Why are people turning to mutual funds rather than bank FDs these days?

Have you heard your parents or grandparents say that “Let’s open an FD”?

The question is why did Gen X was so faithful to accumulating their money in a fixed deposit?

Well, FD back then was a great hit. Fixed deposits have always been a risk-free investment arena. It was once the case that FDs doubled in 6 years, giving an average return of 12%. In the past, people used to invest for ten years or more. As an example, if your grandparents had invested 3 lakhs for 10 years at 12%, their investment planner would have matured at 9. 78 lakhs.

The days of such interest from FDs are sadly gone!

In recent years, mutual funds have become increasingly popular among investors. It gives great returns when it comes to long-term investments. The best part of starting a mutual fund investment is its way of investing. You can either invest via SIP ( Systematic Investment Plan) or Lumpsum.

However, SIP is best when you wish to start your investment journey with a small amount. Mutual funds are a great investment source to beat rising inflation. They provide inflation-beating returns!

There are several reasons why people may be more interested in investing in mutual funds rather than traditional fixed deposits (FDs) in a bank.
Here are some of the main reasons:

1. Potential for Higher Returns:

One of the key reasons why people are attracted to mutual funds is the potential for higher returns. Unlike FDs, which offer a fixed rate of interest, mutual funds invest in a variety of assets such as stocks, bonds, and other securities, which can generate higher returns over the long term.

2. Diversification:

Mutual funds also offer investors a way to diversify their investments across a range of assets and sectors. This can help to spread risk and reduce the impact of any single investment performing poorly.

3. Professional Management:
   

Mutual funds are managed by professional fund managers who have expertise in selecting and managing investments. This can be particularly beneficial for investors who may not have the time, knowledge, or resources to manage their investments on their own.

4. Flexibility:

Mutual funds offer investors a range of options to suit their individual needs and investment goals. For example, investors can choose between different types of funds, such as equity funds, debt funds, or hybrid funds, depending on their risk tolerance and investment objectives.

5. Ease of Access:

Investing in mutual funds has become increasingly easy and convenient, thanks to the growth of online platforms and mobile apps that allow investors to purchase and manage their investments from anywhere.

6. Tax Benefits:

Some types of mutual funds offer tax benefits to investors, which can make them a more attractive investment option compared to FDs. The best tax saving option available under the mutual fund is ELSS (Equity Linked Saving Scheme). Taxpayers can claim up to Rs. 1.5 lakh of deduction under Section 80C of the Income Tax Department.

7. Liquidity

Another entitlement of mutual funds is its liquidity process. From buying to selling the process is hassle-free.

BOTTOM LINE:

While FDs in a bank offer a safe and stable investment option, they may not provide the potential for higher returns or the diversification benefits that mutual funds can offer. As a result, many investors are turning to mutual funds as a way to grow their wealth over the long term.

However, it's important to note that mutual funds do carry some degree of risk, and investors should always do their research and consult with a financial advisor before making any investment decisions

How should money be invested in 2023, in mutual funds or stocks?

When it comes to investing, numerous options are available, from stocks and bonds to real estate and commodities. However, mutual funds and stocks are two of the most popular investment vehicles that investors prefer to park their money in. While both mutual funds and stocks have their unique features, knowing which one to invest in can be challenging. In this article, we will discuss whether investors should invest their money in mutual funds or stocks in 2023.

Firstly, let's understand what mutual funds and stocks are:

A mutual fund is a type of investment where a fund manager pools money from multiple investors to invest in a diversified portfolio of securities, such as stocks, bonds, or other assets. The fund manager is responsible for selecting the securities that the mutual fund invests in and managing the portfolio. Investors buy shares in the mutual fund, which gives them a proportional stake in the fund's holdings.

On the other hand, stocks are ownership shares of a company. When you buy a stock, you purchase a small piece of the company. The value of the stock is determined by the company's financial performance, industry trends, and other factors. Stocks can be traded on stock exchanges, and their value can fluctuate significantly.

Now that we have a brief understanding of what mutual funds and stocks are let's examine which one investor should invest in 2023.

Investing in Mutual Funds:

Mutual funds are an excellent choice for investors who want to benefit from diversification, professional management, and convenience. Mutual funds offer a broad range of investment options and are available for different risk profiles. Investors can choose to invest in equity mutual funds, debt mutual funds, or a mix of both, depending on their investment goals and risk tolerance.

Equity mutual funds invest in stocks, while debt mutual funds invest in fixed-income securities such as bonds and debentures. Equity mutual funds can offer higher returns than debt mutual funds, but they also carry higher risks. On the other hand, debt mutual funds offer relatively lower returns but are less risky.

