Mutual Fund

Balanced Advantage funds: 5 Reasons to invest

Since i started my journey in investment world, I have been hearing the importance of Asset Allocation. The recent drive of investor education by AMFI and various AMCs, also touches upon it as well as all the major finance magazines and news paper keep emphasizing on the asset allocation. First time i read about asset allocation and how to manage it, in one of the legendary book “The Intelligent Investor”. It preaches about a portfolio of 50% equity and 50% of debt, which can be 70% Equity & 30% Debt for a risk seeker, while for risk averse investors it can be 30% Equity & 70% debt. This should be re-balanced either on periodic basis or on basis of market scenario. If equity markets are undervalued increase allocation to equity and if they are overvalued decrease the allocation.

In theory this all make sense and a great advise of follow, though in reality it poses various challenges:

  1. Market understanding: Not all of us have a clear understanding of the market. It is difficult to judge whether the markets are overvalued or undervalued. To do so, you not only required market knowledge but also you need to track it more closely and regularly.
  2. Stock/ Bond Selections: We are usually conversant with the bank fixed deposits but the knowledge of Post office schemes is relatively less and it is very minimal when it is about the Corporate/ NBFC deposits or debentures. Similarly investing in stocks directly is not usually done by most of us as it needs time, rigor and knowledge to do so.
  3. Diversification: Even if we have a know-how of managing our portfolio, we need a large sum to have a robust diversified portfolio. If i am a small investor who saves few ‘000s each month, i can not but multiple stock in that.
  4. Costs: After we have a portfolio, the re-balancing means we need to continuously buy or sell the stocks and bonds to manage our required allocation or take positions based on market scenario. Each transactions costs us in form of brokerage as well as STT charges
  5. Taxation: When we sell our Stocks or bonds, we are liable to pay the tax on the gains. Short Term capital gain is 15% in terms of stocks and marginal tax rate of your in case of bonds, if we hold stock for less than a year and bonds for less than 36 months. Keeping track of each transactions and paying taxes can be too costly affair.

Balanced Advantage funds addresses all the above challenges and gives you a portfolio which changes its asset allocation based on market scenario. They also give you expert looking after your portfolio of stocks and bonds. Tax liability occurs only when you redeem the fund and is mostly treated as Equity investments. The investments can be started with as small as 500 INR per month. These funds have an ideal characteristics to be a fund in your core portfolio. Some of the recommended funds in this category are as below:

For Aggressive Investors: HDFC Balanced Advantage Fund, AUM: INR 36,000 Cr, 2.29% of expense ratio and returns over last 1, 3 & 5 years have been -1.14%, 8.57% & 16.51% respectively.

For Moderate Investors: ICICI Prudential Balanced Advantage Fund, AUM: INR 28,000 Cr, 2.15% of expense ratio and returns over last 1, 3 & 5 years have been 6.41%, 8.86% & 14.15% respectively.

For Defensive Investors: Aditya Birla SL Balanced Advantage Fund, AUM: INR 3,200 Cr, 2.33% of expense ratio and returns over last 1, 3 & 5 years have been 1.23%, 9.92% & 12.66% respectively.

NFO of the Kotak Balanced Advantage fund is open till July 27, 2018 can also be considered.

Happy Investing!

Disclaimer: Please speak to your adviser to check their suitability for yourself. Mutual funds are subjected to market risks, please read the scheme/offer documents before investing. 

Mutual Fund

Investment Option: All about Gold ETFs

As we mentioned in the last article that the Gold ETFs are the best way to invest in Gold with minimum risk of impurity, and easy to buy and sell. Gold ETFs also gives us the opportunity to buy paper gold in the smaller denominations equivalent to 1 gm. It is a recent phenomenon to Indian market we are habitual of buying gold from Jewelers and Banks sometime and never bothered about exploring new ways to invest in Gold but in European market, it is a fairly old way of facilitating gains of Gold to retails investors. To answer queries I received on Gold ETFs, we will cover all aspects of Gold ETFs in this Article

What is Gold ETF?

Gold ETFs are the funds run by either Exchange or some fund houses. These companies offer a contract worth the price of 1 gm/ 0.5 gm gold to you. As the price of gold changes in market, the value of contract also changes and you can sold your contract at the market price to book the profit.

Are Gold ETFs safe to buy?

Most of the Gold ETFs are governed by very large financial institutions like SBI, UTI, Kotak, HDFC, ICICI etc. So there are virtually no chances of default in them until the global gold prices crash and no demand for gold, which is almost impossible.

Which All gold ETFs are there in market and how do they differ from each other?

The list of Gold ETFs currently available in market is given below. These Gold ETFs differ on following parameters

  • Offering company or Fund House
  • Denomination of underlying gold value 1 gm or 0.5 gm

Are returns on Gold ETFs same as return on actual gold prices?

The returns on Gold ETFs are not exactly same as actual gold prices but this is a good part of ETFs. Fund houses who manage the Gold ETFs keep the investment portfolio of gold in such a manner that it gives the best return for you while minimizing the downside risk on your investments. So in actual even if the gold prices fall steeply your losses will be minimal due to the precautionary measures taken by Fund houses by hedging that risk.

How to buy Gold ETFs?

Now the most important question; there are two ways to buy Gold ETFs one is to buy as mutual funds and another is to buy as Stocks from market. Both options are having their own advantages.

Buying from Exchange:

If you want to invest in Gold ETFs for smaller time frame which is less than year and you have a Demat account, it is better to buy from Stock Exchange directly because you can sell any time and buy any time. This transaction will levy the brokerage charges on you which will vary from 0.2% to 0.5% depending on your broking house.

Buying as Mutual Fund:

Ok I know last option sounds too hectic and difficult. The easy option to all people is to buy through mutual funds run by companies and one can invest in Gold ETFs through Systematic investment plan also. The only catch here is that if you investing for less than one year, you have to pay exit charges of 1% on the transaction amount. Else enjoy the return on your investments.

Does it have any tax implications on investors?

Yes it does have tax implication on your gains but investment for over one year will be treated as Long term capital gains and the corresponding taxes are lesser than the short term capital gain taxes.

The investment in Gold ETFs does not require you to pay any wealth tax to government while the actual gold purchase will.

Therefore, Gold ETFs are the best way to invest in Gold and get benefits of its return. Prefer buying for Long-terms and through mutual funds to remain safe from the downside risk. Enjoy minting money. Next article will be on Real Estate as investment option on 9th November.