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Unraveling Mutual Funds: Basics, Types, and Advantages

April 9, 2024

It can seem difficult to start equity investing, especially if you are new to it. There are so many numbers, graphs, and insights to remember. But there is a simple solution: mutual funds. They are more like a shared piggy bank, which is managed by an expert called a fund manager. The manager invests the money, which many people contribute, in stocks and bonds. And whatever the profit is, they distribute it among themselves. It is more like investing in pairs.

In this blog, we’ll unravel the basics of mutual funds, their types, and their advantages. First, let’s understand the basics of mutual funds.

What is a mutual fund?

A mutual fund is an investment vehicle in which multiple investors pool their funds to purchase a variety of assets, including bonds, equities, and money market instruments. Professional investment managers oversee the assets with the goal of making money for the investors. The Securities and Exchange Board of India (SEBI) oversees mutual funds.

Now that you have an idea about mutual funds, let’s explore the types of mutual funds.

Mutual Fund Types

  • Open-ended Mutual Funds: Those mutual fund schemes that are accessible for subscription and redemption on a daily basis throughout the year are termed open-ended mutual funds. They are similar to savings bank accounts, where deposits and withdrawals can be made at any time of the day. An open-ended mutual fund doesn’t have a maturity date.
  • Close-ended Mutual Funds: Similar to a fixed-term deposit, a close-ended fund has a defined tenor and fixed maturity date and is only available for subscription during the first offer period. Close-ended fund units may only be redeemed at maturity, and early redemption is not allowed. Therefore, following the new fund offer, the units of a closed-ended fund are required to be listed on the stock exchange and traded similarly to other equities. This allows investors who wish to exit the scheme prior to its maturity to sell their units on the exchange.
  • Active funds: An actively managed fund is a mutual fund scheme where the fund manager uses analytical research to support his or her professional judgment in making decisions about which stocks to buy, sell, or hold. This involves “actively” managing the fund’s portfolio and regularly monitoring it. The goal of an active fund manager is to outperform the scheme’s benchmark and provide maximum returns.
  • Passive funds: In contrast, a passively managed fund replicates or tracks the scheme’s benchmark index in exactly the same proportion as a market index. In other words, the fund manager in a passive fund remains inactive or passive because they do not use their judgment or discretion to choose which stocks to buy, sell, or hold. The goal of passive fund management is not to outperform the scheme’s benchmark index, but rather to duplicate the scheme’s benchmark index and produce returns that are equal to or greater than the index.

Have you ever heard of debt funds and equity funds? Are you curious to know what makes them different? Read here.

Advantages of Mutual Funds

  1. Liquidity: Investors can easily access their money invested in mutual funds by buying or selling units at the current net asset value (NAV).
  2. Diversification: It provides portfolio diversification that minimizes the risk. If one fund performs poorly, then it will be balanced by others, fostering stability.
  3. Low-investment: You can start investing in mutual funds with a minimum investment.
  4. Professional Management: Mutual funds are managed by fund managers, and with skill, expertise, and experience, they make informed decisions.
  5. Variety of offerings: Mutual funds offer a wide selection of investment options to meet varying risk tolerances and financial objectives, so each investor can find a solution that works for them.

Conclusion

Investing in mutual funds is not a heavy task. You can start investing as soon as you are prepared. Do a thorough research and get advice from a professional financial manager. 

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Tips to Start Investing for Mutual Fund Beginners 

March 28, 2024

When you are planning a journey to an unknown destination, one thing you would surely do is hire a guide. The same applies when you invest for the first time in mutual funds. Some mutual funds investment strategies can help you to achieve your financial goals.

So, in this blog, we’ll explore some mutual funds investment strategies and also some tips for mutual funds for beginners.

How can new investors start their journey?

New investors can begin their mutual fund investing journey online or offline. Online mutual fund investing is quite easy and has two options. On the official AMC website or mobile application, you can register for an account. You can buy or sell units, see account statements, and invest in mutual funds via the app.

The following are 4 easy steps to investing in mutual funds:

  • You should be aware of your ability and risk tolerance before making a mutual fund investment.
  • Investing your money in several asset classes is known as asset allocation. A combination of debt and equity instruments should be used in the asset allocation to balance out the risk concerns.
  • You need to determine which funds are invested in which asset class and compare them using historical results or the desired investment outcome.
  • It is vital to diversify your portfolio and conduct frequent follow-ups.

Wondering how to balance your portfolio? Your search ends here, read our blog and know the art of balancing your portfolio. Click here.

What should be your investment strategy?

As you invest, you must abide by mutual fund investment strategies that can mitigate your risk and bring you closer to your financial goals. Here are some tips that can help you to build an investment strategy while you invest in mutual funds.

