invest in mutual funds

Creating an investment portfolio can be a daunting task. You need to decide on an objective, devise a plan, monitor the plan, rebalance the portfolio, and assess whether your portfolio composition aligns with your evolving objective. Further, you must select securities for your portfolio – possibly the most challenging task! Which stock to buy? Which bond to invest in? Which sector is in favor and which is not? When to buy, hold, or sell? This is a small sample of questions you will face 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 investors who need more expertise or the time to engage in detailed portfolio management activity and pools them together to create a large corpus. An investment team comprising 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 toward 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 market above caps; those investing in particular sectors or industries like technology, pharmaceuticals or banking, etc.; and those investing in specific themes. The investment objective of these funds can be pretty 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, etc. They are classified in terms of the instruments they invest in by type of issuer, credit profile, and investment duration. Thus, a debt fund can be a government or a corporate bond fund, a high-grade or a high-yield fund, or a short--, medium--, or long-duration fund. Fixed maturity plans (FMPs), a great alternative to fixed deposits, are also popular debt funds. Another particular classification of debt funds is 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, and the proportion of stocks and bonds may vary widely, making hybrid funds a diverse category.

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

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.

A 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 should ensure that you have your desired investment amount as a 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 some time, your cost of holding that fund averages out. This happens because when a fund's performance is down, you will accumulate more units, and when it is doing well, you will get fewer units. Over a long period, this will help average out the cost—a feature not available with lump sum investments.

Longer is better with SIPs: the longer you use this mechanism, the more opportunity your return has to compound. 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 help you be consistent and disciplined in investing. It is difficult for a working individual to keep track of his investments and even harder to ensure consistency. SIPs ease this trouble, as once you set them 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 do you ascertain the right SIP amount for yourself? You can use an SIP calculator to do this.

SIP Calculator and its benefits

A SIP calculator can help you determine the right SIP amount for your target. Its practical use is based on goal-based investing. This means that you need to have your goal in 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, duration, and expected annual return can tell you how much you need to invest periodically to achieve your goal. The target return can also help you select the suitable mutual funds to achieve that goal. The duration matters because saving for a motorcycle differs significantly from saving for a child’s education.

A SIP calculator can help you determine the future value of your invested money by considering 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 the HDFC SIP calculator to see how much you can earn.

These calculators will provide you with the appropriate numerical framework to create a viable investment approach, choose suitable mutual funds, and ensure your portfolio is on track toward achieving its objective.

In addition to these general calculators, Oro Wealth has created an SIP calculator specifically for HDFC Mutual Fund schemes.

One of the funds 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 that make it a good choice for starting an SIP.

It is a mid-cap fund whose 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 time. Fund management looks for mid-cap companies with 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.

Chirag Setalvad has managed the fund since its inception in June 2007. Amar Kalkundrikar manages the overseas investment segment of the portfolio. According to the riskometer outlined by capital market regulator SEBI, the fund is rated ‘Moderately High’ in terms of the Risk assumed.

The fund's expense ratio is at a risk of 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 has lower risk than its benchmark above index or Riskassus endeavor fund performance, making it a compelling buy.

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