Profit-booking and payment on performance are some of the innovations by fund houses.
Heard of a mutual funds (MFs) refusing to take fees, until they perform? Yes, you got it right. With over 700 MFs trying to attract eyeballs, innovative products and services are slowly emerging. You can take a chhota systematic investment plan (SIP), if interested, or escape exit load. What are the novel offerings and how can MF investors romp home with returns? Take a look.
START SMART
At a time when Rs 5,000 is needed, on an average, to invest in an MF, you can make a clever move. Tap fund houses that have lowered the minimum investment. You would find quite a few prominent ones, needing just Rs 100 to invest in an MF. Blue-chip funds can also be bought with this small amount.
What’s more, the minimum application amount in a short-term fund has come down from as high as Rs 50,000 to Rs 5,000.
SMALL SIP
An SIP swallowing money? Try a chhota SIP, which costs Rs 100 a month. In the long-term that is, 3-5 years, one will reap benefits. The salaried can plonk for a monthly SIP, where they can stagger payments. This means, they can pay towards SIP in three or four instalments. There’s even a daily SIP, amounting Rs 10, offered by a few fund houses. The advantage is that for small investors, market volatility fears are reduced. Secondly, daily SIP lowers the average cost of purchase of units. It is surprising, but high net worth individuals (HNIs) going for daily SIP can also reap profits. They can make chunk investments and avoid bouts of high market volatility.
TOP UP YOUR SIP
Want to put more money in SIP? The old way was to fill a new form and go for a fresh SIP. Top-up SIP is the novel product, that allows pumping in a heftier amount. As it is not a new SIP, your money pile gets bigger. For example, if an SIP of Rs 2,000 is invested for 20 years, at a growth rate of 15 per cent, the money received under the previous system would amount to around Rs 26 lakh, only. A top-up SIP, on the other hand, yields more than Rs 99 lakh, because it counts your contribution right from the day of the original SIP payment.
PAY WHEN WE PERFORM!
For more bangs from bucks, try MFs that charge a fee only when there are positive results. The performance is noted, on a daily basis. The net portfolio return has to be greater than zero and the benchmark return (BSE 500) criteria is clearly stipulated. The investment management and advisory fee will be charged once the performance is shown.
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TRIGGER
Choose a trigger, a new product introduced in equity funds to stop losses automatically and book profits at a specific time. For example, a fund may allow a trigger at 12, 20, 50 and 100 per cent return. Once the target is reached, the fund sells the units, shifts profits or shift the entire equity value to debt schemes. The trigger process then starts again.
A fund may have a different trigger system, too. Here, the trigger is allowed at 5 or 10 per cent appreciation in net asset value (NAV). The capital appreciation is given to the investor as dividend. However, it is advisable to opt for 10 per cent and not five per cent. A small five per cent appreciation would be eaten up by transaction costs and short-term capital gains tax, leaving behind very little for the investor.
In the new flexible index system, you can press a trigger to put money at a preferred Sensex level. The trigger can also be utilised to shift from debt to equity schemes and invest at the preferred Sensex level. Automatic triggers, which allow switches from debt or liquid funds to equity, may also be opted for.
DAILY TRANSFER
Amounts as little as Rs 99 can be transferred daily from your fund towards equity schemes, under Zoom Plans, as they are called. It is upto the investor to decide as to how much money should be transferred.
VIP
Value Investment Plan (VIP) is another invention. Here, the investor contributes to the portfolio so that his balance increases, though the market may be fluctuating. He specifies the maximum amount to be debited from his account every time. He calculates how much money to contribute after seeing the expected rate of return. The only precaution would be to check that the NAV is not going down.
TAX TACKLING TECHNIQUE
If tax is one of your troubles, venture into a new kind of product, floated in recent days. The modernised tax advantage scheme assures that tax would be saved not even twice, but thrice. It would save tax, when (i) investment is done (ii) dividend is received and (iii) it is time to redeem the investment.
EXITING FROM EXIT LOAD
There are news ways of shaking off exit loads. You can go in for a right of accumulation mode. Under this, exit load is either discounted or waived, if you invest a pre-decided amount for a specific time and keep holding interest in the discounted cycle. Another new facility, available in MFs, is expiry day trigger. One can avail of lower exit load while leaving scheme. The device assists in automatic profit booking and portfolio balancing.
INVESTOR-FRIENDLY SERVICE
Talking of new services, a common problem investors faced was not knowing what their dividends are. Now, they can see the dividend figures as The Association of Mutual Funds in India (Amfi) compulsorily discloses dividends. Secondly, a few companies have started sending account statement, newsletter, transaction details and fact sheets through e-mail. This is called Eco Plan.
Of course, innovation does not mean fancy names. Hence, if MFs have strange or hilarious names, what does one do? Like, it has a name which sounds like it's going half this way and half another way. How should such funds be tackled? Ignore them.
