Prajna Capital |
- Long Term Income Funds are better investment options than Bank FDs
- Birla Sunlife 95 Fund Review
- Reliance Regular Savings Fund Debt Option introduces dividend Option
| Long Term Income Funds are better investment options than Bank FDs Posted: 13 Nov 2014 04:10 AM PST Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Leave a missed Call on 94 8300 8300
Long Term Income Funds are better investment options than Bank FDs
A vast majority of risk averse investors prefer bank fixed deposits to debt mutual fund schemes. Perception of risk and lack of financial awareness are the contributing factors. For investors who are willing to sacrifice the comfort of guaranteed returns, long term income funds are better investment options than fixed deposits over a tenure of three years or more. While banks have offered around 8.5 – 9% interest rates for a 3 year term deposits, top long term income funds have given returns of 9.5 – 10.7% over the last 3 year period. Further over tenures of three years or more, debt funds enjoy tax advantage over fixed deposits due to the long term capital gains tax with indexation. If we add the difference in pre-tax returns and the tax benefit, the post tax returns of long term income funds has been substantially higher than the bank fixed deposits. Returns of top long term income funds Over a three year tenure top performing long term income funds have given 1.5 – 2% higher returns compared to fixed deposits. On
While the top long term income funds outperformed fixed deposits over three year tenure, these funds gave higher pre-tax returns than fixed deposits even in the last 12 months, despite prevailing high interest rates. The chart below shows trailing one year returns of the top income funds.
Outlook for Long Term Income Funds We have been in the grip of high interest rates for a long time due to stubborn inflation. However inflation has been easing over the past four months. In September inflation was 6.7%. Some bond market operators are expecting the RBI to cut rates as early as December, but the majority of economists are of the view that RBI will start cutting rates in February 2015. The 10 year Government Bond yield has started inching down from historical high levels. It is now at 8.3% compared to 9% at the beginning of the year. That is why we have seen the long term income funds giving good returns in the last one year.
The 10 year Government Bond yield is expected to fall to 7% in FY 2015 – 2016. Bond prices have an inverse relationship with interest rates. As interest rate goes down bond prices increase, leading to higher potential returns from long term income funds over the next 2 to 3 years. When we move to benign interest rate environment, the returns of long term income funds can potentially be even higher than the recent short term returns. Income Funds are not risk free It is important that investors understand that income or debt funds are not risk free. It is equally important that investors understand the nature of the risk, so that they can make an objective investment decision, without being swayed by perceptions. There are three kinds of risk that income or debt funds are exposed to.
Tax Benefit Some significant taxation changes were made for debt funds in the last Budget. The holding period of long term capital gains is now 3 years. If the holding period is less than 3 years, then the returns will be taxed as per the income tax rate of the investor. If the holding period is more than 3 years, long term capital gains tax of 20% will apply. However, indexation benefits are allowed for calculation of long term capital gains. Fixed Deposit interest, on the other hand, is taxed as per the income tax rate of the investor, irrespective of the holding period. Indexation benefit reduces long term capital gains tax significantly. Therefore for tenures of 3 years or more, income funds have a significant tax advantage over fixed deposits, especially for investors in the higher tax bracket. Let us see the difference between post tax returns of a long term income fund and fixed deposit with the help of an example. Let us assume you invested
Conclusion In this article, we have seen how long term income funds are better investment option than fixed deposits over tenures of three years or more, for investors who are willing to sacrifice the comfort of guaranteed returns. Investors should consult with their financial advisors if long term income funds are suitable for their investment portfolio. For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call
Leave a missed Call on 94 8300 8300
Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest Mutual Funds Online
Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund Application Forms ---------------------------------------------
Best Performing Mutual Funds
B. Large and Midcap Funds Invest Online
C. Mid and SmallCap Funds Invest Online
D. Small and MicroCap Funds Invest Online
E. Sector Funds Invest Online
F. Tax Saver Mutual Funds Invest Online 1. ICICI Prudential Tax Plan 2. HDFC Taxsaver
G. Gold Mutual Funds Invest Online
H. International funds Invest Online 1. Birla Sun Life International Equity Plan A 2. DSP BlackRock US Flexible Equity 3. FT India Feeder Franklin US Opportunities 4. ICICI Prudential US Bluechip Equity 5. Motilal Oswal MOSt Shares NASDAQ-100 ETF | |||||||||||||||||||||
| Posted: 13 Nov 2014 02:54 AM PST Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Leave a missed Call on 94 8300 8300 Birla Sunlife 95 Fund Review Balanced funds have been around in India for nearly two decades and Birla Sunlife 95 is one of the oldest schemes with one of the best track record of performance in this category. Balanced funds are essentially hybrid funds with both debt and equity in its portfolio mix, to balance the portfolio risk. These portfolios typically hold up to 70% of its portfolio assets in equities and the balance in fixed income. They are meant for investors with moderate risk profiles. On a risk adjusted balanced funds have delivered excellent returns compared to diversified equity mutual funds. The chart below shows a comparison of category returns between diversified equity funds and balanced funds over the time periods shown below (based on Feb 16, NAVs)
The above chart clearly shows that, while in terms of absolute returns the performance differential between diversified equity funds and balanced funds is not very significant, at the same time balanced funds have much lower risks compared to their diversified equity counterparts. However if you compare the Birla Sunlife 95 scheme with its peer groups, the scheme has outperformed its category by a significant margin over the longer term (see chart below)
Birla Sunlife 95 – Fund Overview This fund is suitable for investors looking for long term capital appreciation with moderate levels of risk. As such the fund is suitable for investors in the moderate risk category planning for retirement or other long term financial objectives. As one of the oldest schemes in its category, the fund has Rs. 6.3 Billion assets under management with an expense ratio of only 2.26%. As an asset management company Birla Sunlife is amongst the top performers across several mutual fund categories. The fund management of Birla Sunlife recently went through a number of changes. The fund managers of this scheme are Mahesh Patil and Prasad Dhonde. The scheme is open both for growth and dividend options. The current NAV (as on Feb 17 2014) is 358.44 for growth option and 111.56 for dividend option Portfolio Construction In terms of portfolio construction stocks comprises 73% of the portfolio mix, while fixed income securities comprises the rest. The fund has a predominantly large cap bias with a high growth focus. It is fairly well diversified with its top 5 holdings, Infosys, DLF bonds, State Government bonds, LIC Housing Finance bonds, and Rural Electrification Corporation bonds accounting for less 22% of the total portfolio value. The quality of its debt portfolio is also quite high with limited interest rate sensitivity.
