Tips to Start Investing in Mutual Funds

When it comes to investing in mutual funds, there is still a lot of uncertainty out there among people arising a lot of questions like - 

   a)Which fund will be good for them?

      b) How long to stay invested?

      c) How to select a scheme?

      d) How long is actually long term?And so on...

Below I have written some pointers which people should keep in mind when they start their mutual fund investment journey.

Goal Setting:

Investors should clearly first list out their short, medium and long term goals for which they want to start investing. Also for how much time they can remain invested to realize these goals and how much risk they are willing to take to achieve these goals.

Once we have these 3 parameters identified, then we start researching for the funds which will match a particular investors profile.

Generally, for short term goals which are like 1-2 years apart, investors should stick to bank deposits, debt mutual funds (can give slightly better returns than bank fd).

Within debt funds, it is important to pick a scheme which matches your investment timeframe as there are different categories of funds for different timeframes.

Like if you want to invest for a few days or weeks, you should go for liquid funds.

If you want to invest for a few months to a year, then you should go for ultra-short term funds and so on.

For long term goals, we should go for equities as there is risk and volatility involved and sticking in it for the long term will eventually lead us to accomplish our goals as in the long term it has the capability to offer superior returns than other assets.

Since equity funds has its own set of risks, I would suggest if you are first time investor or a conservative investor, then balanced funds or large-cap funds are recommended.

How long is long term investing? I would say that investors should stay invested for at least 5 years when they are investing in equity schemes and at least 7 years if you are investing in small cap or mid-cap schemes as they carry more risks.

Ignore the AUM Size:

I have seen many people saying that this particular fund’s AUM size has reached so-so crores which is too much and the fund manager won’t be able to allocate the assets properly so we should not consider these funds.

But actually this is a completely wrong notion, as the fund has reached that level of AUM because of investor’s confidence and the fund’s continued performance across market cycles. So, while selecting a fund, investors should not look at the fund size rather look at the performance of the fund.

Consistent Performance:

Different people selects funds in different ways. Some will look at the ratings of the fund and invest or some will look at the 1,3 and 5 year performance returns and invest.

But this is not the right way to select a fund as these are short term performances which guide the ratings and the returns. Instead investors should look at long term performance of the funds as well as the consistency of the fund after all it’s your hard earned money and you don’t want to invest in a wrong fund and see it depreciate.

So, you should always look for consistent funds which has performed across the bull as well as the bear phases as well as look at the ratios pertaining to a fund like standard deviation, beta, etc.

Periodic Review:

You should always review your mutual fund portfolio. I think reviewing every 6 months is a good start. While reviewing, you should compare your fund’s performance with the benchmark as well as the category average of that fund. If it has fared well in both these categories, then you continue to stay invested but if it’s under performing don’t just sell your units and close the fund. First, looks for the reason of under performance as well as give some more time for the fund to perform if you think there is a chance of recovery. If not, then only you should think about selling the units and moving to a different fund. 

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Mutual Funds Cut-off Timings

Recently, I have come across lot of these kind of questions online where people are enquiring about the cut off timings and how it will impact their investments.

So in this post I’ll highlight the official cut-off time for investments as well as for redemptions.

The cut-off time only comes into play in deciding which day’s NAV to use to allocate/redeem units of a particular mutual fund scheme.

There are different cut-off times for equity, liquid and debt schemes.

Liquid funds:

The cut-off time for these kind of funds is 2 pm. So, if you invest in a fund before 2 pm, the units will be calculated on the previous day’s NAV and assigned to you provided you also transfer the funds before 2 pm. But if you miss the cut-off time and submit your funds after 2 pm, then the units will be allotted on the basis of the NAV of the same day.

Equity & Debt funds:

The cut-off time for these kind of funds is 3 pm. So, if you invest in a fund before 3 pm, then the units will be calculated on the same day’s NAV but if you submit the application after 3 pm, then the units will be allotted based on the next day’s NAV.

