Monday, May 30, 2016

Know about nominations in mutual funds

Here is what you should know about nominations in mutual fund investments ...

The English translation is as under:

“Do you know that you can have nominees in your mutual fund accounts?” Asked someone. Well, it is something that should be known to all, but some people do not know about this facility.
When you invest in mutual funds, as an individual investor, you can avail the facility to nominate someone. This nominee has the right to receive the investment proceeds in the unfortunate event of the death of all the investors in the respective account. This means, nomination facility can be availed even for accounts in joint names.
The nomination form must be signed by all the holders in case of “joint” or “anyone or survivor” modes. This ensures that all the holders have agreed unanimously to nominate someone.
The process if that the nominees would get the investment proceeds only in case of the death of all the account holders for the account in question.
Now so far we have been mentioning the word “someone” too frequently. Does it mean that there could be only one nominee? Not really, one can nominate upto three nominees in one investment account. The beauty of this facility is that you can even assign percentages to be received by each of the nominees. In case you have not assigned the percentages, it is assumed that all the nominees would get equal amounts.
However, the law does not give the ownership right to the nominees automatically. Nomination is a facility where the nominee has the right to receive the proceeds. These proceeds have then to be distributed among the legal heirs, as per the will of the deceased. In the absence of the will, the proceeds have to be distributed among the legal heirs as per the relevant succession laws. Thus, will is superior to nomination in the account.
Financial planners and advisors recommend that the will and nomination should ideally be the same. This would help distribution of one’s wealth to the legal heirs smoothly.
Few things to keep in mind. Only individual investors are allowed to nominate. So, if you are investing in the name of your proprietorship, the nomination facility is not available. In that case, you got to figure out how the money would be accessed by your legal heirs. It is important to mention about proprietorship since any other corporate entity is a separate legal entity, whereas proprietorship is not different from the proprietor.
Nomination is not allowed if the investment is in the name of minors, too. This was covered in one of our earlier articles.
Nomination is a facility that makes the access to investments easy in case of death of the account holders. Use it. Make sure you have nominations in place, especially whenever you are holding your mutual fund investments in a single name.
-        Amit Trivedi
The author runs Karmayog Knowledge Academy. Recently, Amit has authored a book titled “Riding the Roller Coaster – Lessons from Financial Market Cycles We Repeatedly Forget”. The views expressed are his personal opinions.

Tuesday, May 17, 2016

Rs 5 cr fine for acting as unregistered investment advisor

A very welcome move by SEBI to curb wrongful practices of unregistered players.

Some guys were acting as investment advisors offering stock tips through SMS and websites without being registered with SEBI as investment advisors. SEBI got hold of the messages these guys were sending and passed an order penalising them for the act.

Please read the SEBI order completely.

Robo advisors lack human touch

It is important to understand the difference between what humans can do and what machines can do. What are their respective strengths? What are their respective weaknesses?

Monday, May 16, 2016

Things to keep in mind while investing in the name of your minor child in mutual funds

Planning to invest in the name of your minor chile in mutual funds? These are the things you should keep in mind. Read my article on this ...

The English translation of the article is as under:

Investments in mutual funds in the name of minors
If you look at a mutual fund application form and check the “who can invest” list, you would notice that investments can be made by guardians on behalf of minors. Many investors believe that they can start investing in the name of their minor children for the purpose of financial goals related to the children’s education or even for the purpose of transferring wealth.
While investing for financial goals related to one’s kids is a very good idea, one should also properly understand the operational, administrative and emotional aspects related to the investments.
First of all, investing in the name of the minor children has a great emotional value. It is observed that parents rarely, if at all, touch the investments made in the name of their children, except for the purpose for which these were made. Though this is emotional, and not rational, such a mindset actually helps the investor and prevents from taking money out at the wrong time. It has been observed that many investors panic when the equity markets go down in value and take money out of their equity investments. This converts the temporary downturns of equity markets into permanent investment losses. Staying invested through such periods generally turns to be a wise decision.
Second is the operational aspect. Investments made in the name of minors can be operated by the guardian, whose name is captured in the investment folio. This is based on the application form. When the minor turns major, the investment details must be changed as the guardian can no longer operate the account.
Third, there is a risk involved and parents must be aware of the same. Assume that you invested a sum of Rs. 5,000 per month since the child was 3 years old. You continued to invest the same amount till the child turned 18. If we assume investment return of 12% per year, the accumulation would be a little less than Rs. 25 lacs (this is just a calculation and not recommendation or advice. Investment returns are subject to many risks and the investor must understand the risks involved with specific investment avenues). Would you, as a parent be comfortable leaving this much money in the hands of your child, who has just turned 18? This is a decision the parents must take before they start on the investment plan.
Fourth, mutual funds do not allow a second holder or nomination when an investment is made in the name of a minor. Please consider the risk here too. In the untoward event of the child’s death before turning 18, accessing the money could be a huge operational difficulty.
Investment management is about the understanding of many risks other than investment risks. Please be aware. Always plan your investments in such a manner that you can access the same when required.
Stay informed and enjoy your wealth.
-        Amit Trivedi
The author runs Karmayog Knowledge Academy. Recently, Amit has authored a book titled “Riding the Roller Coaster – Lessons from Financial Market Cycles We Repeatedly Forget”. The views expressed are his personal opinions.

