Broking firms offer systematic investment plans (SIPs) in stocks. How safe is it to buy products on their recommendations? What are the chances they are not pushing products on which their commission is higher? Can one do a reality check before buying these?
When you take an SIP in an equity mutual fund, you are ideally investing in a portfolio of stocks every month. The same can also be done through the direct equity route. But the latter might be more cost-effective than mutual fund investments. It also brings with it the added responsibility of identifying, researching and investing in quality stocks, which could be suitable for long-term investments, as well as monitoring these. You could consider this investment route if you feel your broker is providing these services satisfactorily. Whether you buy a blue chip stock or a mid/small cap stock, their percentage brokerage rate charged to you by your broker should ideally remain the same.
I started investing through the SIP route a year before. How will the recent cut in the securities transaction tax (STT), mentioned in the budget, impact my mutual fund investments?
The STT on delivery trades has been cut by 20 per cent. This would translate into lower taxes/transaction costs to that extent when you sell or redeem your investments in the SIP you are currently investing in.
Is this the right time to put money in arbitrage funds? What is your take on quant funds? Whom is it meant for?
Most arbitrage funds generally try to deliver risk free returns through cash-futures spreads. In that sense, they deliver fixed income-like returns. However, arbitrage opportunities should be available in the markets for funds to capitalise on the situation. Generally, such opportunities are better available when markets are trending higher. Quant funds base their investment decisions on certain mathematical formulae to eliminate human error to a great extent. These are generally meant for more sophisticated investors who understand the entire process and the attached risks and rewards.
Would you advise having an exposure to real estate, commercial/residential property, for long-term goals?
Any portfolio asset allocation should have proper exposure across major asset classes such as fixed income, equities, precious metals, real estate, insurance, etc. The percentages could differ depending on the age and life stage of the investor. Real estate for investment should, therefore, form a part of your overall asset allocation, especially as a long-term investment. However, be sure to do a proper research before you buy any property, in terms of location, price, title, local infrastructure, connectivity and salability.
The writer is CEO, Dalmia Securities