Everything you need to know about small cap funds

Small cap is a term that is used to classify the companies with relatively small market capitalization. Company’s market capitalization is the market value of its outstanding shares. The meaning of small cap funds may differ between brokerages. Advantage of investing in small cap funds, the opportunity for beating institutional investors. Small cap funds have a history of good performance with large cap funds. An important benefit of investing in small cap funds is the opportunity for beating institutional investors. Since mutual funds have restrictions that limit them from buying large portions of any one issuer’s outstanding shares, some mutual funds will not be able to give small cap funds a meaningful position in the fund. Fund would usually have to file with SEC to overcome the limitations. If a fund does this, it means tipping its hand and inflating the attractive price.

If an investor has a huge investment horizon, then they can easily plan to invest in small cap funds. An investor must have the patience of 3-5 years to allow a fund to gain from one complete run. Small cap funds witness frequent changes in the market. These funds are good for a small part of the portfolio. There are a lot of companies in small cap funds that can become successful. After an investor completely understands what is small cap funds, they can begin investing in them. A unique business model will go well for the company in the long run. If the small cap company present in the place with deep pockets is likely that it will close up eventually. An investor can also use an investment app for investing in small cap funds.

Investors who have the capacity to take high risks can consider investing in this category. An investor must have a small composition allocated in their portfolio towards small cap funds. When an investor creates a stock portfolio for himself, it is important to have a benchmark against which they can compare their returns.

Benefits of small cap funds:

  1. They are under followed in stock market and are usually untapped by institutional investors which give a huge opportunity to wise investors to grow their investment quickly.
  2. These small companies tend to be more flexible than large companies and hence can also adapt to changes more easily and quickly.
  3. Small cap funds have a good exponential growth potential and provide high returns on investment if the right stocks are picked from the small cap segment.
  4. Small cap stocks also provide a good room for diversification in fund’s portfolio as during the investing period it often happens when large caps do not perform well, and small cap stocks grow fast.

All you need to know about balanced funds

What is balanced funds?

Mutual funds are classified by the asset class of investments they own. Most of the mutual funds are owned by stocks, they are called equity funds. Some mutual funds own bonds, they are called bond funds or fixed income funds. Some mutual funds own both stocks and bonds, these funds are called balanced funds.

A balanced fund combines stock components, bond component and sometimes a money market component in a single portfolio. These hybrid funds stick to a relatively fixed mix of stocks and bond which reflect either a moderate or high equity component, conservative or high-fixed income, component orientation. Balanced funds are geared toward investors who are looking for a combination of safety, income and modest capital appreciation. An amount of this type of mutual fund is invested in each asset class that usually should remain within a set minimum and maximum. Balanced fund portfolios do not materially change the asset mix. This is unlike life-cycle, target-date and actively managed asset allocation funds that make changes in response to an investor’s changing risk-return appetite and age or overall investment market conditions. An investor can look into the best balanced mutual funds before investing in them so they will get assured results.

As balanced funds rarely have to change their mix of stocks and bonds, they tend to have lower total expenses. Since they automatically spread dan investor’s money across a variety of types of stocks, they minimize the risk of selecting the wrong stocks of sectors. Choosing a top balanced fund will be difficult, but these funds for retirement will allow investors to withdraw money periodically without upsetting the asset allocation.

Any investor who is interested in balanced funds should also take a look into what is hybrid fund. Balanced funds are similar to bond funds but they also include different amount of non-debt instruments like preferred stock, common stock or real estate. These funds usually produce high returns than money market and bond funds but are still relatively conservative, investing in securities from established, creditworthy companies which make consistent dividend payments. Bond funds, balanced funds can cover a wide spectrum of holdings. Some stay heavily invested in low-risk and risk-free securities. It is crucial to read the prospectus of a balanced fund to understand the types of instruments the fund manager invests in. The wide variety of balanced funds provide different alternatives to investors. The volatility of balanced funds will mean they are not recommended for investors who invest for a year or less. But investors who need regular, long term cash inflows that often choose balanced funds because they can boost returns and help diversify the bond heavy portfolios.

What are arbitrage funds?

What is arbitrage fund?