  1. Know your risk-tolerance: Every investor has different financial goals and this same goes for his risk appetite. Understand your risk appetite first. If investing in a fund doesn’t suit your risk appetite then you may end up losing your invested amount.
  2. Consider your age: Your investment plan for mutual funds also heavily depends on your age. Younger people can take more risks because they have more time to recover from losses, if any, and because they have fewer financial responsibilities. For those in their 20s and 30s, equity funds are a great option, but those over 40 should allocate the majority of their money to considerably safer options like debt funds.
  3. Understand your goals for investing: Having a clear understanding of your investment objectives is one of the most crucial mutual fund investing strategies. For example, someone seeking to save taxes can invest in Equity-Linked Savings Scheme (ELSS) funds; someone planning for retirement or other long-term goals can explore equity funds.
  4. Allocate your funds: Maintain a diverse portfolio with at least a few different sorts of mutual funds rather than depending solely on one kind of fund.

Conclusion

Every investor is different and there is no one-size-fits-all approach to investment. However, by following these above-mentioned steps you can start your investment journey. However, you need to give certain attention to a few things, like your investment horizon, your risk appetite, and your reason to invest. Try to find answers to these questions before you dive into the universe of mutual funds. It is recommended to take advice from experts while you begin to invest.

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NPS Tax Benefits – Optimum Choice for an Investor 

March 21, 2024

Financial year is about to end and people who pay taxes invest in different schemes to save their taxes. But individuals also invest in NPS for tax saving purposes. In the recent past, NPS or National Pension System have gained popularity among investors due to its features and tax saving benefits.

But can you save tax through NPS? What are the Income tax sections that are associated with NPS?  Can salaried employees save tax under NPS? How NPS save tax in particular sections and how much a salaried employee can gain from it?

If one of these questions comes into your mind then this blog is for you.

NPS Tax Deduction

There are three sections, Sections 80CCD (1), 80CCD 1(B), and 80CCD (2) of the Income-tax Act, 1961 that allows you to claim tax benefit for NPS investment. Let’s have a look at each of them.

NPS Tax Benefits under Section 80CCD (1):

Contributions to the NPS may be deducted from your gross total income under Section 80CCD (1) of the Income-tax Act, 1961. Taxpayers who are self-employed or who are salaried may deduct their NPS investments under section 80CCD (1). 

With a cap of ₹1.5 lakh per financial year, the maximum deduction allowed under this section is 10% of your salary (Basic + DA) for those who are salaried or 20% of your gross total income if you are self-employed. 

But here, you need to remember that this limit falls within Section 80 CCE’s overall ₹1.5 lakh ceiling. Sections 80C, 80CCC, and 80CCD allow for a combined total of deductions that cannot exceed ₹1.5 lakh.

NPS Tax Saving Benefits under Section 80CCD (1B):

Contributions to NPS are eligible for an additional deduction of up to ₹50,000 under Section 80CCD (1B). This offers potential tax savings for both salaried and self-employed taxpayers, as it exceeds the ₹1.5 lakh limit allowed under Section 80CCD (1B).

NPS Tax Saving Benefits under Section 80CCD (2):

The employer’s contribution to an employee’s NPS account is covered by Section 80CCD (2). Therefore, it is only accessible to taxpayers who are working on a salary basis. However, the amount of deduction cannot exceed 14% of the salary when it comes to Central Government employees and 10% for any other employees.

Whereas in the private sector, many employees have the option to arrange their salary in such a way that their employer deducts it from their total cost-to-company (CTC) package, while contributing to NPS.

Conclusion

The National Pension System is one of the best options available to save tax for individuals. Although, other than saving tax, NPS stands out as one of the best retirement saving schemes for many Indians as it is regulated by PFRDA, an government entity. NPS invests in equity, government securities, corporate bonds, and alternative investments. It has the potential to provide you higher returns rather than traditional saving schemes, such as PPF or Fixed Deposits. So, if you are planning for retirement and looking for a credible option then NPS can be your first choice. 

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Invest Outside the Box: Get Started with Alternative Investment Funds (AIFs)

March 20, 2024

Diversification is the name of the game in investments, and Alternative Investment Funds (AIFs) can give you precisely that. If you are looking to diversify your portfolio beyond traditional investment options, AIFs might be just what you need. They offer unique opportunities for diversification and potentially higher returns. 

In this blog, let’s walk through the different types of AIF (Alternative Investment Funds), their benefits, and associated risks. We will also explore how to invest in AIF when compared to traditional funds.

