Thursday, December 29, 2016

What happens if I forget to pay my SIP installments?

"What happens if I forget to pay my SIP installments? Will I be fined?" Click on this link to read the answer.

The English translation is as under:

“Is there any penalty, if I skip an installment or two of my SIP?”
“What is the minimum period for which I must continue my SIP? What if I don’t? Will my money be confiscated?”
These are some of the questions that I regularly face during my interactions with investors, especially in large investor meetings. I tried to understand why these questions keep coming. I think the primary reason is that SIPs in mutual funds are being compared with other forms of regular savings, e.g. recurring deposits, insurance premia, PPF contributions. Even EMIs on loans have various conditions regarding regularity and term.
SIP in a mutual fund scheme, on the other hand is just a convenience and not a compulsion. At best, it can be termed as a commitment to yourselves. To that extent, one may start an SIP for 100 years and then discontinue the same after a few months. While the future installments would not be deposited in the SIP account, all the previous installments would continue as investments in the same mutual fund account.
We have discussed in the past about various benefits of SIP. Let us highlight some of the operational aspects of the same to clarify and answer the questions raised in the beginning. SIP offers some great operational conveniences to channel your regular savings into investments of your choice. The investments can be made in equity funds, balanced funds, debt funds, liquid funds, international fund or even gold funds – you can choose the option.
You are required to give post-dated cheques or a standing instruction to your bank through NACH mandate registration. The period can be chosen based on your cash flow – if you are 55 years and wish to invest for the next 5 years till your retirement, start an SIP for 5 years. If you are 27 years old and do an SIP for purchasing a house when you turn 33, start an SIP for 6 years. If you are 31 year old with a 1-year-old daughter, you may start a 16-year SIP to fund her college education.
If you want to increase the amount of SIP, there are few fund houses that offer you to mention this right at the beginning – you may increase your monthly investment amount every year by a certain amount. If such option is not available with the fund house you have chosen, you may always start another SIP – either in the same scheme or any other scheme. If you wish to change the scheme, you may discontinue your SIP in the present scheme and start in another one. All these flexibilities make it convenient for an investor.
Now let us come to the commitment part. What if your cheque bounces? Not to worry. Most fund houses do not charge any penalty for that. However, in majority of the cases, if three of your cheques bounce or a certain number of (three, in many cases) consecutive debits are rejected by your bank (for whatever reasons), the fund house may consider it as you are not interested in continuing the SIP and hence stop depositing your cheques or cancel the debit (NACH) mandate to debit money from your bank account. In case such a thing happened by mistake, you may always restart an SIP – either in the same account or in another. There is no revival charge.
At the same time, let us understand the penalty aspect of any commitment. If you enter into an agreement, and want to terminate the same before the due date, there could be penalty payable to the other party, as per the terms of the agreement. As we have already mentioned, an SIP is your commitment only to yourself and nobody else. This means, if there is any penalty levied – who would pay and who would get it? The penalty is levied by your present self and paid by your future self. In other terms, while your present self may indulge into some spending, the future self is deprived off wealth and hence purchasing power. This affects the lifestyle of your future self. Be aware of this penalty. Understand the implication of this. Plan your SIP keeping in mind your present requirements as well as your future requirements. Strike a proper balance so that you enjoy life in the present as well as in the future.
So, please go ahead. Plan an SIP for your future needs, as permitted by your cash flow.
- Amit Trivedi

Thursday, December 22, 2016

When bond fund SIP beats equity fund SIP ...

When bond fund SIP beats equity fund SIP… Investors must understand why such a situation exists and the lessons it leaves for the investors.

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When bond fund SIP beats equity fund SIP: Investors must understand why such a situation exists and the lessons it leaves for the investors.
Investors must understand why such a situation exists and the lessons it leaves for the investors

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When bond fund SIP beats equity fund SIP…

Monday, December 12, 2016

Chat transcript 12-Dec-2016

Click on the link below to read the transcript of my chat on today:

How do you know which scheme you have invested in?

"How do you know where the mutual fund scheme invests our money?"

To understand the answer to this basic question, click here to read my article in today's Mid-day Gujarati, Mumbai edition.