Arbitrage funds are a type of mutual fund which is appealing to the investors who wish to profit from volatile markets without taking on too much risk. Before investing in one, it is important to understand how they work and if they suit the investor’s portfolio. Arbitrage funds work by exploiting the price differential between the cash and future markets. Rather than purchasing stocks and selling them later after the price has gone up, an arbitrage fund will purchase stock in cash market and simultaneously sell the interest in futures market. The difference between stock prices and future contracts are marginal, so arbitrage funds will execute a large number of trades every year for making substantial gains. If an investor aims to buy on dips and sell when the markets are at high levels, they can always invest in dynamic funds.

The futures market is different since it is a derivatives market. Instead of futures contracts being valued based on the current price of the underlying stock, they reflect the anticipated price of the stock at some time in the future. An arbitrage fund works on mispricing of equity shares in the spot and futures market. It exploits the price differences between current and future securities for generating returns. Fund managers simultaneously buy shares in cash market and sell it in the future or derivatives market. Difference in cost price and selling price is the return an investor earns. Funds will leverage the market inefficiencies for generating profits for investors. The fund manager will allocate the remaining assets in fixed income generating instruments. They ensure that investment is made only in high-credit quality debt securities like zero-coupon bonds, debentures and term deposits. Helps to keep fund returns in line with expectations.

Some of the benefits of Arbitrage funds are:

1.      Low risk:

One of the benefits of arbitrage funds is that they are low risk, since each security is bought and sold simultaneously, there is virtually no risk involvement with long term investments. Arbitrage funds invest part of their capital into debt securities that are typically considered highly stable. If there is shortage of profits, funds invest more heavily in debt. This make the fund appealing to investors who have a low risk tolerance.

2.      Taxed as equity fund:

Even though an arbitrage fund is technically balanced or considered hybrid funds as they invest in both debt and equity, they invest primarily in equities by definition. They are taxed as equity funds since long equity represents at least 65% of the portfolio on average. If an investor holds their shares in an arbitrage funds for more than a year, then any gains they receive are taxed at capital gains rate, that is much lower than ordinary income tax rate.

3.      Volatility:

An arbitrage fund is some of the only low-risk securities that actually flourish when the market is highly volatile. Since, volatility leads to uncertainty among investors. Differential between cash and futures markets is exaggerated. Highly stable markets mean individual stock prices not exhibiting much change.

Advantages of investing through mutual fund apps

With the advances in technology during our times and with the help of advancement in technology, a lot of mutual fund apps has released for making the process of investment easy for investors. Investing through a mutual fund app is easy and simple. Investor just has to complete the initial sign up step by using their personal credentials like their name, e-mail and mobile number to get started. The investors will have to complete their KYC verification. The KYC verification can be done using PAN or Aadhaar card. Once an investor has completely understood how to invest in mutual fund, they can directly start with these apps.

A mutual fund investment app will offer a lot of easy and convenience to their customers who wish to make investments into direct plans while on the go. With the help of these apps, investors can easily track and manage their portfolio. The platform is used for engaging more investors from small cities who use these mobile apps, so they will be able to invest their savings into direct mutual fund plans. A mutual fund tracker app will be helpful for tracking the performance of mutual funds.

Advantages of investing through mutual fund investment app:

  1. Can be used anytime, anywhere:

Investing in mutual funds through mutual fund apps can be done by an investor from anywhere at any time. These mutual fund apps have allowed the investors for making changes to their investments or check on their investments at any given time. A mutual fund investment app allows investors to buy, research, monitor and sell the mutual funds from anywhere in the world, the investor will just need an internet connection in their device.

  1. Paperless:

When an investor uses an official app for investing in mutual funds, they will not be required to submit any type of physical documents in paper form. All the exchanges are made through mutual fund apps. Mutual fund apps have made the process of investing in mutual funds easier for a customer, it does not require investors to submit any type of documents for enrolling to the mutual fund investments.

  1. Convenient and simple:

Investors will not have to fill any type of lengthy forms or provide any type of passport sized photos. Mutual fund apps are easy to use, and they are not at all complex for an investor to understand. Investors will just need to provide basic details for using mutual fund app.

