Mudra Compass

Investing and saving go hand-on-hand. Post pandemic people learn the value of investing in the right place and saving some chunks for emergencies. In simple terms, saving means reserving some parts of earning or salary to invest in some financial products to gain monetary benefits.  Investment means utilizing the savings to gain some interest or extra earning by investing in some financial products.

There are lots of products available in the market. If you are looking to invest in mutual funds then go ahead with the reading part because here the entire article focuses on mutual funds. First thing is to keep in mind that if this is the one you are looking to invest in then have a long term plan else it will backfire because to gain the desired benefit, one needs to invest for the long term in a mutual fund. Some mutual funds perform well during bull markets and some perform well during bear markets so always look for those which perform well during both markets. To build a winning portfolio, you must invest in the best long-term mutual funds. Long term investing is a buy-and-hold strategy, and the objective is not to make money from small price movements by speculating.   

Top Ten list of mutual fund which has performed well and are good option for 2021 to invest;

·         Axis Bluechip Fund – It has generated a return of 48.99% in the last one year (as of 7^th October 2021).

·         MiraeAsset Large Cap Fund -It has generated a return of 48.00% in the last one year(as of 5th August 2021).

·         Parag Parikh Long Term Equity Fund – The Fund has generated an impressive return of 55.17% in the last one Year (as of 5^th August 2021).

·         Kotak Standard Multicap Fund – It has generated a return of 48.9% in the last one year (as of 8^th October 2021).

·         Axis Midcap Fund -Axis Midcap Fund has generated a return of 62.33% in the last one year (as of 5th August 2021).

·         DSP Midcap Fund – It has generated a return of 53.51% in the last one year (as of 7^th October 2021).

·         Axis Small Cap Fund – It has generated a return of 78.17% in the last one year (as of 6^th October 2021).

·         SBI Small Cap Fund – It has generated a return of 84.52% in the last one year (as of 5th August 2021).

·         SBI Equity Hybrid Fund – It has generated a return of 46.85% in the last one year (as of 6^th October 2021).

·         Mirae Asset Hybrid Equity Fund –It has generated a return of 42.37% in the last one year (as of 7^th October 2021).

Before investing in any of the above, find out each category and whether it is suited to your investment objective and risk profile. Balanced or equity oriented hybrid schemes are good for those who are new to mutual funds. Hybrid portfolio is less volatile as it is a mix of equity (65 – 80%) and debt (20 – 35%).

Some investors want to play safe even if they prefer investing into purely stocks. Large cap schemes are means for such individuals. These schemes invest in top 100 stocks, and they are relatively safer than other pure equity mutual fund schemes. They are also relatively less volatile than mid-cap and small cap schemes.

Why long term investing into mutual funds?

There are lots of advantages to investing for the long term. With proper planning and researching you will have a good chance to earn your desired return.

High Return – If you would like to earn high return, longer term investing will earn high return, but patience is the key which most people lack and fails in earning high return. If you hold for a long term without looking at interim volatility, you can generate much higher return.

Tax Benefit – When you constantly buy and sell mutual funds, then the gain you will have falls under taxable income. Even when the fund manager also buys and sells mutual funds, the gain is passed to the unit holder. The reality is that the gain you have through constant buy and sell of mutual funds is less compared to tax you pay. This is where the long term investment approach will be tax saver for you. When you hold the fund for a longer period, you will pay notable tax.

·         When you sell an equity fund before one year, you pay 15 % Short Term Capital Gain tax.

·         When you sell an equity fund after one year, you pay 10 % Long Term Capital Gain tax only if the gain is above Rs. 1 lakh thus, you save up to 5% tax. Below Rs. 1 lakh gain, you do not have to pay tax.

Power of Compounding – The power of compounding is not less than a miracle.  But remember this will only work when you do not churn your portfolio too often. The secret behind Warren Buffett’s enormous wealth is this secret but the key to success of power of compounding is long term investment.

Less Dependency on Start Fund Manager – when you invest for longer term, your dependency on fund manager will be less or not at all because this long-term mutual funds have well established track record and selection processes which is tried, tested and perfected over the years so if any star fund manager leaves, the fund will not suffer.

Final Words

Long term investment strategy is followed by many worlds’ best investors like Warren Buffett, Peter Lynch and RakeshJhunjhunwala. Investing long simply means buy right and hold tight for the long term.

The definition for long term may vary across investors.

·         Conservative investors most likely invest for more than ten years.

·         Aggressive investors play for more than three years.

Generally, in financial planning a time period of more than 10 years is considered long term. Warren Buffett has held Coca-Cola since 1988. For him this is long term..!

(Note: The return percentage is sourced from different financial websites. Before investing, consult with a financial planner or fund manager and also check the recent or performance since inception. Mutual funds are subject to market risk.)