that a majority of the mid-cap and small-cap fund managers will be following a bottom up approach to portfolio construction. Due to the volatile nature of the earnings of the companies in this basket, it becomes imperative to look for companies with strong fundamentals. A top down approach may ensure that a sector has potential but a poor company within such sector would ultimately not deliver. Hence, the focus on company fundamentals first. Similarly, a number of large-cap fund managers follow a top down approach as once they know which sectors to go underweight or overweight on, they stick to the large companies in such sectors, as they make for a good proxy on the sector. By and large both the top down and bottom up approach methods are largely used in conjunction with each other in constructing a portfolio. The goal of both these approaches is to construct a good portfolio with stocks that deliver great returns for the investor. Challenges and risks A bottom up approach is often challenging as it involves picking the right company at the right price. There is also a large huge universe of stocks to pick from To this extent, the top down approach may seem less challenging as once you filter the right sectors to go overweight on, the investment universe may narrow. However, the top-down approach has its own risks. A wrong call in the choice of the top sectors in the portfolio can weigh heavily on its returns. It will also take a lot of effort and time to change the construct of the portfolio once the mistakes are identified.

What are asset allocation funds?

You know there are balanced funds, which invest mostly in equity and some in debt. You know there are MIPs, which invest mostly in debt and some in equity. You know that these funds play around with the equity-debt ratio depending on the market. So what, then, are asset allocation funds? What it is To begin with, an asset allocation fund need not restrict itself to only equity and debt. It can combine equity, debt and sometimes gold in varying proportions or sometimes add arbitrage as an additional strategy to this asset allocation combination. Next, there are two groups of asset allocation funds. One group dynamically changes the allocations to each asset class depending on several indicators. The second group is like a regular balanced fund or MIP with set ranges for each asset class. Funds in the first group are dynamic asset allocation funds. These funds are extremely flexible in how much of the portfolio they allocate to each asset class. Balanced and debt-oriented hybrid funds have strictly defined allocations within which they operate. An MIP, for instance, will never move beyond 30% in equity no matter how attractive stocks look, nor will it completely divest itself of equity. Truly dynamic asset allocation funds are not restrictive. They can go all into debt or all into equity if the situation so demands it. They use a set of parameters to decide the asset-wise breakup of the portfolio. This break up will change dynamically depending on the performance and prospects of each asset class. If, for example, equities have run beyond what the fundamentals support and are overvalued, the fund can shift significantly away from equity and move into debt. A balanced fund can at best reduce equity to 65%. Take Franklin India Dynamic PE Ratio Fund-of-funds for example. This fund uses the Nifty PE and defines six PE bands with a corresponding equity-debt breakup. If the PE is above 28 times, the fund can pull equity to nil and invest entirely in debt. If the Nifty PE is between 20-24 times, equity can be 30-50% of the portfolio. A PE below 12 times can see the portfolio entirely in equity. In another example, DSP BR Dynamic Asset Allocation fund uses the ratio between the 10-year G-Sec yield and the earnings yield of the Nifty index to determine its asset allocation. For this fund, both debt and equity can be 10-90% of the portfolio. SBI Dynamic Asset Allocation fund also has 0-100% in debt and equity, and uses momentum indicators such as moving averages for the Sensex and the G-Sec yield to decide on allocations. UTI Wealth Builder combines equity, arbitrage, debt, and gold with allocations based on a model that considers several factors such as valuations, momentum, and earnings sentiment. The second group of funds are plain hybrid funds, except that they can involve any combination of assets. These funds are not dynamic and have a pre-defined range for each asset class, just as it is in a balanced fund or an MIP. Most asset allocation funds are built in such a manner. Axis Triple Advantage, for example, has equity, debt, and gold, of which the first two are 30-40% of the portfolio and gold is 20-30%. Then there is Kotak Multi Asset Allocation and Invesco India MIP Plus, which are predominantly debt-held with some exposure to both gold (its a 10% minimum in the Invesco fund) and equity. Canara Robeco InDiGo has 65-90% in debt and the rest in gold. The difference between the two groups is that in a dynamic asset allocated fund, you aren’t really certain whether it is equity-oriented or debt. In the others, you are certain of the orientation of the fund and the approximate return expectation over the long term. More, in dynamic funds, the tax implication for you depends on the fund’s average equity holding in the twelve months before the date of your sale. Some funds, such as UTI Wealth Builder work around this by using arbitrage to maintain an equity exposure above the 65% threshold. Suitability Asset allocation funds will deliver only if held over the long term, because the effect of juggling asset classes will show only over market cycles. They also suit only conservative investors, since the changing allocations when returns have rallied help book out at highs and keep volatility down. If you already own funds across asset classes, including these in your portfolio may not have a significant impact. Note that where funds have equity, the shifting of assets means that returns will not match equity or even balanced funds in the long-term. Where funds combine debt and gold, an underperformance of the latter can pull returns below pure debt funds as well.

What are Closed-ended mutual funds

Most mutual funds are open-ended, that is, you can invest in that fund any time you please and also exit when you wish to. But some funds are classified as closed-ended. How are these different and what are their pros and cons? This article deals with it. What is an Open-ended mutual fund Open-ended mutual funds allow you to invest in them at any point in time apart from the ‘new fund offer’ period. The funds therefore receive ongoing inflows and redemptions. The AUM of the fund goes up or down not only by the virtue of the market but due to such inflows and outflows as well. The subscription for these funds happen at the NAV prevailing at the time of investment. What is a Closed-ended mutual fund On the contrary, closed-ended mutual funds are those in which the investors can subscribe to, only during the new fund offer period. They have a fixed period post which you will get the investment value back or in some cases, the fund becomes open ended. Closed-ended funds must be listed on the exchange. They can be purchased from the exchange only through a Demat account outside of the NFO period, subject to liquidity in the units in the exchange. As these funds are closed-ended, they do not get fresh inflows nor redemptions on an on-going basis. The number of units in the fund remains constant and the AUM of the fund moves up or down only by way of market movement. Types of closed-ended funds As in an open-ended mutual fund, there are closed-ended funds in both debt and equity. We will be looking into the types of closed-ended debt funds their risks and advantages in the subsequent week. Fund houses come up with various types of closed-ended equity funds. The funds could be, thematic, value fund, growth funds, market-cap based funds or tax saving funds. Pros and cons in closed-ended funds Before we look at some of the risks of investing in closed-ended funds. Closed-ended funds do help the fund managers in managing the money more efficiently. One of the key advantage in closed-ended fund is that since the money over the period of the fund is locked in, it helps the fund manager to take concrete calls with long term view on some of the stocks without facing any redemption pressure. This allows the fund manager to take positions in stocks that may be otherwise illiquid. This helps keep the churn low and holds potential to deliver higher returns in the stock and consequently the fund as well. There are various risks involved in investing in equity funds. But there are specific risks that are attributable only to closed ended funds. Let us look at some of them. No past record: Closed-ended funds can be subscribed to only during the NFO period. Hence there is no track record for the investor to rely on at the time of purchase. Unlike an open ended fund, where the investors can follow a wait and watch approach, track the fund for a couple of quarters or even years before deciding to invest, closed-ended funds have no such track record to showcase. Change of Fund manager mid way: With very limited option to purchase a closed-ended fund after its NFO period, some investors may decide to purchase the fund based on the reputation of the fund manager. This may be influenced by the fact that the fund manager managing the closed-ended fund may have successfully managed many open-ended funds which have been performing well over a considerable period of time. But the status quo with respect to the fund manager may not remain. If a fund manager quits half way through the period of the fund, you will be stuck with the fund unlike an open-ended where you can choose to monitor the performance of the new fund manager and choose to exit in case you are not satisfied with the performance. Low liquidity: Though closed-ended funds are listed on the stock exchange, their liquidity is extremely low. As a result, exiting a fund when in need of money or because the fund is a poor performer,will be difficult. And the low liquidity means that the market price of these closed ended funds on the exchange, mostly trade below or above their actual NAV based on demand and supply. No SIPs/STPs: During volatile markets, when SIPs and STPs are the best mode of investing, since these help average investment cost by providing entry points at various levels of the market. In a closed-ended fund, SIPs and STPs are not possible and investments have to be made in lumpsum irrespective of the market condition. In the same light, partial redemptions and additional purchases are literally impossible making asset allocation difficult during various market cycles. High degree of uncertainty: Just as there is a risk of ill-timing the entry, the exit point too may be writ with risks when a closed-ended fund matures. A single black swan event right before the maturity of the fund can wipe out some or all of the gains. It would not give an option to the investor to even wait it out as the fund would have matured. Closed-ended funds can be risky options for the above reasons. One needs to have a high tolerance for risk and a very clear outlook of the markets for the foreseeable future before venturing into closed-ended funds. Or they may have to understand a theme and believe that it will do well, to invest in themes in certain market conditions. Having said that some closed-ended funds have delivered returns for the investors in the past. But for majority of retail investors, not wanting to take calls on the market. STPs and SIPs in open-ended funds hold good for all seasons.

What are diversified or multi-cap funds?

Over the past few weeks we discussed about large-cap funds and mid-cap funds. There is another category of equity funds that falls between these two – they are called diversified/multi-cap funds. Within the equity funds space diversified or multi-cap equity funds are the go anywhere funds, i.e. these funds can invest in companies across market capitalisation segments. Historically large and mid-cap stocks had performed differently in different market cycles. There could be phases when large-caps outperform mid and small-caps and vice versa. In this regard, the large, mid and small-cap funds may not be able to take full advantage of all market conditions since they are constrained by their mandate to stay invested in their respective categories with only a small allowance to deviate. This is where diversified funds hold an edge. In diversified funds the fund manager has the leeway to switch holdings in the fund between large-cap, mid and small-cap stocks as he/she deems fit, based on market conditions. While diversified funds have the above said leeway, they mostly tend to have a large-cap bias, increasing or decreasing their mid-cap holdings by a small margin as and when conditions favour. For example, in the rallying mid-cap market of 2015, diversified funds too held a larger portion of midcaps to deliver higher returns than the large-cap category. How Fincare services classifies them In the mutual fund universe, while some funds clearly stated that they are go-anywhere funds by using terms such as flexi-cap or multi-cap, it is not easy to infer whether a fund has a diversified strategy. At Fincare services we define diversified/multi-cap funds as those funds that have had an average exposure of 50% to 75% in large cap stocks, over a period of two years. The rest of the portfolio will comprise of mid and small-cap stocks. Though this is not a rule etched in stone, some may have different limits and range for the amount of exposure to large, mid and small-cap stocks. Change in holding across cycles As discussed earlier, depending on the market condition the fund manager has the leeway to move the investment across the cap curve. During uncertain times, or at times when the fund manager feels that mid and small-caps are richly valued and he sees value in large-caps, he can tilt greater chunk of the portfolio to be invested in large-cap stocks. This largely appears to be the case currently. At the same time when the fund manager sees greater opportunity in mid and small-cap stocks compared to large-caps going forward, he can make the changes to the portfolio accordingly. For example, a fund like Franklin India blue-chip, holds more than 80% in large-cap stocks under all circumstances. However, its sister fund Franklin India Prima Plus, a diversified scheme, holds large-caps anywhere between 55% to 70% (last 4 years) with rest of the holdings invested in mid and small-caps. Similarly as the markets have become more uncertain and volatile in the last couple of years, it can be noticed that the average exposure to large-caps across category have risen from less than 60% to greater than 60%. Advantages and who can invest One of the biggest advantages of these diversified funds is it reduces the need to keep track of multiple funds in the portfolio separately. Since these funds are invested across market-cap segments the need to maintain separate large-cap, mid and small-cap funds is eliminated. This helps provide a certain degree of stability to the portfolio. During bull phases these funds tend to outperform large-caps by capturing some of the upside offered by mid and small-cap funds. And during bear phases these funds can contain declines better than mid and small-cap funds. Diversified funds are suitable for investors who wish to start with one fund and still invest across market-cap segments. It is also suitable for beginning investors and investors who are not sure of their risk tolerance levels.

What are dividend and growth options in a mutual fund?

When we look to invest in mutual funds, we come across various options for a single fund such as growth, dividend payout and dividend reinvestment. Many investors want to know if a fund will pay dividend and if you how much it will pay and so on. But from where exactly is the dividend paid and what happens to your NAV on such payment? Dividend in equity funds Let us first look at the case of dividend in equity funds. First, the dividend paid by companies (stocks) that funds hold should not be confused with the dividend declared by an equity fund. All the dividends a fund receives in the stocks it holds are simply reinvested and show up as growth in your NAV. Whenever a fund chooses to, it may pay dividend from the your NAV, if you have chosen the option. What happens then? A part of your NAV is stripped and paid to you in cash as dividend. There is no dividend distribution tax (DDT) for equity funds. When a dividend is paid out, the NAV falls to the extent of dividend paid. In other words, a part of your profits are given back to you. Suitability: This option can be opted by investors who are more risk averse and also like to have some cash flow from the funds they have invested in. But equity funds seldom declare regular dividends and are also not required to do so. Also, since equity funds are meant for building your wealth, it is not a good idea to be cashing out on it and curtailing your wealth building process. A variant of the dividend option is dividend reinvestment. Under this option, the dividend that is paid out is reinvested back in the scheme as additional units. When a dividend is declared, the NAV of the scheme falls by the quantum of dividend but units are credited at the post-dividend NAV. Technically for an equity scheme the dividend reinvestment and the growth option should yield the same final value on your investment. From the above table, it can be noticed that the dividend - reinvest and the growth option yields the same final value of investment in equity. Dividend in debt funds The major difference between dividend declared in an equity and debt fund is that there is dividend distribution tax on the dividends paid by the debt fund. Under the growth option, since there is no dividend that is distributed, the NAV of the fund reflects the appreciation in your holding. In a dividend payout option, your NAV is reduced to the extent of dividend paid as well as for DDT paid. DDT is 28.84% comprising of 25% tax, 12% surcharge and 3% cess. This is not taxed on the dividend you receive. The dividend you receive is considered as being post-DDT and DDT is calculated by working back. Suffice to know that it is done by the fund itself and reduced in your NAV. Hence while it is not taxed in your hands, you are the one who ultimately bears it as it is reduced from your NAV. Under the dividend reinvestment option too, DDT is applicable. Hence the dividend reinvestment option and growth option are not the same. The former will be lower to the extent of DDT reduced in your NAV. It can be noticed from the above table that the final value of the investment under the dividend reinvestment option is slightly lesser than the growth option. Suitability: If you are in the 10-20% tax bracket you should avoid dividend payout/reinvestment option and simply use a systematic withdrawal plan (SWP) under growth option as your tax outgo will be lower. Also if you do not need any income, it is best to keep the growth option to help compound your money. If you are in the 30% tax bracket and need regular income, it is still better to rely on a SWP than go for dividend payout option. This will ensure you get steady income and get capital gains indexation benefit after 3 years. If you do not need regular income, allow the money to compound with growth as you will get indexation benefits after 3 years.

What are index funds and ETFs

Index funds and ETFs are similar in that they exactly mirror a particular index or commodity and in doing so, aim at delivering the same returns as a particular index or commodity – the Sensex, Nifty 50, Nifty Junior, Nifty 500, gold, and so on. But the manner in which index funds and ETFs do so, the methods in which you can invest in them, the way they operate, are starkly different. Creation An index fund is a mutual fund. The fund’s portfolio will be the exact copy of the index it is tracking and will change in tune with the index. To create an index fund, the fund house pools the money you invest and buys the same stocks as the index, in the same weight. For instance, a Nifty 50 index fund would hold the Nifty 50 index stocks in the same proportion of the index. A Nifty 500 index fund would have, yes, 500 stocks. To start an ETF, the asset management company turns to players called authorised participants (individuals or institutions). These authorised participants will buy shares of the index the ETF will track. The ETF puts together these shares in the proportion of the index. It then breaks the entire thing up into blocks of a uniform value, called creation units, which represent the underlying index. Authorised participants receive creation units equivalent to the value of the stocks they delivered, based on the ETF’s NAV. The creation units are then listed on the stock exchange and are traded. A gold fund is a mutual fund that invests in gold ETFs, since physical gold is not liquid enough for a fund house to buy, hold, and sell if required (to meet redemption requests). Nor is it practical! Investments and redemption You can invest or redeem your units in an index fund the way you would with any mutual fund. Either go through a distributor or invest through the fund house. All you need is a bank account and KYC compliance. To invest or sell an ETF, you need to necessarily have a demat and trading account. Returns Hark back to the first point. ETF units are listed. That means you are buying and selling an ETF at its market price, and not its NAV. Now, actual volumes traded will affect the ETF’s price. A mismatch between demand for ETF units and the actual supply of them from the authorised participants will result in a difference between the ETF market price and the ETF NAV (the NAV will move in line with the index). To prevent a gross mismatch, exchanges employ market makers to ensure that demand is, to an extent, met by creation units. In most cases, though, there will be a slight disparity and thus, your ETF returns and the index’s (or gold’s) return may differ. In an index fund, you are allotted units on the NAV. As the NAV moves in line with the index, your returns will be similar. The difference comes in due to costs. The fund deducts running and maintenance expenses. Besides, it also needs to set aside some cash to meet redemption requests since it cannot simply sell stocks in its portfolio without upsetting the original proportion. This cash component will also cause a slight difference in the fund’s return. ETFs and index funds both pay dividends. Costs The immediate conclusion you can draw from the previous point is that an ETF won’t have these running costs. That is true. But remember that you will be paying brokerage on your ETF trading, just as you do with stocks. You will also incur annual demat account charges. Suitability Index funds and ETFs are useful for conservative investors who do not want to take on the risks of a fund manager’s ability to deliver market-plus returns. ETFs also serve additional purposes of allowing you to take advantage of short-term market movements by trading on them (more difficult with index funds as they are subject to cut-off times) and to hedge exposure through derivatives. Variety Most index funds and ETFs are restricted to gold and the bellwethers Sensex, Nifty, and Nifty 500. ETFs do however have a slightly wider variety. Apart from main market indices, you have ETFs based on the Nifty Quality 30, Nifty NV20, Nifty Dividend Opportunities, and Nifty Consumption, for example. The concept of passive investing itself is quite new in our markets. The availability of, and knowledge about, different types of indices based on themes and strategies is also limited, unlike in global markets where ETFs are dominant.

What are liquid funds

Liquid funds – another category of debt mutual fund is considered the least risky and is often quoted as a good alternative to savings account, to park your surplus. Let us look at various aspects of liquid funds in detail. What it is Liquid funds are open ended debt mutual funds that invest in very short term instruments having maturities of up to 91 days. They invest in treasury bills, money market instruments, commercial paper and certificate of deposits. These funds are supposed to be least risky as they ought to hold high quality papers in terms of rating. Liquid funds have the shortest of maturities among the various categories of debt funds. They earn returns simply from the coupon rate (accrual) on the instruments they hold. As their tenure is very short and they are not marked-to-market (except in rare circumstances), they are least volatile. The instruments in the fund are not traded and are held to maturity. That means while they do not swing with day-to-day yield movements, their returns will keep varying based on the coupon rate of the underlying instruments. For example: in a low interest rate scenario, the coupon rates of the underlying instruments will be low and hence returns will also be mediocre (although higher than your saving bank rate). Ultra short-term funds and liquid funds – The difference Ultra short-term funds cannot be substituted for liquid funds for the below reasons • Ultra short-term funds hold papers with maturity greater than three months up to a year. They hold longer maturity instruments compared with liquid funds, some of which may be traded in the market. Hence the NAV could be impacted by the price movement of the underlying instrument as well • Ultra short-term funds can be tad riskier to liquid funds in terms of the quality of paper they hold • Some ultra short-term funds charge an exit load, while liquid funds across do not charge an exit load Taxation Liquid funds are taxed like any other debt fund. The profits realised in less than three years are taxed at your tax rate and the profits realised after three years are taxed at 20% with indexation. Investors in the 30% tax bracket can opt for a dividend payout in case of requirement of cash flows otherwise can opt for dividend reinvestment whereby the dividends are issued as new units of the fund thereby helping to reduce the capital gains tax. The rest may well opt for the growth option. Advantages Savings plus returns Liquid funds have delivered over 6%( 1 year, 10% tax slab post-tax category returns as of 15 Mar 2017– Fincare Services category) compared to meagre 4% on the money parked in your savings account. Easy liquidity You can redeem your liquid fund any time without any exit load. There are now special features in some funds that allow you to redeem it within a matter of an hour. Otherwise, based on the cut-off timings for redemption, you will receive the money the next day. Low risk Liquid funds are the least risky among the categories of mutual funds as the fund is invested in the safe papers such as treasury bills, certificate of deposit and commercial papers with A1+ ratings. While liquid funds are not usually marked to market, there can be exceptional cases of such mark down too, especially when one of the papers the fund holds has a downgrade (recent case in point being the downgrade of Ballarpur Industries’ papers to default status) or when there is a sharp up move of interest rate in the market and SEBI requires AMCS to mark-to-market their liquid funds (happened in July 2013). There is not much differential in the performance of liquid funds barring a few basis points If you see a fund that performs far higher than peers, then make sure that the fund is not invested in slightly higher risk instruments. Remember, liquid funds are meant for parking your money safely and not for generating high returns. Hence, do not get swayed by marginally higher returns in this category. Uses of liquid funds Contingency fund: Liquid funds offer the best alternative to parking your surplus or creating a contingency fund compared with your bank account Rout to lumpsum investing : Liquid funds are a good option to park your lumpsum money and then systematically transfer (systematic transfer plan or STP) it to equity funds. Investing lump sum in the equities market may not be the most ideal thing to do when the markets are volatile or are richly valued. Under such circumstances, the money may be parked in a liquid fund with an instruction for STP into an equity fund at regular intervals. This helps to ride the volatility better thereby helping to average the investment over a period of time. At the same time the money is parked in a better returning option than savings account.

What are MIPs?

Monthly income plans (or MIPs) are debt-oriented mutual funds, which is to say that they invest at least 75-85% of their portfolio in debt instruments and hold the rest in equities. Here are five things to know about MIPs: 1. They aren’t really regular income products: The ‘income’ in MIPs is simply the dividend declared by the fund. Barring a couple, all MIPs offer several variants on the dividend option – monthly, quarterly, half-yearly, and annual. However, remember that dividend for any mutual fund can be declared only from the surplus the fund generates. This surplus will fluctuate depending on the debt and equity markets, and therefore, MIPs will not be able to maintain a steady surplus at all times. This has two consequences. First, the actual amount of dividend you receive can vary each month. If a fund declares Rs 0.05 dividend per unit for three months in a row, it can suddenly jump to declaring say, Rs 0.09 for the next couple of months, or even drop to, say, Rs 0.04. Second, if it does not have a big enough surplus or if the markets are especially turbulent, the fund can skip out on paying dividend altogether. Going by the dividend history, there are MIPs that have refrained from paying dividends in some months. 2. They do not have uniform risk: MIPs are slightly higher risk than pure debt funds. MIPs invest across debt instruments (gilts, bonds and debentures, commercial paper, certificate of deposits and so on), and each fund has a different strategy. Their portfolio make-up depending on opportunities and the interest rate cycle will impact returns over the years. For example, government securities looked attractive from last year with hopes of a rate cut. That gilt rally expectation panned out only over the past four months, resulting in funds that had upped gilt exposure significantly in 2015 floundering until then. On the equity side, MIPs do not have a uniform exposure. Those such as Birla MIP II Wealth 25, ICICI Prudential MIP 25, Canara Robeco Monthly Income Plan, all go up to 25% in equities; the first two have even gone up to 30%. Then there are those such as Birla Sun Life MIP II Savings 5 and HDFC Multiple Yield 2005, which put a maximum of 10-15% in equity. Thus, MIPs are not all at the same risk level. The extent of equity exposure influences fund volatility and returns. Higher equity can deliver superior returns, but such MIPs require a higher risk appetite than others. 3. They require at least 2 years: Because of their equity exposure and their average maturities of 2-3 years, MIPs do require you to hold them for 2 years at least to generate the best returns. Rolling one-year returns every day over the past ten years shows that most MIPs have delivered losses around 5-9% of the time, especially where equity holding is higher. Extending the holding period to 2 years removes the probability of losses, except for those with the highest equity exposure. MIPs also have exit loads on holding for less than a year; some impose loads on longer periods of up to 2 years. 4. They are subject to taxes: Since they are debt-oriented funds, MIP dividends are subject to dividend distribution tax at 28.84%. The AMC deducts this tax on your behalf. On holding periods of less than three years, your gains are taxed at your slab rate. On holding for above 3 years, gains are taxed at 20% with indexation. Your tax slab, your holding period, and your cash flow needs will determine whether to go for the growth, dividend, dividend reinvestment option. 5. They are suitable for generating FD-plus returns: For the higher risk taken due to the equity component and higher-yielding debt instruments, MIPs are able to generate returns superior to traditional instruments such as fixed deposits and are more tax efficient. Thus, if you have a 3-year timeframe for your investment, MIPs are a good fit. MIPs also suit conservative investors who don’t want to plunge into the stock market, but still want some higher returns. For those looking for dividend, it is best to stick to funds with a record of regular dividend payments, especially during turbulent periods such as 2008 and mid-2013. Even so, don’t consider MIP dividends for your sole cash flow source. In fact, the best way to ensure a steady monthly flow from your MIP is to do a systematic withdrawal.