  1. Safe:

These mutual fund apps are completely safe, and they offer transparency so any investor will understand all the processes. Every piece of information which is provided by investors will remain completely secure and no other individual will be able to access this private information other than the investor.

4 differences between open ended and close ended mutual funds

There are different sub-categories in mutual funds that can be classified as risk attached, investment philosophy and a lot. The two types of mutual funds that stand out are open ended and close ended mutual fund schemes.

What is open ended mutual fund?

Open ended funds are known as mutual funds. These funds do not trade in the open market. They do not have a limit as to how many units they can issue. The NAV changes daily because of the market fluctuations of the shares or stocks and the bond prices in the fund. Open-ended mutual fund units are bought and sold on demand at their Net Asset Value or NAV that is dependent on the value of the fund’s underlying securities and is estimated at the end of every trading day. An investor will units directly from a fund. Investments of open-ended funds are valued at fair market value which is also closing market value of listed public securities. Funds also do not have a fixed maturity period.

What is close ended mutual fund?

Close ended fund issues a fixed number of units which are traded on the stock exchange. They function more like an exchange-traded fund than a mutual fund. They are launched to raise money and are traded in the open market just like a stock. Through the value of the fund is based on the NAV, actual price of fund is affected by supply and demand since it is allowed to trade at prices above or below their actual or real value. Close ended funds are bought and sold through brokers. A closed ended mutual fund is generally traded at discounts to their underlying asset value. Funds have a fixed maturity period. Portfolio managers will get a stable base of assets that is not subject to frequent redemptions.

4 differences between open and close end funds:

  1. Liquidity:

In terms of liquidity, open ended mutual fund schemes offer 100% liquidity and it can be redeemed anytime the investor sees fit. Close ended funds do not offer liquidity and they have a fix lock-in period.

  1. Listing:

Open ended mutual fund schemes are not listed on exchanges, while close ended mutual funds are listed on exchanges.

  1. Freedom to fund manager:

In case of an open-ended mutual fund, the fund managers will have to stick to the objective and redemption pressure. While in case of a close ended mutual fund, the fund manager will have full freedom since there is no pressure of redemption.

  1. NAV:

The NAV will reflect 100% value of the assets and securities while the close ended mutual funds are listed at a discount due to the liquidity pressure.

What is debt funds?

Debt funds are investment pools like mutual funds or exchange-traded funds where the core holdings are fixed income investments. Debt funds may invest in short-term or long-term bonds, securitized products, money market instruments or floating rate debt. The fee ratios on the debt funds are usually low than the equity funds as the overall management costs are low. Debt mutual funds are also known as credit funds or fixed income funds. Debt funds come under fixed income asset category and they are generally used as the tactical investments for low risk proportions of a portfolio that may be seeking preservation of capital or for investors who seek low risk income distributions.

There are a wide range of debt options for investors who wish for low risk income investments inside the fixed income category. Investors can also turn to passive and active investment products. Debts funds generally invest in fixed interest generating securities like corporate bonds, government securities, treasury bills, commercial paper and different money market instruments. Once an investor has a complete idea about debt fund meaning and how they function, they can easily invest in them for producing capital gains.

How does a debt fund work?

Purchase of a debt fund is similar to providing a loan to an issuing entity. One of the main reasons an investor will opt for investing in debt funds is to earn interest income and capital appreciation. The interest which is earned on these debt securities is pre-decided along with the duration after which the debt securities mature. An investor knows what they will get out of these instruments, hence they are called fixed income securities. Debt mutual funds will try to optimize the returns by diversifying across different types of securities. This allows the debt funds to earn good returns, but there are no guaranteed returns. Returns from the debt funds are expected under a predictable range which makes them safer avenues for conservative investors. Debt funds also invest in different securities based on credit ratings. A fund manager will generally make sure that an investor invests in high credit quality instruments High credit ratings will mean that the entity will be more likely to pay the interest on debt security as well as pay back the principal amount upon maturity. Debt funds which invest in high-rated securities are less volatile as compared to the low-rated securities.

Debt mutual funds are ideal in an investor’s portfolio for achieving a variety of financial goals. Investors can use debt funds as a source of income for an additional way of earning income. Up and coming investors will invest some portion in debt funds for purpose of liquidity. Individuals who are nearing retirement also invest their retirement benefits in debt funds for receiving the pension.