In terms of sectoral composition, financial services and technologies sectors have the highest portfolio weights, combining to over 41% of the portfolio value. Within the fixed income portfolio corporate bonds account for over 53% of the fixed income portfolio, while government securities and cash equivalents account for the balance. Risk & Return In terms of risk or volatility measures, the annualized standard deviations of monthly returns for three to ten year periods are in the range of 12 to 19%. The 3, 5 year and 10 years annualized returns for this fund are 5.8%, 18.4% and 15.4% respectively. On a risk adjusted basis, this is certainly one of the best long term investment opportunities for investors with a moderate to aggressive risk profile. An investment of Rs 100,000 in the growth option of this scheme on Feb 14, 1999 (fifteen years back) would have by now grown fourteen times to Rs 1,481,000. Dividend Payout Track Record Birla Sunlife 95 Dividend Option has an excellent dividend payout track record. Since inception in 1995 the fund has paid dividends every year except 1997, 2005 and 2007.
SIP Returns The chart below shows returns as on Feb 14 2014 (NAVof 358.44) of Rs 5000 monthly SIP in the Birla Sunlife 95 Fund Growth Option, for respective years starting 1999. The amounts are shown in Rs lakhs.
The chart above shows that a monthly SIP of Rs 5000 started on Feb 15, 1999 in the fund would have grown to more than Rs. 35 Lacs (in 15 years), while the investor would have invested in total Rs. 9 lakhs only. If the investor started investing Rs. 5000 on a monthly SIP basis in 2004, his or her corpus would have grown to Rs. 11 Lacs 83 thousand (In 10 years) with a total investment of only Rs. 6 lakhs only. Birla Sunlife 95 Fund recently completed 19 years. Given its long term track record of strong returns, investors may consider this product for their retirement planning through systematic investment plans. ( Mutual Fund investments are subject to market risks, read all scheme related documents carefully For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call
Leave a missed Call on 94 8300 8300
Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest Mutual Funds Online
Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund Application Forms ---------------------------------------------
Best Performing Mutual Funds
B. Large and Midcap Funds Invest Online
C. Mid and SmallCap Funds Invest Online
D. Small and MicroCap Funds Invest Online
E. Sector Funds Invest Online
F. Tax Saver Mutual Funds Invest Online 1. ICICI Prudential Tax Plan 2. HDFC Taxsaver
G. Gold Mutual Funds Invest Online
H. International funds Invest Online 1. Birla Sun Life International Equity Plan A 2. DSP BlackRock US Flexible Equity 3. FT India Feeder Franklin US Opportunities 4. ICICI Prudential US Bluechip Equity 5. Motilal Oswal MOSt Shares NASDAQ-100 ETF | |||||||||||||||||||||
| Reliance Regular Savings Fund Debt Option introduces dividend Option Posted: 13 Nov 2014 12:48 AM PST Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Leave a missed Call on 94 8300 8300
For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call
Leave a missed Call on 94 8300 8300
Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest Mutual Funds Online
Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund Application Forms ---------------------------------------------
Best Performing Mutual Funds
B. Large and Midcap Funds Invest Online
C. Mid and SmallCap Funds Invest Online
D. Small and MicroCap Funds Invest Online
E. Sector Funds Invest Online
F. Tax Saver Mutual Funds Invest Online 1. ICICI Prudential Tax Plan 2. HDFC Taxsaver
G. Gold Mutual Funds Invest Online
H. International funds Invest Online 1. Birla Sun Life International Equity Plan A 2. DSP BlackRock US Flexible Equity 3. FT India Feeder Franklin US Opportunities 4. ICICI Prudential US Bluechip Equity 5. Motilal Oswal MOSt Shares NASDAQ-100 ETF |
| You are subscribed to email updates from Prajna Capital - An Investment Guide To stop receiving these emails, you may unsubscribe now. | Email delivery powered by Google |
| Google Inc., 1600 Amphitheatre Parkway, Mountain View, CA 94043, United States | |
No comments:
Post a Comment