Types of Alternative Investment Funds

AIFs come in various forms which offer investors access to unique asset classes. However, SEBI has categorized AIFs into 3 categories which include the types of AIF as follows:

CATEGORY 1

  • Venture Capital Fund (VCF)
  • Angel Funds
  • Infrastructure Funds
  • Social Venture Funds

CATEGORY 2

  • Private Equity Funds
  • Debt Funds
  • Fund of Funds

CATEGORY 3

  • Private Investment in Public Equity Fund (PIPE)
  • Hedge Funds

Benefits of AIF

AIFs offer several advantages that make them attractive to investors aiming to diversify their portfolios. Let’s check out the benefits of AIF below:

  • Provides exposure to non-traditional asset classes, reducing overall portfolio risk
  • Have higher return potential compared to traditional investments
  • Access to unique investment opportunities that may not be available in traditional markets

Risks of AIF

Remember that potentially higher returns come with increased risks. Let’s check out the risks of AIF below:

  • Invests in illiquid assets, making it challenging to sell them quickly
  • Subjected to higher levels of market volatility due to alternative assets
  • Changes in regulations can impact AIF operations and performances
  • The success of AIFs often depends on the expertise of fund managers, introducing managerial risk

AIF vs Traditional Funds

When it comes to AIF vs traditional funds, it’s important to know the difference between them. While traditional funds involve publicly traded securities like stocks and bonds, AIFs have a broader range of asset classes as discussed above. AIFs also tend to have higher fees and may offer less liquidity compared to traditional funds.

As a result, investing in AIFs usually needs a different approach than investing in traditional funds. Wondering how to invest in AIF? AIFs are accessible to individual investors, but it’s usually preferred by HNIs. If you are interested in AIFs, you should conduct thorough research, consider your risk tolerance and investment objectives, and seek advice from financial professionals.

Conclusion

AIFs can be a valuable addition to your investment portfolio, offering diversification, potential for higher returns, and exposure to unique asset classes. However, you need to be careful when considering AIFs as an investment opportunity before diving in.

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XAlt: A game-changer platform for AIFs in India

February 28, 2024

“This one player has changed the dimensions of the game.” You must have heard this line during a game; it doesn’t matter if it’s cricket, football, hockey, or any other team sport. What if we tell you this goes the same for AIFs in India? How a platform named XAlt is changing the landscape of alternative investment funds in India. It is a forward-thinking, fully automated system that anticipates your needs and adjusts to the rapidly changing technological landscape, not merely a platform. We’ll explore more in this blog. Let’s understand the platform first, briefly.

What is XAlt?

KFintech’s XAlt is a first-of-a-kind platform for AIF administration. It offers an interconnected financial ecosystem that is secure and regulated. Since its inception, it has been setting a new standard for seamless, secure, and futuristic operations. This integrated platform caters to various solutions for AIF administration across multiple assets, currencies, and languages. Not only this, it comes with robust security measures, and it eliminates the requirement of multiple vendors and systems.

Visit XAlt platform, click here

How is XAlt changing the AIF landscape in India?

The landscape of alternative funds in India has been changing rapidly in recent years. In India, alternative investment funds are a distinct type of investment that differs greatly from conventional mutual funds. These funds combine investor capital and allocate it to a range of asset classes, such as real estate, hedge funds, private equity, and more. 

Do you want  to know more about the rise of AIFs in India? Read here

Now let’s have a look at the key features of the XAlt platform

  • Highly efficient: It is a one-stop solution for fund accounting, transfer agencies, investor servicing, digital solutions, and compliance in one powerful integrated solution. XAlt breaks down barriers by doing away with the need for multiple systems and vendors.
  • Personalized as per your need: XAlt serves a tailor-made DIY approach for a wide range of customers, investors, organizations, distributors, and AIF agents. It adjusts to your specific needs, whether you’re handling simple admin tasks or more advanced admin tasks.
  • Technology of tomorrow: Created using state-of-the-art technology, XAlt features a highly configurable proprietary configuration engine, an advanced rules system engine, and next-generation cloud-based data storage.
  • Security above and beyond: XAlt prioritizes security and uses several levels of security. AIFs data is protected under the strictest security measures thanks to standards like OAuth 2.0, OWASP protocols, audit trails, historization, and role-based access management.
  • Superiority in each aspect: It is more than just compliant; it is an adaptable, quick force that communicates with other systems without any problems. XAlt makes sure you’re setting the standard, not just keeping up.

Conclusion

To sum up, XAlt can be the beginning of AIF’s future journey. It’s not just a platform; it’s also a commitment to transparency, innovation, and empowerment. This innovative platform revolutionizes AIF administration, guaranteeing that you are not only prepared for future challenges but also immune to them.