5 benefits of equity mutual funds

What is equity fund?

An equity fund aims to generate high returns by investing in the shares of companies of different market capitalization. They help in generating high returns than debt funds or fixed deposits. The company’s performance results in profit or loss and decides on how much will an investor make based on their shareholdings. After an investor understands what is equity mutual fund, they will be able to better understand the mutual funds. Equity funds invest in 60% or more of the assets in equity shares of companies in varying proportions. The investing style may be value-oriented or growth-oriented. After allocating a major portion of equity shares, the remaining amount goes to debt and money market instruments.

The 5 benefits of equity mutual funds are:

  1. Professional management:

An asset management company will set the investment objectives for schemes and appoint experienced and expert professionals for investing the investor’s money in equity. A fund manager will spend quality time learning about the past and researching about the future performance of the companies they invest their money in. An expert professional will be able to provide their expertise and advice the investors on an equity fund.

  1. Portfolio diversification:

When an investor goes for mutual funds, they get an exposure to different stocks when they are invested in equity mutual fund schemes. Even a small investment in a mutual fund scheme will allow the investors to make a diversified portfolio. Portfolio diversification will help the investor reduce risk that means the investor is less likely to lose money on investments. Compared to direct investments in stocks, equity mutual funds are affordable yet diversified models of investing.

  1. Liquidity:

Equity mutual funds are liquid. They will offer an opportunity for redeeming your investments at any time. It means they can redeem all their investments in the time of need or at a Net Asset Value (NAV) higher than NAV at the time of purchase. You can even invest more in equity mutual fund schemes during the market fall to buy units at lower NAV. The freedom of investing and redeeming will give better control over the investments.

  1. Systematic/regular investments:

Equity mutual fund schemes has provided the investors with a facility to invest small sums at regular intervals through systematic investment planning (SIP). SIPs make it easy for investors who have just begun to invest in equity mutual fund schemes. These sums are used by the investor to buy stocks. This will help the investor develop a regular habit of investing that will be useful in long term wealth creation.

  1. Tax benefits:

If an investment period in equity mutual funds scheme is more than a year the capital gain is exempted from tax liabilities. An investor can invest in ELSS and deduct from the investor’s taxable income to effectively reduce tax liability.

All you need to know about mutual funds

What are mutual funds?

Mutual funds are an investment tool which are made up of pool of money that are collected from investors for the purpose of investing in securities like stocks, bonds, money market instruments and other different assets. Generally, the funds are allocated in mutual funds which are handled by professional money managers, who will have the expertise of handling the money in this field and this will help the investors with producing capital gains or income for fund’s investors. A mutual fund’s portfolio is structured and is maintained for matching the investment objectives of investors. Comprehensive knowledge about these funds helps a customer understand in depth about the funds so they will be able to make better decisions about mutual funds. Mutual fund has provided small and individual investors the access to professionally managed portfolios of equities, bonds and other securities. Hence, every shareholder participates in the gains or losses of the fund. Investment advisor or fund manager may employ analysts for helping pick investments or performing market research. Fixed income mutual funds focus on investments that pay a fixed rate of return like government bonds, corporate bonds or different debt instruments.

After an investor has completely understood what mutual funds are and the different functionalities of it, they would not have a problem in investing in mutual funds by themselves. Mutual fund units or shares are easily purchased or redeemed as needed at the fund’s current net asset value (NAV). A mutual fund’s NAV is found out by dividing the complete value of securities in the portfolio by the total amount of shares outstanding. Value of mutual fund company depends on the performance of securities it will decide to buy. When investors buy a share of mutual fund, they are actually buying the performance of the portfolio. Mutual funds can be as simple as buying or selling stocks or bonds online. An investor can easily sell their shares whenever they need.

Some of the types of mutual funds are:

  1. Hybrid funds:

These funds are invested in different asset classes. Through these funds, the returns and risks will strike a perfect balance.

  1. Index funds:

They are investment instruments that represent specific index on the exchange for monitoring returns and movement of index.

  1. Equity funds:

These funds are invested in equity stocks or shares of companies. They provide a higher result, that is why they are considered high risk funds.

