Are you first time MF investor?

Are you first time MF investor?

I dedicate today’s blog to my new mutual fund investors. India has less invested in mutual funds if compare with other asset class like fix deposit, real estate, post office saving etc. Although the mutual fund has been the great wealth creator in long run and outperformed to all asset class but still it is not very famous among investors.

Since last 2 years the scenario has been changed, many new investors have started to invest in mutual fund. The problem is many investor do not know the basic of mutual fund schemes and often choose wrong schemes, so now it is more important to educate the investors about mutual fund which is new to these investors. There are many types of mutual funds are available in the market but what is your requirement you should know first.

First of all if you are planning to invest for 1-5 years, never go with pure equity plan. You should go with debt mutual fund or balance plan depend on your time horizon and risk appetite. In debt plan, there are many types of plan which are good for different time horizon investor. So investment time plays vital role to decide the mutual fund scheme.

After deciding the investment time frame, you should also know the expected return, fund’s track record, fund manager and where the fund investing your money. All the information is also available with your adviser and online also. You should know the real rate of return after adjusting taxes and inflation. After all, your investment must beat the inflation at all.

Never go after scheme’s NAV. It does not mean that the lower NAV scheme is better than high NAV scheme. Old schemes often have higher NAV and new investor think it is very costly. It is wrong assumption after all rate of return is important not the current NAV figure. Always choose growth option if you are going for long term investment.

When you plan to invest in mutual fund, please follow the old golden rule that never put all eggs in one basket. It means never invest all money in one particular scheme. You should diversify your portfolio and review it time to time.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for conducting seminar in your city, just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Dividend in mutual fund

We all hear about dividend in mutual fund. Each fund house announce dividend time to time depend upon the performance of schemes. Today I am talking about dividend here because some misconception about the dividend. Yesterday when one of my friends was talking about mutual fund investment with me then I had observed that the how much people are confused about this common used term ‘dividend’. So today we are going to understand about dividend in mutual fund.

The first important thing is that the dividend always calculated on the face value of the scheme, not on the fund’s NAV. When any equity fund declares a dividend, the percentage dividend announced is usually calculated on the face value of each unit and not on its latest net asset value. For example one fund’s NAV is Rs 45 and Face Value is Rs 10. If fund house declare 50% dividend, it means Rs 5 dividend per unit on its face value and not 50 per cent of its prevailing net asset value (NAV). That works out to a 11 per cent return on the fund's NAV. Investors often make the mistake of putting money into equity funds based on their dividend announcements. 

The other important thing, dividend declarations by a fund do not add to your returns as an investor. They come out of the fund's overall NAV. After all, an equity fund or debt fund announce dividend after an appreciation in the value of its portfolio. This appreciation is immediately reflected in the NAV of the fund.

When a fund's NAV grows up, it ‘realises' this gain by selling some of its holdings and may decide to return that gain to investors in the form of dividends. That is why a dividend payout usually results in the NAV of the fund dipping to the extent of the payout, immediately after the dividend record date.

If you invest in a dividend option of a fund at an NAV of Rs 100 per unit just prior to a dividend of ‘50 per cent', you will find that you get Rs 5 per unit as dividends and the NAV of the fund falls to Rs 95 per unit after the payout. A dividend payout does not affect growth option investors of a fund, for them the realised gains will be retained in the portfolio and the NAV will remain at Rs 100 per unit, in the above example.

The other important thing is that there is no guaranteed dividend scheme in any mutual fund. It totally depends on the profitability of the scheme and market condition. There are also some equity funds who declare a dividend every year. A fund can only pay out a dividend if it is sitting on capital appreciation on its portfolio and has realised some of those portfolio gains. Equity funds, as all of us know, do not record positive returns every year. 

As no one can predict that the stock market will rise or steadily from year to year, one also cannot expect regular or annual dividend payouts from equity funds. This makes it risky for investors who seek regular income to look to the dividend option of an equity fund, for that requirement.

For those who want fix income in regular interval, the only options are fixed deposits with safe entities or the post-office monthly income scheme. These schemes can really guarantee the regular income.

Dear readers, If you have any query regarding mutual fund or any financial product please feel free to ask.

Warm Regards,

Arvind Trivedi

Certified Financial Planner