8 Products for your business
Equity shares were earlier known as ordinary shares. The holders of these shares are the real owners of the company. They have a voting right in the meetings of holders of the company. They have a control over the working of the company. Equity shareholders are paid dividend after paying it to the preference shareholders.
The rate of dividend on these shares depends upon the profits of the company. They may be paid a higher rate of dividend or they may not get anything. These shareholders take more risk as compared to preference shareholders.
Equity capital is paid after meeting all other claims including that of preference shareholders. They take risk both regarding dividend and return of capital. Equity share capital cannot be redeemed during the life time of the company.
These shares were earlier issued to Promoters or Founders for services rendered to the company. These shares were known as Founders Shares because they were normally issued to founders. These shares rank last so far as payment of dividend and return of capital is concerned. Preference shares and equity shares have priority as to payment of dividend.
These shares were generally of a small denomination and the management of the company remained in their hands by virtue of their voting rights. These shareholders tried to manage the company with efficiency and economy because they got dividend only at last. Now, of course, they cannot be issued and they are only of historical importance. According to Companies Act 1956, no public limited company or which is a subsidiary of a public company can issue deferred shares.
Buying a debt instrument is similar to giving a loan to the issuing entity. The basic reason behind investing in debt funds is to earn interest income and capital appreciation. The interest that you earn on these debt securities is pre-decided along with the duration after which the debt security will mature.
That’s why these securities are called ‘fixed-income’ securities because you know what you’re going to get out of them. Debt funds try to optimize returns by diversifying across different types of securities. This allows debt funds to earn decent returns, but there is no guarantee of returns.
However, debt fund returns can be expected in a predictable range, which makes them safer avenues for conservative investors. Debt funds invest in different securities based on their credit ratings. A security’s credit rating signifies whether the issuer will default in making the promised payments. The fund manager of a debt fund ensures that he invests in high credit quality instruments. A higher credit rating means that the entity is more likely to pay interest on the debt security regularly as well as pay back the principal amount upon maturity.
This is why debt funds which invest in higher-rated securities will be less volatile as compared to low-rated securities. Additionally, the maturity also depends on the investment strategy of the fund manager and the overall interest rate regime in the economy. A falling interest rate regime encourages the manager to invest in long-term securities. Conversely, a rising interest rate regime encourages him to invest in short-term securities.
Debt mutual funds are ideal investments for conservative investors. They are suitable for both the short-term and medium-term investment horizons. Short-term starts from 3 months to 1 years. Medium term is from 3 years to 5 years. For a short-term investor, debt funds like liquid funds may be an ideal investment as compared to keeping your money in a saving bank account. Liquid funds offer higher returns in the range of 7%-9% along with similar kind of liquidity for meeting emergency requirements. For a medium-term investor, debt funds like dynamic bond funds can be ideal to ride the interest rate volatility. As compared to 5-year bank FD, these bond funds offer higher returns. If you want to earn regular income from your investments, then Monthly Income Plans may be a good option.
Just like equity mutual funds, debt mutual funds are also of various types. The primary differentiating factor between debt funds is the maturity period of the instruments they invest in. Here are the different types of debt funds:
As the name suggests, these are ‘dynamic’ funds, which means that the fund manager keeps changing portfolio composition according to changing interest rate regime. Dynamic bond funds have a fluctuating average maturity period because these funds take interest rate calls and invest in instruments of longer as well as shorter maturities.
Income Funds can also take a call on interest rates and invest in debt securities with different maturities, but most often, income funds invest in securities that have long maturities. This makes them more stable than dynamic bond funds. The average maturity of income funds is around 5-6 years.
These are debt funds that invest in instruments with shorter maturities, which range from around a year to 3 years. Short-term funds are ideal for conservative investors as these funds are not majorly affected by interest rate movements.
Liquid funds invest in debt instruments with a maturity of not more than 91 days. This makes them almost risk-free. Liquid funds have seen negative returns very rarely. These funds are good alternatives to savings bank accounts as they provide similar liquidity and higher returns. Many mutual fund companies offer instant redemption on liquid fund investments through special debt cards.