  1. Debt funds:

Debt funds were invested in debts like government bonds and fixed income assets. Since they are fixed returns, they are safe investment instruments.

  1. Money market funds:

Funds are invested in liquid instruments, they are considered a safe investment option as the investors get an immediate yet moderate returns on their investment. They are perfect for investors who wish to invest their abundant funds.

What are mutual fund investments?

In mutual funds, the money gathered from different investors are pooled together and are invested in a wide array of investments like equity, debt, bonds, government securities and ETFs. Funds managed by professional fund managers or portfolio managers. These are important for individuals, so they will better understand the details of any type of financial instruments that are available in the market before making any type of investment decisions. Mutual fund investments will allow investors for investing even small amounts of money. Therefore, investment in mutual funds are risk free, but they are well managed funds that can give the investors regular and high returns than what an investor can get from a bank through fixed deposits, savings accounts, etc. Mutual funds are not always risk free, but if they are managed well the funds can give investors regular or high returns than what once can get from a bank through fixed deposits or a savings account.

Mutual fund investments are invested directly in diversified securities that are spread across a wide section of industries and sectors. Diversification will generally reduce risk because all the stocks may not move in the same direction at the same time. An investor can check all the key details like the value of investment and current portfolio of a mutual fund when required. Investors can also invest in mutual fund online by visiting different websites. With the different advance in technology a customer will be able to invest in mutual funds through a mutual fund app which is available for investors, that make the process easy and simple for the customers. An investor will be able to choose the type of mutual fund they would want to invest in depending on the investment goals. Some investors will want capital protection and safe returns, but others may have a strong risk appetite and wish for getting high returns. Investors can also opt for growth funds, income funds, liquid funds and balanced funds depending on their financial goals.

Types of mutual fund investments:

  1. Open ended:

Open ended mutual fund schemes are open for investment at any point of time. They offer liquidity to the investors since the units can be bought and sold freely.

  1. Close ended:

Close ended mutual fund schemes are open only for a short period of time. Once the scheme is closed, fresh investments will not be made. In order to provide liquidity, these units are listed on stock exchanges and investors can trade in them.

  1. Interval:

Interval schemes are the variation of close ended schemes that are reopened for redemption for a limited period of time during a scheme’s tenure. Investors are given the option for selling the units back to the fund during this period.

Everything you need to know about mutual fund apps

A mutual fund is an investment vehicle which is made by pooling the money from different investors for the purpose of investing in securities like stocks, bonds and other money market instruments and other assets. A mutual fund will be operated by professional money managers, who will allocate the investments of the fund and will attempt to produce capital gains and the income for the fund’s investors. The portfolio of a mutual fund is structured and maintained to match the investment objectives that are stated in the prospectus. Mutual funds will give small or individual investors the access to professionally managed portfolios of equities, bonds and other different securities. A mutual fund will invest in a wide amount of securities, and the performance is generally tracked as change in the total market cap of the fund which is derived by aggregating the performance of underlying investments.

One of the easiest ways to check up on the performance of mutual funds is through a mutual fund app. These apps are designed in a way to be user friendly and have a simple user interface so a customer will not have any problem in using these apps. One of the biggest advantages of using a mutual fund app is that the investors can perform the actions like buying and selling mutual funds on the go conveniently with an ease of transaction. Some of the apps will offer direct mutual fund plans for investing and saving on expense cost which are incurred by the investor. An investor should always rely on a financial goal planner for managing their finances and long-term financial goals.

Investing in direct mutual fund plans using mobile phone apps has become simple for investors. A mutual fund app will not require any type of physical documents to be sent. Once an investor has completed the initial sign-up process using their mobile number name and email address, the investors are free to explore the app and can will be set up their investments. An investor will need to complete their KYC verification processes. KYC verification process is completely paperless, and it requires the user to enter PAN number so an app can check whether they are already KYC verified or not. If are already verified no type of action is required and a user can easily proceed for setting up their bank account and start investing.

Mutual fund apps are beneficial for investing in direct plans which has become easier for investors. They not only offer convenience of investing on the go, but also the ability for tracking and managing the portfolio. An investor can easily start investing under 10 minutes if the account is already KYC verified.