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Navigating the New NPS Withdrawal Rule: How Will It Impact Your Savings

February 27, 2024

Have any news updates ever impacted your life, savings, or investment strategy? If so, it’s a positive sign that you stay informed about market trends and developments. This blog also provides an update on how changes to National Pension System (NPS) withdrawal guidelines starting from February 2024 could potentially affect your retirement plans.

What are the updated guidelines for making partial withdrawals? What should you remember? Is it a good option to go for a partial withdrawal or not? We will discuss all of these in this blog.

National Pension System

The National Pension System (NPS) is a retirement scheme for Indian citizens. It is a good scheme for those who are willing to plan their retirement and have a lower risk tolerance when it comes to investing. Want to know how NPS is better than any traditional savings scheme? Read here

What are the new rules for partial withdrawals from NPS?

An NPS subscriber may withdraw partially from his/her account after a three-year period. But it has to be kept in mind that there is a limit on the withdrawal amount. According to the master circular issued by the Pension Fund Regulatory and Development Authority (PFRDA) on January 12, 2024, an NPS account holder may withdraw up to 25% of his contributions. The employer-contributed portion of the corpus cannot be withdrawn. Additionally, a partial withdrawal of the returns generated by the contributions will not be permitted.

Let’s understand with an example. If you have invested ₹5 lakhs in NPS and your corpus is around ₹10 lakhs, then you are allowed to withdraw 25% of your contributions, not the entire corpus. So 25% of ₹5 lakh is ₹1,25,000, which is the maximum you can partially withdraw.

How many times in NPS is a partial withdrawal permitted?

Withdrawals from your NPS account are limited to a total of three times over the account’s duration, with a mandatory five-year gap between each withdrawal. However, this five-year gap condition is waived if the withdrawal is for medical treatment of a specific ailment.

Having covered the rules and criteria for partial withdrawal, let’s now explore the reasons that are taken into consideration for NPS partial withdrawal.

National Pension Scheme: Partial Withdrawal Reasons

Withdrawal from NPS is allowed under certain conditions only. What are they? Let’s learn them one by one, briefly.

  • Higher education for your child: If your child is willing to go abroad for higher education or he/she wants to pursue the course in India itself, then you are allowed to withdraw your contribution.
  • Marriage of your child: You can also withdraw contributions to prepare for the wedding of your child.
  • Chronic illness and disease: In certain circumstances, when someone suffers from a chronic disease like heart or kidney failure, you are allowed to take a partial withdrawal.

Conclusion

It is always fruitful when you stay updated and know the terms and conditions of a particular investment plan. Making sure that you take the time to understand the intricacies of NPS and devise a comprehensive strategy beforehand can help in a more secure financial future. Get started here.

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Maximize Your Tax Savings with NPS: A Complete Guide

February 22, 2024

As the end of the financial year approaches and a new one begins, individuals are gearing up to start planning for their goals and aspirations for the upcoming year. For many, planning taxes is a crucial part of this process, especially for those subject to income taxes.

But the question is: Can investing in the National Pension Scheme (NPS) lead to tax savings? The answer is YES! Let’s explore how we can leverage NPS to achieve tax benefits.

What is the National Pension System (NPS)?

NPS is a voluntary investment and retirement savings scheme for salaried people as well as for business owners. It was introduced by the Government of India in 2004, and it is regulated by the PFRDA (Pension Fund Registrations and Development Authority), a government entity that monitors NPS. NPS is a market-linked pension scheme that is managed by fund managers.

There are various aspects related to NPS tax savings, which are explained below.

Tax-saving Under NPS

As you know, there are two types of NPS accounts: Tier 1 and Tier 2. Contributions made to an NPS Tier 1 account are entitled to receive NPS-tax savings deductions, whereas a Tier 2 account does not offer any tax deductions or benefits. To know more about Tier 1 and Tier 2 accounts, read here.

Tax-Saving Benefits in NPS

  • Section 80C: You can receive NPS tax benefits under 80C as the deduction limit is ₹1.5 lakhs. If you want tax benefits under this section, you can invest the entire amount in NPS and claim the deduction.
  • Section 80CCD (1B): This is an additional tax benefit for NPS subscribers. An investor can claim additional tax deductions for his or her investments up to ₹50,000 under this section.
  • Section 80CCD (2): By opting for a corporate NPS contribution, you can contribute up to 10% of your basic pay to NPS which is tax deductible with a limit of ₹5.5 lakh..

However, it is to be noted that, up to 60% of your corpus is exempt from tax, and subsequent income from annuities is taxed under Section 80CCD (3) of the Income Tax Act.

Conclusion

In summary, there are several sections available for tax savings through NPS investments, but proper planning is essential. As this financial year will be ending soon, it will be beneficial for you to gain knowledge on this at the right time to help you save taxes while investing in NPS.

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