Today the mutual fund industry is on a high! Every month there is like 4000Cr that is coming into the MF industry using the SIP route - amazing.. this is like almost 700MM every month!
SIPs are a great way to create disciplined wealth, disciplined investments - making automatic payments from your pocket- save first- spend later method.
There are advertisements coming into the newspapers nowdays where MF talks about how a Rs 10K Sip from 1996 is now worth 6Cr Rs!
However , are there any risks to the MF investments- what do we need to know - What should we be aware of in terms of the risks of the MF that we so confidently invest in- leaving our money with the highly paid money managers...
I was going through a very nice YouTube video by Sunil Minglani which made me think that I should share with all what this really means... if in my entire posts you must read something-- this is the one that you MUST read
Here are some key insights if you are unable to watch the video to the full ..
1. Mutual funds can ONLY SELL shares beyond their remit IF they are being redeemed.
What does this mean? This means that assume that the fund needs to invest 90% of its money in equity, then it cannot sell below 90% even if the market is falling! They can of course change the shares- but 90% must be invested!
They will need to continue buying and holding shares when the market is falling... if there is no redemption pressure from you as an investor!!
I thought that they had the ability- but it seems that they cannot get out of the market if the market is falling..
the opportunity of course improves when one is holding balanced funds- then the 90% can come down to 65% or if you have a ULIP then you can do this yourself by changing the fund type!
2. They cannot SHORT SELL . They can only buy.
This as per SEBI rules, while PMS and other FII can also short sell. This again ties the hands of the MF manager significantly in a downward trend market.
So, what does this mean..for you and me as a MF invester.
We need to take the decision and switch funds- the MF manager cannot do anything apart from some very small changes in any non balanced fund type of equity product. They can only select stocks that can be strong and continue to manage the downward trend.
Enclosed is the fund sheet for Mirrae Asset Emerging Bluechip fund for June 2017 ( from moneycontrol.com). Its one of the top rated funds... and is giving great returns.. But take a look at the Options it has..
Now- Does this mean I am suggesting that we stop SIPs.. absolutely not. The fundamentals of SIP still remain valid. One should still continue with SIPs.. But here are the few things that you and I can do if the market if falling..
1. Switch funds to more balanced funds or debt funds.. If the change is happening with the same AMC I don't think there are any charges that apply ( I need to check this)
2. Be ready to redeem- so have your access to the websites ready if you want to change AMC.
3. As we mature, think about investing in Stocks where one can sell if required... it might make sense.
SIPs is great- we should invest using the SIP method- but we should also know the limitations of the MF managers- and not fully assume they can take care of everything... we need to know the Plus and the minus--
Now that's Simplefinancialsense!
SIPs are a great way to create disciplined wealth, disciplined investments - making automatic payments from your pocket- save first- spend later method.
There are advertisements coming into the newspapers nowdays where MF talks about how a Rs 10K Sip from 1996 is now worth 6Cr Rs!
However , are there any risks to the MF investments- what do we need to know - What should we be aware of in terms of the risks of the MF that we so confidently invest in- leaving our money with the highly paid money managers...
I was going through a very nice YouTube video by Sunil Minglani which made me think that I should share with all what this really means... if in my entire posts you must read something-- this is the one that you MUST read
Here are some key insights if you are unable to watch the video to the full ..
1. Mutual funds can ONLY SELL shares beyond their remit IF they are being redeemed.
What does this mean? This means that assume that the fund needs to invest 90% of its money in equity, then it cannot sell below 90% even if the market is falling! They can of course change the shares- but 90% must be invested!
They will need to continue buying and holding shares when the market is falling... if there is no redemption pressure from you as an investor!!
I thought that they had the ability- but it seems that they cannot get out of the market if the market is falling..
the opportunity of course improves when one is holding balanced funds- then the 90% can come down to 65% or if you have a ULIP then you can do this yourself by changing the fund type!
2. They cannot SHORT SELL . They can only buy.
This as per SEBI rules, while PMS and other FII can also short sell. This again ties the hands of the MF manager significantly in a downward trend market.
So, what does this mean..for you and me as a MF invester.
We need to take the decision and switch funds- the MF manager cannot do anything apart from some very small changes in any non balanced fund type of equity product. They can only select stocks that can be strong and continue to manage the downward trend.
Enclosed is the fund sheet for Mirrae Asset Emerging Bluechip fund for June 2017 ( from moneycontrol.com). Its one of the top rated funds... and is giving great returns.. But take a look at the Options it has..
Now- Does this mean I am suggesting that we stop SIPs.. absolutely not. The fundamentals of SIP still remain valid. One should still continue with SIPs.. But here are the few things that you and I can do if the market if falling..
1. Switch funds to more balanced funds or debt funds.. If the change is happening with the same AMC I don't think there are any charges that apply ( I need to check this)
2. Be ready to redeem- so have your access to the websites ready if you want to change AMC.
3. As we mature, think about investing in Stocks where one can sell if required... it might make sense.
SIPs is great- we should invest using the SIP method- but we should also know the limitations of the MF managers- and not fully assume they can take care of everything... we need to know the Plus and the minus--
Now that's Simplefinancialsense!
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