Gilt Funds invest in only government securities. Government securities are high-rated securities and come with a very low credit risk. It’s because the government seldom defaults on the loan it takes in the form of debt instruments. This makes gilt funds ideal for risk-averse fixed income investors.
These are relatively newer debt funds. Unlike other debt funds, credit opportunities funds don’t invest according to the maturities of debt instruments. These funds try to earn higher returns by taking a call on credit risks. These funds try to hold lower-rated bonds that come with higher interest rates. Credit opportunities funds are relatively riskier debt funds.
Fixed maturity plans (FMP) are closed-end debt funds. These funds also invest in fixed income securities like corporate bonds and government securities, but they come with a lock-in. All FMPs have a fixed horizon for which your money will be locked-in. This horizon can be in months or years. Investments in FMPs can be made only during the initial offer period. An FMP is like a fixed deposit that can deliver superior, tax-efficient returns but do not guarantee returns.
Debt funds suffer from credit risk and interest rate risk which make them riskier than bank FDs. In credit risk, the fund manager may invest in low-credit rated securities which have the higher probability of default. In interest rate risk, the bond prices may fall due to an increase in the interest rates.
Even though debt funds are fixed-income havens, they don’t offer guaranteed returns. The Net Asset Value (NAV) of a debt fund tends to fall with a rise in the overall interest rates in the economy. Hence, they are suitable for a falling interest rate regime.
Debt funds charge a fee to manage your money called an expense ratio. Till now SEBI had mandated the upper limit of expense ratio to be 2.25%. Considering the lower returns generated by debt funds as compared to equity funds, a long-term holding period would help in recovering the money gone out by way of the expense ratio.
You can invest in Debt funds for a range of investment horizons. If you have a short-term horizon of 3 months to 1 year, you may go for liquid funds. Conversely, short-term bond funds can be considered for a tenure of 2 to 3 years. In case of an intermediate horizon of 3 to 5 years, dynamic bond funds would be appropriate. Basically, the longer the horizon, the better the returns.
Debt funds can be an ideal partner in your portfolio to achieve a variety of goals. You can use debt funds as an alternate source of income to supplement your income from salary. Additionally, budding investors can invest some portion in debt funds for purpose of liquidity. Retirees may invest the bulk of retirement benefits in a debt fund to receive the pension.
When you invest in debt funds, you earn capital gains which are taxable. The rate of taxation is based on how long you stay invested in a debt fund called as the holding period. A capital gain made during a period of less than 3 years is known as a Short-term Capital Gain (STCG). A capital gain made over a period of 3 years or more is known as Long-term Capital Gains (LTCG). STCG from debt funds are also added to the investor’s income and taxed according to his income slab. TCG from debt funds is taxed at the rate of 20% after indexation
While selecting a fund, you need to analyze the fund from different angles. There are various quantitative and qualitative parameters which can be used to arrive at the best debt funds as per your requirements. Additionally, you need to keep your financial goals, risk appetite and investment horizon in mind.
The following table represents the top 5 debt funds in India based on the past 1 year returns. Investors may choose the funds based on a different investment horizon like 5 years or 10 years returns. You may include other criteria like financial ratios as well.
The term Mutual Funds refers to a pool of money accumulated by several investors who aim at saving and making money through their investment. The corpus of money so created is invested in various asset classes, viz. debt funds, liquid assets and the like. Just like gains and rewards earned over the period of investment, losses are also shared by all the investors in equal proportion, i.e. in accordance with their proportion of contribution to the corpus.
Mutual Funds are registered with SEBI (Securities and Exchange Board of India) that regulates security markets prior to the collection of the funds from the investors. Investing in a Mutual Funds can be as simple buying or selling stocks or bonds online. Moreover, investors can sell out their shares whenever they want or need.
There is a wide range of mutual funds in India, which is categorized on the basis of investment objective, asset class, and structure.