Another advantage of investing in mutual funds is that they offer convenience and ease of management. Investors can purchase mutual fund units online or through a financial advisor. The fund manager is responsible for managing the portfolio, which means investors do not have to track individual stocks or bonds.

One potential disadvantage of investing in mutual funds is their charge fees for managing the portfolio. These fees can vary from one mutual fund to another and can eat into the returns generated by the fund. Additionally, mutual fund returns are subject to market risks, and there is no guarantee of returns.

Investing in Stocks:

Investing in stocks can offer higher returns than mutual funds but can be riskier. Stocks can generate significant returns if the company performs well, but they can also lose value if the company performs poorly. Unlike mutual funds, where the fund manager manages the portfolio, investing in stocks requires investors to conduct their research and analysis.

One advantage of investing in stocks is that there is no management fee, unlike mutual funds. Additionally, stocks offer investors the opportunity to become shareholders of the company, which can lead to additional benefits such as dividends and voting rights.

However, investing in stocks requires a lot of research and analysis, which can be time-consuming and requires significant expertise. It's also essential to keep up with company news and industry trends to make informed investment decisions.

So, Which One to Choose?

When it comes to deciding between mutual funds and stocks, investors should consider their investment goals, risk tolerance, and time horizon. For investors looking for a diversified portfolio managed by professionals, mutual funds can be an excellent choice. Investors looking for higher returns and willing to take higher risks can consider investing in stocks.

It's also worth noting that investors can choose to invest in both mutual funds and stocks to diversify their portfolios further

How can I arrange funds for my child's higher education?

The primary focus of a parent is securing the future of their children. The rising costs of education have created a stressful atmosphere. In this regard, a child education plan is the only way to create a good corpus for your child & beat inflation at the same time!

Start saving money for your child's education before he turns 18 years old.

You should begin planning your education as soon as you decide to have a family.

Don't wait until the last minute. Think of it as the amount of wealth you will be able to accumulate during the 18th year of your child's life. You will have 15-16 years to accumulate wealth for your child's education if you invest early when your child is 2-3 years old. 

➢    Prepare a monthly liabilities plan

Having a monthly budget helps majorly in understanding your expenses. Many times you might find yourself in a situation where you end up paying more than your desired expenses. When it comes to saving funds for your child’s education you have to move an extra step.

With inflation being at its peak, education costs have skyrocketed. This will in the future will be doubled or even tripled. Having a budget helps you to segregate your expenses into the following categories:

-          Necessary expenses

-          Lifestyle expenses

-          Investment

-          Savings

You should prepare a budget for monthly liabilities before investing in any financial product. Traditional courses are being replaced by many new ones. As courses become more varied, they are also becoming more expensive. You can calculate the estimated costs for a few basic courses today.

By considering inflation, you can determine the desired cost for the future. Choose the tenure during which your child will require the money. Estimate the amount you will need to set aside each month for this goal after estimating the requirement.

➢    The earlier you begin, the greater the benefits

Planning for your child's higher education when he or she is 1-2 years old will do wonders for your investment. Imagine you are 30 years old and a software developer with a baby boy. Your child's higher education is being funded with the 15,000 you have invested.

You had in mind engineering and MBA, but these may change in the future, so it's a good idea to start planning by keeping a course in mind. It costs around seven lakhs to attend a reputed engineering college today. A degree of the same price by the age of 18 might cost 90 lakhs-1 crores, depending on the inflation rate.

How will you arrange this amount on short notice? Investing early saves you in this situation. Moreover, compounding plays a crucial role in long-term investments.

➢    The best investment options for your child

●      MUTUAL FUNDS

Mutual fund investment becomes the deciding factor for long-term financial investments like this diversified equity. There is a risk associated with equity investments, but there are also high returns. A mix of large-cap and mid-cap funds can also be invested in an early SIP. Diversify your investments to minimize risk.  In order to gain the benefits of compounding, one should go for a long tenure.

●      Your child's ULIP plan

You can reap many benefits as a parent by investing in a child's ULIP plan. The child is ensured that the required amount is received at the desired age through a premium waiver feature. If something were to happen to you, your child would still be supported financially if you had adequate life insurance. No matter what happens to you, your child's needs will not be neglected.

●      Protect your child's future with a PPF

Your child may also benefit from opening a PPF account under his name. Your child will benefit from a tax-free corpus created through a PPF account for 15 straight years. If your child requires financial assistance after the 6th or 7th year, a partial withdrawal is possible. You can extend the PPF account to your child when they become an adult.