What is a "Fund Category"?

You cannot compare apples to oranges, as they say. Would you look at the revenue and profit growth of Infosys and compare it to, say, BHEL or Larsen & Toubro? No. That’s because Infosys and L&T are in two completely different industries and influenced by a completely different set of drivers. Would you compare Infosys to TCS or Wipro? Absolutely! They all are in the same sector and have similar growth opportunities and challenges, so you would be able to draw a conclusion on Infosys’ performance. For this same reason, when looking at the performance of a fund, you need to compare it to similar funds only. Read any of our fund reviews, and you will fund at least one mention of the fund’s performance against its category. What is it? A fund’s category is defined by the type and range of securities it holds in its portfolio. A fund that puts the majority of its portfolio in large-cap stocks is a large-cap fund. A fund that is flexible in its allocation to large-cap and mid-cap stocks is a diversified fund. Similarly, you will have sector funds (banking, pharma, infrastructure, etc). Similarly, a fund that invests in very short-term securities of less than three months is a liquid fund. Extend the securities’ maturity in a portfolio slightly to a maximum of 365 days. These funds are ultra-short term funds. Those that invest purely in government securities and play the interest rate cycle are gilt funds. Those that invest in corporate bonds of longer tenures are long-term debt funds. Besides pure equity and debt fund categories as explained above, hybrid funds are separate categories as well. You, therefore, have equity-oriented balanced funds and MIPs as two distinct categories. How is it useful? Take 2015. In that year, the Nifty 100 index was down 2.5 per cent. Birla Sun Life Frontline Equity, a large-cap fund delivered a return of 1.1 per cent for that year. The Nifty Midcap 100 rose 6.2 per cent. Mirae Asset Emerging Bluechip, a mid-cap fund, returned 14 per cent for 2015. Would you conclude that BSL Frontline Equity is a bad fund and Mirae a good one in 2015? No, because large-cap stocks had an insipid 2015 while mid-cap stocks had a roaring time. BSL Frontline Equity, because it invests only in large-caps, cannot gain from the rally in mid-caps. Mirae Emerging Bluechip did very well because it invests in mid-caps and not in large-caps. This is why comparison of a fund’s performance is possible only within its category. In 2015, the large-cap fund category lost 0.55 per cent on an average. That is, the average return of all large-cap funds was a negative 0.55 per cent for 2015. So BSL Frontline Equity did better than the average and its benchmark, and thus performed well. Category averages and peer comparison are especially useful in debt funds. This is because debt fund benchmarks do not properly represent actual fund portfolios. For example, the CRISIL Composite Bond index is made up of gilts, AAA and AA long-term and short-term indices. An income accrual fund does not invest in all of these and can show divergence in returns over the index. Comparing debt fund returns with category average and peer performance, therefore, becomes extremely useful and more meaningful than benchmark comparison. In a nutshell, a fund (whether equity, debt, or hybrid) should be able to beat its category average on a consistent basis for it to be called a good performer.

What is a benchmark? How is it useful?

Do you remember back in school, when you went back to your parents with your exam results? If it was a particularly hard paper and you scored 60%, your first line of defence would be to bring up the toughness of the paper. Then you may have backed this up by saying that most of your friends scored lower or that the class topper, who scored 68% wasn’t very far off from your own score. You would have called it unfair if your parents didn’t listen to your arguments and chastised you for your low marks. Now think about your large-cap mutual fund that is down 8.7% in the one-year period. Would it now be fair to say it is a bad fund? Like you measured your performance against your classmates, a mutual fund’s performance should also be compared to a standard. That standard is called the fund’s benchmark. What is it? By simple definition, a benchmark is a yardstick or standard against which something can be measured. For a fund, the benchmark is a stock market or bond market index whose returns the fund aims at beating. For example, if the fund is a large-cap equity fund, it will choose a large-cap index as its benchmark. This can be the Sensex, the Nifty 50, or the BSE 100 or the Nifty 100. An MIP will have the CRISIL MIP Blended index as its benchmark. So taking the above example – the fund that lost 8.7% would be perfectly good if its benchmark lost 11.8%. Because an index is a nothing but a collection of stocks and securities, remember that the benchmark can also incur losses. Why is it useful? The benchmark is useful in two ways. The first way is as explained above – it is the standard to which a fund is held and its performance measured. The benchmark gives meaning to a fund’s returns. A fund has performed well if it beats its benchmark consistently. A fund’s performance will come in by its stock selection and its sector weightage relative to its benchmark. The second way a benchmark is useful is that it gives an idea of where a fund invests, or the type of portfolio it will have. Consider SBI Bluechip and Franklin India Bluechip. They are both large-cap funds. SBI Bluechip’s benchmark is the BSE 100 and the Franklin fund’s benchmark is the Sensex. The BSE 100 (which represents the top 100 stocks by market capitalisation) is broader than the Sensex (which represents the top 30 stocks by marketcap). Thus, Franklin India Bluechip is more constrained in where it can invest and will have much larger stocks in its portfolio than SBI Bluechip. Sometimes, large-cap funds can have even broader benchmarks such as the BSE 200, meaning that the universe of stocks the fund can invest in is that much more. Similarly, Birla Sun Life Dynamic Bond index is benchmarked against the CRISIL Short Term Bond index, suggesting that it will more or less stick to instruments with a short maturity profile. Note that a fund can and does deviate from its benchmark. It can, for example, have stocks outside the benchmark index or have different sector weights. What the benchmark does is broadly indicate how the fund’s portfolio will be. So next time, don’t dismiss the benchmark. Use it!

What is a value fund?

f you’re a savvy shopper, you wait for discount seasons during the year to buy that new television, phone, fancy shoes or clothes. You get the same good performance or durability, but for a much lower price. If you look for cheaper prices for good quality while buying a phone and are willing to wait for it, you can do the same thing when you’re buying a stock. That’s a value strategy. What is it? The principle of looking for good businesses that are trading cheap is value investing. Theoretically, a stock’s price should reflect the underlying potential in a company. A company’s fundamentals, which are its business strategy, revenue and earnings growth, its management, and so on, determines its true worth or intrinsic value. When the intrinsic value of a company is widely misjudged or not realised by the market, the stock’s price will be below this value. As and when the market realises this potential, the stock’s price will move up. A rerating of a stock (from cheap to good) can reap huge gains. A value investor seeks stocks that are so undervalued. A value mutual fund is therefore one that follows a value strategy. Funds such as ICICI Prudential Focused Bluechip, Franklin India Bluechip, ICICI Prudential Value Discovery, PPFAS Long Term Value, and HDFC Top 200 are some examples of funds that tend towards a value strategy. Stocks can become undervalued for several reasons – if there is an overreaction to bad news, the sector in which the company operates is in disfavour, if the company is just starting to turn around, or just plain market irrationality (it happens!). Investors use a combination of several metrics to judge whether a stock is undervalued – price metrics such as price to earnings, price to book, enterprise value, dividend yield, earnings metrics such as profit margins, return on capital, return on investment, performance metrics such as asset turnover, credit worthiness and so on. One has to tread the value strategy with caution as a miss can result in value trap. A stock may appear cheap but for good reason. Such a stock may never move up and you may end up with an opportunity loss as your money could have been deployed elsewhere. How is it important? Knowing that a fund is a value one will help you understand its performance. First, a value-based strategy will pay off only over a longer period. It takes time for the market to recognise potential and then lift the stock. Second, if it is a bull market, then value will well underperform. In such a market, there will be a set of favoured stocks or sectors and these run up swiftly. As a result, they will not be cheap and therefore will not be a part of a value fund’s portfolio. For the same reason, during market downtrends, a value fund will keep losses to a minimum. Since it already holds stocks that are down, they will not fall by much when markets fall. Third, value requires patience and suits moderate risk investors. If you hold a value fund, you should be willing to take temporary bouts of underperformance. For example, those such as HDFC Top 200, UTI Opportunities, ICICI Pru Focused Bluechip have all shown relative underperformance over the past year. This is because sectors and stocks these funds favoured, such as banking, engineering, or industrials were all out of market favour over 2015 and much of 2016. A preference for quality and earnings visibility by the market, which has been in place for years now, sent valuations of FMCG, pharmaceuticals, automobiles, finance companies and so on through the roof. Value funds may not own these stocks as they are seldom cheap. Consequently, they would have posted lower performance figures.

What is NAV?

Ever wondered what all that jargon in fund factsheets or application forms or articles on investments mean? To make it easier to understand the world of investing, we are starting a weekly column explaining basic concept and terms. Let’s start off with the one of the most common terms in mutual funds – the NAV or the Net Asset Value. For many, the first question that pops into your mind is what the NAV of the fund is. But unless you know what exactly the NAV is meant for, you may wind up basing your decisions entirely on the NAV number – a mistake. Here’s what you should know about NAV. What is it? When you invest in a fund, you buy what are called units in the scheme. If you invested Rs 10,000 in a scheme, you will receive units worth Rs 10,000. Now, how does the fund figure out how many units to allot to you? That is determined by the Net Asset Value or the NAV of the fund. NAV is the per-unit value or per-unit price of a particular mutual fund scheme. Continuing the example above, if the NAV of your scheme is Rs 20, you will receive 500 units (i.e., 10,000/20) of the scheme. If the NAV was Rs 50, you would receive 200 units. How is is calculated? The NAV is arrived at by dividing the total market value of the portfolio by the number of units. The NAV is after factoring in the expense ratio – that is, all fund-related expenses are netted out and the resultant value is taken to derive the NAV. Why is it useful? The NAV reflects the value of the securities in the portfolio. It is influenced by the market price of the securities in the portfolio and how much of the security the scheme holds. The change in NAV over a period will tell you what the fund’s gain or loss is. So if the NAV of a fund has moved from Rs 10 to Rs 15 in a year, it has gained 50% for the year. The NAV is also the figure used to arrive at the number of units allotted to you. Unit allocation is a tool used to make it easier for the AMC to account for investments. The inevitable conclusion most people draw is this – a higher NAV means the fund is more expensive than a fund with lower NAV, and a lower NAV is good because you get more units. Wrong. In a mutual fund, what matters is the value of your investment and not the number of units you have. Here is an example. Look at the table below. You have three funds, all with different NAVs. Let’s say you put Rs 10,000 in each, three years ago. You have the highest number of units in UTI Equity and the least in Franklin India Prima Plus. If you used the logic that lower NAVs are better because its cheaper, UTI Equity should have been your best bet. But look at the value of the holding at the end of the three years and the absolute gain you made on each of the funds. You made the most money on Franklin India Prima Plus, which had the highest NAV. UTI Equity had a lower NAV than Franklin India Prima Plus, but your gains were smaller. Before you conclude that a higher NAV is better, look at DSP BR Top 100. It has a higher NAV than UTI Equity, but it left you with less money than UTI Equity. As you can now understand, there is no connection at all between the absolute NAV number and your returns. Remember this – in a mutual fund, what you are buying is the performance. Therefore, it is the extent or percentage of increase or decrease in the NAV that is important. The absolute NAV is simply a number and completely irrelevant when it comes to deciding which fund to invest in. It is simply an accounting tool used to account for investors’ investments in a scheme.

Tax-saving fixed deposits versus tax-saving mutual funds (ELSS)

In order to save on tax, a go-to option for many is to quickly invest in a bank or post-office tax-saving fixed deposit. It may not really be the wisest move on your part. Deposit pros and cons You would argue that one, you are assured of the return you earn in a bank or post office fixed deposit. Two, there is no risk that you lose on the capital invested. Three, it’s not a very cumbersome process – its just a matter of going across to your bank (or hopping over to your laptop), or the nearest post office to open a fixed deposit account. There is no contesting these pros. But on the flip side, the interest earned on the deposit is subject to tax at your applicable slab rate. This will bring down the overall returns made on the investment, and is felt more, obviously, for those in the higher tax brackets. Say, for example, you invested in a tax-saving bank fixed deposit in April 2010. The interest rate you could have earned was around 8.75 per cent. Post tax, the return would have dropped to 8.2, 7.4, and 6.6 per cent in the 10, 20, and 30 per cent tax brackets (assuming quarterly compounding). A post-office time deposit in the same period would have returned 7, 6.3 and 5.6 per cent, post taxes, assuming quarterly compounding. Right now, post office time deposit interest rate at 8.5 per cent is slightly higher than many bank tax-saving deposit rates, which range between 7.5-8.5 per cent. The second potential problem with tax-saving FDs is that once the fixed deposit matures, it has to be reinvested if you are to build wealth and prevent yourself from spending it all. If interest rates are in a downward cycle, you run the risk of earning lower returns. Tax-saving funds Now, note one important point. Because bank or post office fixed deposits are locked in for five years, it follows that you have a longer-term investment horizon. You also do not require this money any time soon. Given this, you can afford to participate in equities (i.e., stocks), an asset class that delivers superior returns over the long term. Equity linked savings schemes (ELSS, or tax-saving mutual funds) allow you to invest in equities and earn tax breaks at the same time. Tax-saving funds make for better wealth building and returns than fixed deposits. For one thing, as mentioned earlier, equity is a superior asset class. Continuing the example above, Rs 20,000 invested in a bank fixed deposit in April 2010 would have grown to Rs 30,830 at the end of five years, assuming quarterly compounding. A post office time deposit would have given even lower at Rs 28,998. The same Rs 20,000 invested in tax-saving funds would have swelled to Rs 38,985, on an average, in the same period. Two, the gains made on this investment is not taxed; equity mutual funds don’t have capital gains tax if held for more than one year. So while the fixed deposit return would have dropped as explained above, the tax-saving fund return would have stayed put at an annual 14 per cent. Dividends earned on the mutual fund are also free of tax. Yes, stock market investments involve higher risk and there is the uncertainty of return. But the long-term horizon mitigates a good part of the risk of losses. Those in their 20s and 30s can certainly afford to take on higher risk in order to earn higher returns. Investors in their 40s and 50s can also invest in tax-saving funds, but in smaller amounts. Sticking to quality funds with strong performance records can also reduce risk of poor returns. The tax-saving funds on offer also represent a good mix of high risk and moderate risk investment styles, so you can find a fund that suits your risk appetite. Bottom-line The amount of deduction available under Section 80 C, at Rs 1.5 lakh is sizeable. For many, it also forms a good chunk of annual investments. And the purpose behind investing is to fulfil life goals such as educating your children or building a kitty for retirement. So why not be smart about where these investments go?

The investments that get you deductions under Section 80 C

Reducing taxes as much as possible is at the forefront of our minds. The all-powerful Section 80 C offers the best way to this, as most of you know. But what are the ways to utilise the Rs 150,000 worth of deductions that the section provides? Broadly, deductions under Section 80C fall into three groups – those based on investing, those based on protection, and those based on spending. For the purpose of wealth creation, obviously, the options that incentivise investments are the ones that matter. You have choice aplenty in this regard. Here’s listing them out. Equity-linked options Investments can be of two types – one, where the return is fixed (like a bank deposit) and one where it isn’t (read: equities). Equity-linked-savings-scheme or ELSS, also called tax-saving funds, are mutual funds that invest in equity (in other words, the stock markets). ELSS funds have a lock in period of three years, the shortest of all tax-saving instruments. There are over 40 tax-saving funds on offer across fund houses. Dividends are not taxed, nor are proceeds at the time of withdrawal. These instruments are thus EEE – exemption allowed at the time of investment, exemption of income earned from tax, and exemption at the time of withdrawal. ELSS returns depend on both the stock market, given the inherent vagaries, and the fund manager’s expertise. But given that equities are the most superior asset class when considered over the longer term, investing in quality tax-saving funds are much more conducive to building long-term wealth than the traditional tax-saving options which are fixed-income instruments. ELSS is also more amenable to early liquidation, unlike the provident fund triumvirate. Some AMCs also have equity-based pension funds, which are tax-deductible. The other tax-deductible instrument that has an equity component is the NPS. Apart from the Section 80C ceiling, an additional Rs 50,000 worth of investment under Section 80 CCD is allowed for the NPS. A very low-cost product, the NPS is locked in until you turn 60 as it is meant to build your retirement corpus. The NPS requires minimum contributions of Rs 6000 per year. Investment in the NPS is split between equity, corporate debt, and government debt – how much goes into what depends on your choice. You also have to choose the fund manager that will manage your investment; there are six managers currently. When you turn 60, you can pull out up to 40 per cent of the corpus and the rest will be moved to an annuity product. However, all withdrawals will be taxed. Fixed-income options All other investment-based tax deductions are fixed income instruments. First, there is the employee provident fund (EPF). This is one investment that the salaried class will usually have. Your employer deducts a defined sum from your salary each month (12 per cent of basic pay plus dearness allowance), which goes into the EPF. Your employer’s matching contribution is not considered for 80C deductions. Second, there is the voluntary provident fund (VPF). Over and above the EPF amount, you can contribute a further proportion of your salary, termed the VPF. This contribution goes into the EPF pool. Note that in a VPF, there is no similar contribution from your employer – it’s entirely your own investment. The EPF and VPF are regulated by the EPFO (Employee Provident Fund Organisation). The interest rate payable each year is declared by the EPFO, and your interest is compounded. The rate for 2014-15 stands at 8.75 per cent. You are locked into the investment for the period of your employment. Three, there is the public provident fund (PPF), where you can invest any sum you want up to a maximum of Rs 150,000 a year. There is no periodicity of investment here, unlike EPF or VPF. Nor is it deducted from your salary. You have to make the investments yourself at designated bank branches or the post office. Once you start a PPF, you must make the minimum Rs 500 contribution each year. The PPF is regulated by the PFRDA, which also declares the interest rate each year. PPF is locked in for 15 years, extendable after that in five-year buckets. Interest earned on PPF, EPF, and VPF is not taxed. Proceeds at the time of withdrawal is not taxed either, making them EEE instruments. Then there are time deposits in various hues. 5-year tax-saving bank deposits, which pay a fixed interest as declared by each bank, are one. Then there is the 5-year post office time deposit, which pays, currently, an annual interest of 8.5 per cent. Specific term deposit schemes of public sector companies such as NABARD, NHB, or HUDCO are also available.National Savings Certificates come in time buckets of five and ten years. Interest on the NSC is currently 8.5 and 8.8 per cent per annum, respectively.. However, on all these schemes, the interest earned is subject to tax. The tax effect, therefore, reduces their overall return even though the actual rates themselves are reasonably high. For example, the post-tax returns of a five-year NSC works out to 7.9, 7.1, and 6.3 per cent in the 10, 20 and 30 per cent tax brackets. Other options The options listed above are open to all (barring EPF, of course, as it is only for the salaried class). Besides those, there are a couple of other options in which only a few can invest. One of these is the Sukanya Samriddhi account, which can be opened if you have daughters. Up to two accounts can be opened, up to the age of 10 years from the date of birth. The rate of interest will vary each year just as PPF or EPF interest, but is currently 9.2 per cent per annum, compounded yearly. The minimum yearly (and mandatory) contribution is Rs 1,000. Partial withdrawal of the corpus is allowed after the daughter turns 18, and the account can be closed after she attains 21 years of age. Proceeds at withdrawal and the interest are both free from tax. Another is Senior Citizens Savings Schemes, open, obviously, to those above 60 years of age. The rate of interest is right now at 9.3 per cent payable quarterly. These deposits have five-year maturities and can be opened at post offices. Interest is, however, taxed. The sum of Rs 1.5 lakh accounts for a good chunk of your total yearly savings. Knowing which investments qualify for tax deductions, their lock-in periods, and how their returns can be will help you make an informed decision about where to save tax this year.

After adding additional investors, will I be able to view all our investments in one place?

Yes, investments made in the names of different investors (that were created using a single login ID) can be seen in one consolidated portfolio view as separate investments. For example, a husband might have invested in a few schemes, his wife may have invested in a different set of schemes, and both of them may have jointly invested in a third set of schemes. All these investments can be viewed in a consolidated fashion in the dashboard when all these three accounts have been created under a single login ID.

Capital gains and indexation

Over the last couple of weeks, we looked at how mutual funds are taxed. We spoke about indexation benefit being available for long term capital gains in debt funds. What is indexation benefit and how does it make debt funds a superior option to traditional products such as fixed deposits? In traditional products such as fixed deposits or debentures, the interest on your investment is taxed in your slab rate; that is –whichever tax slab you fall under. With debt mutual funds too, your gains (short-term gains) are taxed at your slab rate if you held them for less than 3 years. But for investments held for over 3 years, you are taxed at 20% with indexation benefit. What does indexation do? It simply brings the cost of your investment to the current value, by considering cost inflation index. In other words, the value of your original investment is increased to the extent of inflation during your holding period. Thus, by inflating your original cost, the gain (sale – indexed cost) actually comes down and you pay a 20% tax on such gain. Let us take an example to see how this works: You invested Rs 1 lakh in say January 2012 in a debt fund that delivered 9% annualised return in 4 years. At the same time, you also invested in a deposit returning 9% compounded return. Your deposit would have matured on December 31, 2015. Rs 1 lakh of investment will leave you with Rs 1,41,158 after 4 years. If you are in the 30% tax bracket, deposit money in hand, post tax would be Rs 1,28,810. You would have paid Rs 12,348 as taxes (not considering cess, surcharge etc.)! Now let us come to the debt mutual fund. Having held the fund for 4 years, if you exit the fund (on the same day as your deposit) you will be allowed indexation benefit. The indexation would be: your investment cost*cost inflation index in year of sale/cost inflation index in the year of purchase. So your indexed cost will be Rs 1,00,000*1081/785 = Rs 1,37,707. Your long-term gain is therefore 1,41,158-1,37,707= Rs 3,451. Tax on this is 3,451*20/100= Rs 690 and post tax money in hand is Rs 1,40,467. The table below makes it obvious how debt funds provide superior post tax returns as a result of indexation, assuming that both FD and debt fund earn the same (which is not the case as debt funds hold higher return potential). In some cases where the indexed investment amount is greater than your sale price and there is a capital loss for tax purposes. Such loss can be declared and also offset against any other long-term capital gain.

How are mutual funds taxed? Part I

If there is one detail regarding investment that everyone pays close attention to, it is taxation. Here’s putting down what you need to know about taxes and your funds. While much of your other income, such as salary or interest income, is taxed at your slab rate, the gains you receive from mutual funds – called capital gains – have separate taxation provisions. They are called capital gains tax. Since taxation is a vast topic, even while considering only mutual funds, we’ll cover it in two parts. What is MF capital gain? Capital gain is simply the profit on your investment when you sell your mutual fund units. It is the difference between the market value of your mutual fund units at the time of sale and the cost of such units. The gains come in from the appreciation in your fund’s NAV. Capital gains can be short term or long term, depending on how long you hold the fund units. Holding period is the number of years between when you first bought a unit and sold it. What is considered short-term and long-term holding varies between equity and debt/gold mutual funds. In this article, we will look at how capital gains tax applies to equity mutual funds and debt funds. In the next one, we shall see how the taxes are calculated when you buy and sell at multiple points. Tax on equity funds Taxation rules on equity and equity-oriented funds are fairly simple. A holding period of more than 12 months qualifies as long-term holding; less than that is short term. Equity-oriented funds have no tax on long-term capital gains; i.e., if you sell your fund after 12 months from the date you bought it, you don’t pay capital gains tax. On short-term holding, the capital gains tax is a flat 15 per cent, no matter which tax bracket you belong to. Securities transaction tax (at 0.001%) will apply on all redemptions of equity schemes. That is about one paisa for every Rs 1000 of redeemed money and hence ignorable. All dividends from equity funds are exempt from tax, irrespective of when you receive it. To qualify as an equity-oriented scheme as per tax rules, the fund should have at least 65 per cent of its portfolio in domestic equity shares on an average. By this definition, equity-oriented balanced funds are also tax-free after a one-year holding period, just like equity funds. They are also taxed at 15 per cent for short-term capital gains. Similarly, arbitrage funds and equity savings funds are also treated as equity for tax purposes. International funds that invest in the stocks of other markets such as the US or Europe, will not be an equity fund as they do not hold domestic stocks to the extent of 65% (as required by tax laws). Equity fund-of-fund schemes do not enjoy the tax benefits of equity funds because they don’t hold stocks; they hold other funds. Tax on debt funds Debt funds, as a category, include liquid, ultra short-term, short-term, income accrual, dynamic bond, and gilt funds. It also includes all debt-oriented funds as MIPs and other hybrid non-equity funds. International funds and gold funds also follow the same taxation as debt funds. For these funds, short-term is a holding period of less than 36 months. Long-term holding is a period more than 36 months. On short-term capital gains, you are taxed at your slab rate. That is, if you’re in the 20% tax bracket, you pay 20% of your capital gains as tax. If you’re in the 10% tax bracket, you pay 10% tax on your capital gain. On long-term capital gains, your tax is 20% of the gain with cost indexation benefits. Indexation is the method by which your cost is adjusted for inflation. What this does is to effectively reduce your absolute gain, as your cost goes up and thus reduces your taxable profit. (We’ll do a detailed post on indexation soon!) While equity funds do not suffer tax on dividend, debt funds do! You do not pay this tax – called dividend distribution tax (DDT). The AMC deducts it from your NAV and remits it directly. So you receive dividend net of DDT. The DDT rate for individuals at present is 28.84% (including surcharge and cess). Do note that as dividends are paid out from your NAV, your NAV falls post such dividend payout or reinvestment. Hence, the capital gains, if any, when you sell your units under this option will seem lower. But the fact remains that you paid tax on the dividend, which is nothing but part of your profit. Hence, it is important for you to know whether it is suitable for you to opt for dividend option in debt, depending on your tax profile. We will do a separate article on how to optimally use the dividend and growth option. Who pays the tax? If you are a resident Indian, the fund house will not deduct any tax (TDS) when you sell your units. You are required to show the income and pay taxes, if any, when you file your returns. If you are a non-resident Indian, while the tax laws remain the same for capital gains, TDS will be deducted, at the applicable rates, when you sell your units. Remember that any transaction that involves units going out of your holding qualifies as redemption. So if you’re switching units from one scheme to another or from the dividend to growth option (or vice versa), or making a systematic transfer plan or a systematic withdrawal plan, they’re all redemptions.