These funds are invested in equity stock or shares of the companies. They provide a higher result, that’s the reason they are considered as high-risk funds.
These funds are invested in the debt like government bonds, company debentures, and fixed income assets. As they provide fixed returns, they are known to be a safe investment instrument.
These funds are invested in liquid instruments, such as CPs, T-Bills etc. They are considered quite safe investment option, as you get an immediate yet moderate return on your investment. They are a perfect option for investors who want to invest their abundant funds.
These types of funds are invested in different asset classes. There are times when the proportion of debt is lower than equity; it could be another way around as well. In this manner, return(s) and risk(s) strikes a perfect balance.
In these funds, investment is made in a particular sector or division of the market. For instance, infrastructure fund investors make investments restricted to infrastructure companies or investment instruments offered by the infrastructure companies. Returns on an investment are directly proportionate to the performance of that particular sector. The risk factor associated with these schemes varies sector to sector.
These funds are investment instruments that represent specific index on the exchange in order to monitor the returns and the movement of the index, viz. purchasing shares from the BSE Sensex.
These funds make investment majorly in the equity shares. Tax-saving funds make an investor eligible to claim tax deductions under the Income Tax Act. Risk factor involved in these funds is generally on the higher side. At the same time, higher returns are offered if the funds’ performance is at par.
These funds invest in the other mutual funds and the returns are dependent on the overall performance of the target funds.
These mutual fund investment instruments deal with units that are purchased or redeemed throughout the year. Such purchases or redemptions are done at persisting Net Asset Value (NAV). These funds offer liquidity to the investors, so they are preferred by the investors.
These mutual funds investment instruments deal with units that can be purchased during initial period only. The units are eligible for the redemption on a specific maturity date. In order to provide liquidity, these schemes are listed on the stock exchange for trading purposes.
These schemes let investors invest their money majorly in equity stocks. The objective behind this is that it provides capital appreciation. Though these funds are considered to be risky, they are considered ideal for investors having an investment timeline that’s long-term.
These schemes let you invest your money majorly in fixed-income instruments, such as debentures, bonds etc. They serve the purpose of providing regular income and capital protection to the investors.
The money invested in liquid funds is invested majorly in short-term and at times, very short-term investment instruments like CPs, T-Bills etc. with the sole purpose of providing liquidity. These schemes are low on the risk factor and they provide moderate returns on investment. These schemes are ideal for investors having short-term investment timelines.
There are various kinds of a mutual fund with a specific goal set. Mutual fund investment objectives are the goals set by the fund manager for the mutual fund investment while making a crucial decision - which bonds and funds should be included in the funds’ portfolio.
For instance, Mr. Gupta plans to invest in the equity market to accomplish his investment objective, i.e. to get long-term capital appreciation while meeting his long-term financial targets like child’s overseas education and his own retirement.
Depending majorly on the objective of the investment, mutual funds are classified in 5 categories. The following are these categories:
1. Aggressive Growth Funds
Aggressive growth fundshave the higher chances of sudden growth and their value rises up at a fast speed.Investors invest in aggressive growth funds with the objective of fetching higher returns. Since the funds witness a sudden growth, the risk factor involved is extremely high. It is because funds with sudden price appreciation potential end up losing their value at a high speed at the time of downfall in the economy.
Investing in these funds is an ideal option for the investors who are willing to invest their money for a time period of five years and their investment objective revolves around a long-term perspective.
The investors who can’t afford to have the potential to lose the value of their investment and whose investment objective is to conserve capital are recommended to not to buy aggressive growth funds.
2. Growth Funds
In aggressive growth investment, the growth fetches higher returns on investment. The investment portfolio will comprise a blend of small, medium and large sized corporations. The fund portfolio would include that in order to make an investment in a well-established and stable corporation. In addition to that, the fund manager would invest a small proportion of funds in a freshly set up small scale company.
The fund manager would select growth stock, which will make use of the growth to make profits instead of paying the dividends. Holding onto growth funds most of the times proves to be profitable for the investor(s).