Especially when it comes to finances, planning is the golden rule. As inflation rises yearly, so does the cost of minor to major items. Currently, the cost of education is quite high; imagine what it will be like in 10-20 years. Getting prepared for such costs requires planning!

 

Why should you stop investing in a fixed deposit?

FDs or Fixed Deposits have been a great hit in previous decades. There was a time when FD generated a return of 12-13%. This was the reason why people were so attracted to making investments in FDs, as not only it was generating this many returns but also a low-risk investment. However, as things changed, so did the returns provide by fixed deposits.

Being an investor, we all wish to gather good returns that could beat the high inflation rates too. Unfortunately, FD is not what could save us. There are ample reasons why FDs have failed to serve this purpose, let’s go through them:

➢    Why is FD not an Inflation Buster?

Inflation is known to be a bug that irritates everyone and dampers the savings of individuals. The reason behind this is that it directs to a loss of the currency value.

For instance, you have invested 10 lakh for 10 years and you come under a high tax bracket, now considering the offer of Banks FD which is 5.4%, you will end up generating a post-tax return of 4.4 lakhs only. Therefore, your 10-lakh investment will grow up to 14.4 lakhs!

However other investments like mutual funds have the potential to beat the inflation rate and generate better returns for the investors. Mutual funds have the capability to absorb the aftermath of rising in the inflation rate.

➢    What other alternatives are there for FD investors

The advancement of the Indian economy led to the decline in the FD rates. Gone were the days when FD had given 12-13% returns as today, it stands somewhere between 4.5%-5%.  This ongoing fall in fixed deposits led the investors to move ahead from this and look for better investment opportunities providing better returns.

No investor wants to get a minimal return on their investment, therefore, this is the reason for the sudden shift from fixed deposits to other investments, like mutual funds!

FD was believed to be an investment that was a low-risk investment, but there are other possible options too mentioned below:

Debt Mutual Fund:

Debt mutual funds come with good returns in hand. There are ample options where one could invest under debt mutual funds like government bonds, corporate securities, or money market mutual funds.

Guaranteed Income Plan:

Guaranteed income plans, initiated by life insurance companies provide guaranteed tax-free returns between 5.50%-6.25%. This return can come in any form be it an annuity or deferred annuity or even lump sum maturity payments.

Dynamic Asset Allocation:

This Mutual Fund scheme is basically a combination of equity+debt mutual funds. So what happens is that when the market is high, the equity portion is kept at a low level and when the stock market goes down then the equity exposure is increased. 

Source View: https://www.fincart.com/blog/why-you-should-not-invest-in-bank-fixed-deposits-fd

How to Achieve Financial Independence Early?

 “Financial independence is the ability to live from the income of your own personal resources”- Jim Rohn

Imagine a bright cloudy day and there you are sipping your margaritas and relaxing at a beach. No worries about going back to the office the next day or about making presentations anymore. No more targets to be achieved on monthly basis, no more extra hours to give & no more meetings to attend. What a peaceful life it’ll be, isn't it?

Well, come back to reality! As this dream is still far-flung & unfortunately, you are not financially independent yet!

But wait, this doesn't mean you can't be financially independent, you can be, let us give you a headstart for the same.

Before going there let's first understand what financial independence means?

Well, simply put, financial independence means not working to pay for your living expenses. But does it mean you have to stop working? Well, it depends, as now you don't ‘have’ to work to pay for your living expenses, you’ll work because you wish to. Not because it’s a compulsion, as it is to you now.

How to plan your financial independence?

The first step towards financial independence is to have a financial plan. Having a financial plan will help you to get a direction for your money management and investments based on your income and liquidity.

Now when it comes to creating a financial plan, a financial planner is the best person to reach for help. A financial planner will first estimate the amount you need to fulfill your financial goals. This will be done based on investments time horizon, assumed rate of return, and lastly the silent killer, inflation. Your financial goal could be anything from retirement planning to a child education plan, to purchasing a car to buying your dream car.

• Start as Early as Possible with SIPs

If you wish to be financially independent by the time you reach your 40s or say 50s then it is recommended to start as early as you get your first paycheck! This way you’ll utilize the best use of compounding over the years.

Start with smaller contributions to SIP for your financial goals. Later, as per your increment in income, you can increase the number of contributions to SIP too! SIP is a great mode to invest, as it gets you in a habit of investing at periodic intervals. Not only this, but SIP also ensures rupee cost averaging by more units at a lower NAV during the market volatility.

