This new financial year, invest In Mutual Funds!

Time to read: 4 mins | June 4, 2018

As the new financial year begins, we all look forward to monetary acknowledgement for our hard-work, in addition to recognition and appreciation.

Bonus and increments bring joy and happiness; empower us and provide a better lifestyle and fulfil many of our short-term materialistic desires.

But if you take the opportunity to wisely utilise your bonuses and increments, it will serve in the interest of your long-term financial well being –– help you accomplish more vital, larger financial goals of life, viz. buying a dream home, children’s education needs, their wedding expenses, your retirement, and even a foreign trip you longed for.

To put it briefly, bonuses, in particular, may stimulate the path to wealth creation provided you are investing hard-earned money wisely.

As you may know, inflation erodes the purchasing power of our hard-earned money. Thus, you need productive investment avenues, such as mutual funds to grow your wealth at a faster pace than inflation.

Investing in mutual funds benefits an investor in several ways:

• Diversification – Diversification is the essence of investing. With mutual funds, even with a smaller investible surplus, you can have an exposure to a variety of investment instruments.
  Plus, depending on the type of mutual fund scheme, diversification based on investment styles, themes, market capitalisation and asset classes is possible; which otherwise is constrained when investible surplus is limited. Moreover, adequate diversification reduces risk.
• Easy to Invest – You can start with as little as Rs 500 with mutual funds. This is particularly encouraging if you are a first time investor, who wishes to start slow and steady, or if you do not wish to invest in mutual funds aggressively.
• Economies of scale – Even if a mutual fund scheme does engage in high portfolio churning in the race to deliver luring returns, the voluminous trade carried out by it helps to enjoy the economies of large scale and have lower impact on their profitability.
  On the other hand, if you were to do this by yourself, it could negatively impact the profitability due to the small volume of trades carried out.
• Professional management – Your money is managed by a professional fund manager and his team who hold the expertise and wide experience in capital markets and investing. Hence, ascertaining the prospect of companies––whether stocks or bonds––and government securities will not be a burden on you.
• Innovative ways to invest - (SIP/STP/SWP) – Today, recognising the needs of investors from a financial planning standpoint; mutual fund houses offer innovative plans and services.
  Systematic Withdrawal Plan (SWP), as the name suggests, is well-intended when you need to withdraw funds systematically/regularly (say monthly, quarterly, half-yearly, and annually) and earn returns on the remaining investments over a period of time.
  At Axis Bank , you can invest in Mutual Fund by visiting our nearest branch or digitally through Net Banking or Axis Mobile app . For more details, please contact your Relationship Manager/branch. Systematic Investment Plans (SIPs) and Systematic Transfer Plans (STP) are particularly useful to strategically and systematically invest to address long-term financial goals.
• Liquidity – When you handle your portfolio independently, sometimes you can’t sell off your assets when you need money. But with mutual funds, you have the ease to exit the fund whenever funds are required. Investments can be redeemed any time, unless you’ve invested in scheme that has lock-in period or fund is close-ended .

However, selection is they key…

Given the plethora of mutual fund schemes available, you need to thoughtful when picking mutual funds for your portfolio. It would be imprudent to go by what your friends and family say –– after all each one’s risk profile is different.

“When it comes to investing, there is no such thing as a one-size-fits-all portfolio.” ––Barry Ritholtz (An American author, newspaper columnist, and equity analyst)

Hence, seeking expert opinion would be worthwhile.

Axis Bank is AMFI registered Mutual Fund distributor. Our dedicated Relationship Managers based out of our branches provide holistic approach and superlative guidance (considering your needs, investment objectives, investment horizon, risk profile, and financial goals among many other facets) to you and assist in selection of mutual fund schemes across categories viz.equity, debt, hybrid and so on, depending on what best suits you.

Investments can be done in lumpsum and/or via Systematic Investment Plans (SIPs) of mutual funds, depending on what’s most appropriate.

Here 5 benefits of SIPs are:

• Lighter on the wallet – You can invest in smaller amounts, say Rs 500, at regular intervals: daily, monthly, or quarterly. This reduces the burden of investing at one go, in lumpsum.
• SIPs make market timing irrelevant – Timing the market can be hazardous to your wealth and health. Instead, focus on 'time in the market' in the endeavour to create wealth by selecting the best mutual fund schemes for SIP. If you stay invested in a promising mutual fund scheme for the long-term, it can help you accomplish your financial goals.
• Enables rupee-cost averaging – Volatility is the very nature of the market; but with SIPs, you can mitigate this volatility. When markets undergo turbulence, rupee-cost averaging comes into play. Meaning, typically buy more units of a mutual fund scheme when prices are low, and buy fewer mutual units when prices are high. SIPs work in your favour when markets go downhill, and when they are flat quite some time.
• Offers the benefit of power of compounding – SIPs can compound wealth productively and systematically as opposed to investing a lump sum, especially when the journey of wealth creation is volatile.
• Effective medium of goal planning – When you are addressing to long-term financial goals, SIPs are very useful. It enforces the habit of investing regularly and the needed discipline to accomplish the envisioned financial goals.

[Read: How SIPs Can Help You Maintain Stable Financial Health]

If you wish to deploy a big fat bonus for your long-term goals such as your child’s future needs (education and marriage) and/or your retirement, but worried about market volatility, investing via SIP- in mutual fund will be prudent.

[Read: SIPs For Your Child’s Bright Future]

The other smart way to invest is Systematic Transfer Plan (STP).

Under STP, a lump sum amount you invested in a fund earlier, can be transferred at regular intervals systematically in a piecemeal manner into another mutual scheme (as desired by you) of the same mutual fund house.

Here are 4 benefits of STP:

• Facilitates tactical asset allocation and rebalancing
• Take advantage of market scenario
• Rupee-cost averaging
• Power of compounding

Ideally, when markets are turbulent, initially the bonus money can be deployed in a debt and/or money market mutual fund, and then transferred ––monthly or quarterly––– to an equity-oriented fund.

When you are enjoying the fruits of your hard work in the form of bonuses and increments today, remember times may not be bright always. Hence, do not forget to plan for rainy day – meaning, loss of job, medical emergencies, etc. Make sure you have at least 6 to 12 months of regular monthly expenses, including EMIs, as contingency reserve.

Liquid funds, which invest in debt and money market securities with maturity of upto 91 days, and ultra-short term debt funds with investments in debt and money market instruments with a maturity of 3 to 6 months, and parking money in a savings bank account; are prudent avenues when planning for contingency needs.

Note that your bonuses and increments also attract the taxman. To save tax, do consider Equity Linked Saving Schemes (ELSS). ELSS fund is a diversified equity fund following a fluid investment approach – investing across market capitalisation and sectors.

A distinguishing feature about ELSS is that they are subject to a compulsory lock-in period of three years. You can either make lumpsum investments or SIPs, but with the latter, each instalment will be subject to a 3-year lock-in period.

The minimum application amount for most of these is as little as Rs 500, with no upper limit. The amount you invest is eligible for deduction under Section 80C of the Income Tax Act, 1961 subject to a maximum of Rs.1.50 lakh p.a.

To conclude…Invest your bonus thoughtfully in mutual funds. Note that investing and financial planning are personalized activities. So, a mutual fund scheme could be right for one investor and be completely unsuitable for another.

If you need expert advice to select mutual funds for your portfolio or complete wealth management solution, reach out to your Axis Bank Relationship Manager. He/she can handhold you in your journey of wealth creation.

Happy Investing!

Happy Banking!

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm known for offering unbiased and honest opinion on investing. Axis bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.