3. Balanced Funds
It is the fusion of the income and growth funds, which is known as balanced funds. These funds have a mixture of goals to accomplish. The goal is to aim at providing the investors with the present income and at the same time, it offers the possibility of growth. These funds aim to accomplish various objectives that investors look forward to.
Balanced funds’ stability ranges from low to moderate but its potential for growth and current income is moderate.
4. Income Funds
The funds that normally make an investment in a range of fixed income securities are known as income funds. These funds ensure regular income for the investor(s). These funds are ideal for the investors who are retired, as they will have a regular supply of dividends. The fund manager will invest in company fixed deposits; debentures etc. and that will provide a regular income to the investors. It is a stable investment option yet it has moderate risk factor involved. With the fluctuations in the rate of interest, the prices of income share funds, bonds will be affected accordingly. Also, the rate of inflation takes a toll on the income funds.
5. Money Market Mutual Funds
These funds strive on the maintenance of capital prevention. That’s the reason why the investors investing in these funds should be extremely cautious. Though money market mutual funds have the potential of yielding a higher rate of interest as compared to the bank deposits’ rate of interest, profits are not there. Also, the risk factor involved is very low.
Due to higher liquidity, the investors are able to alter and mold their investment strategy.
If you invest only and only in one mutual fund investment instrument, by default the risk factor becomes higher. If you invest your capital in different mutual fund investment instruments, then you end up stabilizing the risk involved. If one fund is not yielding great returns, you will be protected by the other investment instruments.
Investment needs vary person to person, as the investment objectives vary person to person. Factors like financial goals, risk threshold, time period and capital affect the investment decisions.
Even before you select your mutual fund investment instrument, analyze your fiscal goals and decide your time frame and risk threshold accordingly. On the basis of that, zero down the investment options that are in sync with them.
As an investor, you have a plenty of mutual fund instruments to choose from. It is quite a task to select an investment instrument that gives you the benefit of every mutual fund vehicle in one option. That’s a good enough reason to widen the umbrella of mutual fund vehicles to reap the benefits offered by mutual funds.
Apart from providing the flexibility to formulate investment plans based on the individual investment goals, mutual funds are beneficial in the terms of professional management, diversification, and affordability.
Investors’ basic expectation from investing in mutual funds is to reap maximum returns on their investment(s). As an investor, you would also expect this. At times, you don’t have sufficient time to do your research and monitor the stock market thoroughly. A lot of time in hand, knowledge of the stock market and lots of patience is a pre-requisite for trading in the stock business. Opportunities don’t knock at your door; you have to grab them using both of your hands.
To be able to take risks increase your chances of getting maximum returns. It is next to impossible that every chance you take turns out rewarding for you. Sometimes you get lucky, sometimes you don’t. When you don’t, analyze what went wrong and learn from your mistakes. Before buying, use the mutual fund calculator to get quotes regarding your investment, returns, risks etc.
1. Professional Management
Mutual fund professionals manage your hard-earned money with their skills and experience. They have a qualified research team that assists them by analyzing the performance and potential of various corporations. In addition to that, they find suitable investment offers for their clients. Fund managers are qualified to manage your funds in such a manner that they yield higher returns on investment(s).
Professional management is a continuous process and it takes much time to add value to your investment(s).
Diversification makes your investment an intelligent investment. It minimizes the risk by investing your money in different mutual fund investment vehicles. Obviously, chances are very slim that all the stocks will decline simultaneously.
Sector funds let your investment spread across a solo industry so that there is less diversification.
3. More Choices
The biggest advantage of investing in a mutual fund is that it offers a wide range of schemes that match with your long-term expectations. Whenever a new phase begins in your life, you just need to have a discussion with your financial advisor(s) and work on your portfolio to suit your present situation.
At times, your investment goal or your capital doesn’t let you invest in the shares of a big company. Generally, mutual funds deal with buying and selling of securities in a large amount that allows investors to get the advantage for a low trading course. Thanks to the minimum fund requirement, even the smallest investor can give mutual funds a shot.