How are mutual funds taxed? Part II

In the first part of this article, we covered the tax rules with regard to all categories of mutual funds. You know that with mutual funds, taxes apply in your hands at the time of your redeeming your fund and that your tax liability depends on how long you held the fund. If you sold all your units at one go, and bought it on a single date, it is easy to arrive at the holding period. But what if you redeemed in multiple tranches? What if you had invested at multiple points, like you do in an SIP? How then do you calculate what your holding period is, and consequently, what tax applies? Determining holding periods The rule the taxman follows is that the first unit you bought is the first you sold. This first-in-first-out rule also applies while determining whether units of tax-saving funds are free from lock-in. Here’s an example to make it more clear. Let’s say you invested in a fund at various points of time as below: Now, you have a total of 290 units today. You decide to sell 100 units. Going by the rule, thus, it’s assumed that the 50 units bought on the 10th Jan 2012 and 50 of the units bought on 18th December 2012 are sold. If the fund is an equity fund, you won’t pay capital gains tax as the holding period of the units is greater than one year. If it was a debt fund, since the holding period from January and December 2012 is longer than three years, you will pay long-term capital gains tax. What if you sold all 290 units? If it’s an equity fund, for the units bought in July and November 2015 (100 units), you will pay short-term capital gains tax as the holding period is less than a year. On the remaining 190 units, you pay no tax. If it was a debt fund, then, the 160 units you bought from September 2013 onwards will qualify as short-term. The 130 units you bought between January and May 2013 will qualify as long-term. In other words, the holding period of every unit that you bought would be from the date of such unit’s purchase. Consider a systematic transfer plan (STP). Apply the rule above. The units you sell is taxed based on the date of its purchase. That’s easy. But what is the date of purchase of the fund you are transferring into? When this money is transferred into another fund, the date of purchase for this fund would be the date when the units are credited to you. For example, say you are doing an STP from Fund X to Fund Y for Rs 1000 a month. The date of sale for X fund would be the date of STP. For the Y fund, the date of purchase would be when new units are credited to you under Fund Y. This is the case with any switch-out and switch-in of funds. Thus, date of purchase remains a key input for you to determine your holding period.

How to save taxes smartly

Have you ever thought about why you do your tax-saving investments? To save taxes of course, you might say! That, to my mind, is incidental. Do you know that a major chunk or perhaps the entire portion of your annual savings goes in to tax saving? And for many, there is no other significant saving avenue other than tax-saving investments. That makes it vital that you are ‘saving’ in good avenues that build wealth. Although you put away money for your short-term need of saving tax, remember, the money, in most cases, is locked in to long-term investments. That is even more reason why you have to plan to save taxes in options that deliver smart returns over the long term. Insurance for life cover Let us first list out the options available Yes, insurance, at least to the extent of adequately insuring your life, is a must. However, you do not need multiple insurance covers every year. Besides, an insurance product that tries to bundle a risk cover and some investment may not be the best of options viewed from both the cost angle, transparency and disclosure (given that bundled products become complex) as well as investment returns. Your other usual options would be your Employee’s Provident Fund (EPF), which is mostly deducted anyway from your salary; and then PPF, NSC and tax-saving fixed deposits. What do the above options give you? An upfront tax deduction benefit on the principal invested and an assured return of interest (which varies every year for EPF and PPF) that may or may not be taxable based on your option. The traditional investment options Now let us look at these options individually. EPF and PPF are government guaranteed products and therefore are good from the point of view of preserving your capital and earning decent returns. The tax exemption for interest also makes it a decent investment. However, if you notice the returns from these instruments, including the NSC, they have been on a steady decline. From 12% interest rate in the 1990s rates have now fallen to below 9% for close to 10 years now (except for 1 year in 2010-11). This, despite a very high inflation scenario of close to 5 years until last year. If you go for 5-year tax-saving FDs, the interest is entirely linked to bank deposits; and the entire interest is fully taxable in the year of maturity. This reduces the post tax returns of these instruments. Overall, much of what you save for tax purposes either goes towards low returning, safe options or towards life covers that are not avenues to build wealth. Tax-saving and wealth-building option Contemporary and regulated products such as tax-saving mutual funds help you build wealth for your goals and simultaneously save on taxes. Tax-saving mutual funds provide you a dual tax advantage – one, the amount invested qualifies for deduction from your income up to Rs 1.5 lakh a year. Two, the entire gains is exempt from tax (since it is an equity fund, if the units are held for over 1 year the gains, on sale are exempt). Besides, these funds have a 3-year lock in, which is far lower than traditional lock in periods. Why are tax-saving funds yet to catch on in a big way if there are smarter products? The reasons are as follows: one, there are no fixed returns; they are market linked. Investors used to low yielding fixed returns hesitate to invest in them. Two, given that it is an equity product, they are subject to market vagaries and can deliver negative returns over shorter time frames. How to invest in tax-saving funds However, an investor can mitigate the above risks in the following ways: one, although the lock in period for tax-saving mutual funds is only 3 years, it should ideally be held for at least 5 years or longer, thus reducing the chances of ill-timing the market. Two, a better option is to do a SIP (systematic investment plan) to reduce the risk of market timing and also average costs over market ups and downs. This also ensures that you do steady investments through the year for tax saving and do not struggle for funds for last minute tax saving. How much to invest If you are in your 20s and 30s you should be willing to take higher exposure to market-linked products such as tax-saving mutual funds. Hence, aside of 10-15% of your tax saving in pure life insurance, not less than 50% of your tax saving under 80C must be planned in tax-saving funds. The rest can be in traditional debt options such as EPF and PPF. If you are in your 40s or 50s then you consider reducing tax-saving mutual funds to 30-50% of your overall tax-saving investment. This is simply a thumb rule. If you have a high risk appetite and willing to give your investment a long period to build wealth, you can invest a larger chunk. Only, remember, not to react during temporary market falls. Over the long haul the returns would make up for the risks. Invest with a goal You need not save taxes blindly. Save taxes with a goal. Your tax-saving fund will be your equity allocation and your traditional options would provide you debt exposure. That means you have a mix of asset classes. Set aside a sum every month or every year, towards long-term goals such as children’s education or retirement. Expect reasonable returns (based on past long-term returns) and do the math using online calculators to set your goal. Save your money accordingly. Once your tax-saving money has a purpose to it – it becomes your wealth creating portfolio. Emerging products There are also more recent products such as the National Pension Scheme (NPS) that provide you with an additional Rs 50,000 of tax benefit. This is well suited for investors who have already exhausted their Section 80C option of Rs 1,50,000. However, NPS investments are very long term in nature and have to be kept live until your retirement to gain meaningfully. You can consider this as a part of your retirement goal alone and not for other goals. Here again, wait to see if you receive this option from your employer in the near future, in lieu of EPF (regulations to soon come on this). Right now the taxability of the NPS amount when you receive it makes it a bit unattractive. Still, some exposure to equity would still likely provide returns better than EPF or PPF.

Tax-saving fixed deposits versus tax-saving mutual funds (ELSS)

In order to save on tax, a go-to option for many is to quickly invest in a bank or post-office tax-saving fixed deposit. It may not really be the wisest move on your part. Deposit pros and cons You would argue that one, you are assured of the return you earn in a bank or post office fixed deposit. Two, there is no risk that you lose on the capital invested. Three, it’s not a very cumbersome process – its just a matter of going across to your bank (or hopping over to your laptop), or the nearest post office to open a fixed deposit account. There is no contesting these pros. But on the flip side, the interest earned on the deposit is subject to tax at your applicable slab rate. This will bring down the overall returns made on the investment, and is felt more, obviously, for those in the higher tax brackets. Say, for example, you invested in a tax-saving bank fixed deposit in April 2010. The interest rate you could have earned was around 8.75 per cent. Post tax, the return would have dropped to 8.2, 7.4, and 6.6 per cent in the 10, 20, and 30 per cent tax brackets (assuming quarterly compounding). A post-office time deposit in the same period would have returned 7, 6.3 and 5.6 per cent, post taxes, assuming quarterly compounding. Right now, post office time deposit interest rate at 8.5 per cent is slightly higher than many bank tax-saving deposit rates, which range between 7.5-8.5 per cent. The second potential problem with tax-saving FDs is that once the fixed deposit matures, it has to be reinvested if you are to build wealth and prevent yourself from spending it all. If interest rates are in a downward cycle, you run the risk of earning lower returns. Tax-saving funds Now, note one important point. Because bank or post office fixed deposits are locked in for five years, it follows that you have a longer-term investment horizon. You also do not require this money any time soon. Given this, you can afford to participate in equities (i.e., stocks), an asset class that delivers superior returns over the long term. Equity linked savings schemes (ELSS, or tax-saving mutual funds) allow you to invest in equities and earn tax breaks at the same time. Tax-saving funds make for better wealth building and returns than fixed deposits. For one thing, as mentioned earlier, equity is a superior asset class. Continuing the example above, Rs 20,000 invested in a bank fixed deposit in April 2010 would have grown to Rs 30,830 at the end of five years, assuming quarterly compounding. A post office time deposit would have given even lower at Rs 28,998. The same Rs 20,000 invested in tax-saving funds would have swelled to Rs 38,985, on an average, in the same period. Two, the gains made on this investment is not taxed; equity mutual funds don’t have capital gains tax if held for more than one year. So while the fixed deposit return would have dropped as explained above, the tax-saving fund return would have stayed put at an annual 14 per cent. Dividends earned on the mutual fund are also free of tax. Yes, stock market investments involve higher risk and there is the uncertainty of return. But the long-term horizon mitigates a good part of the risk of losses. Those in their 20s and 30s can certainly afford to take on higher risk in order to earn higher returns. Investors in their 40s and 50s can also invest in tax-saving funds, but in smaller amounts. Sticking to quality funds with strong performance records can also reduce risk of poor returns. The tax-saving funds on offer also represent a good mix of high risk and moderate risk investment styles, so you can find a fund that suits your risk appetite. Bottom-line The amount of deduction available under Section 80 C, at Rs 1.5 lakh is sizeable. For many, it also forms a good chunk of annual investments. And the purpose behind investing is to fulfil life goals such as educating your children or building a kitty for retirement. So why not be smart about where these investments go?

The investments that get you deductions under Section 80 C

Reducing taxes as much as possible is at the forefront of our minds. The all-powerful Section 80 C offers the best way to this, as most of you know. But what are the ways to utilise the Rs 150,000 worth of deductions that the section provides? Broadly, deductions under Section 80C fall into three groups – those based on investing, those based on protection, and those based on spending. For the purpose of wealth creation, obviously, the options that incentivise investments are the ones that matter. You have choice aplenty in this regard. Here’s listing them out. Equity-linked options Investments can be of two types – one, where the return is fixed (like a bank deposit) and one where it isn’t (read: equities). Equity-linked-savings-scheme or ELSS, also called tax-saving funds, are mutual funds that invest in equity (in other words, the stock markets). ELSS funds have a lock in period of three years, the shortest of all tax-saving instruments. There are over 40 tax-saving funds on offer across fund houses. Dividends are not taxed, nor are proceeds at the time of withdrawal. These instruments are thus EEE – exemption allowed at the time of investment, exemption of income earned from tax, and exemption at the time of withdrawal. ELSS returns depend on both the stock market, given the inherent vagaries, and the fund manager’s expertise. But given that equities are the most superior asset class when considered over the longer term, investing in quality tax-saving funds are much more conducive to building long-term wealth than the traditional tax-saving options which are fixed-income instruments. ELSS is also more amenable to early liquidation, unlike the provident fund triumvirate. Some AMCs also have equity-based pension funds, which are tax-deductible. The other tax-deductible instrument that has an equity component is the NPS. Apart from the Section 80C ceiling, an additional Rs 50,000 worth of investment under Section 80 CCD is allowed for the NPS. A very low-cost product, the NPS is locked in until you turn 60 as it is meant to build your retirement corpus. The NPS requires minimum contributions of Rs 6000 per year. Investment in the NPS is split between equity, corporate debt, and government debt – how much goes into what depends on your choice. You also have to choose the fund manager that will manage your investment; there are six managers currently. When you turn 60, you can pull out up to 40 per cent of the corpus and the rest will be moved to an annuity product. However, all withdrawals will be taxed. Fixed-income options All other investment-based tax deductions are fixed income instruments. First, there is the employee provident fund (EPF). This is one investment that the salaried class will usually have. Your employer deducts a defined sum from your salary each month (12 per cent of basic pay plus dearness allowance), which goes into the EPF. Your employer’s matching contribution is not considered for 80C deductions. Second, there is the voluntary provident fund (VPF). Over and above the EPF amount, you can contribute a further proportion of your salary, termed the VPF. This contribution goes into the EPF pool. Note that in a VPF, there is no similar contribution from your employer – it’s entirely your own investment. The EPF and VPF are regulated by the EPFO (Employee Provident Fund Organisation). The interest rate payable each year is declared by the EPFO, and your interest is compounded. The rate for 2014-15 stands at 8.75 per cent. You are locked into the investment for the period of your employment. Three, there is the public provident fund (PPF), where you can invest any sum you want up to a maximum of Rs 150,000 a year. There is no periodicity of investment here, unlike EPF or VPF. Nor is it deducted from your salary. You have to make the investments yourself at designated bank branches or the post office. Once you start a PPF, you must make the minimum Rs 500 contribution each year. The PPF is regulated by the PFRDA, which also declares the interest rate each year. PPF is locked in for 15 years, extendable after that in five-year buckets. Interest earned on PPF, EPF, and VPF is not taxed. Proceeds at the time of withdrawal is not taxed either, making them EEE instruments. Then there are time deposits in various hues. 5-year tax-saving bank deposits, which pay a fixed interest as declared by each bank, are one. Then there is the 5-year post office time deposit, which pays, currently, an annual interest of 8.5 per cent. Specific term deposit schemes of public sector companies such as NABARD, NHB, or HUDCO are also available.National Savings Certificates come in time buckets of five and ten years. Interest on the NSC is currently 8.5 and 8.8 per cent per annum, respectively.. However, on all these schemes, the interest earned is subject to tax. The tax effect, therefore, reduces their overall return even though the actual rates themselves are reasonably high. For example, the post-tax returns of a five-year NSC works out to 7.9, 7.1, and 6.3 per cent in the 10, 20 and 30 per cent tax brackets. Other options The options listed above are open to all (barring EPF, of course, as it is only for the salaried class). Besides those, there are a couple of other options in which only a few can invest. One of these is the Sukanya Samriddhi account, which can be opened if you have daughters. Up to two accounts can be opened, up to the age of 10 years from the date of birth. The rate of interest will vary each year just as PPF or EPF interest, but is currently 9.2 per cent per annum, compounded yearly. The minimum yearly (and mandatory) contribution is Rs 1,000. Partial withdrawal of the corpus is allowed after the daughter turns 18, and the account can be closed after she attains 21 years of age. Proceeds at withdrawal and the interest are both free from tax. Another is Senior Citizens Savings Schemes, open, obviously, to those above 60 years of age. The rate of interest is right now at 9.3 per cent payable quarterly. These deposits have five-year maturities and can be opened at post offices. Interest is, however, taxed. The sum of Rs 1.5 lakh accounts for a good chunk of your total yearly savings. Knowing which investments qualify for tax deductions, their lock-in periods, and how their returns can be will help you make an informed decision about where to save tax this year.

Power of Compounding: A simple explanation

When anyone talks about investing, they say “Don’t work for money. Make money work for you”. And how does money work for you? It’s through compounding. What is it? Let’s start with a small story. There was once a poor poet who won the praise of the King. The King offered the poet to choose his reward. The poet, who knew his math very well, took a chessboard. He asked for a single grain of rice to be placed in the first square, double that in the second square, double that in the third and so on until the 64th square. Thinking it a simple offer, the King agreed. So the first square had 1 grain, the 2nd square had 2, the 3rd square had 4, the 4th square had 8. By the 10th square, the number was 512 grains. By the 20th square, it was 524,288. By the 64th square the number was 9,22,33,72,036,85,47,80,000. It’s not a number we can even put into words! That’s compounding for you. It happens when your first investment earns a return (the second grain in square 2), and this return in turn earns a return and so on over a period of time. How is it useful? Now look at it in the world of investments. Let’s say you invested Rs. 10,000 in a deposit which pays an interest rate of 10 per cent annually. You don’t opt for the payout of interest. In the first year, the interest earned is Rs. 1,000. You now have Rs. 11,000 (Rs. 10,000 + Rs. 1,000). This total amount will earn interest in the second year. That results in an interest of Rs. 1,100. What is happening is that the Rs. 1,000 that you earned in the first year is in turn earning Rs. 100 in the second year. So at the end of the second year, you have Rs. 12,100 in your hand. By the end of year 10, the Rs. 10,000 would have grown to Rs. 25,937. Mutual fund returns work in the same manner. Let’s say you invested Rs. 1 lakh in two mutual funds with NAVs of Rs. 10 and Rs. 250 respectively. A year later, both the funds’ NAVs rose by 10 per cent to Rs. 11 and Rs. 250. Your investment is now worth Rs. 1.1 lakh. At the end of the second year, both funds again saw their NAV rise by 10 per cent. Their NAVs now become Rs. 12.1 and Rs. 302.5. The value of your investment has thus grown to Rs. 1.21 lakh. The table below shows how your investment value rises each year, assuming that the NAVs of both funds rise 10 per cent each year. As you may now notice, the longer you stay invested, the more your investment grows. The power of compounding is felt over a long period of time and not in a couple of years. This is why you are always told that the earlier you start investing, the better it is for you. Still not sure how? Look at the table above. If you had stayed invested for 10 years, you would have Rs. 2.59 lakh. If the 10 per cent rise in NAV had carried on for a further 10 years, you would have Rs. 6.7 lakh. But had you stayed put only for the first five years, you would have only Rs. 1.61 lakh! You need to, therefore, always give time for your money to work. Don’t lose patience with your investments within the first few years and pull it all out. Of course, compounding is also greater when you invest higher sums at the outset. So if you had invested Rs. 2 lakh in the above example, by year 10, you would have Rs. 5.18 lakh. The Rs. 1 lakh differential in the investment amount reaps a difference of Rs. 2.59 lakh in return. In a nutshell, the longer the period, the more the effect of compounding . Also, greater the investment amount, the more the effect of compounding. As Albert Einstein put it, compounding is the eighth wonder of the world.

Understanding CAGR (Compounded annual growth rate)

When money compounds over several years, the finance world use a simple metric called compounded annual growth rate (CAGR) that helps gauge the annual compounded returns of your investment, over several years. The returns that you see in your mutual funds for periods more than one year is CAGR. If you are wondering how CAGR is different from the usual absolute returns, do see the example below. As seen above, returns up to one year remain the same whether it is absolute returns or CAGR. But look at the three-year period. The fund generated an absolute return of 85% in three years. Rs 1000 invested 3 years ago would be Rs 1850. In other words, your money almost doubled. It’s CAGR is however only 23%. CAGR simply tells you how the initial investment of Rs 1000 grew year-on-year to reach Rs 1850. Hence, a CAGR of 23% means an average return of 23% per year over the last 3 years. However, in reality, in those 3 years, your fund could have fallen in one year and run up steeply in another. CAGR simply normalises this to let you know the returns over the time frame you choose, irrespective of individual year performances were. So why do we have to look at CAGR? The main reason to use this metric is to be able to compare returns across asset classes and other economy parameters like inflation and growth. For instance, whether you put your money in deposits for 3 years or 5 years, it is common parlance to say that it gives you an interest of say 8% per annum. You never say it gives 26 (absolute return)% for 3 years. The compounded annual rate makes it easier to compare. Similarly, when you look at an inflation number of say 7% annually and your fund has a CAGR of 23%, this gives you an indication that you are generating real returns over and above inflation. Which is greater? Looking at the table above, a question might arise as to whether the three-year CAGR is greater than the five-year CAGR. True, over the above 5-year period, the rate of return may have been slower compared with the 3-year growth. This could be because the initial 2 of the 5 years may have been lacklustre. But it could be the reverse too. There could be periods when 3 year-returns appear lacklustre compared with 5 years as the last few years may have been volatile. Hence, it may not be right to conclude from the above data that short-term returns are better than long term. The question is whether you will build more wealth by staying longer. And you certainly would have gained more, in the above case. Hence, instead of comparing returns across different time frames, simply use the data to compare returns for a given time frame across funds. The three-year returns of Franklin India Prima Plus for example, may be compared with say Mirae Asset India Opportunities. Use CAGR as an effective tool to compare returns of a fund with its benchmark and its peers. It can also give you a sense of what sort of annual return the fund has delivered in the past and thus can be compared with other investment products.

What is Internal Rate of Return (IRR)? Why is it important?

Some of you who are into project planning may be asked by your finance team to give the internal rate of return (IRR) of the project you are planning. That is, the rate of return a project is expected to generate. In the mutual fund world too, you may have heard of the term IRR when it comes to the returns of your portfolio or sometimes the returns on your SIP. But then why is IRR used? Mutual funds have compounded annual return as well. Why use this? For a one time investment, the compounded annual growth rate and IRR would be the same. But when there are investments being made at different dates, months or years, how do you take into account the time factor for your compounded annual return? IRR comes into play here. Let us understand this with an example. If you had invested Rs 1000 a month from beginning 2011 through end of March 2016, you would have the below amount. Now you might say that on an absolute basis the fund delivered 58% (cost of Rs 64,000 and market value Rs 1, 01, 587) or you might calculate its compounded annual returns to be 9% taking a 6-year flat period, considering the total cost and total market value. Bu then this is not exactly right. Why? The reason is that the initial Rs 1000 would have earned a different return as it would have been invested for 72 months compared with 71 months in the case of the 2nd instalment of 1000 and so on. Hence, every instalment would have earned slightly different returns, as they were invested over varying time frames. This is where IRR helps you calculate a return factoring different time periods; it adjusts for the varying time frames. The IRR for the above illustration is 17%. This makes for good comparison with other funds or your other investments. When the inflows (that is investments) are in equal intervals IRR is used. When they vary XIRR is used. Let us take an example of irregular inflows/investments. Taking the same example of Franklin India Prima Plus, the below illustration shows inflows and redemptions over different periods. Yes on absolute terms an investment of Rs 3.1 lakh yielded a return of Rs 5.76 lakh. But it is the IRR of 19% that can be compared with other fund/asset classes’ returns to know which of your assets have fared better. Similarly, for your own portfolio (you may have seen the portfolio returns of your investments in Fincare services), it is XIRR which is used to calculate the returns of your portfolio, taking into account all inflows and redemptions within that portfolio. Thus IRR is an extremely meaningful data point to help you compare returns when you invest across several time frames.

What is a Mutual Fund?

A mutual fund is the kind of investment that pools money of several investors and invests them in stocks, bonds, money market instruments and other types of securities. Buying a mutual fund is like buying a small slice of a big pizza. The owner of a mutual fund unit gets a proportional share of the fund’s gains, losses, income and expenses.

Can I add another investor to my Fincare services account?

Yes! You may add any number of investors to your Fincare services account. This feature is particularly beneficial for families as they can consolidate all their investments in one convenient online location. Moreover, you can log in to your account with one common login ID and password, eliminating the need to remember innumerable passwords and IDs. You can also create a joint investor account for which you may need to add more than one investor to your existing Fincare services account. Here’s how you can do this: Log in to your Fincare services account. Select the ‘My Accounts’ option from the top menu. Choose the option ‘Add Investor’ from the menu on the left. Choose the appropriate category for the person you will be adding to your account. Fill the required fields with information on the new investor joining your account, and submit his account-opening documents to us. That’s it! If there is no discrepancy in the information provided, the new investor will be added to your account in just 24 hours.

Can I avail your advisory services without registering with Fincare services?

No. At this point of time an appointment with our award winning certified advisors are available only to our registered fincare services customers.

Can I change my tax status from Resident Indian (RI) To NRI?

A change of tax status from RI to NRI is accepted only by the following mutual fund houses: Baroda Pioneer Mutual Fund DHFL Pramerica Mutual Fund Franklin Templeton Mutual Fund HSBC Global Asset Management IDFC Mutual Fund JP Morgan Asset Management Reliance Mutual Fund Taurus Mutual Fund To change your status from RI to NRI for the above fund houses' schemes, all you have to do is: Open a NRE or NRO bank account, and Send us the following documents: Your bank account proof – You can send us a cancelled cheque leaf from your NRE bank account, with your name pre-printed on it. If your name does not appear on the cheque leaf, then please send us your latest bank account statement along with the cancelled cheque leaf. The signed KYC Change Form bearing your new address – Besides the other details, please enter your new residency status in this form (Section C, Point 2). please find the attached kyc change form. A copy of your passport and an overseas address proof - A bank statement would be sufficient. Alternatively, it could also be a copy of your driving license, latest gas bill, bank passbook with some recent transactions or your utility bills. A signed status change request letter - This letter should request for a change in your residency status and bank account details. You can find the attached a template of this letter in this email. Please make sure that, all the documents must be self-attested.

