invest in mutual funds

Creating an investment portfolio can be a daunting task. You need to decide an objective, devise a plan, monitor the plan, rebalance the portfolio, and keep assessing whether your portfolio composition is in line with your evolving objective. Further, you need to select securities for your portfolio – possibly the toughest task of all! Which stock to buy? Which bond to invest in? Which sector in is favor and which is not? When to buy, hold or sell? This is a small sample of questions that face you as you embark on your journey to create a portfolio.

Imagine if all this extensive activity could be taken over and completed by just one product! This product is a mutual fund. It takes money from all such investors who do not have the expertise or the time to engage in the detailed activity of portfolio management and pools them together to create a large corpus. An investment team, comprising of analysts and fund managers, then takes over these pools of investments and invests according to the funds’ mandate. They make the purchase and sale decisions for the portfolio, manage risk, and keep the fund on track towards achieving its objective.

These funds help you invest across various asset classes like equities, bonds, bullion, and commodities and can be of different types.

Types of mutual funds

Equity mutual funds invest in stocks of primarily listed companies. They can be of various forms: those investing in companies of a specific size – large, mid or small cap; those investing in a mix of two or all three of the aforementioned market caps; those investing in specific sectors or industries like technology, pharmaceuticals or banking etc.; and those investing in certain themes. The investment objective of these funds can be quite diverse and you should read that in detail to be sure whether the fund is right for you. A specific form of equity funds, known as an Equity-Linked Savings Scheme, also helps you save on taxes.

Debt mutual funds invest in fixed income instruments like bills, bonds, commercial papers, certificates of deposit, and the like. They are classified in terms of the type of instruments they invest in: by type of issuer, by credit profile and by duration of investment. Thus, a debt fund can be a government or a corporate bond fund, a high-grade or a high yield fund, or be a short, medium or long duration fund. Fixed maturity plans (FMPs), a great alternative to fixed deposits, are also a popular form of debt funds. There’s another special classification of debt funds known as liquid funds which can be used to invest idle money for a short period.

A third category of mutual funds is hybrid mutual funds. These are a mix of stocks and bonds. The proportion of stocks and bonds may vary widely, making hybrid funds a diverse category to choose from.

Apart from the three mentioned above, there are some special types of funds like fund of funds, retirement funds and asset allocation funds as well.

SIP and its benefits

To invest in mutual funds, you can adopt two approaches: investing at one go, also known as lump sum investment, or taking the Systematic Investment Plan (SIP) route.

An SIP is a facility based on a commitment to invest a particular amount on a specific date, usually every month, in your chosen mutual fund(s). You just need to ensure that you have your desired investment amount as balance in your bank account. The facility will automatically deduct that amount and invest it into your preferred fund(s) on a specific date in every period.

SIPs come with a host of benefits. The chief of them is rupee cost averaging. By investing a specific amount every month over a period of time, your cost of holding that fund averages out. This happens because when the performance of a fund is down, you will accumulate more units, and when it is doing well, you will get less units. Over a long period, this will help average out the cost – a feature not available with lump sum investment.

Longer is better with SIPs: the longer you use this mechanism, the more the opportunity for your return to be compounded. Because you are continually making an investment with SIPs, the same rate of return over a longer duration will yield a much bigger corpus at the end of the investment cycle. A longer duration also helps to reduce the volatility your portfolio may experience.

SIPs also make you consistent and disciplined with investing. It is hard for a working individual to keep track of his investments and even harder to ensure that he is consistent with it. SIPs ease this trouble as once you set it up, all you need to ensure is that you have the required SIP amount available in your linked bank account.

These are just some of the benefits of setting up an SIP. A natural follow-up question is: How to ascertain the right SIP amount for yourself? This can be done by using an SIP calculator.

SIP Calculator and its benefits

An SIP calculator can help you determine the right SIP amount for your target. Its effective use is based on goal-based investing. This means that you need to have your goal in your sight for the calculator to work effectively. Goals can be long or short-term in duration and may have milestones built within them.

The target of your goal, its duration, and expected annual return can tell you how much you need to invest on a periodic basis to achieve your goal. The target return can also help you select the right mutual funds to achieve that goal. The duration matters because saving for a motorcycle is very different from saving for a child’s education.

There is also an SIP calculator which can help you determine the future value of your invested money by taking into account a pre-determined SIP amount for a specified period at the expected rate of return.

You can invest in HDFC mutual funds to get good returns. Use HDFC SIP calculator to know how much returns you can earn.

Using these calculators will provide you with the appropriate numerical framework to create a viable investment approach, choose the right mutual funds, and ensure that your portfolio is on track towards achieving its objective.

Apart from these general calculators, Oro Wealth has created an SIP calculator specifically for schemes of HDFC Mutual Fund.

One of the funds that Oro Advisory suggests for SIP is the HDFC Mid Cap Opportunities Fund -Direct Plan-Growth Option. Let us look at a few of its characteristics and the factors which make it a good choice for starting an SIP in.

It is a mid-cap fund and its performance is benchmarked to the Nifty Midcap 100 (Total Return Index). The focus is primarily on mid-cap stocks with at least 65% of the portfolio invested in these stocks at any point of time. Fund management looks for those mid-cap companies which have reasonable growth prospects, sound financial strength, sustainable business models, and acceptable valuation. The assets under management of the scheme stood at Rs 20,893 cr at the end of July 2019.

The fund is being managed by Chirag Setalvad who has been managing this fund since its inception in June 2007. Amar Kalkundrikar manages the overseas investment segment of the portfolio. In terms of the risk assumed, the fund is rated ‘Moderately High’ according to the Riskometer outlined by capital market regulator SEBI.

The expense ratio of the fund is 1.22% and an exit load of 1% is charged if an investor redeems or switches out of the fund within 1 year of allotment. The minimum SIP amount starts at Rs 500.
This fund is considered among Oro’s top picks because of its consistent performance over the 1 year, 3 year, and 5 year periods. Further, it also has lower risk compared to its aforementioned benchmark index or parnassus endeavor fund performance, making it a compelling buy.

The above is just an example of how you can use an SIP calculator to your benefit and also choose suitable funds. You can visit this link and do some basic research on the topic and begin your journey towards a fruitful portfolio.