5. Tax Deductions
You get tax benefits if you invest for a period of one year or more in capital gains. Mutual fund investments also make you eligible for the benefits of the tax deduction.
Open-end funds make you eligible to redeem total or partial investment anytime you want to, and you can receive the present value for your shares. Funds give you more liquidity as compared most of the investments in the shares, bonds, and deposits. This follows a standardized process and it makes the process efficient and smooth. Because of that, you get your money as soon as possible.
7. Averaging Rupee-Cost
Irrespective of the investments’ unit price, you make an investment in a particular rupee amount at frequent intervals with averaging rupee-cost. Resulting, you are able to buy more units when the prices are less; fewer units when the prices are high. Averaging rupee-cost enables you to maintain your investment discipline by frequent investments. It also prevents you from making any unpredictable investment.
8. Ensures Transparency
Various esteemed publications and rating agencies review the performance of mutual funds, which makes it easier for investors to compare one fund to another. It is beneficial for you as a shareholder, as it provides you with latest updates, including funds’ holdings, managers’ strategy etc.
As per the regulations by The Securities and Exchange Board of India (SEBI), all the mutual fund corporations are required to register with SEBI, as they are obliged to adhere to the strict regulations formulated to safeguard investors. The overall trading operations are monitored by the SEBI on a regular basis.
Investment in equities is no rocket science. All you need to do is to follow the investment approach given below. It runs through the sector and diversified equity funds.
1. Bottom-Up Approach
The bottom-up approach is ideal when your goal is to invest in the best corporations, irrespective of the domain. When the fund managers are sure about the corporations’ potential and their prospects, they give you a green signal. On an average, top 5-10 corporations are there in a portfolio account of the overall total fund assets. It is recommended to keep an eye on sector exposure in individual stock exposure and diversified funds to assure that the exposure does not incline way too much towards one particular stock or sector.
2. Fundamental Investors Approach
For a fundamental investor, in-house literature or research cements the foundation of the investment decision-making power. The research does not revolve around financial numbers only; it goes above and beyond published literature or reports. The fund managers accompanied by research analysts meet employees of their company to get a better perspective and explore unobvious data that can turn out to be a golden opportunity over a period of time.
3. Quality First Approach
When you focus on the quality, you are on the right path. There are times when the quality of fiscals is ignored. Later, that turns out to be a disaster. Shift your entire focus on the quality, as it will help you to avoid losses. The quality first approach allows your funds to perform well.
4. Long-Term Investment Approach
As an investor, being patient works in your favor and it makes you immune from market unpredictability. Analyze the value of funds, and then make investment decisions accordingly. It leaves no room for negative decisions. Long-term investors use the unpredictable times to their advantage because sooner or later, share market will realize the potential of the funds and the stock will make its come back.
5. Deliberate and Methodical Approach
This investment approach lays emphasis on the emerging themes and doesn’t pay much attention to the so-called tips and tricks.
6. What’s Trending Approach
Look out for what’s trending, as it can be rewarding in the long run. It is of utmost importance to understand the present financial situation as well as the future financial potential of the companies so that in future, you can make best investment decisions in coordination with the changing times.
The best approach to investing in debt is by focusing on fetching returns consistently and at the same time, neutralizing risk threats. It is a sure-fire way to give returns in the form of a fixed income.
While investing in debt, keep the following point in your mind:
1. Safety First
Don’t get carried away and give safety the utmost importance. When it comes to back off short-terms gains, don’t shy away and be firm about your decisions.
2. Risk Management
Carefully analyze ratings, value, integrity, effectiveness, efficiency, management, finances etc. of the company; it will help you to reduce the risk factor. The lesser risk is better for your investment.
3. Interest Rate Risk Management
Focus on managing interest-rate risk with the help of the portfolio at the intermediate level and refrain from timing the market rate of interest.
