Investing: Rishi Nathany
What are the things one should check before investing in a mutual fund scheme? In the case of stocks, it is said one should check the company's management or corporate governance.
Just as with stocks, there are certain things you should check before investing in an equity mutual fund. You should check the record of the fund manager, the performance of the fund vis-a-vis its benchmark, its last disclosed portfolio, its asset allocation, the expense ratio, its other parameters like the sharpe ratio, beta, etc., to name a few.
The historical performance is a good benchmark, as it will help you understand how the equity scheme has performed vis-a-vis broader market indices like the Sensex and Nifty. However, while performance over time is a critical parameter, you should also look if the scheme satisfies your needs. That is, you should ascertain if the investment objectives match your investment profile.
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With the interest rate cycle reversal expected soon, what tenure of debt mutual funds should I consider for a relatively longer holding period, of two - three years?
You could look at medium- to long-duration debt mutual funds for your holding period of two-three years.
I maintain a balance of Rs 10,000 in my savings bank account at any point in time. With the Union Budget now offering to save more and get a tax deduction on savings banks, do you suggest I shift my capital from liquid funds to the savings bank account? What are the advantages?
Assuming you are getting eight per cent per annum on your liquid fund growth option and you are in the 30 per cent (highest) income tax bracket, you will get a post-tax return of about 5.6 per cent. On the other hand, you are likely to get four per cent tax-free on your savings account interest, by the Union Budget proposal.
Therefore, it still would make more sense to choose other investment avenues over a savings bank account, since it should be used primarily to do banking transactions and keep short-term savings. It is not a very remunerative long-term investment vehicle. In case you are looking for liquidity, liquid funds or bank fixed deposits with an overdraft facility could provide higher returns. If the investments are for longer periods, you could opt for tax-free bonds or Public Provident Fund, which provide higher tax-free returns than savings bank accounts.
The writer is CEO, Dalmia Securities. Views expressed are his own. Send your queries at firstname.lastname@example.org