Can I open a National Pension Scheme (NPS) account with Fincare services?

Yes! You can open your new NPS(National Pension System) account or transfer your existing account with Fincare services within few clicks. Read the benefits and features of the NPS scheme on our website to get an overview of the NPS before opening an account and also approximately check your returns from the NPS by using our NPS calculator.

Can I pause my SIP in an SIP Insured fund?

NO, pausing of SIP is not available for investment with Insurance.

Can I really invest in Mutual Funds for free?

Yes, investing in mutual funds through Fincare services is absolutely free. There are no account opening charges, transaction or maintenance fees. In the case of mutual funds, we earn through trail revenue that we receive from the mutual fund houses. These are paid out of the annual fund management fees of mutual funds.

Do NRIs get access to all mutual funds?

Non Resident Indians (NRIs) all over the world can invest in all the mutual fund schemes offered by all Asset Management Companies (AMCs). However, most AMCs do not allow investments from investors in USA and Canada due to regulatory restrictions. Such investors can invest in all the mutual fund schemes of L&T Investment Management Limited.

How can an invetsor obtain statements for their mutual fund investments using CAMS online?

Please follow these steps to obtain statements from the respective Asset Management Companies (AMCs) for your mutual fund investments using CAMS Online: Please go to www.camsonline.com Click on ‘Investor Services’ on the top menu Select ‘Mailback Services’ from the menu on the left Click on ‘Consolidated Account Statement – CAMS+Karvy+FTAMIL+SBFS’ Please provide your registered email address, and a password (this need not be your email ID’s password; this is just a password that CAMS will use to encrypt the file that they will be sending to you) You will receive your statement via email within an hour. Please use the password you provided to open the statement. You can also request a single folio statement by choosing ‘Single Folio Account Statement’ instead of ‘Consolidated Account Statement’ from the list on the site.

How can I shift from the direct plans of investing to Fincare services?

Shifting from the direct plan of investing to Fincare services is a quick and easy process. It involves just one simple step: You need to download and submit: A switch request letter – You can click here to download it. An online conversion letter – You can click here to download it. You can submit these documents in one of two ways: You can submit these letters to your AMCs to initiate the shift from the ‘DIRECT’ scheme to the ‘REGULAR’ scheme. You can also send these documents to us, and we’ll coordinate with the respective AMCs on your behalf, and complete the shift for you. Remember, we are always happy to help you. Once you submit these documents, you can start investing through Fincare services in about 10-15 days.

How do I transfer the money for my mutual fund investments?

Investors can transfer money to fulfill their investments by using one of the following methods: 1. Net-banking – Investors can pay via the netbanking facility of their respective bank. Please note that this option is available only for the banks that have partnered with Fincare services. You can click here to view the list of such banks. 2. Bank mandate – For regular investing through Systematic Investment Plans (SIPs), investors can pay through a one-time bank mandate (an Electronic Clearing Service mandate / National Automated Clearing House (NACH) mandate), or through a direct debit. NACH mandates can also be used to make payments for one time investments. 3. NEFT/IMPS – Investors can also pay for their investments through the NEFT/IMPS option.

What will be cut-off time for switch transactions?

FundsIndia's cut-off time for switches between all schemes is 2:00 PM. Please refer the Switch transactions cut off timing matrix and NAV applicability for the switches mentioned below,

Will I get tax benefits under 80C of the Income Tax Act?

No. Since the money invested goes to the mutual fund and insurance is free of cost,There is no 80C benefits will be applicable. However, if the investor selects an ELSS scheme for his investments, tax benefits, as applicable for ELSS funds, will continue to apply.

How do I update my nominee details?

To change/add a nominee for your mutual fund investments made through Fincare services, all you need to do is: Login to your Fincare servies account Click on 'My accounts' Select 'Manage accounts' from the left menu Click on 'Add / Change Nominee' You will be taken to a page that will allow you to add a new nominee or change your existing nominee across all your folios. Just choose the investor account for which the change has to be made, and fill in the required fields below. A document will be generated and made available in the 'Downloads' section of your account. Please print this document, and send the same to us. The document must be signed by both, you and your nominee. Note: DSP BlackRock, ICICI Prudential, IDFC Mutual Fund, Goldman Sachs Asset Management, SBI Mutual Fund, and TATA Mutual Fund use their own prescribed format for updating nominee details. To update your nominee information in funds of these fund houses, please contact the respective fund house or our support team for forms in the prescribed format. You will then need to send this form to us along with the document made available in the downloads section of your account.

How do I verify my mutual fund investments with Fincare services?

There are well-defined ways of doing that. You will always have access to the folio numbers of your investments. This will also be on the records of mutual fund houses, and their back offices. You can use this number to contact either the fund house, or their back office to verify your investment. If your investment is with a CAMS-supported mutual fund house (one of the back office services), you can use their mail-back service (available on their website) to verify your investments.

How do Mutual Funds work?

How does the investment process work with mutual funds?

Once an investor opens an account with us, he can login and start investing in a variety of ways – he can invest a lump sum amount in a new scheme, start disciplined investing with a Systematic Investment Plan (SIP), set triggers according to the behavior of the market, the value of units in a scheme, etc. An investor can easily choose the scheme he wishes to invest in, enter the amount he wishes to invest, and pay for it either through netbanking, or get the amount to be automatically debited from his account every month (for SIPs) through an easy one-time bank mandate. That’s it. He doesn’t have to fill any forms / cheques. We’ll take care of all the other formalities on behalf of the investor.

How to reduce taxes with capital gains set-off

We covered taxation on mutual funds in detail last month, over two different posts. This week, we will go a bit more into detail, especially as many of you had questions regarding capital gains. First, a brief recap. Long-term capital gains on equity-oriented funds (including equity balanced funds) are tax-exempt on holding for over twelve months. Short-term gains on equity-oriented funds are taxed at a flat 15 per cent, no matter your tax bracket. On all funds other than equity-oriented funds, short-term gains are taxed at your tax slab rate. For such funds, short-term is defined as a holding period of less than 3 years. Long-term gains (holding period of over 3 years) are taxed at 20 per cent with indexation benefit. We’ve also explained how to use indexation. Setting off It is all very neatly laid out if you make capital gains. You pay taxes, where applicable, on the gains. What happens in the case of losses? You set it off against the capital gains you made – that is, you reduce your capital gains by the amount of losses. As your gains reduce, your taxes also drop. If your capital gains aren’t enough to fully cover the losses, the unabsorbed loss can be carried forward into the next year, and set off against the capital gains made. Such carry forward can be done for eight years. Since you have both long-term and short-term gains, and, depending on the type of fund the taxation differs, there are rules to such setting off. - Long-term capital gains on equity-oriented funds, because they are tax-exempt, cannot be used to set off any loss whatsoever. - For this same reason, long-term capital loss on equity-oriented funds cannot be set off against any capital gain. - Short-term capital losses from all funds (equity-oriented and others), can be set off against both long-term and short-term capital gains. - Long-term capital losses on all funds other than equity-oriented funds can be set off against long-term capital gains only. Therefore, always remember to omit long-term capital gains on equity-oriented funds while arriving at the capital gains available for set off. Understanding all this is easier with examples. Say you made short-term capital gains of Rs 50,000 on an equity fund. You also made a short-term capital loss of Rs 30,000 on a debt fund in the same year. You can set off this Rs 30,000 loss against the short-term gain. You now pay the tax only on Rs 20,000. If you had a long-term capital loss on the debt fund instead of the short-term, you cannot do such a set-off, and you pay tax on the entire Rs 50,000. Take another example. You made long-term capital gain of Rs 50,000 on an equity fund. You had a short-term capital loss of Rs 30,000 on a debt fund. There is no set-off that you can do. Take a third example. You made a short-term loss on a debt fund for Rs 30,000. You made a long-term gain on a gold fund for Rs 50,000. You can set the loss off against the gain and pay 20% tax with indexation on the remaining Rs 20,000. If you had instead made a long-term loss on the debt fund, you can still set it off against the gain from the gold fund. Set off against other assets Now, it is important to remember that you can set off the long-term and short-term capital gains in other assets (where tax is not exempt) such as property or gold against your mutual fund loss. If you have a short-term capital loss in mutual funds, you can set it off against short-term or long-term capital gain in any other asset as well. If you have a long-term capital loss in your non-equity fund, you can set it off against only a long-term capital gain in any other asset. Showing capital gains Mutual fund houses don’t deduct taxes when you redeem the fund, unless you’re an NRI in which case TDS will apply. Calculating capital gains and paying the taxes due on them is your exercise. Capital gains are a separate source of income, under the Income Tax Act. Therefore, you need to list it separately as a different income head at the time you file your returns. Now, what happens if your income outside of capital gains is less than the basic exemption limit? For individuals below 60 years of age, the basic exemption is Rs 2.5 lakh, for those between 60 and 80, it is Rs 3 lakh and for those above 80 years, the exemption limit is Rs 5 lakh. Income tax rules allow you to reduce your long-term capital gains and short-term gains from equity to the extent your income falls short of the basic exemption limit. This rule applies only if you are a resident individual (or HUF) and not if you are an NRI investor. For example, s say you’re 25 years old. Your taxable income is Rs 200,000 excluding capital gains. After completing all the available set-off, you have Rs 300,000 of long-term capital gains from your debt mutual fund, on which you need to pay tax. Now, the basic exemption slab that applies to you is Rs 250,000. So the difference between this limit and your income is Rs 50,000. You can use this Rs 50,000 to reduce your taxable capital gains. Therefore, you will pay 20% tax (with indexation) on Rs 250,000. Similarly, if you instead had Rs 300,000 worth of short-term capital gains from an equity fund, you will have to pay tax of 15% on Rs 250,000. But if the short-term capital gains came from a debt-oriented fund, then your taxable income jumps to Rs 500,000 (Rs 200,000 + Rs 300,000). This is because the gains are added to your income and taxed at your slab rate.

How will the applicable NAV for liquid funds be calculated?

If an investment transaction into a liquid fund is completed before the cut-off time on a day that precedes a market holiday, then the applicable Net Asset Value (NAV) for this transaction will NOT be that of the same day due to SEBI regulations in this regard. The applicable NAV will be that of the day immediately preceding the subsequent market business day. For example, liquid fund investments made on Friday, before the cut-off time, will get the NAV declared as of the subsequent Sunday (assuming Monday is a business day).

I am an NRI. Can I invest in mutual funds through Fincare services?

Yes, NRIs can open a Fincare services account and invest in mutual funds through us. Once you complete your online registration process, we’ll require the following supporting documents from you to get your account investment-ready: If you are an Indian citizen (holding an Indian passport): - A self-attested copy of your Permanent Account Number (PAN) card - A signed copy of your KYC verification form (you can access this from the ‘Downloads’ section of your account) - A cancelled cheque leaf, or a recent account statement from your NRE/NRO account that is held with an Indian bank - Your foreign address proof – A self-attested photo-copy of a utility bill (phone/electricity), driving license with address, etc. - A self-attested passport copy If you are a foreign citizen (holding a foreign passport): If you hold a PIO or OCI card, we will need, in addition to the documents above: - A photocopy of the foreign passport that has been attested by your local Indian embassy (in lieu of the Indian passport above) - A self-attested copy of your PIO or OCI card We’ll also need the following supporting documents from you to get you Know Your Client (KYC) compliant (it is mandatory to be KYC-compliant to invest in mutual funds in India): - KYC form – duly filled and signed (Available in the ‘Downloads’ section of your account - Recent color photo (signed across the photo) - Copy of PAN card, notarised (on an A4 size paper) - Copy of exact proof of overseas address, notarised (on an A4 size paper) - Copy of first and last pages of passport, notarised (if you are an Indian citizen) - Copy of foreign passport, notarised (if you are a foreign citizen) - Copy of PIO or OCI card, notarised (if you are a foreign citizen)

I have mutual fund investments in a variety of schemes already. How can I consolidate them for viewing in Fincare services?

To view your existing holdings (investments in mutual funds) in a consolidated fashion, you would need to transfer your investments to your Fincare services account. We have devised a system called Easy Transfer to enable you to quickly transfer your investments to your Fincare services account. To transfer your investments, all you have to do is: 1. Login to your Fincare services account 2. Select ‘Invest’ from the top menu 3. From the top right menu, select the option ‘Others’, and then ‘Easy Transfers’. 4. You’ll need to fill in the details of your holdings 5. Once you do that, a letter will be available to you in the ‘Downloads’ section of your account. Just sign it, and send it to us, and we’ll take care of the rest. Kindly note that, the turn around time to get the existing folios converted into our broker code and online mode, takes a maximum of 4 to 6 weeks.

I have some mutual fund investments through another online channel. How do I transfer them to Fincare services?

To transfer a mutual fund holding that is currently being held through another online channel, you would first need to make it a ‘Direct’ holding. Only your current online channel can help you do this. Please contact the representatives of your current online broker, and request them to make your mutual fund holdings ‘Direct’. After that is done, you can log in to your Fincare services account, and follow the ‘Easy Transfer’ process.

What type of insurance is provided?

This insurance provides death cover to the investor, i.e., insurance amount will be paid to the beneficiary in case of an unfortunate death of the policyholder.

Where can I access my capital gains?

Login to your Fincare services account, click on reports and download your capital gains statement. When filing returns and paying tax, you can use this to declare any capital gains.

How do I change the SIP date and tenure?

To update your SIP date and tenure, please write to us at support@fincareservices.com We'll get in touch with you to help you get this changed.

In what mutual funds can I invest through Fincare services?

Currently, through Fincare services.com, you can invest in the mutual funds of 38 different mutual fund houses in India. They have been listed below: Axis Mutual Fund Baroda Pioneer Mutual Fund Birla Sun Life Mutual Fund BNP Paribas Mutual Fund BOI AXA Investment Managers Canara Robeco Mutual Fund DHFL Pramerica Mutual Fund DSP BlackRock Mutual Fund Edelweiss Mutual Fund Franklin Templeton Mutual Fund Goldman Sachs Asset Management HDFC Mutual Fund HSBC Global Asset Management ICICI Prudential Mutual Fund IDBI Mutual Fund IDFC Mutual Fund IIFL Mutual Fund Indiabulls Mutual Fund Invesco Mutual Fund JM Financial Mutual Fund JP Morgan Asset Management Kotak Mahindra Mutual Fund L&T Mutual Fund LIC Nomura Mutual Fund Mirae Asset Global Investments Motilal Oswal Asset Management Services Peerless Mutual Fund PPFAS Mutual Fund Principal PNB Asset Management Company Quantum Mutual Fund Reliance Mutual Fund SBI Mutual Fund Shriram Mutual Fund Sundaram Mutual Fund Tata Mutual Fund Taurus Mutual Fund Union KBC Mutual Fund UTI Mutual Fund

Is it a promotional offer, I.e., free/no charge for any kind for mutual fund investments via Fincare services? Why would you do it?

Question from an actual investor: Hello, I just have a query on the Fincare services offer. Is it a promotional offer, i.e., free/no charge of any kind for mutual fund investments via Fincare services? Why would you do it ? The so-called “trail fees” – is it equivalent to 1-2 per cent? Is there a chance that due to recession, or any other reason that the existing accountholders will be charged? Generally, to run a website of this nature, there are some IT costs involved – if you don’t get maintenance charges, how can that be managed? I believe the above are genuine questions, and would request your reply for clarification. Our response: Thank you for your interest in Fincare services for your investment needs. The no-transaction-fee offer is not a promotion. It’s our business plan. It is the fundamental proposition on which we started our company. The servicing fees (trail fees is another term) that we obtain from mutual fund houses is not more than 0.5 per cent annually. However, we have worked out the numbers to know that it’s a scalable business that can be easily sustained with this revenue. The key is our lack of physical presence and our online-only access. Our online presence means two things – we can reach customers without any geographical limitations, and we can scale easily – both of which will enable us to get many customers for a low-operational cost. That is the secret – well, not a big secret, actually. We are following the Amazon model for financial services, one might say.

What are debt funds?

Income funds, dynamic bond funds, ultra short funds, yields, credit downgrades…for a newbie investor (and for many seasoned ones, too!) the world of debt funds can be a confusing place. Explaining everything there is to know about debt funds makes for a very long article, so we will take it in stages. This week, we’ll look at the types of debt funds that there are. Next week, we’ll take up how their returns come in, the kind of risks involved and taxation. What they are Companies borrow for various purposes – to meet working capital requirements, to fund expansion, for capital expenditure, and so on. Similarly, the government also borrows for its own spending needs. These entities issue instruments for these borrowings – bonds, debentures, treasury bills, commercial papers, certificates of deposits, and such. These debt instruments carry a specific interest rate and maturity period (tenure). They are also called fixed income instruments. Maturities can range from a few days to a few months to a few years. In the case of government securities, it can go up to several years. Generally, short-term instruments are less risky than long-term ones for the simple reason that the uncertainties linked to a company’s fundamentals are higher over the long term. Debt investments carry two types of risk. The first is that interest rates change over time. If interest rates move lower, new debt instruments issued will consequently have lower interest rates. But then the older instruments that are already issued still carry the old interest rate (called coupon). They however, adjust to the new interest rate scenario by way of change in their price. Thus, the bond prices traded in the market move in line with change in interest rates. This relationship is captured by what is called the ‘yield’ of the bond. We will discuss more about it in another article. The second risk is that the borrower fails to meet payments. Companies are graded on their credit-worthiness or their ability to meet interest and principal repayment obligations on time. This grade is termed its credit rating. A high credit company is safer than a low-quality one, and will, consequently, pay a lower interest rate. While risk is higher in poor-quality company, rates are also higher as it is forced to pay a higher price in order to borrow. Debt fund types Debt mutual funds invest in a combination of debt securities – short or long term, corporate bonds, bank debt, gilts, high-quality papers, low quality papers, secured and unsecured bonds, and so on. There are, at all times, several instruments to invest in with varying interest rates and maturities. Debt funds actively juggle these instruments in their portfolio based on the interest rate movement to deliver returns. The type of debt fund it is depends on the average maturity of the instruments in its portfolio or then the kind of strategy it follows. The longer the maturity period is, the higher the risk, and thus higher the return. Liquid funds hold instruments of extremely short maturities. By rule, they cannot invest in instruments whose maturities are more than 91 days. Typically, liquid funds hold instruments that mature in a matter of days. These can be commercial papers issued by companies (CP), certificate of deposits issued by banks (CD) or government treasury bills. These are collectively called money market instruments. Liquid funds also stick to instruments of the highest credit quality. The short nature of these instruments, the high quality, and the lack of volatility in their NAV make them very safe investments. They have no exit loads and you can redeem investments very easily in these funds. For these reasons, liquid funds are the perfect alternative to savings bank accounts, which carry the lowest interest rates. Money left idling in your savings bank account, therefore, can be shifted into liquid funds to get higher returns. Ultra short-term funds are a step above liquid funds in terms of the maturity of the instruments they hold. That is, while they hold CDs and CPs, they go for corporate or bank bonds that are a bit longer term in nature of up to one year, or maybe a little longer. Therefore, they require a holding period of around a year. Currently, the average maturity period of ultra short-term funds is around 9 months. Most ultra-short term funds invest in high-quality credit. They are good parking grounds for surplus money that you don’t need immediately but may require a little later on. They deliver higher returns than liquid funds. Short-term debt funds go for longer maturity periods than – yes, you guessed it –ultra-short term funds. They invest in corporate bonds to a greater degree, and rely far less on CD and CPs. They may also have some holding in short-term government securities. The average maturity periods of the portfolios will typically be around 2 years or a maximum of 3 years. They require a holding period of around 2 years. Long-term debt funds (you’re now a pro!) invest in much longer-term debt of 3 years and more. These funds require holding periods of at least three years and should form a part of every long-term investment portfolio. Think of both short-term and long-term debt funds as an alternative to your normal go-to option of fixed deposits. Short-term and long-term debt funds may take a call to invest in instruments of low credit quality companies. Because such instruments carry attractive interest rates, the portfolio’s yield moves higher and returns jump, though the risk also moves a couple of notches higher. Funds that explicitly (by mandate) follow such a strategy of identifying companies with poor credit and high interest rates and lending to them are called credit opportunity funds and are among the highest-risk debt funds. Some short-term and long-term debt funds are also called income funds due to their strategy. These funds hold bonds to maturity and primarily aim at earning interest income (or in finance-speak, an accrual strategy) across rate cycles. They do not try to predict or play the interest rate cycle. Such funds primarily hold corporate bonds as that’s where rates are higher and fluctuations in bond prices lower. Gilt funds are funds that invest entirely only in government securities (or gilts, for short) and try to benefit from changes in bond prices as interest rates change. There can be both short-term and long-term gilt funds. These funds are akin to sector funds in equities – they require careful watching and timed entries and exits and are thus the highest-risk category of debt funds. All the above are open-ended debt funds. This apart, you have close-ended debt funds called Fixed Maturity Plans, which have a fixed tenure. Your investment is locked for this period. Tenure can be a few months to a few years. They invest in money market instruments, bonds, and gilts. FMPs usually match the maturity profile of the portfolio to their mandated maturity period. To recap, the risk and return levels from lowest to highest are in order of explanation above – liquid, ultra-short, short, long, gilt. You’re now well-versed in the categories of debt funds! Next week, we’ll look at how returns are generated for debt funds and why the risk levels are as mentioned.

What are the advantages of investing in Mutual Funds?

As an investor, you would like to get maximum returns on your investments, but you may not have the time to continuously study the stock market to keep track of them. You need a lot of time and knowledge to decide what to buy or when to sell. A lot of people take a chance and speculate, some get lucky, most don t. This is where mutual funds come in. Mutual funds offer you the following advantages : Professional management: Qualified professionals manage your money, but they are not alone. They have a research team that continuously analyses the performance and prospects of companies. They also select suitable investments to achieve the objectives of the scheme. It is a continuous process that takes time and expertise which will add value to your investment. Fund managers are in a better position to manage your investments and get higher returns. Diversification: The cliché, "don't put all your eggs in one basket" really applies to the concept of intelligent investing. Diversification lowers your risk of loss by spreading your money across various industries and geographic regions. It is a rare occasion when all stocks decline at the same time and in the same proportion. Sector funds spread your investment across only one industry so they are less diversified and therefore generally more volatile. More choice: Mutual funds offer a variety of schemes that will suit your needs over a lifetime. When you enter a new stage in your life, all you need to do is sit down with your financial advisor who will help you to rearrange your portfolio to suit your altered lifestyle. Affordability: As a small investor, you may find that it is not possible to buy shares of larger corporations. Mutual funds generally buy and sell securities in large volumes which allow investors to benefit from lower trading costs. The smallest investor can get started on mutual funds because of the minimal investment requirements. You can invest with a minimum of Rs.500 in a Systematic Investment Plan on a regular basis. Tax benefits: Investments held by investors for a period of 12 months or more qualify for capital gains and will be taxed accordingly. These investments also get the benefit of indexation. Liquidity: With open-end funds, you can redeem all or part of your investment any time you wish and receive the current value of the shares. Funds are more liquid than most investments in shares, deposits and bonds. Moreover, the process is standardised, making it quick and efficient so that you can get your cash in hand as soon as possible. Rupee-cost averaging: With rupee-cost averaging, you invest a specific rupee amount at regular intervals regardless of the investment's unit price. As a result, your money buys more units when the price is low and fewer units when the price is high, which can mean a lower average cost per unit over time. Rupee-cost averaging allows you to discipline yourself by investing every month or quarter rather than making sporadic investments. Transparency: The performance of a mutual fund is reviewed by various publications and rating agencies, making it easy for investors to compare fund to another. As a unitholder, you are provided with regular updates, for example daily NAVs, as well as information on the fund's holdings and the fund manager's strategy. Regulations: All mutual funds are required to register with SEBI (Securities Exchange Board of India). They are obliged to follow strict regulations designed to protect investors. All operations are also regularly monitored by the SEBI.

What are the mutual fund schemes that offer SIP with Insurance?

Birla Birla Sun Life Infrastructure Fund Birla Sun Life Small & Midcap Fund Birla Sun Life Midcap Fund Birla Sun Life MNC Fund Birla Sun Life 95 Fund Birla Sun Life New Millennium Birla Sun Life India Opportunities Fund Birla Sun Life Advantage Fund Birla Sun Life Frontline Equity Fund Birla Sun Life India GenNext Fund Birla Sun Life International Equity Fund Birla Sun Life Tax Relief 96* Birla Sun Life Dividend Yield Plus Birla Sun Life Special Situations Fund Birla Sun Life Top 100 Fund Birla Sun Life Commodity Equities Fund Birla Sun Life Tax Plan* Birla Sun Life Buy India Fund Birla Sun Life India Reforms Fund Birla Sun Life Equity Fund Birla Sun Life Monthly Income Birla Sun Life Index Fund 2) Reliance Reliance Growth Fund Reliance Vision Fund Reliance Tax Saver Fund Reliance Retirement Fund (Income and Wealth Options)

What can an investor do with Fincare services?