4. Prudent Balance Maintenance
Work on maintaining a prudent balance among corporate bonds and government securities. Along with that, don’t forget to diversify strict limits on single corporation exposure(s).
5. Rely on Research
Take advantage of strong equity research in order to identify the strong debt issuing companies and explore unexplored domains. It will unveil the best mutual funds plan for you.
6. Liquidity Norms
Maintain rigorous liquidity norms to make sure that your portfolio can be liquefied whenever you want to make redemptions.
What is ELSS?
ELSS is popularly known as Equity Linked Savings Scheme. It is a type of diversified equity mutual fund scheme. Investing in ELSS mutual funds gives you the double benefit of tax deduction and capital appreciation. Section 80C of the Income Tax Act makes you eligible for tax exemption. By default, Equity Linked Savings Scheme has a lock-in period of three years.
When planned efficiently, investing in Equity Linked Savings Scheme helps you to save your money. Generally, tax saving investment vehicle comes with a lock-in period of 3-15 years. ELSS comes with the minimum lock-in period of three years. As compared to other tax-saving instruments, the period of three years is lesser. The icing on the cake is that capital gains from ELSS funds are tax-free. No tax is levied on the interest, principal amount or the maturity amount.
When it comes to withdrawals, it is also free since the hold period for such funds is more than 12 months. It means no levying of taxes on capital gains. As per your preference, you can select from the following plans:
The growth plan is an investment plan that allows your investment to grow until you take it out. If your fund’s Net Asset Value (NAV) has increased, the dividend plan allows your fund to give an amount back to you. Last but not the least; the dividend reinvestment plan lets your dividend payout to be re-invested in some additional units of the plan.
How to Make a Fund Selection?
Plenty of mutual fund instruments are available to you. But, before you dive deep the ocean of mutual funds, it will be great if you mix and match your bond, stock and money market funds according to your preference. Experts recommend that this is the best investment decision any investor can take. Don’t forget to compare mutual funds before buying.
As an investor, the following are points that you should keep in mind while formulating your investment strategy:
1. Diversification is the key
It is best to divide your investment between mutual funds that deal in a wide variety of stocks, money market securities, and bonds. Every instrument brings pros and cons to the table. Diversifying in the same domain of securities is ideal. Over a long period of time, it proves to be beneficial. If one sector is not doing well, still diversification would allow your funds to yield the best results.
2. Keep Inflation In Mind
The money you invested today would be used later. Over the time, inflation spreads its wings and it starts flying high. So, you need to consider the after effects. Money market funds have gained popularity, as they maintain the value, but the returns can be very low.
3. Patience Please
The value of shares fall and rise unpredictably. What is rising today can fall tomorrow, so be mentally prepared to face fluctuations. In case you don’t require money right now, don’t panic if your funds fall short of its value. Rise and fall are parts of the sweet-bitter reality of the stock market.
If a fund is underperforming, it can do really well too. So, be patient and let your funds recover.
4. Consider Your Age
Younger investors invest plenty of time in stock funds. Why? It’s because they have a lot of time in their hands. Their investment in stock funds let them fetch return over a long period of time.
On the contrary, people who are supposed to be retiring soon look forward to safeguarding their money from any drops in prices. In order to maintain the value, it is ideal for that age group to make an investment in the money market fund or bonds.
5. Determine Age Appropriate Investment Mix
Subtract your age from 100, the remainder/ answer could be a good option to start an investment with. It will help you to decide the share of your total funds to invest into mutual fund stocks.
6. Risk Threshold
While selecting mutual funds, ensure that you keep in mind how much your risk threshold is. Don’t go out of your comfort zone. Another thing to keep in mind is your retirement, closer you are to your retirement. If it will be upon you soon, then you should neutralize the risk factor.
To get maximum mutual fund benefits, younger investors having the time on their hands can afford to explore aggressive investment strategies.
