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What is a #MutualFund?
How to select Mutual Funds!
[A thread] ๐งต
#investing #StockMarketindia
What is a #MutualFund?
How to select Mutual Funds!
[A thread] ๐งต
#investing #StockMarketindia
![1/20
What is a #MutualFund?
How to select Mutual Funds!
[A thread] ๐งต
#investing #StockMarketindi...](https://pbs.twimg.com/media/FP9sUECaIAEsKFi.jpg)
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A Mutual Fund is a type of investment vehicle consisting of a portfolio of stocks, bonds, or other securities. They give small or individual investors access to diversified, professionally managed portfolios at a low price.
A Mutual Fund is a type of investment vehicle consisting of a portfolio of stocks, bonds, or other securities. They give small or individual investors access to diversified, professionally managed portfolios at a low price.
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Mutual Funds are best for people who don't have time to carry out their own research. They are divided into several kinds of categories, representing the kinds of securities they invest in, their investment objectives, and the type of returns they seek.
Mutual Funds are best for people who don't have time to carry out their own research. They are divided into several kinds of categories, representing the kinds of securities they invest in, their investment objectives, and the type of returns they seek.
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There are various different types of Mutual Funds Large-Cap Funds (1st-100th Company in terms of full Market Cap) Mid-Cap Funds (101st -250th Company in terms of full Market Cap) Small-Cap Funds (251st Company onwards in terms of full Market Cap) INTERNATIONAL FUNDS Index Funds
There are various different types of Mutual Funds Large-Cap Funds (1st-100th Company in terms of full Market Cap) Mid-Cap Funds (101st -250th Company in terms of full Market Cap) Small-Cap Funds (251st Company onwards in terms of full Market Cap) INTERNATIONAL FUNDS Index Funds
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SECTORAL FUNDS (Companies only from a particular sector Eg: Paints (Asian paints, Berger paints, etc)
THEMATIC FUNDS (Companies of a particular theme Eg: Infrastructure (Paints, pipes, cement, etc)
ELSS (Equity Linked Saving Scheme) Tax deduction of 1.5 Lakhs under Section80c
SECTORAL FUNDS (Companies only from a particular sector Eg: Paints (Asian paints, Berger paints, etc)
THEMATIC FUNDS (Companies of a particular theme Eg: Infrastructure (Paints, pipes, cement, etc)
ELSS (Equity Linked Saving Scheme) Tax deduction of 1.5 Lakhs under Section80c
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Multi-Cap and Flexi-Cap
Multi-cap there is a mandate and the fund should consist of 25% of Large, Mid, and Small-cap for Flexi-cap there is no mandate and fund managers can invest freely
For Multi-cap minimum investment in equity is 75% and for Flexi-cap its 65%
Multi-Cap and Flexi-Cap
Multi-cap there is a mandate and the fund should consist of 25% of Large, Mid, and Small-cap for Flexi-cap there is no mandate and fund managers can invest freely
For Multi-cap minimum investment in equity is 75% and for Flexi-cap its 65%
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Active Investing
A fund manager chooses the stocks actively
Expense ratios are higher due to high expenses The effort is to beat the benchmark returns over the long run If done well can be value-adding
Active Investing
A fund manager chooses the stocks actively
Expense ratios are higher due to high expenses The effort is to beat the benchmark returns over the long run If done well can be value-adding
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Passive Investing
Dumb money ceases to be dumb when it accepts its limitations.
Passive investing means buying the market.
Due to lower costs: expense ratios are low
Churn is low and a know-nothing investor need not worry about the performance of the fund manager.
Passive Investing
Dumb money ceases to be dumb when it accepts its limitations.
Passive investing means buying the market.
Due to lower costs: expense ratios are low
Churn is low and a know-nothing investor need not worry about the performance of the fund manager.
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"Index funds eliminate the risks of individual stocks, market sectors, and manager selection. Only market risk remains." -John Bogle
"Index funds eliminate the risks of individual stocks, market sectors, and manager selection. Only market risk remains." -John Bogle
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"Where returns are concerned, time is your friend. But where costs are concerned, time is your enemy."
-John Bogle
Due to compounding no matter how small the returns, over the long term it leads to a disproportionate number.
"Where returns are concerned, time is your friend. But where costs are concerned, time is your enemy."
-John Bogle
Due to compounding no matter how small the returns, over the long term it leads to a disproportionate number.
