Due to the higher risk involved with lump sum investments, most smart investors are slowly moving away from doing the same. Instead, they are choosing options that effectively limit the risk exposure. A systematic transfer plan can be useful in getting the maximum returns from an investment, without facing the same level of risk.

What is a systematic transfer plan?

You may be aware of systematic investment plans or SIPs. However, do you know what STPs are? SIPs allow you to invest money periodically from your savings account into different schemes. However, systematic transfer plans, allow you to invest in one scheme by transferring money from another mutual funds investment.

Benefits of STPs

Now that you know what is systematic transfer plans, you need to understand why it is a good mode for investment. Here is a look at a few advantages of STPs over other methods of investment.

1. Chance of greater returns

STP investment means that you would initially be investing a lump sum amount on a debt fund, known as liquid funds. These funds generate more returns than ordinary bank savings account does. In fact, the rate is near 9 percent for liquid funds, which is higher than that of bank interest rates.

2. Consistent returns

Unlike other methods of investment, where the returns may vary due to the fluctuating markets, debt funds are safer. These schemes will help you earn moderate returns, but the returns will be consistent over time. You will only experience a change in earnings if you decide to transfer to another fund.

3. Cut down the risk

Loss of fund value is a real danger that long-term investors may face, even in case of SIP investment. In such a case, if you decide to transfer some of the money from original fund to a debt fund before maturity, you can maintain complete security. Furthermore, you can ensure that you do not face any loss on your returns either.

4. Settlement of rupee cost

A systematic transfer plan will take into account the rupee cost. Therefore, to adjust the same, it buys either a greater number of units at a lower price or a lesser number of shares at a high price, to average out the cost. When you transfer your money from one fund to another, the fund manager will buy additional units in a systematic manner to maintain balance.

5. Balancing the investment portfolio

The best portfolios for investors are those where there is a fine balance between equity and debt. An STP will evaluate this balance and make necessary changes accordingly. For instance, if you have more investments in debt funds, the STP will move some of the money into equity funds if needed.

Therefore, if you are considering part payments for your investments, make sure you choose an STP.

ETF or exchange-traded funds are similar to mutual funds in some ways, but its main distinction lies in the fact that in ETFs, the exchanges take place in the form of common stocks. The price of an ETF’s share will rise and fall throughout the day, which means that they are much more volatile than mutual funds. Therefore, in the case of ETFs, the return will depend on the volume of stocks, leading to higher returns in case of higher volume and vice versa.

To understand the liquidity factor in exchange traded funds, you need to understand the following factors.

ETF is not a stock

Most investors appreciate ETFs due to the higher liquidity. However, there is a misconception that if an ETF does not trade a fixed number of shares a day, it will remain illiquid. This would have been true if the source of ETF’s liquidity was single. However, there are two sources for ETF liquidity, namely, primary and secondary liquidity.

Primary Market vs Secondary market

Now that you know what is ETF, you need to understand the distinction between the different markets for ETF trade. Non-institutional investors generally invest in secondary markets for ETFs. In secondary markets, investors are simply trading the stocks that already exist. The number of ETF shares traded determines secondary liquidity.

However, primary liquidity is determined by the efficiency of redeeming or creating shares for exchange-traded funds.

Another important distinction between primary and secondary liquidity for ETFs is the participants in the two cases. For the secondary market, investors compete and bid with each other or a market maker. In the case of the primary market, the investors take advantage of an authorized participant or AP to increase or decrease the number of ETF shares available in the market.

Furthermore, the determinants for primary and secondary liquidity of ETF are also different from one another. In the case of secondary liquidity, the determining factor is the price of the ETF shares traded. However, for primary liquidity, the function of the underlying shares acts as the determinant.

A person trading thousands of shares as exchange-traded funds can use an AP to increase the number of shares available, as a way to avoid the effects of an illiquid market. However, since most people do not trade thousands of shares at once, investors are generally stuck navigating the secondary market only.

When a mutual fund invests a large percentage of its corpus in companies with large market capitalization, it is called a large cap fund. These are companies with expansive businesses. Large cap mutual funds invest in companies that are financially secure and show stable and steady growth and high profits consistently year after year, unlike small cap funds. These funds are ideal for investors who are looking for long-term capital growth.