A1. Mutual fund safety is ascertained in two ways:
While no investment form comes with a 100% risk-free guarantee, mutual funds are subject to market risks. The government agencies such as Association of Mutual Funds in India (AMFI) and Securities and Exchange Board of India (SEBI) regulate and supervise Mutual Funds in India. Therefore, one can rely on these investment tools.
A2. A growth mutual fund is a varied portfolio of stocks with capital appreciation as its prime goal, with a little or no dividend payout. The portfolio primarily includes companies with a growth above average. These companies reinvest their returns into research and development, acquisitions, and expansion.
A3. The level of risk in mutual funds depends on the objective of the investment and the type of mutual fund the investor invests his/her money. Generally, the higher the possible returns, the higher the risks and vice-versa. Mutual funds investing in stock market instruments are not considered risk-free as the investment in shares and debentures come with risk by nature. However, mutual funds, which invest in fixed-income investment instruments, are comparatively come with low-risk.
A4. Yes. There is a type of mutual fund scheme termed as Aggressive Growth Fund. This type of fund is not risk-averse in choosing the investment and intends to achieve the maximum capital gains. An aggressive growth fund is the best option for the investors with a higher risk appetite.
All too often we hear about various types of insurance policies without really understanding what they are and more importantly, what they protect. The truth is, there are two main types of insurance, namely life insurance and general insurance which covers different aspects in your life.
Life insurance is an insurance coverage that pays out a certain amount of money to the insured or their specified beneficiaries upon a certain event such as death of the individual who is insured. This protection is also offered in a Family takaful plan, a Shariah-based approach to protecting you and your family.
The coverage period for life insurance is usually more than a year. So this requires periodic premium payments, either monthly, quarterly or annually.
The risks that are covered by life insurance are:
The main products of life insurance include:
General insurance is basically an insurance policy that protects you against losses and damages other than those covered by life insurance. For more comprehensive coverage, it is vital for you to know about the risks covered to ensure that you and your family are protected from unforeseen losses.
The coverage period for most general insurance policies and plans is usually one year, whereby premiums are normally paid on a one-time basis.
The risks that are covered by general insurance are:
The main products of general insurance includes:
Portfolio Management Services (PMS), service offered by the Portfolio Manager, is an investment portfolio in stocks, fixed income, debt, cash, structured products and other individual securities, managed by a professional money manager that can potentially be tailored to meet specific investment objectives. When you invest in PMS, you own individual securities unlike a mutual fund investor, who owns units of the fund. You have the freedom and flexibility to tailor your portfolio to address personal preferences and financial goals. Although portfolio managers may oversee hundreds of portfolios, your account may be unique.
Under these services, the choice as well as the timings of the investment decisions rest solely with the Portfolio Manager.
The Investment solutions provided by PMS cater to a niche segment of clients. The clients can be Individuals or Institutions entities with high net worth.
The offerings are usually ideal for investors: who are looking to invest in asset classes like equity, fixed income, structured products etc ,who desire personalised investment solutions ,who desire long-term wealth creation ,who appreciate a high level of service.
Apart from cash, the client can also hand over an existing portfolio of stocks, bonds or mutual funds to a Portfolio Manager that could be revamped to suit his profile. However the Portfolio Manager may at his own sole discretion sell the said existing securities in favour of fresh investments.
The tax liability of a PMS investor would remain the same as if the investor is accessing the capital market directly. However, the investor should consult his tax advisor for the same. The Portfolio Manager ideally provides audited statement of accounts at the end of the financial year to aid the investor in assessing his/ her tax liabilities.
The service provides professional management of portfolios with the objective of delivering consistent long-term performance while controlling risk.
It is important to recognise that portfolios need to be constantly monitored and periodic changes made to optimise the results.
A research team responsible for establishing the client's investment strategy and providing the PMS provider real time information to support it, backs any firm's portfolio managers.
Portfolio Management Service provider gives the client a customised service. The company takes care of all the administrative aspects of the client's portfolio with a periodic reporting (usually daily) on the overall status of the portfolio and performance.