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"But when costs are concerned time is your enemy" because If the fund has a higher expense ratio over the long term it'll eat into your returns.
(I'll get back to the expense ratio later)
There are two ways to buy a Mutual Fund Direct Plan Regular Plan
"But when costs are concerned time is your enemy" because If the fund has a higher expense ratio over the long term it'll eat into your returns.
(I'll get back to the expense ratio later)
There are two ways to buy a Mutual Fund Direct Plan Regular Plan
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Direct Plan
Direct Mutual Funds schemes are directly offered by the fund house or AMC.
There is no involvement of a third party, distributor, or agent.
The investor directly deals with the AMC offering the fund
Direct Plan
Direct Mutual Funds schemes are directly offered by the fund house or AMC.
There is no involvement of a third party, distributor, or agent.
The investor directly deals with the AMC offering the fund
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Regular Plan
Regular Mutual Funds are those funds that are bought through a mutual fund broker, distributor, or advisor. For every regular fund, the fund house pays a commission to the middle man for introducing a new investor to their plan
Regular Plan
Regular Mutual Funds are those funds that are bought through a mutual fund broker, distributor, or advisor. For every regular fund, the fund house pays a commission to the middle man for introducing a new investor to their plan
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In Direct Mutual Funds, the cost is lower meaning the expense ratio is lower as compared to a regular Mutual Fund. Let's see how much of the profit is eaten due to a higher expense ratio Compounding Formula FV = PV ร (1+R)n FV (Future Value) PV (Present Value) R (Rate) N(Time)
In Direct Mutual Funds, the cost is lower meaning the expense ratio is lower as compared to a regular Mutual Fund. Let's see how much of the profit is eaten due to a higher expense ratio Compounding Formula FV = PV ร (1+R)n FV (Future Value) PV (Present Value) R (Rate) N(Time)
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Direct Plan
Scheme: 'x'
SIP Amount: โน 5000
Time: 20 years
Months: 240
Rate: 15%
FV after 20 years โน 7,486,197.41
FV after 25 years โน 16,217,648.08
Direct Plan
Scheme: 'x'
SIP Amount: โน 5000
Time: 20 years
Months: 240
Rate: 15%
FV after 20 years โน 7,486,197.41
FV after 25 years โน 16,217,648.08
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Regular Plan
Scheme: 'x'
SIP Amount: โน 5000
Time: 20 years
Months: 240
Rate (After Expenses) = 14%
FV after 20 years 6,505,830.03
FV after 25 years 13,479,132.03
Regular Plan
Scheme: 'x'
SIP Amount: โน 5000
Time: 20 years
Months: 240
Rate (After Expenses) = 14%
FV after 20 years 6,505,830.03
FV after 25 years 13,479,132.03
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That's a difference of 980,367.38 (20 Years) and 2,738,516.04 (25 years) This is just because of a 1% change and it keeps getting worse over time
That's a difference of 980,367.38 (20 Years) and 2,738,516.04 (25 years) This is just because of a 1% change and it keeps getting worse over time
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Some other ratios to look out for Mutual Fund Turnover ratio/Churn ratio: typically measures the replacement of holdings in a mutual fund and is commonly presented to investors as a percentage over a one-year period. Asset Allocation Lock-in Period
Some other ratios to look out for Mutual Fund Turnover ratio/Churn ratio: typically measures the replacement of holdings in a mutual fund and is commonly presented to investors as a percentage over a one-year period. Asset Allocation Lock-in Period
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Pros:
A professional Fund Manager. It's his job 24*7 to read about sectors and invest accordingly
One can increase or decrease the amount of SIP
Investors get to see the Net Asset Value, Lesser tension as compared to managing your own portfolio Completely Liquid
Pros:
A professional Fund Manager. It's his job 24*7 to read about sectors and invest accordingly
One can increase or decrease the amount of SIP
Investors get to see the Net Asset Value, Lesser tension as compared to managing your own portfolio Completely Liquid
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Cons:
Higher fees as compared to index investing
if you go for an actively managed fund Law of the number if the size increases a lot, then the fund performance might suffer
A fund manager is restricted by his mandate, he has to invest according to his benchmark
Cons:
Higher fees as compared to index investing
if you go for an actively managed fund Law of the number if the size increases a lot, then the fund performance might suffer
A fund manager is restricted by his mandate, he has to invest according to his benchmark
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