Using Fincare services, an investor can invest in a variety of financial products like mutual funds, equities, corporate fixed deposits, and more. To do this, he can easily link with his bank, and make investments online in a secured manner. Moreover, an investor can take advantage of Fincare services's value-added services like free financial advisory services, India’s most comprehensive robo-advisory service – Money Mitr, flexible Systematic Investment Plans (SIPs), trigger-based investing, and several other beneficial investment features. Existing offline holdings can be easily transferred to Fincare services as well, thereby making the tracking and maintaining of investments simple and effective.

What dates can I select for my SIP?

Fincare services allows you to select any date of the month (up to 28th) for your SIPs. However, for an iSIP (internet-based SIP), you will be able to select only those dates which are allowed by the AMC.

What happens if I make a redemption?

Any Redemption in the form of full or partial, will lead to cause your insurance cover to lapse.

What is EUIN ?

The Employee Unique Identification Number (EUIN) is a unique number allotted to each employee / relationship manager / sales person who holds a valid NISM certificate and is associated with a AMFI registered distributor. As per a SEBI circular dated September 13, 2012, Mutual Fund Houses (AMCs) have now been directed to capture the unique identity number (EUIN) of the employee / relationship manager / sales person of the distributor interacting with the investor for the sale of mutual fund products, in addition to the AMFI Registration Number (ARN) of the distributor. For the investments done through our portal, we will provide the AMC the EUIN number of our financial advisors. There is nothing that the investor needs to do in this regard.

What is instant redemption?

Instant redemption is a facility offered by the Super Savings Account, where the redemption request is processed almost instantly, and the money is credited to your bank account within 2-3 minutes (maximum time is 30 minutes).

What is the minimum amount of investment?

A minimum amount of Rs 1000 is required for SIP insurance investment.

What is your cut-off time for mutual fund transactions?

Fincare services's cut-off time for purchases have been revised. New cut off timings for purchases: Lump Sum Transactions S.No Payment Mode Bank Name Cut off Time Day of Debit to Investor's account Day of Unit Allotment 1 UPI All Banks 2.00 PM T T 2 Net Banking All Banks 11.59 PM T T+1 3 NEFT/RTGS All Banks 2.00 PM T T 4 NACH Mandate All Banks 3.00 PM T+1 T+2 5 Cheque Mode All Banks NA NA NA T = Date of debit from the bank account based on cut-off time SIP Transactions S.No Payment Mode Bank Name Day of Debit to Investor's account Day of Unit Allotment 1 NACH (Physical/E-NACH)* All T T+1 2 E Mandate All T T+1 3 Internet SIP (ISIP) All NA NA T = SIP date * MF / NPCI will endevaour to ensure credit is posted to MF account on the same day of debit to investor's account. In certain circumstances, due to delay at Bank's / Payment Aggregator's end, the credit to MF account may and the allotment could get delayed to T+1. Important Note: Unit allotment will be subject to receipt of funds in the mutual fund account before the applicable cut-off time (Currently, 3:00 PM) For redemption on the same day with that day's NAV, the cut-off time is 2 PM for business days. The money will be credited in your account as per the following schedule. Equity funds - 2 business days Debt funds - 2 business days Liquid Funds - 1 business day Your funds will be remitted to the AMC's bank account before 3 PM (on a best effort basis) to get the same day's NAV. If the money reaches the AMC bank account later due to inter-bank transfer delays, the NAV of the next business day will be allotted.

Would you tell us what schemes to invest in?

A Fincare services account is built for all kinds of investors. You’re free to invest in any mutual fund scheme of your choice; also, if you’d like to seek advice from our expert investment advisors, then you can do that too. Every investor has a personal investment advisor assigned to him to take care of his investment portfolio. You can always seek your advisor’s guidance when it comes to investment decisions. Besides advisory services, Fincare services also offers guidance in various forms: 1. Select Funds List – We maintain a list of the most investment worthy funds called ‘Fincare services Select Funds’. This list is compiled by our in-house Mutual Fund Research Desk, and is updated every quarter. You can access this list by clicking here. 2. Money Mitr – India's most complete automated advisory service that creates great mutual fund portfolios for your specific investment needs.It uses the expertise of investment advisors to : - prepare a mutual fund portfolio for you according to your goal - regularly monitor the performance of the portfolio - suggest changes to the portfolio if any deviation in performance is found Technology helps eliminate any and all work on your part. Your portfolio auto-drives its way to your goal. To implement any expert-recommended changes, all you have to do is click a button. The changes will be implemented right away.

What are the banks supported for NEFT / RTGS / IMPS?

We support the following banks for NEFT / RTGS / IMPS.: A. P Mahesh Bank Abhyudaya Co-op Bank Adarsh Cooperative Bank Ltd Ahmedabad Mercanatile Co-op Bank Airtel Payments Bank Allahabad Bank Andhra Bank Andhra Pragathi Grameena Bank Andhra Pragathi Grameena Vikas Bank Apna Sahakari Bank Assam Gramin VIkash Bank Associate Co-operative Bank Limited,Surat AU Small Finance Bank Axis Bank Banaskantha Mercantile Co-operative Bank Limited Bandhan Bank Bank of America Bank Of Baroda Bank Of India Bank of Maharashtra Baroda Central Co-operative Bank Baroda Gujarat Gramin Bank Baroda Rajasthan Khetriya Gramin Bank Baroda Uttar Pradesh Gramin Bank Bassein Catholic Coop Bank Bhagini Nivedita Sahakari Bank Ltd,Pune Bharat Co-operative Bank Bhilwara Urban Co-operative Bank Ltd Canara Bank Capital Small Finance Bank Catholic Syrian Bank Central Bank of india Chaitanya Godavari Grameena Bank Chartered Sahakari Bank Niyamitha Chhattisgarh Rajya Gramin Bank Citibank Retail Citizen Co-operative Bank Ltd - Noida Citizens Co-operative Bank Ltd. City Union Bank Costal Local Area Bank Ltd Dakshin Bihar Gramin Bank DBS Digi Bank DCB Bank Dena Bank Dena Gujarat Gramin Bank Deutsche Bank AG Dhanalaxmi bank Dombivli Nagrik Sahakari Bank Equitas Small Finance Bank ESAF Small Finance Bank Federal Bank Fincare Small Finance Bank Fingrowth Co-operative Bank Ltd FINO Payments Bank G P Parsik Bank HDFC Himachal Pradesh Gramin Bank HSBC Hutatma Sahakari Bank Ltd ICICI Bank IDBI Bank IDFC India Post Payment Bank Indian Bank Indian Overseas Bank Indore Paraspar Sahakari Bank Ltd IndusInd Bank J & K Grameen Bank Jalgaona Janata Sahkari Bank Jalna Merchant's Co-operative Bank Ltd. Jammu & Kashmir Bank Jana Small Finance Bank Janakalyan Sahakari Bank Janaseva Sahakari Bank Ltd Pune Janta Sahakari Bank Pune Jio Payments Bank Jivan Commercial co-operative Bank Ltd. Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd. Kalupur Commercial Co-operative Bank Karnataka Bank Karnataka vikas Gramin Bank Karur Vysaya Bank Kashi Gomti Samyut Gramin Bank Kerala Gramin Bank Kokan Merchantile Co-Operative Bank Ltd Kolhapur District Central Co-operative Bank Limited Kotak Mahindra Bank Krishna Bhima Samruddhi Local Area Bank Maharashtra Grameen Bank Maharashtra state co opp Bank Malad Sahakari Bank Malviya Urban Co-operative Bank Limited Manipur Rural Bank Manvi Pattana Souharda Sahakari Bank Maratha Cooprative Bank Ltd Meghalaya Rural Bank Mizoram Rural Bank Model Co-operative Bank Limited Nagarik Sahakari Bank Maryadit, Vidisha Nanital Bank Ltd NKGSB NSDL Payments Bank Nutan Nagrik Sahakari Bank Pali Urban Co-operative Bank Ltd. Paschim Banga Gramin Bank Patan Nagrik Sahakari Bank Ltd Paytm Payments Bank Pragathi Krishna Gramin Bank Prathama Bank Prime Co-operative Bank Ltd. Priyadarshini Nagari Sahakari Bank Ltd. Pune Cantonment Sahakari Bank Ltd Punjab and Maharastra Co. bank Punjab and Sind Bank Punjab Gramin Bank Punjab National Bank Purvanchal Bank Rajasthan Marudhara Gramin Bank Rajkot Nagari Sahakari Bank Ltd Rani Channamma Mahila Sahakari Bank Belagavi Samarth Sahakari Bank Limited Samruddhi Co-op bank ltd Sandue Pattana Souharda Sahakari Bank Sarva Haryana Gramin Bank Sarva UP Gramin Bank Sarvodaya Commercial Co-operative Bank Saurashtra Gramin Bank SBM BANK (INDIA) LIMITED Shree Dharati Co-operative Bank Ltd. Shree Kadi Nagarik Sahakari Bank Ltd Shri Arihant Co-operative Bank Ltd. Shri Basaveshwar Sahakari Bank Niyamit, Bagalkot Shri Chhatrapathi Rajarsshi Shahu Bank Shri Mahila Sewa Sahakari Bank Limited Shri Rajkot District Co-operative Bank Ltd Shri Veershaiv Co-op Bank Ltd. Sindhudurg Co-operative Bank Smriti Nagrik Sahakari Bank Maryadit, Mandsaur South Indian Bank Sri Rama Co-operative Bank Ltd Sri Vasavamba Cooperative Bank Ltd Standard Chartered State Bank Of India Sterling Urban Co-operative Bank Ltd Suco Souharda Sahakari bank Surat People Cooperative Bank Suryoday Small Finance Bank Ltd Sutex Co operative Bank Suvarnayug Sahakari Bank Ltd SVC Co-operative Bank Syndicate Bank Tamilnad Mercantile Bank Telangana Gramin Bank Telangana State Co Operative Apex Bank Thane Bharat Sahakari Bank The Adarsh Urban Co-op. Bank Ltd., Hyderabad The Ahmedabad District Coop bank The Ahmednagar Merchants Co-operative Bank The Anand Mercantile Co-Op. Bank Ltd. The Andhra Pradesh state cooperative The Banaskantha District Central Co-Op. Bank Ltd. The Baramati Sahakari Bank Ltd. The Cosmos Co-Operative Bank LTD The Darussalam Co-operative Urban Bank Ltd. The Gadchiroli District Central Co-operative Bank The Gayatri Co-operative Urban Bank Ltd. The Gujarat State Co-operative Bank Limited The Hasti Co-operative Bank Ltd The Himachal Pradesh State Co-operative Bank Ltd The Kaira District Central Co-Op. Bank Ltd. The Kalyan Janta Sahkari Bank The Kanakmahalakshmi Co-operative Bank Ltd The Lakshmi Vilas Bank Limited The Mahanagar Co-Op. Bank Ltd The Mehsana Urban Co-Operative Bank The Merchants Souharda Sahakari Bank Ltd The Modasa Nagarik Sahakari Bank Limited The Municipal Co-op Bank The Muslim Co-operative Bank Ltd. The Pochampally Co-operative Urban bank Ltd The Ratnakar Bank Limited The Sabarkantha district Central Coop Bank Ltd The Saraswat Co-Operative Bank The Satara Distric Central Co-operative Bank Ltd. The SSK Co-operative Bank The Surat District Co-op Bank Ltd. The Thane Janta Sahakari Bank Ltd(TJSB) The Udaipur Mahila Samridhi Urban Co-operative Bank Ltd. The Udaipur Mahila Urban Co-op Bank Ltd The Udaipur Urban Co-operative Bank ltd. The Urban Cooperative Bank Ltd Dharangaon The Vallabh Vidyanagar Commercial Co-operative Bank Ltd The Varachha Co-op Bank Ltd. The Vijay Co-operative Bank Ltd, Ahmedabad The Visakhapatnam Co-operative Bank Ltd. The Vishweshwar Sahakari Bank Ltd Tripura Gramin Bank UCO Bank Ujjivan Small Finance Bank Limited (Web Collect) Union Bank of India Uttarakhand Gramin Bank Vananchal Gramin Bank Vasai Vikas Co-op Bank Ltd Vijaya Bank Vikas Souharda Co-operative Bank Ltd. Yadagiri Lakshmi Narasimha Swamy Co-Op Urban Bank Ltd Yes Bank

What are the banks supported for Net Banking?

Due to a SEBI circular, our payment partner is unable to support some banks via Net Banking. We are working hard with our partner to allow more banks too in near future. We apologise for any inconvenience caused. Banks Supported: Axis Bank City Union Bank Federal Bank HDFC Bank ICICI Bank IDBI Bank Indian Overseas Bank Jammu & Kashmir Bank Karnataka Bank Karur Vysya Bank South Indian Bank State Bank of India

Are you a registered broker?

Yes, we are a registered stock broker with the Bombay Stock Exchange (BSE). Our SEBI registration number is INB011468932.

Can I sell my mutual funds and use that money to buy equities on your platform, or vice-versa?

Yes, you can. You have to first sell the mutual funds. The money will be credited to your bank account in the following manner: T+3 days – For an equity fund T+2 days – For a debt fund T+1 day – For a liquid fund Then, you have to transfer the money from your bank account to the broker’s bank account (in this case, Fincare services). Once we receive the money, you can start buying equities on our platform.

Can I short sell in a 5-Day Margin?

No, you cannot short sell in a 5-Day Margin product.

Can I subscribe IPO through Fincare services Portal?

Yes, you can apply for an IPO through Fincare services. Here are the steps to apply for IPO using an UPI ID To apply via your UPI ID: Log in to your Fincare services account. Click on Equities - Invest - Apply for IPO. Enter UPI ID, Bid Quantity, bid price and click on APPLY (submit). You will receive a SMS / Email for a UPI notification. Click on the apply button in the SMS / email. You will then receive a notification from your UPI app to authorise the blocking of the amount. To receive the notification, ensure that your UPI app is updated. You can also apply through Net-Banking facility by using Fincare services DEMAT account. Click here to for a detailed guide to buying IPO.

Change in 5 Day Margin exposure and interest.

Exposure Current exposure 3 times ( 1 time client money + 2 times funded by fincare services) Now 5 times exposure( 1 time client money + 4 times funded by fincare services) Interest We have changed our interest rate from 12% to 14% and additional GST applicable 18%. 14%*18% = 2.52% total 14%+2.52% = 16.52%.

For 5-Day Margin trading, when will the realized profits / losses get credited / debited to/from my trading account?

Your profits/losses get credited / debited to / from your trading account as when the 5-Day Margin position is closed.

How can I open an equity trading account with Fincare services?

You can open an equity trading account with Fincare services in just two simple steps: Enter your investor profile in our ‘Equity’ section. Download your demat application form from the ‘Downloads’ section of your account, sign it, and send it to us along with your KYC documents (as mentioned in the form). That’s it! Your equity trading account will be opened in three business days, from the day we receive your application form.

How do I convert my 5-Day Margin position into Cash?

You can convert open positions to delivery. You need to make sure there is sufficient money in your equity account.

How do I transfer funds from my brokerage account to my bank account? When can I place a payout request for the stocks I've sold?

With Fincare services, you can place a request to transfer funds in the ‘Withdrawal Request’ page after logging in to your account. Pay out requests placed before 2 pm will be processed on the same day, while payout requests made after 2 pm will be processed the next working day. You can place a payout request immediately after the sale transaction has been executed. The same will be processed after the exchange settlement cycle of T+2 days. Settlement happens on a T+2 basis, where T refers to the day on which the trade takes place.

How do I transfer funds to my Fincare services brokerage account?

Here are the methods by which you can transfer funds to your Fincare services brokerage account: a. Netbanking – An investor can use the ‘Equity Payment Gateway’ to log in to his bank account, and transfer the money to our account. This amount has to be transferred from his primary bank account (as specified in the account opening form). This is so that the transferred amount can be easily ‘tagged’ to the investor’s brokerage account. The amount will be available for buying shares within the next 30 minutes. b. Cheque – The investor can write a check drawn in favour of ‘Wealth India Financial Services Pvt. Ltd.’. He must also mention his unique client code on the flip side of the cheque leaf. This has to be mailed to us at the following address:

How do I transfer shares from my other demat account to my Fincare services demat account?

To transfer your shares from another demat account to your Fincare services demat account, you would need to do the following: You need to submit a ‘Delivery Instruction Slip’ (DIS). This will be provided to you by your current broker. In the DIS, please mention your Fincare services demat account number as the beneficiary account number. Also, do mention the International Securities Identification Number (ISIN) of the shares you’d like to transfer from your old demat account. After filling the form and signing it, please deliver the DIS to your current broker. If delivered before 6 PM, your shares will be transferred to your Fincare services demat account by the next business day, and will reflect in your portfolio.

How to place a GTC Buy / Sell Order?

A GTC Buy / Sell Order can be placed in the following manner: Select ‘Invest’ from the top menu Select ‘Stocks’ Pick the stock, and then select ‘Buy’ / ‘Sell’ based on what action you’d like to take In the next screen, under ‘Validity’, select ‘GTC’ Select the type of order you wish to place (stop loss / limit) This order will be good for seven calendar days For GTC Buy Orders, the cash equivalent to the value of the order will be kept on hold till the order is executed or cancelled. For GTC Sell Orders, the shares equivalent to the quantity of the order will be kept on hold till the order is executed or cancelled.

How will the interest and brokerage be charged to my account for 5-Day Margin trading?

Interest will be charged at 12 % on outstanding debit balance from the purchase date of positions taken under 5-Day Margin as below: Example 1: Client has bought “A” stock in a 5-Day Margin Product on Monday, and squared off the 5-Day Margin position on Tuesday. In this case, interest will be levied for 5 days starting from T+1 till the Monday of week 2. Example 2: Client has bought “A” stock in 5-Day Margin on Wednesday, and squared off the 5-Day Margin position on Thursday. In case Monday is a trading holiday, interest will be levied for 6 days staring from Thursday till the Wednesday of week 2. On the squared off date, if the position is taken in the same scrip, then on both the legs, delivery brokerage will be charged.

I already have a demat account. Can I use that to trade through your platform?

No. To comply with regulatory requirements, we require you to open a new demat account and a brokerage account through us to trade on our platform.

I am a mutual fund investor in your platform. Do I have to register again and send my documents across to open an equity account?

As per norms set by the Securities and Exchange Board of India (SEBI), we require more information from a mutual fund investor to open an equity trading account. Opening an equities account involves opening a demat account specifically. This account requires the following documents: - A self-attested copy of your address proof - A self-attested copy of your ID proof - A cancelled cheque leaf with your name pre-printed on it (If your name isn’t pre-printed on your cheque leaf, please keep a copy of your bank statement [from one of last three months] / A self-attested copy of your bank passbook with some recent transaction entries) - A self-attested copy of your PAN card We require these documents from you only to complete your demat account registration. We will only ask you to give us those details which we do not already have.

I am an NRI. Can I buy/sell equities on your platform?

Yes, Non Resident Indians (NRIs) can invest in equities through Fincare services.

I have brokerage and demat accounts with other brokers. Can I consolidate my stock investments on your platform?

Yes, you can. To get started, you have to open a brokerage account and a demat account with us. Once this is done, you can transfer all your stock investments from your other demat accounts to the new demat account. Once done, you will be able to see a consolidated view of your holdings in your Fincare services account.

I have other brokerage accounts. Can I open one through you?

Yes, you can open multiple brokerage accounts with multiple brokers.

I have sold some shares in cash. Can I utilize the 'Credit For Sale' for trading in a 5-Day Margin product?

Yes, you can utilize sales proceeds against the sale for trading in a 5-Day Margin product.

I have taken a position on the same scrip, but on different days. Can I square off the second order first under 5-Day Margin trading?

No. FIFO (First In First Out) method is followed for square off. Example: Assume you have bought 100 shares of ABC on Monday, and 40 shares of ABC on Tuesday. If you want to square off 110 shares, 100 shares bought on Monday will be squared off first, after which 10 shares from the shares bought on Tuesday will be squared off.

Under 5-Day Margin trading, what happens in case of any short delivery from the exchange?

In case any short payout is received from the exchange for any particular security, and if the client has multiple open positions in the said scrip, then the position will get closed for a short quantity on FIFO (First In First Out) basis.

Under 5-Day Margin trading, when will my investment be automatically squared off?

Under 5-Day Margin trading, the investment will be automatically squared off when your investment falls below 18 per cent of the invested value. For example, if you had invested Rs. 10,000, Fincare services provides an additional investment of Rs. 40,000 to you under the 5-Day Margin trading system. In case your investment goes below Rs. 41,000 (18 per cent of the invested value), then the system automatically squares off your investment.

What are Day Trades? Can I make Day Trades (do intraday trading) through Fincare services?

Day trading refers to the practice of buying and selling shares within the same trading day, such that all positions are usually (not necessarily always) closed before the market closes on that trading day. With Fincare services, the intraday trade cut-off time is 3.10 pm. This means you need to square-off your intraday positions before 3.10 pm, otherwise the system will auto-square your intraday positions at 3.15 pm at the best price available in the market.

What are the brokerage rates and taxes applicable for equity and ETF transactions that are carried out through Fincare services?

Opening an equity account with Fincare services is absolutely free. Fincare services charges a brokerage rate of Rs.20/- or 30 basis points (bps), i.e. 30 paise on every Rs. 100 charged, whichever is higher. Please note that there are additional charges that all brokers are legally required to charge on equity transactions as required by the Securities and Exchange Board of India (SEBI). The charges are as follows: Stamped duty/charges on delivery: 0.01% of transaction amount Securities transaction Tax on delivery: 0.1% on transaction amount. Turn over tax/transaction charges: Re.1/- per trade count (other than A, B group, 0.0035% is applicable) GST 18% on Brokerage & Transaction charges A minimum brokerage charge of Rs.20 will apply to all transactions below the value of Rs. 6,000. Here’s a detailed illustration of our rates with two cases: A scenario where the minimum brokerage is charged, and A scenario where 30 bps is charged Scenario 1 Transaction < 6,000 Particulars Rs. Rs. Total Turnover 6,000.00 Flat Brokerage 20 Securities transaction Tax on delivery: 0.1% on turnover 6 Transaction charges (per trade i.e. order count)* 1 Stamped duty/charges on delivery: 0.01% 0.6 GST 18% on Brokerage & Transaction charges 3.6 31.2 Total Payable (in case of Purchases) 6,031.20 Total Receivable (in case of Sale) 5,968.80 *other than A, B group, 0.0035% is applicable Scenario 2 Transaction > 6,000 Particulars Rs. Rs. Total turnover 50,000.00 Brokerage 30 bps (30 paise for every Rs 100) 150 Securities transaction Tax on delivery: 0.1% on turnover 50 Transaction charges (per trade i.e. order count)* 1 Stamped duty/charges on delivery: 0.01% 5 GST 18% on Brokerage & Transaction charges 27 233 Total Payable (in case of Purchases) 50,233.00 Total Receivable (in case of Sale) 49,767.00 *Other than A, B group, 0.0035% is applicable DEMAT ACCOUNT MAINTENANCE CHARGES: The demat account annual maintenance fee is Rs.400 (Rs.33 + taxes on a month-on-month basis). This fee will be waived for the FIRST YEAR, and will be charged starting from the SECOND YEAR. Demat transaction fees of Rs 10 + taxes will charged on all demat debit transactions.

What are the timings for 5-Day Margin trading?

5-Day Margin trading can be done between 9:15 AM – 3:30 PM. However, you should square off the open position by 2:30 PM* on T+5 days. *This is subjected to change / review by Fincare services from time-to-time. 14% Service Tax on Brokerage (Effective June 1, 2015) will be applicable.

What documents do I have to submit to open an equity account?

We need you to submit the following documents to us: - A self-attested copy of your address proof - A self-attested copy of your ID proof - A cancelled cheque leaf with your name pre-printed on it (If your name isn’t pre-printed on your cheque leaf, please keep a copy of your bank statement [from one of last three months] / A self-attested copy of your bank passbook with some recent transaction entries) - A self-attested copy of your PAN card

What is the 5-Day Margin? What are its benefits?

5-Day Margin is a leveraged trading facility. You can create positions under this product that can be squared off, or converted to delivery till T+5 days (T= Trade date) on or before the specified time. Unlike a ‘Cash’ order, you do not have to pay the full order value for 5-Day Margin orders. You can take positions with lesser margin amount with an option to carry the position till a maximum of T+5 days. In case you do not square off or convert the position to delivery, Fincare services will square off the trade on T+5 days at any time after 2:30 PM. This is subjected to change / review by Fincare services from time to time. 5-Day Margin is available only with equities at Fincare services. Example: You buy 100 shares of ABC @ Rs. 2,500 on Monday. You have an option to square off the position or convert to delivery till next Monday (i.e., 5 trading days). If you fail to square off the position before 2:30 PM on T+5 days (Monday), your position will be squared off by Fincare services.

What types of equity accounts does Fincare services offer?

Fincare services offers two types of equity accounts to customers: a Premium Demat Account, and a Basic Services Demat Account (BSDA). Here is a quick comparison of the two accounts:

What types of orders does Fincare services offer on its equity platform?