The Portfolio Manager has fair amount of flexibility in terms of holding cash (can go up to 100% also depending on the market conditions). He can create a reasonable concentration in the investor portfolios by investing disproportionate amounts in favour of compelling opportunities.
PMS provide comprehensive communications and performance reporting. Investors will get regular statements and updates from the firm. Web-enabled access will ensure that client is just a click away from all information relating to his investment. Your account statements will give you a complete picture of which individual securities you hold, as well as the number of shares you own. It will also usually provide:
the current value of the securities you own;
the cost basis of each security;
details of account activity (such as purchases, sales and dividends paid out or reinvested);
your portfolio's asset allocation;
your portfolio's performance in comparison to a benchmark;
market commentary from your Portfolio Manager
PMS give select clients the benefit of tailor made investment advice designed to achieve his financial objectives. It can be structured to automatically exclude investments you may own in another account or investments you would prefer not to own. For example, if you are a long-term employee in a company and you have acquired concentrated stock positions over the years and have become over exposed to few company's stock, a separately managed account provides you with the ability to exclude that stock from your portfolio.
Individuals and Non-Individuals such as HUFs, partnerships firms, sole proprietorship firms and Body Corporate.
Yes. All investments involve a certain amount of risk, including the possible erosion of the principal amount invested, which varies depending on the security selected. For example, investments in small and mid-sized companies tend to involve more risk than investments in larger companies.
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An alternative investment is an asset that is not one of the conventional investment types, such as stocks, bonds and cash. Most alternative investment assets are held by institutional investors or accredited, high-net-worth individuals because of the complex natures and limited regulations of the investments. Alternative investments include private equity, hedge funds, managed futures, real estate, commodities and derivatives contracts.
Many alternative investments have high minimum investments and fee structures compared to mutual funds and exchange-traded funds (ETFs). There is also less opportunity to publish verifiable performance data and advertise to potential investors. Most alternative assets have low liquidity compared to conventional assets. For example, investors are likely to find it considerably more difficult to sell an 80-year old bottle of wine compared to 1,000 shares of Apple, due to a limited number of buyers.
Investors may have difficulty valuing alternative investments due to transactions often being unique. For example, a seller of the extremely rare 1933 Double Eagle $20 gold coin may have difficulty determining its value, as there are only 13 known to exist as of 2016. Alternative investments are prone to investment scams and fraud due to their unregulated nature, therefore it is essential that investors conduct extensive due diligence.
Alternative investments typically have a low correlation with those of standard asset classes, which makes them suitable for portfolio diversification. Because of this, many large institutional funds such as pensions and private endowments have begun to allocate a small portion of their portfolios, typically less than 10%, to alternative investments such as hedge funds. Investments in hard assets such as gold and oil also provide an effective hedge against rising inflation, as they are negatively correlated with the performance of stocks and bonds.
Although alternative assets may have high initial upfront investment fees, transaction costs are typically lower compared to conventional assets, due to lower levels of turnover. Alternative investments held over a long period of time may result in tax benefits, as investments held longer than 12 months are subject to a lower capital gains tax in comparison to shorter-term investments.
While the majority of retail investors may have limited availability to alternative investment opportunities, real estate and commodities such as precious metals are widely available. ETFs now provide ample opportunity to invest in alternative asset categories that were previously difficult and costly for the retail investor to access. Investing in ETFs that have exposure to alternative assets has been mixed. As of February 2018, the SPDR Dow Jones Global Real Estate ETF had an annualized five-year return of 4.6%, while the SPDR S&P Oil & Gas Exploration & Production ETF returned negative 7.7% for the same period.
Alternatives investments are often subject to a less clear legal structure than common investments but are increasingly regulated by the Dodd-Frank Wall Street Reform and Protection Act. They are still not overseen, however, as closely as mutual funds and ETFs by the Securities and Exchange Commission (SEC) and the Financial Industry Regulation Commission. Often, only those deemed "accredited investors" (those with a net worth exceeding $1 million or with a personal income of $200,000 or more per year) have access to alternative investment offerings.