Here are five large cap mutual funds that you can invest in-

Axis Bluechip Fund

In each of the last 5 years, it has exceeded both category and benchmark. It selects stocks based on their ability to generate earnings steadily for sustained periods of time. Usually, it invests 80-100% in large cap companies and the remainder (if any) in either small or mid cap stocks. Over the last 5 and 3 years, the annualized returns have been 17% and 11.99% respectively, which go 2-3 percentage points over the category returns.

The fund is managed by Shreyash Davalkar.

ICICI Prudential Blue Chip Fund

Since it was launched, it has consistently beaten both category and benchmark in the last 7 years. It invests more than 90% of its assets in large cap funds and the remaining in mid-cap funds. Its 3-year annualized returns have been 9.8% and the 5-year returns reached 16.8%, both of which are 1-4 percentage points more than the benchmark.

The fund manager is the very capable Sanakaran Naren who took over in 2017.

ABSL Frontline Equity Fund

With 3-year annualized returns of 8.3 % and a 5-year annualized return of 9.25 %, it exceeds category returns by 2% and benchmark returns by 4%. It invests in companies from the S&P BSE 200 index.

Its fund manager is Mahesh Patil.

SBI Blue Chip Fund

It has exceeded both benchmark and category repeatedly in the last 5 years. It invests 80% of its resources in large cap companies while the rest is invested in mid-cap funds. Its annualized returns for the last 3 years have been 8.9% and for the last 5 years, 18.1%, which are 5% higher than benchmark returns and 3% more than category returns.

Ms Sohini Adani is at the helm as the fund manager.

Reliance Large Cap Fund

It has beaten both benchmark and category over the last 5 years. It invests in the stocks of the top 100 companies by market capitalization. Its 3-year and 5-year returns have been 9.61% and 18.62%.

The fund manager is Mr Shailesh Raj Bhan

Before you zero in on the fund you want to invest in, read the fine print carefully and assess its performance and invest accordingly.

The Equity Linked Savings Scheme (ELSS) and the Public Provident Fund (PPF) are popular investment options, and both offer tax benefits under Section 80C of the Income Tax Act. However, when it comes to tax exemptions, many people get confused over where to invest their money- PPF or ELSS. To ease your confusion, here is an article that talks about the key features of both PPF and ELSS.

What is PPF?

The Public Provident Fund is a long-term investment scheme backed by the Govt. of India. PPF offers an attractive rate of interest and safe returns that are completely exempted from being taxed. The minimum amount that you can invest in a financial year is Rs.500, while the maximum amount is Rs.1,50,000. The investor can avail of loan facilities, extension and withdrawal of account.

What is ELSS fund?

Equity Linked Savings Scheme, on the other hand, is a fairly new financial product that has been in operation for the past 15 years. This is a type of equity mutual fund, which means you can avail tax deductions. They mainly invest in stocks with the aim of acquiring high returns. Unlike PPF, ELSS is a risky investment option, since the dynamics of the stock market keep changing.

PPF vs. ELSS- Which should you go for?

Before you make a choice, these are the different parameters of PPF and ELSS, which you should be aware of-

1. Returns
   

• PPF- The returns are fixed. Currently, the return rate as notified by the Govt. of India is 7.8%.
• ELSS- The returns are not fixed. The rates fluctuate every year, depending on the dynamics of the stock market. Usually, it ranges from 20-50%.
  

2. Lock-in period
   

• PPF- The lock-in period for PPF is 15 years. The investor can withdraw a certain amount of money (partial withdrawal) after 7 years. Once the initial lock-in period is over, you can extend your PPF by another 5 years.
• ELSS- The lock-in period for ELSS is 3 years, after which you can withdraw the money.
  

3. Risk
   

• PPF- The risk associated with PPF is very low since the Govt. of India runs the scheme. PPF is best suited for traditional, stable investors looking to achieve long-term financial goals.
• ELSS- ELSS is riskier than PPF because the returns are linked to the market. If you are a moderate risk taker, you can invest in ELSS. ELSS has moderate risk attached to it, unlike sector funds, which carry high risk.
  