Initial investments in equity mutual funds would benefit you with the returns, but when getting closer to your financial goals then moving to a less risky investment is recommended.

• Creation of an Emergency Fund 

If anything COVID has taught is the necessity of having an emergency fund ready for any uncertainties in life. An emergency fund is nothing but an amount that is kept separately from your usual expenses.

There are a few emergencies that are covered under insurance like death, illness, health issues, etc. Insurance is also a form of an emergency fund so make sure you have financial protection against your loss.

But unfortunately, not all emergencies are secured. Let’s suppose, you lost your job, you are laboring hard enough to search for one. But these things normally take time, as you want to avail the best opportunity. Let’s say, it took you 3-4 months searching for another job, now your monthly expenses have to be paid, but the question is how do you do this?

Well, this is where the need for having an emergency fund is discovered. Multiply your monthly expenses into 6, for 6 months, and 12, for 12 months.

Let’s say, your salary is 20,000 per month. Out of which, 8,000 is your rent, 4,000 is for utilities, 2,500 for any EMI’s, Personal expense is 5,000 and investment is 5,500. Now calculating your needs, your necessity expense is 14,500. Considering a minimum 6 months emergency fund, you’ll be needing 87,000 and for 12 months, Rs. 1,74,000 of emergency corpus.

• Avoid taking loans

The EMIs for loans is just a vicious trap and thus, to pay EMI you’ll obviously have to keep working.
Try not to get into the traps of getting personal loans, but if you still end up taking one, try to prepay or foreclose it during the initial years. This will help you to save a substantial amount on the total interest cost.
Although, foreclosure is associated with foreclosure or prepayment charges, so keep this into consideration too! This is especially for loans with higher rates of interest like personal loans, credit card debt, etc.

Such EMIs are just an obstacle standing in the way between you and your financial independence. Make sure you do not end up paying EMIs from your emergency funds, as those funds are solely created for uncertainties.

Bottom Line

Financial independence will be no longer your dream if you save and invest aggressively. Gaining independence is a financial struggle that is not going to be easy, but when achieved, it would be the best thing that happened to you.

A financial planner's assistance can help you to stick to the end. The journey is going to be tough yet beautiful!

What are the key factors to be considered in term insurance?

Researching is a powerful tool. And, when it comes to financial matters, both doing research and having knowledge play a vital role. Now since term insurance has gained immense popularity, knowing about some important factors before purchasing this policy is a crucial thing to do. This is because as term insurance policy demand is increasing so is the competition within the insurance market.

Term insurance is more than just a financial product as it keeps your family financially secure after you. It can’t help to cover the emotional loss your family will face, but it will secure them financially in the future.

Well in this blog, we have gathered a list of factors that you should consider before buying the term insurance: 

● Plan for sufficient Insurance Cover

Whenever you plan to purchase a term insurance plan, the 1st step should be to plan for adequate coverage needs. If you are having any difficulty figuring out the adequate amount, you can always take professional help. Generally, financial advisors believe that a term insurance plan bought with a death benefit should be of at least 8-10 times your gross annual income.

Not only this, the coverage you are planning to take should cover all the liabilities that you have, your living expenses and should also consider your future expenses. These could be anything from a child's education plan to their marriage. So at least your coverage should cover 30 years of your life.

● Policy Tenure

When you buy a policy you would want to stick to it for a longer period, at least till you’re working. This doesn't mean that your policy tenure stops at 55 years of age or say 65. Since the competition is too high, many companies also provide you with a term insurance policy coverage up to 100 years.

● Claim Settlement Ratio of Insurance Company

This is the most important factor out of the lot as the claim settlement ratio gives us an overall number of claims that the insurer has approved.
This is further divided by the overall number of claims it has received.

This ratio will give you an idea of how many claims this firm has settled, and accordingly, you could compare it with other insurers and buy from the best. This data is released every year by the IRDAI (Insurance Regulatory and Development Authority) stating the claim settlement ratio of insurance companies in India.

It is always better to go with a company that has settled higher claims than the others.

● Insurance Rider

Term Insurance Riders provide you with the entitlement of availing supplementary coverage.
Here are some riders to consider:

- Accidental Death Benefit Rider

- Critical Illness Riders

- Income Benefit Rider

- Waiver of Premium Rider

Highlights of Union Budget 2022

Just like every year, Union Budget 2022 has dived in this year too!
On 1st February 2022, Nirmala Sitharaman presented her 4th speech on union budget 2022 as Finance Minister of India.