With Fincare services you can place three types of orders: Limit Order – A limit order is placed with a brokerage to buy or sell a set number of shares at a specified price, or better. These orders also allow an investor to limit the duration for which an order can be outstanding before being cancelled. Market Order – A market order is placed to buy or sell a stock at the current market price. A broker enters an order as a market order when requested to do so by his client. When such an order is placed, it is almost guaranteed that the order will be executed. Also, for a market order, the price is paid when the order is executed. This price may not always be the same as that presented by a real-time quote service. This often happens when the market is changing very quickly. Placing an order “at the market”, especially when it involves a large number of shares, offers a greater chance of getting different prices for different parts of the whole order. Stop-loss Order – A stop loss is an order to buy or sell a security once the price of the security has climbed above, or dropped below a specified stop price. When the specified stop price is reached, then the order is executed as a stop loss limit order (fixed or pre-determined price). A stop loss limit order is, thus, an order to buy a security at no more (or sell at no less) than a specified limit price. This gives the trader some control over the price at which the trade is executed, but may prevent the order from being executed. There are two types of stop loss limit orders: A stop loss buy order – This can only be executed by the exchange at the limit price, or lower. For example, if an investor would like to invest in a particular share when it technically breaks out at Rs. 120, while its market price is at Rs. 100, he can place a stop-loss order with the price range of Rs. 115 to Rs. 120. When the share reaches a price in that range, the stop loss order will automatically be executed. A stop loss sell order – An investor can protect his loss by placing a stop loss sell order too. For example, if an investor has invested in a share at Rs. 100, he can protect his loss by placing this type of order with a range of Rs. 95 to Rs. 90. When the price falls in this range, the order gets executed automatically.

What will be the impact on my limits if I convert a 5-Day Margin trade into delivery?

You can convert a 5-Day Margin trade into delivery only if you have adequate cash limits. Example: You buy 100 shares of ABC at the rate of Rs. 2,250 under the 5-Day Margin. Limit utilized is say Rs. 75,000 against the total order value of Rs. 2,25,000. If you decide to take the delivery of 100 shares, you will have to transfer additional funds of Rs. 1,50,000 (Rs.2,25,000 – Rs. 75,000) to your equity account.

What will be the impact on the margin blocked if I/ Fincare services square off the 5-Day Margin position?

The margin will be released after deducting the loss on square off (if any), and this limit can be utilized for trading in any other equity product.

When can I place orders on the platform?

With Fincare services, you can place real-time market orders, and GTC (Good Till Cancelled) orders. A real time market order can be placed from 9 AM to 3:30 PM on a trading day. The orders placed during the day will be automatically cancelled after the market closes. A GTC order can be placed any time during the day. It will not be executed until the limit price has been reached within the next seven calendar days. If the GTC order is not executed within this period, it will automatically get cancelled at the end of the seventh day.

Which stocks are eligible for 5-Day Margin trading?

The list of securities that are eligible for 5-Day Margin trading will be displayed on the trading website, and may be subject to change / review by Fincare services from time-to-time.

Who should I contact if I have any queries on trading, or using my Fincare services equity account?

You can always write to us at support@fincareservices.com. Alternatively, you can call us at (0) 9870681612, and we’ll be happy to assist you.

Why all equity funds are not the same

Read a review of an equity fund or look at their ratings and you will always find a mention of large-cap or mid-cap or multi-cap. For a newbie investor, this can muddle decision-making. One-year returns of mid-cap funds are much higher than large-cap funds, so are they the best? No. There are different types of equity funds and each plays a different role in your portfolio. You need to choose the right type of fund, and in the right allocation. Here’s what you need to know. Market capitalisations All stocks are classified, primarily, on the size of their market capitalisation, into large-cap, mid-cap, and small-cap. Large-cap stocks (or blue chips) are usually established or large companies. They have strong product offerings or services, high revenues, and are often dominant market players. These companies are able to borrow at better rates or raise capital through other sources much easier than their smaller counterparts. Because of their size and experience, these companies are able to withstand bad patches or if business decisions go awry. For example, consider Hindustan Unilever, a large-cap stock with a marketcap of Rs 191,512 crore. By virtue of its diverse presence (soaps, detergents, personal care, foods) and long list of strong brands (Surf Excel, Vim, Ponds, Lakme, Knorr, etc.), it is more stable and less vulnerable to a prolonged slowdown than a smaller company like Agro-Tech Foods, that operates in a narrow field (oil and readymade food) with few brands (Act II, Sundrop). Agro-Tech Foods has a small marketcap of Rs 1,193 crore. On the flip side, a smaller company can grow much faster than a large company. They are more agile and they have several unexplored growth avenues open to them. Often, these companies challenge the dominant market player. However, smaller companies are risky; if their growth strategy fails or if the business environment sours, they fall hard as they aren’t big enough to absorb losses. In a nutshell, mid-cap and small-cap stocks have the potential to deliver higher returns but with greater volatility and risk than large-caps. Large cap stocks are more stable. Types of funds Now that we’ve got this basic rule out of the way, let’s get down to the funds. There are a few thousand stocks traded on both exchanges spanning market capitalisations. How does a fund figure where to invest? That is defined by the type of fund it is. A large-cap fund puts most of its portfolio in large-cap stocks. They aim to play only on the large-cap space and usually have the Nifty 50, Sensex, Nifty 100, or BSE 100 as benchmarks. At Fincare services, we consider stocks with a market capitalisation of over Rs 15,000 crore to be large-caps. Examples include Franklin India Bluechip, ICICI Prudential Focused Bluechip, DSP BlackRock Top 100, Invesco India Business Leaders and so on. On an average, the proportion of large-caps stocks in large-cap funds is around 80 per cent of the portfolio. Some large-cap funds include a measure of mid-cap stocks (usually around 15-20 per cent of the portfolio) in order to boost overall returns. Examples of such funds are SBI Bluechip, Axis Equity, BNP Paribas Equity, Kotak Select Focus, and so on. Because of this leeway to include mid-caps, such funds are slightly riskier. Portfolio role: Large-cap funds form your portfolio’s foundation or the core. Since large-cap stocks are less volatile and have superior market liquidity, their returns don’t see very wild swings unless the broad market itself crashes or booms. These funds provide stability to your portfolio and are therefore a must-have. A mid-cap or small-cap fund invests primarily in smaller companies. The universe of stocks here is huge. We define mid-cap stocks as those with market caps of between Rs 2,500 and Rs 15,000 crore. Stocks below Rs 2,500 crore are small-caps. The degree of risk depends on the level of marketcap of the portfolio. The range of risk levels in mid-cap and mid-and-small cap funds is therefore wide. Funds like DSP BlackRock Micro Cap, Reliance Small Cap, or Franklin India Smaller Companies pick funds from the lower end of the range – or small companies – thus becoming the riskiest. These are small-cap funds, or mid-and-small-cap funds. Equity funds oriented towards the higher end of the range are mid-cap funds – like HDFC Mid-cap Opportunities, Tata Equity PE, BNP Paribas Mid-cap, Mirae Asset Emerging Bluechip and so on. They have limited to no exposure to risky small stocks. Portfolio role: Given the high risk-high return nature of these funds, they help boost portfolio returns but are not the core. No matter what your horizon or risk appetite is, it is prudent to cap allocation to these funds at around 40 per cent of your portfolio. Generally, shorter-term portfolios of around 3-4 years should not have a pure mid-cap fund unless you are a very high-risk investor. A diversified (multi-cap) fund does not have a strict marketcap orientation. Depending on opportunities, these funds can switch between being large-cap or mid-cap. On the risk-return curve, these funds fall between large-cap and mid-cap funds. Multicap funds can get a bit tricky as there are funds that steadily maintain a higher exposure to large-cap stocks (like Mirae Asset India Opportunities or Franklin India Prima Plus) while others are far more flexible (like Reliance Equity Opportunities or Franklin India High Growth). As you now know very well, those with a larger market-cap tilt are less risky than others. Most ELSS funds are multi-cap equity funds by nature. Portfolio role: These funds are useful to provide the return kicker if you don’t have the risk appetite required for pure mid-and-small caps. They’re also useful in portfolios with shorter time horizons as they provide limited mid-cap exposure. Sector or themed equity funds also don’t restrict themselves to market capitalisation. But they are the highest-risk funds because their performance depends on whether that theme or sector is doing well or not. Portfolio role: These funds should never be a part of your long-term portfolio. They require timed entry and exit, and serve only to make money for the duration that a theme is favoured by the market. Balanced funds also have their equity portion spanning market caps. Most balanced funds, therefore, often have some exposure (between 15-25 per cent of the portfolio) to mid-cap stocks. But as they put a quarter of their portfolio in high-quality debt instruments, on an overall risk level, they are lower than even large-cap equity funds. Portfolio role: These funds are good at providing the needed debt exposure to a portfolio, especially when the investment amount is small. To make for easier understanding, in our Select Funds list, we group equity funds into moderate risk and high risk (we do this for ELSS funds as well), depending on their average exposure to large-cap stocks. Funds that fall in the moderate group are oriented towards large-cap stocks. The high-risk group takes higher mid-cap exposure. Our marketcap cut-offs are reset periodically based on overall market movement.

Why can't I buy options and futures through your platform?

We have designed this platform for medium and long term investments. In our view, options and futures constitute a high-risk product category, and we do not recommend these to our regular investors.

Why is there a discrepancy in the price I see on the screen, and the price at which the order is executed?

The stock prices that you see on our site are delayed by one minute. Order execution is, however, made accurately as per real-time prices, based on your order limits.

What is the difference between 5-Day Margin, Intraday and Cash?

This is subjected to change / review by Fincare services from time-to-time. 14% Service Tax on Brokerage (Effective June 1, 2015 ) will be applicable.

Why am I being shown a limited set of dates for the SIP setup?

In the case of SIP with Insurance, SIP's can be set based on the AMC's approved dates. Fincare services offers any date SIP for regular SIPs. However, due to AMC's restrictions, SIP with Insurance does not have this facility.

Can I change the scheme/amount/SIP date?

No. These facilities are not available in case of SIP with Insurance.

How are monthly payments for SIPs made?

Monthly payments for SIPs are made using a bank mandate. You need to send a signed copy of your bank mandate to Fincare services while registering for your Fincare services account. This will be available to you in the ‘Downloads’ section of your account as soon as you complete your online registration.

How do I add a biller for iSIP?

To add a biller, you need to login to your internet banking account. The biller option is generally found under 'Payments'. While adding the biller, you will need to put the Unique Reference Number (URN) that you receive in your email after registering your iSIP. If you have an account with the following four banks, you can download our step-by-step guide for biller setup: HDFC, AXIS, ICICI, SBI. It takes the service provider about 30 days to registration an iSIP.

How do SIP investments with Fincare services work? Why is there a 1-2 day delay between the date of debit and the date of investment?

As part of the online channel partner agreements that Fincare services has signed with mutual fund companies, we (Fincare services) are required to manage the debit/investment process for SIP investments. This has both advantages and disadvantages. Advantages are that we can offer SIPs on any day of the month to our investors, regardless of constraints in this regard set by mutual fund companies. Also, we can stop, restart, and change the scheme of SIP investments more dynamically than an SIP set up with a mutual fund house. The disadvantage is that when we make a debit for the investment, we get information about the debit (whether it was made successfully or not) only a day or two after it happens. We can make the investment on behalf of the investor only at that point. Please note that we do not have your money in the interim, and we do not accrue any interest on it for these one or two days. However, from the investor’s perspective, this should not matter as the debit is made on their account on the appointed date, and the investment is made very shortly thereafter. The difference of one or two days should not matter over the long term.

How do SIPs work for NRI investors?

SIP investments for NRIs work in a similar manner as SIPs for Resident Individual. However, NRI investors can only set up SIPs in funds from one Asset Management Company (fund house or AMC) on a particular date. To set up SIPs in mutual fund schemes of other AMCs, you will have to select a different date for each AMC, so that we can map the investment amount to the correct AMC and scheme.

How does the payment using the Easy Pay option work?

The Easy Pay option allows you to invest using your NACH bank mandate. You can make use of this option once your mandate has been approved by the bank. If you make a payment using the Easy Pay option before before 2 PM on a business day (T), we will send a debit request to your bank on the same day. The debit will then take place on the next business day, and your investments will be made on the day after that (that is one T+2 business days). This is because for NACH debit cases, Fincare services gets the status of the debit only one business day after the debit is made. For payments made after 2 PM on a business day (T), the debit request will be sent on the next business day. Therefore, the investment will be made three business days later (T+3).

How long does it take to process a bank mandate?

After we receive the signed bank mandate, the same will be sent to the bank for registration, subject to verification. Normally, it takes about 20 business days for the mandate to get approved, after which the auto debit process will be initiated. You will receive an email confirmation once the mandate gets enabled.

In which funds can I invest through an SIP?

Most open-ended funds allow investments through SIPs. However, some debt and liquid funds may not allow SIPs. To know whether your selected fund allows SIPs, visit the fund’s page using our Mutual Fund Explorer.

Is it necessary to have a mandate to set up a SIP?

No, you can set up an SIP, even if you do not have a mandate, in the following ways: • iSIP – You add the AMC as a biller through internet banking. Each SIP has to be registered separately. • Alert SIP – You will be informed about upcoming installments every month. You can make the payment manually through net banking, or NEFT.

On the date of my SIP, what happens if there is an insufficient balance in my bank account?

Failure of an instalment will not result in any charges or penalties from Fincare services or your AMC’s (Asset Management Company) side. However, you should check with your bank if there are any charges for failed mandate payments. If you fail an instalment, you can make additional investments later to stay on track towards your goal. If your SIPs are rejected consecutively for 2 months due to lack of funds, the SIPs will be deactivated.

What is a Flexi SIP?

A Flexi SIP allows you to vary the amount of your investments every month. If you do not want to invest a fixed amount, and prefer more control over your investments, you can set up a Flexi SIP. You will have to specify a default amount for your investments. Seven days prior to your SIP’s date, you will have the option to change the SIP amount for that month. If you do not change the SIP amount, the default amount selected by you will be invested.

What is a Systematic Investment Plan (SIP)?

An SIP is a method of investing in mutual funds. Through an SIP, you can invest in mutual funds systematically, i.e., on a regular basis. The investment amount will be debited from your bank account every month, and invested into a fund of your choice.

What is a Value-averaging Investment Plan (VIP)?

A Value-averaging Investment Plan (VIP) targets a specific rate of return for you. To achieve this, the investment amount is varied such that you can invest more when the markets are down, and less when the markets are up. The amount to be invested is determined based on automated algorithms. Keep in mind though that there is no guarantee of your targeted return being achieved as mutual fund investment returns aren’t guaranteed.

What is an Alert SIP?

An Alert SIP is for investors who do not have a mandate with us. In an Alert SIP, every month, an SIP transaction will be created in your account. You will be informed via email and SMS about the creation of the transaction. You can login to your Fincare services account, and complete the payment using net banking every month. The initial and minimum SIP amount for a Alert SIP is 2000/-.

What is an iSIP?

An iSIP or an internet-based SIP is a completely paperless way of setting up an SIP. In an iSIP, after you have set up the SIP, you will have to add the mutual fund house officially called a Asset Management Company (AMC) as a biller in your bank through internet banking. This process will need to be done for every iSIP in every scheme. The AMC will then present monthly bills to your bank. If you select the auto-pay option while adding the biller, the payment will happen automatically when the bank receives the bill. Currently, the following AMCs support iSIPs: Birla Sun Life Mutual Fund DSP BlackRock Mutual Fund HDFC Mutual Fund ICICI Prudential Mutual Fund IDFC Mutual Fund Reliance Mutual Fund UTI Mutual Fund

Why should I invest through an SIP?

SIPs will ensure that you invest every month, thereby instilling discipline in your investment behaviour. This investment tool allows you to start investing in mutual funds with even as low as Rs. 1,000 per month, thereby ensuring you gradually build a large investment portfolio. By ensuring that you invest regularly, SIPs will help you average out your costs over the long term. You will not have to worry about timing the markets too. Thus, SIPs are the best way to build wealth over the long term.

Is there any scope for the principal to appreciate?

No, at the end of the deposit period, the principal (original amount of investment) is returned to the deposit holder.

On the submission of Form 15G/15H, will there be any query from the income tax department?

Since one copy of the Form 15G/15H is required to be sent to the income tax department, it is possible that the department may raise a query, if they deem it necessary.

What is a corporate fixed deposit?

A corporate (company) fixed deposit is a deposit placed by investors with a company for a fixed term. It carries a prescribed rate of interest.

What is Form 15G/15H? Where can I access it?

Form 15G/15H is a self declaration form that can be submitted by the depositor to avoid Tax Deduction at Source (TDS) if his interest income from corporate fixed deposits is higher than Rs. 5,000, but his total income is below the taxable limit. This form does not require any attestation, except in the case of a left hand thumb impression. In this case, the form has to be attested by a gazetted officer/bank official. Form 15G/15H can be accessed from the ‘Downloads’ section of your account.

How are interest payments made?

Interest on corporate fixed deposits are paid on a monthly / quarterly / half yearly / yearly / maturity basis. It is paid either through cheque, or through the Electronic Clearing System (ECS).

What is the difference between a fixed deposit and a cumulative deposit?

In a fixed deposit scheme, the interest is payable at specified frequencies. The scheme will be convenient for persons, like pensioners, who require periodical interest payments. In a cumulative deposit scheme, the interest is payable at the time of maturity along with the principal. These schemes are suitable for persons who do not require periodical interest payments, and are looking for money multiplier schemes.

What is the difference between Form 15G and Form 15H?

Form 15G is meant for Resident Individuals who are below 65 years of age. Form 15H is meant for senior citizens who are 65 years of age, or more, during that financial year.

What is the investment period for corporate fixed deposits?

Manufacturing companies can accept fixed deposits for a duration of 6 months to 3 years. Non Banking Finance Companies can accept deposits for a duration of 1 year to 5 years. Housing Finance Companies can accept deposits for a period of 1 year to 7 years.

What is the maximum amount of investment that a company can accept in a corporate fixed deposit?

A Non-Banking Non-Finance Company (Manufacturing Company) can accept deposits subject to the following limits: - Up to 10% of the aggregate of paid-up share capital, and free reserves, if the deposits are from shareholders, or are guaranteed by the directors, or - Up to 25% of the aggregate of paid-up share capital and free reserves A Non-Banking Finance Company can accept deposits up to the following limits: - An equipment leasing company can accept four times of its net owned fund - A loan or investment company can accept deposits worth up to one and half times its net owned funds

Can an NRI invest in deposits?

Non Resident Indians (NRIs) can invest in fixed deposits with public limited companies in India in certain situations. For example, if the permission to accept deposits from NRIs was already taken by the Indian company, then the investor can invest in such a deposit without taking seeking any permission separately. However, due to operational constraints, at this moment, Fincare services has decided not to accept investments in corporate fixed deposits from NRIs.

When is TDS deducted on the interest earned from corporate fixed deposits?

Tax Deducted at Source (TDS) is deducted if the interest earned on a corporate fixed deposit exceeds Rs. 5,000 in a financial year.

Which corporate fixed deposits are online payment-enabled on Fincare services?

Corporate House Rating ICRA CRISIL FITCH CARE HUDCO Limited ** N/A N/A TAA+ AA+ Mahindra and Mahindra Financial Services Ltd. ** N/A FAAA N/A N/A National Housing Bank ** N/A FAAA TAAA N/A Shriram Transport Finance Co. Ltd.** N/A N/A TAAA N/A Shriram City Union Finance Ltd. N/A N/A N/A AA+

What are the banks supported for corporate fixed deposits?

Banks Supported: Catholic Syrian Bank Punjab National Bank Yes Bank Karnataka Bank Ratnakar Bank Shamrao Vithal Co-operative Bank South Indian Bank Union Bank of India HDFC Bank IDFC BANK LIMITED Lakshmi Vilas Bank Punjab & Sind Bank Bank of India Federal Bank Bank of Baroda Deutsche bank Jammu & Kashmir Bank Dhanlaxmi bank Indian Overseas Bank City Union Bank Standard Chartered Bank ICICI Bank Indian Bank IDBI Bank Ltd Development Credit Bank State Bank of India Tamilnad Mercantile Bank Axis Bank Central Bank of India Bank of Maharashtra Karur Vysya Bank Ltd Airtel Money Induslnd Bank Ltd Kotak Mahindra Bank Ltd Canara Bank

Is it possible to withdraw before the age of retirement?

The option of withdraw is available only to those subscribers who have subscribed the scheme for a minimum period of 10 years.

What are the benefits available if I opt for premature exit?

Minimum annuitisation of 80% of accumulated wealth and maximum lump sum withdrawal of 20% of accumulated wealth. If the accumulated pension wealth is less than or equal to 1 lakh rupees or a limit to be specified by the authority, the entire accumulated pension wealth can be withdrawn without purchasing any annuity.

Can I go for Power STP to invest in Global Funds?

Yes. We have kept the Power STP option open for Global Funds/FoFs. Though the underlying algorithm (Fincare services Valuemeter) used is built mainly for the Indian markets, it does a reasonable job over the long run even for global diversified funds. This is because all major global equity markets and Indian equity markets tend to become correlated during extremes. However, please note that while the strategy will work reasonably well in capturing global risks over the long run, it might not be able to capture region/country specific risks and opportunities.

What is the case when the subscriber has to withdraw due to a disability or incapacitation?

The subscriber is entitled to minimum annuitisation - 40% of accumulated wealth and maximum lump sum withdrawal - 60% of accumulated wealth. The exit in such cases shall be determined as per the provisions applicable for normal exit, subject to the subscriber submitting disability certificate from a Government surgeon or Doctor (treating such disability or invalidation of subscriber) stating the nature and extent of disability and also certifying that: The affected subscriber shall not be in a position to perform his regular duties and there is a real possibility of the affected subscriber, being not able to work for the remaining period of his life. Percentage of disability is more than 75% in the opinion of such Government surgeon or doctor (treating such disability or invalidation of subscriber).

What are the benefits, if the subscriber withdraws after attaining the age of 60 years or retire / superannuate from NPS?

Minimum Annuitisation - 40% of accumulated wealth and maximum lump sum withdrawal - 60% of accumulated wealth. The Subscriber may choose to purchase an annuity for an amount greater than 40% also. If the accumulated wealth is equal to or less than 2 lakh rupees, or a limit to be specified by the Authority, the entire accumulated pension wealth can be withdrawn without purchasing any annuity.

What are the provisions to settle the cases in the unfortunate death of the NPS subscriber during the service?

The entire accumulated pension wealth of the subscriber shall be paid to the nominee or nominees or legal heirs, as the case may be of such subscriber. Further the nominee or family members of the deceased subscriber shall have the option to purchase any of the annuities being offered upon exit if they so desire, while applying for withdrawal of benefits on account of deceased subscribers' Permanent, else the entire accumulated pension wealthof the subscriber shall be paid ti the nominee's or nominees' or legal heirs' Retirement Account. In case, the nomination is not registered by the deceased subscriber before his/her death, the accumulated pension wealth shall be paid to the family members on the basis of the legal heir certificate issued by the complement authorities of the State Concrened or the succession certificate by a court of completent jurisdiction.

Is it possible to defer the lump sum in case of premature exit?

No.

Is it possible to defer the lump sum in case of attaining the age of 60 years or retirement / superannuation?

Yes.

What are the provisions and requirements if I defer my lump sum after attaining the age of 60 years or retirement / superannuation?

The lump sum can be deferred till the age of 70 years and can be withdrawn at any time between superannuation and 70 years of age or every year till age of 70 years. The subscriber has to give in writing (Intimation to the employer) in the specified form at least fifteen days before the attainment of age of superannuation and the same should be authorized by the associated Nodal offical in the CRA system. If deferment is availed by the subscriber, he/she has to bear the maintenance charges like CRA, PFM etc.

Is it possible to defer both lump sum and annuity after attaining the age of 60 years or retirement / superannuation?

Yes.

In the case of premature exit, does the annuity start immediately or on attaining 60 years of age?

The annuity starts post the minimum age of purchasing any annuity from any of the empanelled annuity service providers. The minimum age depends on the scheme selected.

What are the choices of annuity plans?

Annuity for life with return of purchase price in the unfortunate event of death: Subscriber shall receive pension until he/she is alive and the annuity shall be stopped in the event of the subscriber's death. The purchase price is returned to the nominee. Annuity guaranteed for 5, 10, 15 or 20 years and for life thereafter: On death during the guarantee period: Subscriber shall get annuity and after his/her death during the guaranteed period, annuity paid to the nominee till the end of the guaranteed period after which the same ceases and no return of purchanse price to the nominee. On death after the guarantee perdiod: Subscriber shall get payment of annuity all he/she is alive even the guaranteed period and annuity ceases after his/her death and no return of purchase price to the nominee. Annuity for life: Subscriber shall get payment annuity till he/she is laive and payment of annuity ceases on death and no return of purchase price to the nominee. Annuity for life increasing at a simple rate of 3% p.a.: Subcriber shall get payment of annuity till he/she is alive and the payment of annuity ceases on death and no return of purchase price to nominee. Annuity for life with a Provision for 50% of the annuity to the spouse of the annuitant for life on death of the annuitant: Payment of annuity ceases on death of the subscriber and 50% of the annuity is paid to the spouse during his/her lifetime. If the spouse predeceases the annuitant, payment of annuity will cease after the death of the annuitant. Annuity for the life with a Provision for 100% of the annuity payable to the spouse of the annuitant for his/her lifetime, on death of the annuitant: Payment if annuity ceases on death of the subscirber and 100% of the annuity is paid to the spouse during his/her lifetime. If the spouse predeceases the annuitant, payment of annuity will cease after the death of the annuitant. It can be with or without the return of purchase price. Subscriber can also add spouse in any of the variants above, except the default. The variants provided and the pricing of annuity can differ from one provider to another.