4. Taxation
   

• PPF- The returns you get from PPF are 100% tax-free.
• ELSS- Long-term capital gains from ELSS funds above Rs.1 Lakh are taxable at 10%.

Now that you know what is ELSS fund and PPF, decide carefully where you want to put your money. Comparing the above parameters of the two investment options can benefit you in the long run. If you are investing in PPF, you will need to open a PPF account at the bank or the post office. Alternatively, ELSS requires you to invest in any recognized fund house that offers a mutual fund investment option.

ELSS or equity-linked saving scheme is a type of mutual fund scheme where your money is invested across diverse equities and stocks. This particular fund is popular since it allows investors to save on taxes on the earned interest. The fund manager will try to find and invest in equities or equity-related securities that have a strong potential for growth and a strong business model.

Under the Income Tax Act of 1961, investors can save up to Rs. 1.5 Lakhs in taxes from ELSS mutual funds investments. However, before you start investing in ELSS, here are some things that you should know.

1. How do equities work?

Many investors eventually want to invest in equities but are unable to do so due to the lack of knowledge about the markets. In ELSS mutual funds, a professional fund management team makes investments for you. Therefore, you get an idea about the working of the market, without having to deal with the risks, firsthand. Furthermore, you do not have to time the markets for changes. You can start your investment in ELSS schemes with just Rs. 500.

2. Lock-in period

Equity-linked savings schemes have a 3-year lock-in period. So, if you decide to invest, you need to keep the money engaged for a period of at least 3 years. This is still the lowest among all tax-savings schemes. For instance, a public provident fund has a lock-in period of 15 years. Similarly, the NSC or National Savings Certificate has a lock-in period of 5 years. Still, it is better to approach ELSS investments as long-term schemes, since the best returns come from tenures between 7 and 10 years.

3. ELSS investments are risky

Since your money is being invested in equity and equity-related securities, ELSS mutual funds investments are riskier than most other types of tax saving schemes. The equities are volatile and the NAV or the Net Asset Value may fall at certain points during the investment period. However, ELSS investments are still worth it, since these are long-term investments. Therefore, short-term fluctuations in the market are averaged out if you decide to invest for a longer duration. This is why investing for longer tenures reduce the risk and increase chances of a better return.

4. Expected returns

Equities are unpredictable and volatile, which is why there is no guarantee of returns on the invested sum. However, if the market is favourable and the scheme manages to perform well, you can expect sizable returns on the capital. The rate of return is directly proportional to the term of the investment. With longer maturity periods, you will be able to navigate the volatility of the markets better and will end up with substantial income.

The tax savings feature of ELSS schemes makes it extremely attractive for investors. Furthermore, if you have an appetite for risk, you stand to gain immensely from ELSS mutual funds investment.

Mutual funds are often the preferred option for newcomers in the field of investments. Unlike a direct investment in stocks, mutual funds carry a lower risk, while the returns are considerable. However, before investing in mutual funds, you need to pick the type of scheme you want. If you are looking to limit your risk, you should consider investing in a gilt fund.

What is gilt funds?

Gilt funds are specialized mutual funds where the money is invested exclusively in government securities and bonds. Since the volatility of such bonds is very limited, there is almost no risk involved when it comes to investment in gilt funds. However, the returns from gilt funds investments are also much lower than other mutual funds schemes.

Why should one invest in gilt funds?

Gilt funds are a great choice for investment when you want to ensure moderate returns at very low risks. Investors looking to earn a quick buck from investments can do so using these schemes, without facing the risk of financial loss. Furthermore, even though the returns from gilt funds are lower than other mutual funds investments, it is still considerably higher than the interest earned through a savings account.

Now you know what is gilt funds, you should know about the various types of gilt funds, namely long-term and short-term gilt funds. You need to determine which of the two suits your investment profile the best.

Short-term gilt funds   

As the name suggests, the short-term gilt funds have a lower maturity period, generally lesser than 5 years. These schemes have limited returns and even lower risk. You should consider investing in short-term gilt funds, if you simply want to keep your money safe, without earning too much on the invested sum.