2022 union budget majorly focused on digital and technology. Not only this there were hosts of measures applicable for various sectors like infrastructure, healthcare, provision of e-services, etc. The agenda behind these measures is to boost growth amid high & rising inflation and pandemic uncertainties.

Union Budget laid out remarkable changes concerning personal income tax structures. Amongst that, ‘Digital Rupee’ became the main magnet of the meeting.

Without further ado, let's dive into the detailed financial sector reading of the measures as disclosed by the finance minister:

1. Direct Taxes – Income Tax

●      A stable and predictable tax regime has been vowed to establish a trustworthy tax regime. A one-time window will be provided to correct the omissions in the ITRs filed and has allowed updating past returns too within two years from the end of the relevant assessment year.

●      For startups, an extension of the tax incentive period has been given. This means that under Section 80-IAC eligible startups will now get tax benefits until March 31, 2023.

●      A reduction of corporate surcharge from 12% to 7% has been advised.

●      For co-operative societies, the Alternate Minimum Tax (AMT) will be reduced to 15%.

●      Income will be taxed by the government from the transfer of digital assets such as crypto at 30%. Except for the cost of acquisition of digital assets, no further deductions will be permitted. The gifting of digital assets will be too taxed in the hands of the receiver. 

●      The employer's contribution towards the NPS (National Pension Scheme) will increase from 10% to 14%

●      At 15% the surcharge on long-term capital gains will be capped.

●      A tax deduction can be claimed on payment of the annuity or lump sum during the lifetime of a differently-abled parent or guardian only after their attaining the age of 60 years. 

2. Indirect Taxes – GST & Customs

●      The last date to make amendments, corrections, upload missed sales invoices or notes, or to claim any missed Input Tax Credit or ITC of one financial year is no longer due to date to file September return of the following year, but it is 30th November of the following year.

●      Failure to file an annual return for 3 months beyond the due date of 30th April will be bound to cancellation of their registration, under Section 29 of the CGST Act.

●      A revised due date to file GSTR-5 by the Non-resident taxable is now moved from 20th of next month to 13th of next month.

●      Sections 42, 43, and 43A of matching, reversal of tax credits have been terminated.

●      Since the GST inception, January 2022, recorded the highest gross GST Revenues of Rs.1,40,986 crore

●      Concessional customs duty on import of capital goods to be phased out, the initial rate of 7.5% to be imposed.

●      Enabling domestic manufacturing will foresee duty concessions on the import of phone chargers, transformers, etc.

●      Customs duty on imitation jewelry has been raised to demoralize their imports.

●      Reduction on duty on specified leather, packaging boxes will be done to incentivize exports.

●      A 5% reduction of customs duty on cut & polished diamond, gems will incur.

●      An extension of a year is given on custom duty on steel scrap to help MSMEs.

●      Reduction in customs duty on methanol.

3. Budget allocation

●     For India, in FY23 a 6.4 % fiscal deficit has been hurled.

●     Revised fiscal obligation assessed at 6.9% of GDP.

●     To help PM Gati Shakti-related investments, states will receive Rs. 1 lakh crore as a 50-year interest-free loan.

●     Around 4.1% of GDP, for the government’s effective capital expenditure, has been estimated at Rs 10.68 lakh crore in 2022-23.

●     The expenditure for capital expenditure to be stepped up sharply by 35.4% from Rs 4.54 lakh crore to Rs 7.50 lakh crore in 2022-23.

4. Investment, Sectoral allocation

●     An expert committee will be set up to review the regulatory framework for venture capital.

●     For the North Eastern Council, PM development initiatives will be executed concerning the northeast. Under this, livelihood activities for both youth and women will be enforced.

5. Virtual currency

●     From 2022-to 2023, RBI is keen to introduce the digital rupee using blockchain technology.

6. MSME

●     The ease of doing business and living will be launched in the next phase.

●     An extension of ECLGS till March-23 has been provided to support the sectors disproportionately impacted by the pandemic. Concerning this, around 95% of ECLGS borrowers are MSMEs. This extension will help the continuation of the handholding of MSMEs and the services sector.

●     More than 60% of India’s GDP consists of the services sector is an important paramount engine for not only economic growth but also for job creation, income generation, and livelihood support.

●     This extension will entail a boom in lending to the MSME sector.

●     The extension of ECLG will provide a boon to lending to the MSME sector..

●     To make MSMEs competitive and resilient, these measures have been taken by the government

7. Digital banking

●     To reduce delays in payments an online bill system will be launched that will be used by central ministries.

In many years, credit growth has increased at its highest by Rs. 5.4 lakh this year.