What are the conditions for annual withdrawal?

The subscriber shall have been in the National Pension System at lease for a period of three years from the date of his or her joining. Withdrawal is allowed for some specific purposes only For the higher education of children For the marriage of children For the purchase/construction of a residential house or flat in his or her own name or in a joint name with his or her legally wedded spouse. In case, the subscriber already owns either individually or in the joint name a residential house or flat, other than ancestral property, no withdrawal under these regulators shall be permitted. Treatment for prescribed illness-suffered by subscriber, his legally wedded spouse, children including a legally adopted child and dependent parents. Prescribed illness include, Cancer Kidney Failure (End Stage Renal Failure) Primary Pulmonary Arterial Hypertension Multiple Scierosis Coronary Srtery Bypass Graft Aorta Graft Surgery Heart Vakve Surgery Stroke Myocardial Infarction Coma Total Blindness Paralysis Accident of serious/life threatening nature Any other critical illness of a life threatening nature as stipulated in the circulars, guidelines or notifications issued by the Authority from time to time To meet medical and incidental expenses arising out of the disability or incapacitation suffered by the subscriber. Towards meeting the expenses by subscriber for skill development/re-skilting or for any other self development activities, as may be permitted by the Authority by issuance of appropriate guidelines, in that behalf. Towards meeting the expenses by subscriber for establishment of own venture or any start-ups, as may be permitted by the Authority by issuance of appropriate guidelines, in that behalf.

In the event of partial withdrawal, will the subscriber get the same benefits as applicable at the time of retirement / superannuation?

Yes.

What happens to the scheme if the nominee predeceases the subscriber?

The nomination shall so far as it relates to the right conferred upon the said nominee, become null and void.

What is the minimum application amount?

The minimum application amount is Rs.1000. Additional investments can be made from Rs. 500 onward.

What is the minimum balance to be maintained in the Super Savings Account?

There is no minimum balance for the Super Savings Account.

Can I switch my investments to a different folio?

No, switching of investment is not available for SIP with Insurance folios.

Do I need to undergo any medical checkup?

No medical checkup is required for investing in SIP with Insurance.

Can the nomination be made in favour of a person who is not a part of the subscriber's family?

No, nomination made in favour of people who are not a part of the subscriber's family are deemed invalid. The possible nominations that can be made are as follows If the subscriber is a male, the nominee/nominees can be his legally wedded wife, his children (married or unmarried), his dependent parents and his deceased son's widow and children If the subscriber is a female, the nominee/nominees can be her legally wedded husband, his children (married or unmarried), her dependent parents and her deceased son's widow and children If the child of a subscriber (or as the case may be, a child of the subscriber's deceased son) has been adopted by another person and if under the personal law of the adopter, adoption is legally recognised, such child shall be excluded from the family of the subscriber

Should a new nomination be made by the subscriber after his/her marriage?

Yes. After the subscriber's marriage the nomination made initially shall be deemed to be invalid.

Which companies are the appointed Annuity Service Providers (ASP) by PFRDA?

There are 7 ASP appointed by PFRDA. They are: Life Insurance Corporation Of India HDFC Life Insurance Co. Ltd ICICI Prudential Life Insurance Co. Ltd SBI Life Insurance Co. Ltd Star Union Dai-Ichi Life Insurance Co. Ltd Kotak Mahindra Life Insurance Co. Ltd IndiaFirst Life Insurance Co. Ltd

What is Power STP?

Power STP is an intelligent valuation-driven strategy that helps you invest lumpsum amounts in equities anytime without worrying about current market valuations. The strategy instead of investing all your money in equities at one go takes an opportunistic approach. It collects your money in a safe debt fund and gradually moves it into equities over a period of time. The pace of deployment into equities is automatically varied based on the market valuations - deploys larger amounts of money into equities when valuations are low and lower amounts of money when valuations are high. Overall idea is to help you enter equities at reasonable valuations irrespective of the starting valuations by gradually deploying the money over a period of time. During high valuation phases, historically it has taken around 1-2 years to deploy the money into equities. This strategy reduces the risk of poor long-term outcomes led by high starting valuations and provides a relatively more consistent return experience over the long term.

How does the Power STP work?

Step 1: Decide on the total amount to be invested into equities Step 2: Choose the Equity Fund from the Fincare services Select Fund List Step 3: The entire amount is temporarily parked in a safe debt fund from the same fund house (where you want to invest into equity) Step 4: Set up your Power STP Monthly Transfer Amount = Total amount/12 (i.e split into 12 monthly installments). For example: if your corpus is Rs. 12 lakhs, your STP amount will be Rs. 1 lakh. Step 5: Each and every month based on the Fincare services Valuemeter, the algorithm decides the monthly equity multiplier - 0x to 6x. The designated Power STP Monthly Transfer Amount is multiplied by the equity multiplier and the resulting amount will be moved from the debt portion into equities for that particular month. For example: If the Monthly Transfer Amount is Rs. 1 lakh and the equity multiplier given by the algorithm is 3, Rs. 3 lakhs will be moved from debt to equities. Step 6: This transfer will happen every month till the entire amount in the debt fund is completely deployed into the equity fund.

How does the Fincare services Valuemeter work?

FundIndia Valuemeter is our in-house valuation indicator based on 4 valuation indicators PE, PB, MCAP to GDP, and Earnings Yield vs Bond Yields. The Valuemeter indicates a value between 0-100 0-30: Very Cheap Valuation Zone 30-50: Cheap Valuation Zone 50-70: Neutral Valuation Zone 70-80: Expensive Valuation Zone 80-100: Very Expensive Valuation Zone

What are the eligible schemes under Power STP?

All Diversified Equity Funds (excluding ELSS, Sector/Thematic Funds) in the Fincare services Select Funds list will be available under Power STP. The investors can choose any of the equity schemes listed below.

What is the minimum investment in Power STP?

Rs. 1,20,000 will be the minimum investment amount required to deploy money in any chosen equity fund. Monthly transfer value that is being set should be a minimum of Rs 10,000 per month.

Under which options/plan is Power STP available?

Growth Option

What percentage of the monthly STP amount is moved from Debt to Equity every month?

Fincare services Valuemeter (our in-house valuation model) will determine the equity multiplier for every month. Higher amount (up to 6 times the monthly installment) will be shifted from debt to equity if valuations are cheap and vice versa. Equity allocation every month will be: 0X, 0.5X, 1X, 3X or 6X the Power STP monthly installment.

What happens if the suggested transfer value from debt scheme to equity scheme is more than the balance amount in the Debt scheme?

The entire balance amount in the debt scheme will be switched to equity.

Can I change the scheme during the STP term?

No. You will not be able to change the schemes during the STP term. You will have to stop the Power STP and start a new one.

What is the date wherein the installment will be deployed into equities? Can I choose any date?

The execution will happen on the 7th of every month. You will not be able to change the date.

Can I invest through Power STP in the same folio?

Yes.

Can I cancel Power STP? Are there any charges?

Yes. You can cancel your Power STP anytime. No, there are no cancellation charges from our side.

Will exit load be applicable?

Yes, as specified in the SID (Scheme Information Document) of the schemes.

What happens in case of any redemption?

Will be treated as a normal transaction; wherein, the investor can choose the scheme from which redemption needs to be made.

Can additional investments be made in the folio where Power STP is mapped?

Yes. You can add additional money to the folios where Power STP is mapped anytime.

What debt funds will be chosen for the parking purpose? Liquid or money market?

You will be provided with 4 choices - Overnight, Liquid, Ultra Short Term, and Money Market Fund.

Is there any limit on the number of funds to be chosen for Power STP?

No.

Since the date is restricted to the 7th of every month, say in one particular week, markets have crashed more than 10%-15%, can I do a one time lump sum switch?

Yes you can. The option to manually override the algorithm and switch a custom amount from debt to equity is available.

If someone already has a lump sum parked in debt funds in their existing portfolio, can the investor route the same through Power STP mode?

Yes.

What is the Super Savings Account?

The Super Savings Account is a new product offered by Fincare services, which offers customers the flexibility of a savings account with the growth of a mutual fund. The money in the Super Savings Account is invested in the Reliance Liquid Fund - Treasury Plan. This fund invests in Call Money/ Cash/ Repo and Reverse Repo, Money Market Instruments (Mibor linked instruments, CPs, T-Bills, CDs, and/or other short term papers), which have low to medium levels of risk.

Who can open a Super Savings Account and how?

Any resident of India can open the Super Savings Account. To open a Super Savings Account, customers can log on to and complete their registration. They can then begin depositing funds in their Super Savings Account instantly.

Will I get a fixed return in Super Savings Account?

Returns of the Super Savings Account are not fixed. They are subject to market fluctuations as funds are deposited in the Reliance Liquid Fund - Treasury Plan. This fund invests in Call Money/ Cash/ Repo and Reverse Repo, Money Market Instruments (Mibor linked instruments, CPs,T-Bills, CDs, and/or other short term papers), which have low to medium levels of risk.

Will I get access to internet banking for Super Savings Account?

The Super Savings Account is not a bank savings account. It invests in the Reliance Liquid Fund - Treasury Plan, which is a liquid mutual fund. You can use Fincare services login and password to see how your money is growing.

Are there any charges for opening/closing a Super Savings Account?

There are no charges for opening a Super Savings Account. The account is free-for-life. There are no account maintenance or closing charges either.

Are there any charges I incur on using the card?

No, there are no charges levied on using your Super Savings Account Debit Card. However, your transactions may be subject to service tax as per prevailing government rates.

Can I do a SIP in a Super Savings Account?

No, you currently cannot do a SIP in the Super Savings Account.

Can I use the debit card at all ATMs?

You can withdraw cash from any Visa-powered ATM or an HDFC Bank ATM. You can also use this at any Point of Sale (PoS) terminals.

Can I use the debit card for international transactions?

No, you cannot use the debit card for international transactions currently.

Can NRIs invest in the Super Savings Account?

Can NRIs invest in the Super Savings Account?

How are capital gains from the Super Savings Account taxed?

Short term and long term capital gains tax on debt funds apply to the Super Savings Account. In the short term (less than years), tax you pay depends on your tax bracket. For over 3 years, tax applicable will be 20% with indexation benefit. The tax exemption on interest earned upto Rs. 10,000 from your savings bank account does not apply for the Super Savings Account.

How do I get a debit card?

Login to your Fincare services account. On your Dashboard, click on ‘View More’ under Mutual Funds. Select the Super Savings Account Tab and click on the debit card icon near the investor name. Just fill up the form and click submit. Your debit card will be delivered to your registered address directly by the AMC. Alternatively, you can click on the Super Savings section and you can apply for the card from the detailed dashboard.

How do I renew my card when it is due for renewal?

If your card is due for renewal, you can apply for a new card by filling up the application form.

How does it differ from a normal savings account?

The Super Savings Account is an upgrade over the normal savings account. It gives you potentially higher returns than the average 4% that most bank accounts offer. It offers the features of a savings account like a free ATM + Debit card, easy redemption facility, but with the potential to earn much more.

How much can I instantly redeem?

Maximum amount applicable for Instant Redemption will be up to Rs. 50,000; or 90% of the Clear Current Value of investments for folios without the Any Time Money card (Debit card). If you’ve opted for the debit card, then you can instantly redeem only 50% of the clear current value of investments.

How much can I withdraw at the ATM?

You can withdraw up to 50% of your deposit or Rs. 50,000 per day, whichever is lesser. For instance, if you have invested Rs.50,000 in your Super Savings Account, you can withdraw up to 25,000 per day

Is my money safe in Super Savings Account?

The money in the Super Savings Account is deposited in Reliance Liquid Fund - Treasury Plan. This fund invests in Call Money/ Cash/ Repo and Reverse Repo, Money Market Instruments (Mibor linked instruments, CPs,T-Bills, CDs, and/or other short term papers), which have low to medium levels of risk. Risk factors associated with investments in mutual funds apply to the Super Savings Account, but they can be minimised with diversification and by hedging.

Is the Super Savings Account a bank product?

The Super Savings Account is not an offering of a bank. It is a liquid fund that gives you advantages of the savings bank account.

Is the Super Savings Account right for me?

The Super Savings Account is ideal for customers who seek higher returns on the money lying around in their savings bank accounts, without missing out on the liquidity and flexibility that they currently enjoy.

What happens if I lose or damage my card?

In case you lose or damage your card, please contact Reliance Mutual Fund for blocking the card. You can apply for a new card by filling up the application form.

What happens to my money in the Super Savings Account?

The money in the Super Savings Account is invested in the Reliance Money Manager fund. This fund invests in Government Securities, Corporate Debt, other debt instruments and Money Market Instruments, which have low levels of risk.

Why am I being asked for a nominee?

Providing nominee details is mandatory for setting up SIP with Insurance

NRIs are eligible for SIP insurance?

As of now, Fincare services is not allowing NRIs to do invest in SIP Insurance.

Can I change my bank account details once the SIP is started ?

Currently you wont be able to change the bank account details or the associated mandate once the SIP is set up.

Can I make additional investments in this folio?

No. Additional investments are restricted for these folios.

Can I stop my SIP in a SIP Insured fund?

Not online. However, it can be done only by offline with the help of customer support. Kindly note that the insurance will get lapsed if the SIP is stopped before completing 36 installments

Does Sip Insurance fund have any exit load?

Yes, exit load is applicable for funds from Birla AMC as listed below: Redemption within 1 year from the date of investment: 2% of fund value Redemption within 3 years from the date of investment: 1% of fund value Redemption beyond 3 years: No exit load is applicable For Schemes from Reliance AMC, exit loads applicable are same as that applicable for the respective schemes. Please check scheme offer documents for details.

Does SIP Insurance Fund have any restrictions on age?

Yes, only people between the age of 18 and 51 can invest in SIP with Insurance.

Does the SIP Insurance fund have any exit load?

Yes, exit load is applicable for funds from Birla AMC as listed below: Redemption within 1 year from the date of investment: 2% of fund value Redemption within 3 years from the date of investment: 1% of fund value Redemption beyond 3 years: No exit load is applicable

How do I start a SIP with Insurance investment through Fincare services?

Login to the Fincare services website. Go to the Ínvest’ tab. Under Mutual Funds, there is an invest button on the right hand side. Click on it and select SIP with Insurance.

How long will the SIP insurance cover be valid?

If the SIP is done for at-least 3 years (36 installments), Insurance covered will be available till the age of 55 (for Reliance) and 60 (for Birla).

My SIP insurance lapsed, how can I revive it?

Currently, revival on lapse of insurance is not supported by any of the AMC's.

What if I hold the folio jointly with my family member?

When an investment is made through SIP and Insurance jointly, only the first holder of the folio will get the insurance cover.

What is SIP with Insurance?

SIP with Insurance is a product where you get life insurance cover when you set up a SIP. There will be no additional cost for the insurance, but the AMC may impose certain conditions to be fulfilled for availing insurance.

What will happens if I miss an installment for SIP Insurance?

If two consecutive installments are missed then the SIP will be stopped and insurance cover will get lapse Over all if all 4 installments are missed at any point during the SIP tenure, the insurance cover will completely lapsed.

Who will be providing the SIP insurance cover?

The SIP insurance amount will be provided by the AMC. To get the complete details kindly go through scheme offer documents available on the AMC’s website.

Why am I not allowed to move my SIP with insurance folio to a different portfolio on my Fincare services dashboard?

SIP with Insurance is completely a separate product and has it own limitations and restrictions, we have chosen to restrict this type of investment to a separate folio.

Why is my mandate not being shown when I try to setup SIP with Insurance?

Only NACH mandates are supported for SIP with Insurance. In case you don’t have an existing mandate of this type, please set up a new mandate from the mandate generation screen.

Who is an NRI?

A Non-Resident Indian is a person who stays outside India for a period of more than 182 days in a financial year for employment or business.

How can an NRI invest in India?

An NRI can either invest directly, or through a Resident by vesting the Power of Attorney with the Resident.

Difference between NRE & NRO Account

Why do I need to send physical documents to open an Equity Account?

The physical documents are to ensure compliance with the governing bodies for Equities.

How will my Indian investments be taxed?

If the country you reside in has signed DTAA (Double Tax Avoidance Agreement)with India, your investment is subject to taxation in a single country only - either in India or in your country of residence. If not, your investment is subject to double taxation. What's tax free Interest earned on NRE / FCNR Account What's taxable Interest earned on NRO Account Dividend and Capital gains on shares listed in India and Equity oriented schemes The points pertaining to taxability hold true for the current income tax regime. However, they may be subject to change in the future.

Can an NRI invest in Mutual funds in India?

Certainly, NRIs can invest in Mutual funds in India. However, a demat account is necessary to make any kind of investment as an NRI

Do I need to provide different bank account information for additional investors in my account?

Yes! For add on investors you may need to provide their individual bank accounts which will be used for investments made in their names. Even though the additional investors are family members, individual bank accounts are required as the name in the bank account and the PAN card to which the investment is linked should be matched.

How can I pay for my investments with Fincare services?

Netbanking – To pay using net banking, you need to have your bank account registered with us. This is to adhere to the latest guidelines given to us by the Securities Exchange Board of India (SEBI). You can make new mutual fund investments with Fincare services any time and any day, and pay for them through net banking. Here’s how you can do this: Choose your investment, enter your investment amount, and add it to your preferred portfolio. You will be redirected to the ‘Select Payment Method’ screen. On this screen, please select the ‘Netbanking’ option. Under the field – ‘Select bank for payment’, select the bank with which you want to carry out this transaction. Once you click the ‘Make Payment’ button, you will be redirected to your bank’s net banking page. All you have to do is login to your bank’s online account, and complete the transaction. You will be redirected to the Fincare services website, where you will receive your transaction reference number, and the status of your transaction (success/failure). We’ll make the investment in your name on the same date if the transaction has been completed before 2 PM. Otherwise, your investment will be made on the next business day. The above method will not be applicable if: If your bank is not in the list of banks registered with us If you have exceeded your daily net banking limit with a particular bank account If you are using a bank account that has not been registered with us If you don’t have an internet banking option with your bank NEFT – If any of the above exceptions hold true for you, then you can invest in Fincare services through NEFT in the following manner: Choose your investment, enter your investment amount, and add it to your preferred portfolio In the ‘Select Payment Method’ screen, note down your Fincare services transaction reference ID, and our bank details Under the option ‘Select Payment Mode’, choose ‘NEFT/RTGS’ Add the name of the accountholder (as with the bank), and select the bank with which you’d like to initiate this transaction. In case your bank is not listed, select ‘Others’ and fill in your bank’s name. Once you click ‘Confirm’, your investment process with Fincare serivrces will be partially completed. You must transfer the money from your account to us (our bank details will be provided on the transaction screen for this process) within the next two days by either logging into your bank account separately and transferring the money to Fincare services’s bank account (third-party transfer), or by visiting your local bank branch and transferring the money to us via NEFT. We’ll make the investments in your name as soon as we receive the funds from you. Bank mandate – Alternatively, you can opt to pay for your investments using your bank mandate through the following procedure: Choose your investment, enter your investment amount, and add it to your preferred portfolio On the ‘Select payment method’ screen, choose ‘Bank mandate’ Select the bank mandate with which you want to carry out this transaction Once you click ‘Confirm’, the funds will be automatically debited from your account We’ll pay for your investments as soon as we receive the funds from you.

I have received a mail stating my documents are under discrepancy. What does it mean?

Well, it means that the documents you provided to activate your Fincare services account is unclear or invalid due to various factors. The specific reason, the related document and the action to be taken will be mentioned in the discrepancy mail that you received.

How do I add a second registered bank account with Fincare services?

Here’s how you can register a second bank account to your Fincare services account: Log in to your Fincare services account. Select the ‘My Accounts’ option from the top menu. Select ‘Manage Accounts’ from the menu on the left. Select the option ‘Add Second Bank Account’. Enter the required information in the fields, and click ‘Continue’. Review your information, and click ‘Save’. Finally, to complete the registration of your second bank account with us, just send us a cancelled cheque leaf for this account, along with your signed request letter (this will be available in the ‘Downloads’ section of your account) to the following address:Wealth India Financial Services Pvt. Ltd., 3rd Floor, Uttam Building, No. 38 and 39, Whites Road, Royapettah, Chennai – 600014, Tamil Nadu Once we receive and verify this information, you can use this bank account to invest through your Fincare services account. PS: If your cheque leaf does not bear your name on it, then all you have to do is send us your cancelled cheque leaf along with any one of the following documents: - A self-attested copy of your bank statement (from one of last three months) - A self-attested copy of your bank passbook with some recent transaction entries

How do I change my registered bank account with Fincare services?

Here’s how you can change your registered bank account with Fincare services: Log in to your account. Click on the ‘My Accounts’ option in the top menu. Select ‘Manage Account’ from the left menu, and click on ‘Change Bank Account’. Enter the required information in the fields and click ‘Continue’. Review the information, and click ‘Save’. We will then generate a ‘Change of Bank’ request letter for you (you can access it in the ‘Downloads’ section of your account). Just print it, sign it, and send it to us, along with a cancelled cheque leaf (with your name pre-printed on it) of your new bank account to the following address: Wealth India Financial Services Pvt. Ltd., 3rd Floor, Uttam Building, No. 38 and 39, Whites Road, Royapettah, Chennai – 600014, Tamil Nadu PS: If your cheque leaf does not bear your name on it, then all you have to do is send us your cancelled cheque leaf along with any one of the following documents: - A self-attested copy of your bank statement (from one of last three months) - A self-attested copy of your bank passbook with some recent transaction entries

How do I set up a joint investor account with Fincare services?

You may add any number of accounts as add investors, whereas you can add a maximum of up-to three people for a joint investment account with Fincare services. You need to have these investor accounts already registered and activated in your account in order to avail this feature. Here’s how you can set up a joint investor account with Fincare services: Log in to your Fincare services account. Click on the ‘My Accounts’ option in the top menu. Choose the option ‘Joint Account’ from the left menu. If the new investor’s account has been created and activated, then his name will appear in the drop-down list under ‘Secondary Applicant’. Select his name, and click ‘Add’. Voilà! Your joint Fincare services investor account has been created and you can start investing with it right away.

I am receiving statements and documents related to mutual funds from different entities apart from Fincare services. What are these companies? Is Fincare services sharing my investment details with outside entities?

Fincare services does not share investors’ investment details with any entity other than the ones legally recognized by the Securities and Exchange Board of India (SEBI) for transaction fulfillment purposes. Typically, these entities include the mutual fund companies themselves, and their back office service providers (also known as Registrar and Transfer agents, or R&T, for short). Recently, SEBI has ruled that mutual fund companies and R&Ts also need to share these details with depositories (regulated entities such as CDSL and NSDL). As an investor protection initiative, SEBI has required both these service providers – R&Ts, as well as depositories – to send statements (consolidated or partial) to investors directly from time-to-time. These serve to inform investors about transactions involving their investments, so that investors can ensure that all is in order. Essentially, this is a system of checks and balances – the distributor (such as Fincare services) executes transactions on behalf of the customer, and a different (regulated) entity confirms the same directly to him, assuaging him that it happened correctly. Such a system, well-intended as it is, might result in the investor getting duplicate notifications (email, SMS, direct mails) about the same transactions and holdings. Hopefully, over time, this duplication will reduce, and investors will be able to opt out of communications that they do not want to receive.

I just moved residences. How do I change my address in your records?

When you change residences, it is important that you send your new address to us so that we can update the same in your Know Your Client (KYC) records, and communicate the same to Asset Management Companies (AMCs). Here’s how you can go about doing this: Firstly, you need to download, fill, and sign the KYC Modification Form. This form is available in the ‘Downloads’ section of your Fincare services account. Then, you need to notarise your new proof of address and send it to us at the following address: Wealth India Financial Services Pvt. Ltd., 3rd Floor, Uttam Building, No. 38 and 39, Whites Road, Royapettah, Chennai – 600014, Tamil Nadu Once we receive these documents from you, we’ll make sure that this change is reflected in your KYC records, and investment records with AMCs.

I just received an email from you stating that my account is active. But it did not contain any password for logging into my account. How do I get my password?

We do not send passwords by email for security reasons. The password for your Fincare services account is the same as the one that you created when you had registered with us. If you have forgotten it, please click here to recover your password.

Is it possible to change my tax status with Fincare services?

Yes! it is possible to change the tax status with Fincare services and we also assist in modifying your KYC with the correct tax status , with relevant supporting documents.

IS KYC registration mandatory to open a Fincare services account?

The Securities and Exchange Board of India (SEBI) has made it mandatory for all online investors to be KYC-registered (Know Your Client). Hence, at Fincare services, we necessarily require our customers to be KYC compliant. We have launched a new method of KYC registration to make this step quick and paperless like never before. Called the ‘Aadhaar-based eKYC system’, all you have to do is enter your PAN and Aadhaar number, and that’s it! Your eKYC will be complete. You will be eligible to invest in a selected number of schemes, and you will enjoy access to the full range of services on Fincare services. To get access to all the mutual fund schemes in the Fincare services universe, you’ll have to download, sign and send your KYC registration form (available in the ‘Downloads’ section of your account), along with a few supporting documents. We’ll get you KYC-registered on your behalf.