Long-term gilt funds

The more volatile gilt funds are the long-term investment schemes. These funds allow you to invest across schemes with maturity periods ranging from 5 years to 30 years. Due to the higher rate of returns on these long-term gilt funds, they are more popular among institutional investors. Furthermore, the limited option when it comes to short-term gilt funds, also makes long-term gilt funds the better choice among the two.

Now that you know everything about gilt funds investment, you need to understand when you should invest in gilt funds. Gilt funds payout will depend greatly on the timing of your investment. For the best returns, check the interest rate. Invest as soon as you detect a drop in the rate of interest in the near future.

If you are looking to earn a hefty profit from your savings, mutual funds are the right option for you. However, in the case of most mutual funds, you have to redeem the units to access your returns. For people looking for a steady stream of money on a regular basis, this method does not work.

This is where fixed income mutual funds come in. In these funds, you will receive regular payouts from your investments. Even though the returns are not constant, the duration at which you receive them is fixed. You can choose between monthly, quarterly, and half-yearly payment periods. Here is a detailed look at the benefits of investing in fixed income funds.

1. Principal remains stabilized

In other forms of investments, you may end up losing the principal amount, if the market underperforms. However, with fixed income mutual funds, you can rest easy knowing that you will recover the principal after a specified number of days. Furthermore, with secure schemes, such as government securities, the risk is further minimized.

2. A steady source of income

These funds can supplement your paycheck. Even though the amount varies in each payment cycle based on the performance of the mutual fund, investors are guaranteed regular payouts. This is greatly helpful as you do not have to wait years in order to reap the benefits of the investment scheme. Furthermore, the money earned after regular intervals can be put to use in other investment schemes, to further increase the wealth over time.

3. Diversified portfolio

Investments in fixed income funds will balance out your investment portfolio. This is because your investment is divided between equity and debt instruments. Therefore, you will earn more because of the equity investments, while the risks will be balanced by the debt schemes. This diversified profile guarantees good returns without compromising on the security of the overall investment portfolio.

The reasons mentioned above shows that fixed income mutual funds are quite attractive, due to the constant returns they offer over time. Furthermore, with these schemes, you are more likely to end up with a solid investment base that is a perfect blend of low risk and high profit.

SIPs or systematic investment plans is a specialized form of mutual funds investment. In case of SIPs, the investor can invest small amounts of money into selected mutual funds schemes over a period of time, rather than investing the whole amount at once. The investments can be made quarterly, monthly or weekly, as per the convenience of the investor.

Why should you consider SIPs?

In standard investments schemes, you invest the lump sum amount at once. If the investment is in equity mutual funds, the risk is quite high and with a lump sum investment, you may end up losing money if the fund underperforms. However, with SIPs, you get the chance to monitor the markets periodically and adjust your investment schemes accordingly.

A fund manager will manage the fund so that you end up with a sizable return, instead of incurring losses. With SIP, you need to establish a diverse investment profile, so that you can minimize the risk of losses.

How to invest in SIP

1. Evaluate your risk appetite and investment goal

Risk appetite, usually, go down with age, due to increased financial responsibilities. However, if you want to increase your earnings through SIP investment, you would have to take greater risks. Furthermore, you need to assess the goal of your investment. For instance, you may be investing in order to finance a foreign trip or a new car, in which case you need to adjust your risk appetite accordingly.

2. Choose the best mutual fund for you

Once you determine the risk appetite and goal, choosing the correct mutual fund scheme will become easier. However, make sure you compare the return rate for the past few years before investing in a particular scheme. If you have chosen the mutual funds of your choice, follow the procedure listed below to invest-

• Fill up the application form for the scheme.
• Submit the SIP amount through a cheque or an ECS mandate.
• Submit a cancelled cheque.
• Provide proof of residence
• KYC form

3. Pick the SIP date

Once you have submitted all the necessary documents, you need to pick a convenient date when the SIP sum would be paid every month. This will cause an auto debit of the said sum. However, you are free to choose multiple dates for the payment if required.

4. Decide the SIP tenure

Since SIPs are an effective way of accomplishing your financial goals, you can use an MF calculator to figure out just how long it would take the investment to reach your pre-determined goal. This will help you determine the tenure for a SIP investment.