Sunday, May 8, 2016

On herd mentality ...

Don't follow the herd - Think rational We being social animals have a tendency to follow what our peers do. Hence during uncertain times we tend to take haphazard investment decision which we regret later. To avoid such situation and make the most from our portfolio it is important to think rationally and make prudent decision, reckons Amit Trivedi

Read more at:

Also read how investors queue up to invest in IPOs ... Investing in IPO and herd mentality

Monday, May 2, 2016

What is better - investing by oneself or with the help of mutual funds?

Read my article in Mid-day Gujarati edition today below:

            It is better to invest through mutual funds

Read the English translation below:

“Should I invest in mutual funds?” One keeps getting this question time and again. It is with a surprising regularity that the question keeps resurfacing. What should be the correct answer? Actually the question itself is not appropriate. One does not invest in a mutual fund. One invests through a mutual fund.
Let us understand what exactly a mutual fund is. Well, all of us need to invest our money from time to time. These investments can be made in various financial instruments ranging from Government sponsored schemes to bank fixed deposits to company debentures to shares of companies or real estate properties of even precious metals like gold or silver.
One option we have is to manage the investments ourselves. That would involve finding the right investments and carrying out the related research and administration work. The other option is to outsource the entire job to a professional or a company engaged in such a business.
Mutual fund is that second option – it is managed by a team of professionals, known as the asset management company. This is what really needs to be understood. By choosing to invest through mutual funds, one is not investing in alternative investment options, but only changing the way of investing money. The entire job of investing is outsourced to a professional firm.
Let us go back to the question we started with. The person asking “Should I invest in mutual funds?” actually wanted to know which of the two choices is better – investing myself or taking professional help to manage my investments?
This question should be broken down into three components:
1.     Can I do the job myself?
2.     Do I want to do it?
3.     Can I afford to outsource?
We will take each of the above questions separately and see.
Can I do the job myself?
This is the question about ability. In order to do a good job, there are a few requirements, viz., ability to do the job and the availability of time required for the same. There are tasks where one may not have the skills and knowledge, e.g. a history teacher may not be able to help her daughter to study Mathematics in the higher classes. At the same time, one may not have enough time required for the job.
In either case, one is unable to do manage money oneself and should consider outsourcing it.
Do I want to do it?
Let us now go one step further. Let us assume that one has the required skills and knowledge to manage one’s money. However, it is very likely that one may not enjoying money management – either the research and analysis or administration or both. At the same time, one may want to spend time on certain other activities, e.g. spending time with family and friends, pursuing hobbies.
That also means that one needs help.
Can I afford to outsource?
A lot has been discussed about the cost of investing in mutual funds. We also covered it in one of our articles. The agencies involved need to be paid their professional fees. These charges depend on the type of the scheme and the size of the fund. SEBI has issued guidelines on the maximum amount that can be charged to the fund.
Most people make the mistake of comparing these fees with zero cost of managing one’s own money oneself. By this comparison, the cost of mutual fund always looks higher between the two options.
What is missed out in this comparison is the hidden costs of doing the investment management job on one’s own. This hidden cost comes in the form of one’s time and the potential mistakes that an individual investor is likely to make.
First, let us look at the cost of one’s time. Let us assume that a person generates the same investment returns as what a fund manager would have generated before the costs. Let us also assume that the cost of fund management is 2% p.a. This means if one is able to generate 12% p.a. by investing oneself, the mutual fund scheme would return 10% p.a. net of the fund management charges. On a portfolio of Rs. 10 lakhs, this amounts to a saving of roughly Rs. 20,000 for the year. Is it worth spending the amount of time one is required to spend for this saving? Please consider the amount of research one has to put as well as the administration and accounting work. Someone may start thinking that this means investors with smaller portfolios should invest through mutual funds, but the bigger ones should not.
This is where the concept of value of time should be looked at. The value of time may be higher in case of people with more wealth.
Think about it. For most investors, mutual fund would turn out to be a better option than to build the portfolio oneself.
-        Amit Trivedi
The author runs Karmayog Knowledge Academy. Recently, Amit has authored a book titled “Riding the Roller Coaster – Lessons from Financial Market Cycles We Repeatedly Forget”. The views expressed are his personal opinions.