I'm an NRI investor with Fincare services. I've just moved back to India for good. How do I change my investment status from 'Non Resident Indian' (NRI) to 'Resident Indian' (RI) with Fincare services, and with all the respective AMC's?

Changing your investment status from NRI to RI is essential to maintain the right information in your investment records, and for taxation purposes. Fincare services is happy to help you in this regard. To change your resident status from NRI to RI, all you have to do is: Open a Resident Indian Savings Bank Account. Send us the following documents: Your bank account proof – You can send us a cancelled cheque leaf from your RI bank account. However, your name must be pre-printed on it. If your name does not appear on the cheque leaf, then please send us any one of the following documents, along with your cancelled cheque leaf: - A self-attested copy of your bank statement (from one of last three months) - A self-attested copy of your bank passbook with some recent transaction entries Your signed KYC Modification Form with your new address – You can access this form in the ‘Downloads’ section of your account. Besides the other details, please enter your new residency status in this form (Section C, Point 2). Your new address proof – It could be a copy of your driving license, voter ID card, ration card, latest gas bill, Aadhaar card, bank passbook with recent transactions, bank statement, or your landline bill from BSNL. Sign and submit a status change request letter to us - This letter should request for a change in your residency status, and bank account details. Please login to your Fincare services account, and then click here to download a template of this letter. A copy of your passport All these documents should be sent to:

Which investor's bank account will be used when I set up a joint account?

The primary investor’s bank account will be used as the default bank account for the joint investor account.

Which investor's bank account will be used when I set up a joint investor account?

The primary investor’s bank account will be used as the default bank account for the joint investor account.

How do I add my spouse / other family members as additional investors to my account?

With Fincare services, you can use a single login ID to access your family’s investments in one place. If you would like to add another person from your family as an investor (either jointly / separately), click on ‘My Accounts’ in the top menu, and then select ‘Add Investor’ from the left menu. A pre-filled application form with the new investor’s details will be available to you in the ‘Downloads’ section of your account. You can sign and send this to us, along with a few supporting documents. Investments can be made in the name of the new investor from your account after we receive and process his documents.

How to use Money Mitr?

It's really simple to use Money Mitr. You may need to login to your Fincare services account and click on "Money Mitr" in the top navigation bar. Now depending upon the type of investment you would want to make; be it a lumpsum or SIP or tax saving, you may click on the appropriate box and proceed further along. Answer a few questions like the amount that you would like to invest, the duration for which you would want to invest and our efficient Robo Advisor will design the perfect portfolio for you. You may just click on continue after accepting the terms and conditions to the payment page and make the payment. Please note that you will be asked to enter the bank information which is a one time activity and especially for your first investment.

What does the trigger tool do?

The trigger tool allows investors to set investment triggers based on the performance of the SENSEX, portfolio returns and a particular Net Asset Value (NAV). Different trigger actions like switching investments, investment, or redemption (partial or full) can also be set depending on the financial targets and goals of the investor.

What is Fincare services academy?

This is a FREE personal finance awareness initiative by Fincare services. Unlike other such initiatives available online, FIA is not just a set of videos and essays. It is a comprehensive personal finance course that one can complete to achieve fluency in managing money.

What is Portfolio X-ray?

This service gives an investor a personalized report of his investment portfolio – asset allocation, investment style, stock sectors, regions of the world where his investments are spread across, top 10 holdings and just about everything he needs to know about his portfolio.

At the time of account opening, you are asking for a cancelled cheque leaf. Why do you need this?

A cancelled cheque leaf means an original cheque leaf with ‘cancelled’ written across it. As an online investment service, we have to make sure that the bank account with which you’ve registered with us is in your name. To do this, we require a cancelled cheque leaf with your name pre-printed on it. If your name does not appear on the cheque leaf, then you will have to send us your cancelled cheque leaf along with one of the following documents: - A self-attested copy of your bank statement (from one of last three months) - A self-attested copy of your bank passbook with some recent transaction entries Alternatively, you may use the on screen e-verification process while registering with us to verify your bank information. All you need to do is while making your first investment, you will be guided to a screen to either upload a cheque leaf or e - verify your bank account (limited to 20 banks) and you may have to follow the instructions and verify your bank account. In this case we may not require your cheque leaf copy as we will gather the same while you are e-verifying. If you do not have your bank listed then we would require the hard copy of the cheque as per the above guidelines. This procedure is important to protect the sanctity of all online transactions done through us. Given the importance of this detail, we feel it would be unwise of us to compromise on this request, and accept any other alternatives.

Can I invest through Fincare services by going to a retail outlet?

No, Fincare services is an online-only investment platform. You can access all our products and services online by simply logging onto

Can I merge two individual Fincare services accounts?

Yes. Merging of individual accounts is possible in our system. Please write to us at and we will instantly notify our technology team to merge the accounts.

Can i remove the additional investors account from my account?

Yes, you can. Please do write to us at and we will instantly inform our technology team to remove the additional account, post the removal both the accounts will act as individual accounts and no longer joined.

Is there any services to collect the documents?

Yes, of course!! We do have a dedicated logistics team in most of the metro cities and areas to collect documents from the customers. The document pick up service depends on the pin code the customer is located at. To know more call us at 9870681612 and we will check your pin code and arrange for a pick up if you fall under the serviceable location list.

Can I start investing with Fincare services without submitting my account opening documents?

Yes, you can start investing with Fincare services without submitting any documents, and that too, in just five minutes! Our revolutionary ‘Instant Investing’ process has made this possible. If you are KYC-registered with CVL KRA, and have a bank account in one of our 11 supported banks for this process (Axis Bank, HDFC Bank, ICICI Bank, IDBI Bank, J&K Bank, Karur Vysya Bank, SBH, SBI, SBM, SBT and Yes Bank), or if you have completed your KYC through our Aadhaar-based eKYC system, then all you have to do is just log in to your Fincare services account, enter your PAN and bank details and that’s it! You can start investing immediately. Presently, 21 mutual fund companies are accepting investments through the ‘Instant Investing’ process. They are: Axis Mutual Fund Birla Sun Life Mutual Fund BNP Paribas Mutual Fund Canara Robeco Mutual Fund DSP BlackRock Mutual Fund Edelweiss Mutual Fund Franklin Templeton Mutual Fund HDFC Mutual Fund ICICI Prudential Mutual Fund IDBI Mutual Fund IDFC Mutual Fund Kotak Mutual Fund L&T Mutual Fund Mirae Asset Mutual Fund Motilal Oswal Mutual Fund Principal Mutual Fund Reliance Mutual Fund Religare Invesco Mutual Fund SBI Mutual Fund Tata Mutual Fund UTI Mutual Fund To invest in mutual funds from other AMCs, you will have to complete your registration with Fincare services by sending your account opening documents to us.

Do I need to provide documents if I did not complete KYC through Fincare services?

Yes! you may need to provide documents if you are not using the Aadhaar based eKYC system of Fincare services or if you want to do complete KYC through Fincare services. In scenarios where you are already KYC registered outside, then we might require a one time documentation of the below mentioned documents, so that I could provide that to the fund houses as and when you invest. Fincare services application form (Declaration page signed) Pan card photo copy ( Clear image and self attested) Cancelled Cheque leaf ( With name pre printed as per PAN card and self attested) or Bank Statement with Logo, Account number, IFSC code and MICR code. In scenarios where your KYC has to be updated /modified as per recent norms, then we might require the below set of documents. Fincare services application form (Declaration page signed) Pan card photo copy ( Clear image and self attested) KYC form pre filled with Passport size color photo affixed and signed across. Address Proof ( Self Attested ) Cancelled Cheque leaf ( With name pre printed as per PAN card and self attested) or Bank Statement with Logo, Account number, IFSC code and MICR code. In case of no discrepancies, Your account will be activated within 24 hrs from the time of documents receipt at our office.

Do you accept C/O address proof to process KYC?

No, unfortunately C/O address proof is not a valid document to process KYC.

Do you offer pick up service to re-collect the documents to clear discrepancy?

Yes. Based on your pin code a pick up can be arranged by the logistics team and serviced accordingly. Do call us at 9870681612 when you are ready with the documents and we will arrange for the pick up at the earliest available slot.

Does Fincare services offer direct mutual fund plans?

Currently, Fincare services offers only regular plans.

How do I complete the registration with Fincare services?

If you are not aware how to continue with your registration and if you remember which email address you signed up with, then its very simple. Follow the below steps to complete the registration. Login using the email address and the password. If you do not remember the password click here to recover password. Once logged in, continue with providing information like tax status, marital status, gender, PAN number, DOB etc., If you are not a KYC registered customer, you will get an option to register for eKYC using Aadhaar If you are a KYC registered customer, You will be redirected to the Instant Investing screen If your KYC has to be updated, then details like Address, Father's name etc., will be gathered before offering you a date to arrange for documents pick up or insta video call. Provide all necessary information and click on Submit and you will directed to Money Mitr, our Robo advisory service.

How do I open a new account and avail the Paperless investing services from Fincare services?

Opening a new account with Fincare services is quick, simple and free. You would just have to do the following: - Register online on the Fincare services website by providing your name, address, PAN and date of birth details. - If you are not KYC registered and if you have an Aadhaar number, you get to enjoy the paperless investing services from us by verifying your Aadhaar and completing your KYC online within minutes. - Post Aadhaar based eKYC verification, you could start investing with any of the listed fund houses on our website.

How do I update my contact number with Fincare services?

To update your contact number in our records, please do write to us at with your existing contact number and the number that needs to be updated.

How do I update my contact number?

It's very easy to update your contact number on our website if you have just completed the registration and has not used our site to the possible extent. Follow the below steps to update the contact number yourself in your account. Login to your Fincare services account. Click on your name in the Top right hand corner Click on "Edit Application" Update the new contact number in the relevant field. Click on Continue.

I am getting a "Pan Invalid" Error while trying to register with Fincare services.

Well, the error "PAN Invalid" appears when you have entered a wrong PAN number or a not approved format of PAN number or while the Income Tax website Server is down. Our website runs a check with the Income Tax website to ensure that the entered PAN is the right one and belongs to the customer. Hence if the Income Tax website goes down, without the verification of the PAN you will not be able to continue with the registration on our Fincare services website. Hence, Please ensure its the right PAN number or wait for a few more minutes before you continue with the registration.

I am unable to register as I am getting the error " Pan Number already exists" while trying to sign up for your services.

Do not worry if you see this error as it means that your PAN number is existing in our database already. Probably you had registered earlier with the same PAN number for a Fincare services account. Rather than trying to register again, try signing in to your old account and you will be good to go!

I forgot my password. How do I recover it?

Enter your registered email address with us in the username box and click on Submit. Now access you email and click on the link in the mail to set up a new password. Fill in the new password, confirm password and also enter the last 5 digits of your registered phone number with us and click on submit. Now you may relogin to your Fincare services account.

NRI documents checklist for KYC application and Fincare services acccount

Here is a checklist to help you: KYC form duly filled and signed Recent color photo (signed across the photo) Copy of PAN Card, notarized (On an A4 size paper) Copy of exact proof of overseas address, notarized (On an A4 size paper) Copy of first and last pages of passport, notarized (If you are an Indian citizen) Copy of foreign passport, notarized (If you are a foreign citizen) Copy of PIO or OCI card, notarized (If you are a foreign citizen)

What are the different ways in which I can make sure that my account opening documents reach you?

In the scenarios where KYC status is not verified, after you complete your online registration with us, you’ll have to finish just one more small step to start investing, i.e., you’ll have to send us your account-opening documents (a copy of your PAN card, your cancelled cheque leaf, etc.). You will receive an email stating these details / our representative will call you to take you through this step. You can send your documents to us in the following ways: 1. Let us pick-up your documents – Just give us a call on (0) 9870681612, and we’ll send our representative over to pick up your account-opening documents. 2. Schedule an appointment for an insta-video call – Fincare services is the only online investment platform that offers the insta-video call feature. Using this service, any investor who is KYC-registered (with CVL KRA / through our Aadhaar-based eKYC system) can start investing in a host of mutual fund schemes, in a completely paperless manner, in just a few minutes. You can call (0) 7667 166 166 to book an appointment for an insta-video call today. 3. Courier your documents to us – You can print your documents and mail / courier them to us at: Wealth India Financial Services Pvt. Ltd., 3rd Floor, Uttam Building, No. 38 and 39, Whites Road, Royapettah, Chennai – 600 014, Tamil Nadu, India 4. Pre-paid return envelope - If you would like, we could send over a pre-paid return envelope which has been paid for by us. All you have to do is enclose the required account-opening documents, and post it to us. Once we receive your account-opening documents, your Fincare services account will be ready for investments in the next 24 hours (if there are no discrepancies in the information provided).

What are the documents required for an NRI investor to activate his Fincare services account?

First, we would like to let you know that this enterprise Fincare services was founded by a team of people who themselves were NRIs for a significant part of their lives. So, we fully understand what it means to be an NRI who wants to invest in India, especially the lack of clarity about the process involved and the documents required. Hence, this note. There are a few things that you would need to invest in Mutual Funds in India. Every one of these are obtainable, and we will help you along the way with any assistance you might need. Here is the list of what you need. If you are an Indian citizen (holding an Indian passport), If you are a Foreign citizen (holding a foreign passport), If you hold an PIO or OCI card, we will need, in addition to the documents above, A photocopy of the foreign passport - attested by your local Indian embassy (in lieu of the Indian passport above) A copy of your PIO or OCI card, self-signed.

What are the documents required to open a corporate / society / trust / company account?

Memorandum of association (Authorized Signatory sign with company seal ) Articles of association (Authorized Signatory sign with company seal ) Board resolution (Authorized Signatory sign with company seal ) Authorized signatory list Latest balance sheet Pan card copy (Authorized Signatory sign with company seal ) Cancelled cheque leaf with company name pre-printed Wealth India application forms (Authorized Signatory sign with company seal , wherever necessary)

What are the unique features / advantages of

Fincare services is an innovative online investment platform that offers great products and reliable services. The website was created with one goal in mind – to provide great investment services to the common investor in India at a low-cost. We use technology and the online medium to create a suite of interesting services that, together, will deliver a wonderful experience to the investor. Prudent products, interesting, useful services, great customer care come together in a way that is not seen thus far in the financial services industry of our country. We are here to make a lasting difference in the way financial services are delivered to customers across the country. We are here to enrich India, one investor at a time. Here are the features that makes us unique from others:

What if I do not receive my OTP / OTP gets delayed while registering for Aadhaar based eKYC?

The sending and verification of OTP is controlled from the Govt's UIDAI’s system. Any failure in receiving/verification of OTP will be from UIDAI’s side and Fincare services cannot influence it. Hence you may have to skip the Aadhaar process and submit physical documents in order to be able to use your Fincare services account and get your KYC processed. Also remember you need to have the registered mobile number with Aadhaar in order to receive the OTP.

What if I don't have my mobile number registered with Aadhaar?

It is required that you have the mobile number registered with Aadhaar in order to use the Aadhaar based eKYC system as the sending and verification of OTP is controlled from UIDAI’s system and the OTP will be sent only to the registered number in their records. Hence, it is advised to keep your mobile number updated in Aadhaar.

What if I have an account in another bank?

If you have an account with one of our banking partners, the investment process would be seamless for you. On the other hand, if you don’t, it would still be possible to invest with Fincare services. In this case, once you finalize an investment through our website, you can do an electronic fund transfer (NEFT/RTGS) specifying your user ID and transaction to our Yes Bank account. This will enable us to fulfill your transaction. For non-payment gateway transactions, Fincare services’s cut-off time for same day execution is 1:45 PM. This means that transactions for which the transfer details are received on a business day before 1:45 PM will be executed on the same day. Transactions completed after the cut-off time will be executed on the next business day.

What is a HUF account and what are the required documents for the same?

HUF is the short form for Hindu undivided family. Due to the development of the Indian legal system, of late, the female members are also given the right of share to the property in the HUF. The term 'Hindu undivided family' finds reference in the provisions of the income tax act but the expression is not defined in the act. List of documents required for processing KYC and for Fincare services account activation: PAN of HUF Deed of declaration of HUF Bank pass-book/bank statement in the name of HUF Photograph, POI, POA, PAN of Karta Cancel cheque leaf for HUF with name preprinted KYC non individual form. Fincare services application

Who is eligible for eKYC?

Any user who does not have any record in the KRA database is eligible for eKYC. You may check your KYC status by going to https://www.cvlkra.com/kycpaninquiry.aspx and entering your PAN, the table should say Not Available in all the KRA's and only then you will be able to use the Aadhaar based eKYC option to register your KYC.

Why is PAN number mandatory for me to open an account with Fincare services?

According to the Securities and Exchange Board of India (SEBI), the Permanent Account Number (PAN) has been made the sole identification number for all participants investing in the securities market / mutual funds, irrespective of the amount of investment. This is part of the revised know-your-customer (KYC) compliance norms currently in existence with fund houses, in order to comply with money laundering prevention rules. Association of Mutual Funds of India (AMFI) has asked mutual fund houses to comply with new KYC norms and collect PAN, address proof and photograph of all their new and existing investors with effect from January 1, 2011. The AMFI decision follows a direction from market regulator Securities and Exchange Board of India ( SEBI) earlier the same year to tighten KYC norms to check fraudulent practices. Though MF investors will face some additional paperwork now, the documentation would be centralised across all the fund houses with the help of PAN and this will benefit them in the long run. Hence, Fincare services collects your PAN card to link it to your investments and also to verify your KYC ( Know your Customer) information with CDSL.

Do I need a separate mandate for every SIP?

No. You need to provide just one mandate for all your SIPs. As long as your SIP amount in any single day is lower than your specified limit in the mandate, just one mandate will be sufficient for all your SIPs.

How do investors benefit from NACH mandates?

There are multiple benefits for an investor under the NACH system. Apart from the simple registration process, and faster processing of payments, the NACH system also allows for one-time payments. Thus, an investor can make payments for his purchases using his mandates, without going through the payment gateway process of internet banking.

What is a bank mandate?

A bank mandate is an authorization you give to Fincare services to debit your bank account for monthly investments, as well as other payments. The mandate is sent by Fincare services to your bank for registration on your behalf. Once your mandate is registered with your bank, the bank will allow Fincare services to withdraw the amount of your investments automatically every month. You will only need to authorize us at the time of setting up your SIP. It will also enable Fincare services to collect money from your account when you make a one-time payment using your mandate.

What is ECS?

An ECS or Electronic Clearing System is a method of transaction that is generally used by organisations for bulk payments and repetitive transactions. ECS is an older system which is now being replaced by NACH (National Automated Clearing House). ECS did not cover the entire country, and involved paperwork for registration and payment which led to delays.

What is NACH?

The Reserve Bank of India (RBI) has set up a nodal authority for handling all electronic payments in our banking system. This authority is known as the NPCI (National Payments Corporation of India). NPCI has set up a new mandate process for handling high volume regular transactions. This mandate process is known as NACH, or the National Automated Clearing House system. This system is now all set to replace the ECS in the future.

What is the transfer limit mentioned in the bank mandate?

The transfer limit is the maximum amount that Fincare services can withdraw on your behalf in a single day. If you set up an SIP or make a transaction using that mandate such that the amount exceeds the limit, the transaction will be rejected.

Why has Fincare services moved to NACH?

The NACH system offers electronic bulk payment facilities across the country. The process of registering mandates is faster, and the processing time for payments is lower as compared to ECS. Payments are processed within two days, unlike seven days for ECS, which allows us to offer lump sum payments through mandates. It is also likely that in the future, ECS will be replaced by NACH. Hence, Fincare services has moved to the NACH system.

Why is a bank mandate required?

A bank mandate is required for monthly payments for investments through Systematic Investment Plans (SIPs). The mandate you provide us allows us to debit your bank account on your behalf towards SIP installments. Thus, you will not need to make payments manually every month towards your investments.

I have transferred a fund to my Fincare services account. It is currently offline. How can I redeem this fund if I want to?

To redeem the offline fund you had transferred to your Fincare services account, please follow the given steps: Log in to your Fincare services account Click on ‘Invest’ from the top menu of the page In the ensuing screen, click on ‘Redeem’, and select the ‘Redemption’ option Select the name of the investor who holds the funds in your account, and choose the funds you would like to redeem Once you are done, the system will generate a letter of redemption for you. You can access this by going to the ‘Downloads’ section of your account. Please print this letter, sign it, and send it

I have transferred a fund to my Fincare services account. It is currently showing as an offline holding. What does that mean?

When we process a fund transfer from an externally held account to your Fincare services account, the transfer takes place in two steps. The first step is to change the broker code from the current code to Fincare services’s code (ARN 43730). After that, we change the fund from the offline mode to the online mode. When a fund shows up as an offline holding in your account, it means that the first step has been completed, and the second step is ongoing. During this time, we’ll be able to show you the holding and the transactions on it in your account. However, any activity on it needs to happen with a paper-based request (letters), and cannot happen online. Once the fund moves to the ‘online’ mode, all transactions can happen in an online manner.

I am planning to transfer some folios to my Fincare services account. Some of them have active SIPs. What will happen to them after they are transferred?

You can transfer your mutual fund investments from outside Fincare services to your Fincare services account to consolidate your holdings. Please note that these outside folios must not have an active SIP running, and should be offline (not through another online channel) folios. When a folio with an active SIP gets transferred to Fincare services, the SIP will be stopped by the AMC. The investor would need to restart the SIP via Fincare services once the holding gets transferred to his account.

Are there any entry/ exit charges?

No, there are no entry/ exit charges.

For a joint investor account, should all the investors have completed their registration with Fincare services?

Yes, in order to invest through a joint Fincare services investor account, all the investors in that account need to complete their online registration, get their KYC registration done, and submit their supporting documents to Fincare services.

How can I redeem my investment?

You can redeem your money by selecting the redemption option in your Fincare services dashboard. Standard redemption process takes a few working days to credit the amount, but the instant redemption option allows you to process your request almost instantly. The money is credited to your bank account within 2-3 minutes (maximum time is 30 minutes).

How long does it take for my redemption proceeds to reflect in my bank account?

The amount will be sent to your bank account within a maximum time of 30 minutes; it usually takes only about 2 -3 minutes.

How many investors can a joint account contain?

A maximum of three investors can be added to form a joint investor account with Fincare services.

I filled my KYC application form, sent it to you, and it was processed. However, when I download my investment statement from AMCs, it says that my KYC is not completed. Why is this happening?

It is alright if AMC records are showing that you are non-KYC compliant at this time. The way this works is that Karvy or CAMS receive all KYC application forms from online platforms like us, and process investments without any issue. They store all the applications as ‘KYC (non-compliant)’ initially. After that, periodically, Karvy and CAMS check with the Income Tax department (to match an investor’s name and PAN details), as well as CVL India to check the KYC status, after which they update their database in mass every month, or so. The key thing to note is that this is not an official indication that you are not KYC compliant. CVL India’s record is the official record. So, you need not worry if your KYC information in AMC records is not right.

I tried to pay for an investment online using net banking. The transaction did not seem to complete successfully. However, the amount has been debited from my bank account. What happens now?

The online payment gateway for netbanking usually works without any issues. But on rare occasions, such problems may crop up. In such situations, typically, we do not receive the amount in our account to process your transaction. Hence, the money will be put back in your bank account within two business days. If this does not happen, please let us know, and we’ll follow up with your bank on your behalf.

What are the benefits of the Super Savings account?

The super savings account enables customers to potentially earn higher returns than their savings bank accounts. Customers also get a free ATM+debit card to use at merchant outlets and for easy access to funds with instant withdrawal facility on all days, 24*7. All this comes with just an initial investment of Rs. 1000 and zero lock-in. Additional investments in the Super Savings Account can be made from Rs. 500 onward.

What are the benefits of using the Fincare services platform?

Here are some of the benefits of using our platform: Our Platform is a one stop shop for all investment products like Mutual Funds, Equity stocks, NCD, Bond, Corporate FD etc., You may also open family accounts under single login and maintain the investments of your family members with the bank level security that we provide. Our website also allows to view daily gains and losses on your investments and you may also do 360-degree portfolio reviews anytime of the day. You may access the site 24/7 and get assistance from our executives through phone, chat or email during business hours. You will have access to nearly 38 AMC's across India and even without relying on an advisor you may use our Robo advisory services to design a portfolio for you. All these are available at the click of a button, seated at your desk and within minutes.

Why is the mandate limit Rs. 25,000 when my investment amount is lesser than that?

Your mandate limit is the maximum amount of money you can invest on any given day of a month. It is set at Rs. 25,000 by default, which means that using this mandate, you can invest up to Rs. 25,000 in SIPs on any day of the month. This mandate can be used to set up multiple SIPs across fund houses. You can also use it increase your existing SIP amount, or add new SIPs on different dates on the month (from the 1st to the 28th) as long as the total amount being invested on any day is not more than Rs. 25,000. You can also generate a new mandate with a different limit based on your investment needs. Once the SIP is set up and the ECS mandate is approved by the bank, the SIP amount will be auto-debited from your account and invested into the mutual fund scheme.