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Guide to verify if your Aadhaar is linked to your Bank Account

As you guys know that it's mandatory now to link your Aadhaar card with your bank accounts. So a certain situation my mother faced sometime back which made me to write about this topic.

So my mother gave her aadhaar number to the SBI branch officials to link it with her bank account and she got relaxed thinking that she has done her part and the rest is upto the bank officials to take care of. Several weeks later I came to know about this online process to verify if the linking is done or not and I decided to try it for her. After logging in and checking it out, it was displaying me as No account is linked till now and I got confused seeing that, so I contacted the bank officials and came to know that they lost the document which she gave them and even forgot to update the bank account with the details. So, she again gave them the details and sat there and made sure that they update it this time.

This made me think that the same situation many others would have faced especially elderly people. So, I am providing a step by step approach of checking the status online and also through your mobile. Please do this validation guys and if it's not correct, make it proper before the deadline.

Validating Linking Online:

1) Visit the Aadhaar website - www.uidai.gov.in
2) Click on 'Check Aadhaar and Bank Account Linking Status'.

3) Enter your Aadhaar number and Security Code. Once submitted, an OTP will be sent to the registered mobile number.

4) Enter the OTP and Click on 'Login'.

5) On successful login, the website shows whether the Aadhaar is successfully linked or not.

Validating Linking using Mobile Phone:

1) Dial *99*99*1#

2) Enter your 12 digit Aadhaar number

3) Confirm that the digits entered by you is correct

4) On confirmation, it will show you the bank account linked with Aadhaar

Point to be noted:

It will only show the last bank account linked with your Aadhaar card.

Eg - Let's say, you have account in HDFC and SBI Banks and first you have linked your SBI account with Aadhaar and next you went with HDFC, then the online portal will only display HDFC as the linked account.

So, if you have multiple bank accounts, you have to take confirmation from the banks itself that the linking process is done successfully.

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Aadhaar linking deadlines – DO NOT MISS!!

There are certain deadlines that you should not miss related to your Aadhaar (most important document in India nowJ). Below is the list of various deadlines set by the government.

Income Tax Returns – Government has made it mandatory to link all the PAN cards with the Aadhaar number by December 31, 2017. Individuals must link their PAN with Aadhaar by this date in order for their returns to be processed. This deadline is only for those individuals who are filing their income tax returns this year. If you are not required to file your ITR i.e. your gross income is less than the exemption limit of Rs. 2.5 lakh, then the last date to link your PAN with your Aadhaar is yet to be informed.

Financial Institutions – Government has asked banks, financial institutions to ensure all customers are KYC compliant i.e. submitting your Aadhaar and PAN card details before 31 December, 2017. If this is not done, then his/her account will become inoperable till the time the required details are submitted.

Mobile Phone Connections – We also have to now link our mobile numbers with Aadhaar by February, 2018. Failure to link your mobile number within the deadline will lead to deactivation of your mobile connection. To do this linkage, one has to personally visit their respective mobile operator and do the KYC verification.

Social Security Schemes – Government has made it mandatory to provide the Aadhaar details in order to avail the benefits of the social schemes by December 31, 2017. The various benefits are – availing subsidy on LPG cylinders, availing pensions, and more.

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Linking Bank Account with Aadhaar by December 31 – what happens if you don’t?

We all know that the government has set the deadline of 31^st December to link all our bank accounts with the respective Aadhaar numbers and those accounts where this is not done within the deadline date, these accounts will cease to be operational.

Blocking of one’s account will obviously lead to huge inconvenience. Just imagine being in a situation, where your salary is not getting credited into your account or you cannot withdraw cash from ATMs or can’t even make an account transfer and more. Therefore, providing your aadhaar details to the bank to link it to your accounts is a must and must be done before the deadline to avoid all these troubles.

What happens if for some reason one forgot to link its account with Aadhaar?

No problem, after the deadline day, one can still provide the Aadhaar details to the bank for linking and the account will get reactivated but as of now there is no official information on how much time it will take for the banks to reactivate your account even though it’s a fairly simple process.

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