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Investment should have a purpose

In the world of mutual funds, we have set of funds which are meant to achieve different purpose

All about Emergency Funds

Most experts believe you should have enough money in your emergency fund to cover at least 6 to 8 months' worth of living expenses. What does that look like? Start by estimating your costs for essential expenses, such as: Housing, Food, Health care (including insurance) Utilities, Transportation, Personal expenses, Debt servicing (EMIs). You don't need to include expenses for anything you'd cut from your budget in the event of a job loss or major catastrophe. For example: Entertainment, Dining out, Nonessential shopping, Vacations, Savings for a second home or other expenses. Decide if you need to save more. Putting aside 6 to 8 months' worth of expenses is a good rule of thumb, but sometimes it's not enough. If you're able, you might want to think about expanding your emergency savings.

Here are some scenarios where having more in your savings could benefit you: During a recession (when unemployment rates are higher and the length of unemployment is often longer). If you're in a high-risk industry where layoffs are common. You can build up to it by stashing away smaller amounts on a regular basis, like every week or every pay check.

There are various mutual fund schemes which gives you better than saving account returns with the liquidity of savings account and even can be used to pay to network hospitals or can be used to pay directly to the merchant having the swipe machine.

How much should you have saved?

Start by estimating your costs for essential expenses

Monthly Expenses
Amount in Rs
Housing
Food
Health Care (including insurance)
Utilities (water, electricity, etc.)
Transportation
Personal Expenses
Debt Servicing (EMIs) & Investments (SIPs, etc.)
Total Monthly Expenses
Rs
You should have Rs. in any of the
‘Liquid Mutual Fund Scheme’ for your emergency requirements
The above calculation has been done with an assumption that Liquid fund will deliver a return of 12% . It is for illustration only. The returns are not guaranteed.

All About Debt Funds

Common risk faced by debt funds is interest rate risk with funds losing value in a rising rate scenario and vice versa. Fixed Deposits which have been locked in for long tenures also face this risk in terms of opportunity cost but there is no actual loss of value when the deposit is held to maturity.

As per the current tax rules for debt funds, the minimum tenure for long-term capital gains was extended from one to three years. This means that investors will have to remain invested for at least three years if they want the benefit of lower tax on long-term capital gains. However, there are .5 to 1% exit load if redeemed before 1 year, 2 year and in some cases 3 years. This means debt funds are as liquid as any other open ended investments.

Investments in Equity Linked Savings Scheme (ELSS) qualify for tax deduction of up to R1.5 lakh under Section 80C of the Income Tax Act. No other equity funds qualify for tax deduction under Section 80C. However, equity funds offer you other tax benefits, too. For example, you can get tax-free dividends from equity mutual funds. If you sell your equity mutual funds after a year, the returns will qualify for long-term capital gains tax. Long-term capital gains tax is nil on equity. If you sell your equity mutual funds before a year, you will have to pay short-term capital gains tax of 15 per cent on your returns.

The other big difference is that of taxation. Returns from bank fixed deposits are interest income and as such have to be added to your normal income. Since many investors are in the top (30 per cent) tax bracket, this takes away a large chunk of their returns. Banks also deduct TDS on interest income from fixed deposits. The tax rates are similar for debt funds held for less than 36 months (though TDS will not generally be deducted). However for debt funds held longer than 36 months, returns are classified as long term capital gains and are taxed at 20 per cent with indexation.

Comparison with FD for the same
investment and tenure
` 1,00,000
Debt MF Returns: ` {{ debt_return }} [8.99%]*
FD Returns: ` {{ fd_return }} [4.27%]*
* Last updated on 30th September 2017 | Source www.amfiindia.com
# Last updated on 30th September 2017 | Source www.rbi.org.in

All about Hybrid Funds

Most experts believe you should have enough money in your emergency fund to cover at least 6 to 8 months' worth of living expenses. What does that look like? Start by estimating your costs for essential expenses, such as: Housing, Food, Health care (including insurance) Utilities, Transportation, Personal expenses, Debt servicing (EMIs). You don't need to include expenses for anything you'd cut from your budget in the event of a job loss or major catastrophe. For example: Entertainment, Dining out, Nonessential shopping, Vacations, Savings for a second home or other expenses. Decide if you need to save more. Putting aside 6 to 8 months' worth of expenses is a good rule of thumb, but sometimes it's not enough. If you're able, you might want to think about expanding your emergency savings.

Here are some scenarios where having more in your savings could benefit you: During a recession (when unemployment rates are higher and the length of unemployment is often longer). If you're in a high-risk industry where layoffs are common. You can build up to it by stashing away smaller amounts on a regular basis, like every week or every pay check.

There are various mutual fund schemes which gives you better than saving account returns with the liquidity of savings account and even can be used to pay to network hospitals or can be used to pay directly to the merchant having the swipe machine.

SWP Calculator

Example of Rs. 750 per month per lac from “Balanced Funds” (assumed payout at the start of each month)

Starting Principal (`)
Growth Rate %
SWP Amount (Per month)
Years to Pay Out
Rs. 9,175.46

All about Long Term Funds

There are 5 types of equity funds which can be chosen for long term wealth creation. However, one should evaluate the basic risk involved in each of these fund categories.

  1. ELSS
  2. Sector Funds
  3. Equity diversified
  4. Global Funds
  5. Hybrid

Equity funds will certainly have volatility component within. However, a smart investor understands that, the Taj Mahal cannot be built in a day, that means for better wealth creation from an equity fund one should keep patience and give enough time to the fund. Generally it is advisable to stay for a minimum of 3 years in any equity fund for better result.

You can also reduce risk in equity by choosing the hybrid route – generally called as balanced funds. These are great funds for investors starting out as they get an automatic allocation to debt and equity by investing in one fund. Or, if an investor already has an equity fund and wants a meagre exposure to debt in his portfolio, he could opt for a balanced fund. The aim of such funds is not to shoot out the lights when the equity market is on a roll, but neither should it crumble like a pack of cards when the market falls.

If the investment period in equity mutual funds scheme is more than one year the capital gain is exempted from tax liabilities. Government of India also provides tax rebate for equity linked saving schemes (ELSS) u/s 80C of Income Tax Act 1961. You can invest into ELSS and deduct upto Rs. 1,50,000/- from your taxable income to effectively reduce your tax liability.

Check the power of Long term compounding
` 1,00,000
With an average ROI of per annum and
Will become
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