Now that you know how to invest in SIPs, simply follow these steps to ensure the best possible returns from the investment. Since SIPs do not require you to time the market, you can invest and sit back and watch your wealth grow over time.

Investing in mutual funds is the best way to proceed if you are looking to multiply your wealth. If selected properly, a mutual fund can offer triple than what a fixed deposit offers.

Open-ended mutual funds are a type of mutual fund that you can invest in. You don’t need a lot of capital to invest in an open-ended fund, unlike their counterparts closed end funds.

What is an open-ended fund?

Mutual funds that do not place any restrictions on the number of shares it can issue are known as open ended mutual funds. Most of the mutual funds that you will come across on the market are open-ended in nature. However, if the fund manager feels that any more expansion of the fund will hinder it from attaining its stated objectives, then the fund will not accept new subscribers or issue new shares.

Open-ended mutual funds invest in bonds and equities. These investments are then consolidated as units, which are then sold to the investors of the fund. The value at which it is sold is called the net asset value (NAV). The NAV varies according to a fund’s securities and is determined at the end of every trading day.

Owing to its nature, an open-ended fund can make new investments to create new units. This is an easy method for investors to pool money and purchase units from a diverse portfolio to meet a specific objective like income and growth.

Open-ended funds have sufficient monetary reserves to cater to redemptions. An investor can sell his or her units to the fund house to redeem it.

Why should you invest in open-ended mutual funds?

An open-ended fund gives you greater flexibility in purchasing and selling units. Through this fund, you can directly invest in the market without any intermediary. The units are also cheaper compared to closed-ended funds.
These funds are very liquid in nature meaning you can redeem the units anytime. Also, when you buy units of an open-ended scheme, you will be purchasing at the NAV determined on the previous trading day. This method takes out fluctuations in NAV prices during purchase.

To sum it up, these funds are suitable if you are starting out with a small capital. There is a wide variety of funds in the market so take your pick after evaluating your requirements.

If you are looking for higher returns and unable to find the right financial instrument to help you, opt for small-cap funds. Ideal for long-term investors with a moderate to high-risk appetite, these funds invests in shares of companies whose market capitalisation is less than Rs 5000 Cr.

To be identified as a small-cap fund, a fund must ideally allocate more than 65% of its resources towards the shares of small cap companies. Amongst the various categories of mutual funds, these funds have the capacity to provide the highest returns. However, this also makes small-cap funds a somewhat risky investment. It is thus recommended that you diversify your investments according to your objectives.

Here are the best performing small-cap funds of 2018 –

1. Reliance Small Cap Fund

This fund was started on September 2010 with an AUM of Rs 6,371 Cr. Consistently beating the S&P benchmark index; the fund has a 5-star rating. Its highest allocation is towards consumer goods (21.7%) followed by manufacturing (15%).

It has generated returns of over 30% since 2010.

2. L&T Emerging Businesses Fund

An equity-oriented fund, the L&T Emerging Businesses Fund was launched in May 2014. Some companies in its portfolio are Aarti Industries Ltd, Rane Holdings Ltd and Nocil Ltd.

The fund has an AUM of Rs 4,286 Cr and has surpassed the S&P BSE SmallCap benchmark multiple times.

3. Sundaram Small Cap Fund

Launched on February 2005, Sundaram Small Cap Fund has an AUM of Rs 1,481 Cr. Over the years it has beaten the S&P SmallCap benchmark index on a consistent basis. Some companies in its portfolio are JK Cement Ltd, Heritage Foods Ltd and NRB Bearings Ltd. The maximum corpus of the fund has been allocated to industrial manufacturing (19.3%), construction (13%) followed by financial services (12.8%). It has delivered returns of 22.16% since its inception.

4. SBI Small Cap Fund

SBI Small Cap Fund was launched on September 2009. It is an equity-oriented fund with an AUM of Rs 943 Cr. The fund has holdings in LT Foods Ltd., Relaxo Footwear, Hawkins Cooker Ltd. The fund’s maximum share is in consumer goods (23.6%), industrial manufacturing (17.8%) followed by services (14%). It has delivered returns of 32.7 since its launch date.

These are some funds you can go through if you are looking to invest in small cap funds. Proving high returns, the best way to invest in them is through an online investment app.