The English translation is as under:

Recently, after an investment seminar, someone approached me and asked a very basic question: “How do I know if a mutual fund scheme is an equity fund, a balanced fund, a debt fund or a liquid fund?” Well, for someone who has spent more than a decade and a half in mutual fund industry, this was unthinkable. However, the question only reflects that there is still a lot of work required to spread the awareness about a good investment vehicle.
Well, let us come back to the question that the person asked. How does one know what type of a fund it is?
A mutual fund is a portfolio of investments. All of us have a portfolio built by ourselves. We invest some money in bank deposits, some in company deposits, we buy some debentures, we buy some small savings schemes, and we also buy some shares or even a real estate property. We refer to a combination of all these investments together as an investment portfolio.
Similarly, a mutual fund scheme is another portfolio with a few differences. For one, the portfolio referred earlier is self-managed by the investor; whereas the mutual fund portfolio is managed by a professional fund management team. Second difference is huge. While constructing our self-managed portfolios, we normally do not start with some guidelines regarding how we would manage the same. In case of a mutual fund, the scheme’s investment objective, investment style and the investment universe have to be clearly defined in a legal document called the offer document.
It is this offer document that one must refer to in order to understand the details of the scheme. Let us introduce this particular document. An offer document is like a janam-kundli. It is the legal document that binds the fund management company and the fund management team. The fund management team has to manage the scheme in accordance with this document. This is why details like the scheme’s objective, investment style and details of where the money can be invested – are all part of this document. Apart from this basic scheme related details, this document also gives details of the fund management company as well as its promoters, which includes their financial details. This helps one assess the financial and technical strengths of those who manage your money. One can also access information (including the past track record) regarding other schemes managed by the same fund management team. The service and operational details are also a must.
Since the single document was becoming too bulky with too much information, SEBI made an investor friendly change – breaking the document in two parts, viz., Scheme Information and Statement of Additional Information. The former carries details regarding the scheme one is considering, whereas the latter details information regarding the fund management company and other general details.
An investor is required to have read the offer document before investing in the scheme. Please follow this advice as it is always in your benefit to “look before you leap”.
Happy investing
- Amit Trivedi

Wednesday, December 7, 2016

Are you ready to start on your own?

Be ready with a financial kitty for at least a couple of years. Here's some help on how to proceed

Click on this link to read further ...

(From archives)


Monday, December 5, 2016

Chitralekha - Birla Sun Life Mutual Fund Conclave yesterday (4th Dec, 2016) at Ahmedabad

What a response to this wonderful event. Thank you Ahmedabad. There were more than 250 people present on a Sunday morning to attend this function. Chitralekha had to close further registrations as the hall was already jam packed.

Fantastic audience. People listened to the speakers for over two hours and then there were many questions.

Thank you Ahmedabad once again. Thanks to Chitralekha and Birla Sun Life as well.

What you need to invst in equity markets - well, apart from money, time and knowledge ...

Below is the link to one of my old articles - published in Mumbai Samachar

The English translation is as under:

Mental fitness
Last week when the Sensex made a two-year low, I received a sarcastic SMS from a friend: “New SEBI rule from today: If you want to trade in stock markets or the derivatives markets, additional documents must be submitted along with your PAN card and KYC documents. These new documents include cardiograph, your blood pressure readings and fitness certificate from a doctor.”
This conveys the amount of stress that the stock market movements can cause to common men.  Money has a profound impact on our mental state.
I have always wondered: I thought we invest our money to get peace of mind, but one has seen many losing the peace of mind after investing. In fact, there have been cases of suicide linked to losses incurred in the stock and derivatives markets. This is very disturbing. Why should someone get into something that leads to such a tragic end?
Does it mean stock markets are bad? No, not really. It is like railway tracks. There have been many cases of people losing lives while crossing railway tracks instead of using the foot over bridge. Does it mean railway tracks are bad?
In majority of such cases, the mechanism – be it stock markets or railway tracks – are made for certain purpose. If one misuses the system, one should be ready to pay for the consequences.
The other day, one gentleman was talking to his friends about the stock markets and compared the stock market with a casino. Very often, such phrases are used only because there are some misunderstandings prevailing about the stock markets.
So let us understand what exactly is the function of the stock market. As the name suggests, it is a marketplace where buyers and sellers meet and exchange their stocks or money. The stock market’s function is to provide a platform where such transactions happen smoothly and very efficiently, at the same time keeping the transaction costs as low as possible. Once such a platform is available, the stock market is neutral. It does not know or care how one uses this facility. It is available for the transactions.
Whether someone buys it cheap or costly; whether someone sells it cheap or costly – the market is neutral. It does not care at what price the transaction happens since it allows each individual to take a decision to buy or sell at the prevailing price. The transaction price is arrived at jointly by all the participants and is a function of the demand-supply situation. The market does not determine the transaction price.
The demand-supply situation is a function of the information processed by the various buyers and sellers. This is where the responsibility of proper assessment of information lies with the person who transacts.
The stock market provides a platform for the transaction and ensures that the cost of transaction remains low.
One would be better off treating the market only as a market – a place for carrying out the transactions. Why one is selling or buying depends on an individual’s view on the particular security.
We come back to the initial paragraphs. If we understand the function of the market, it means that the responsibility of the decision and its consequences lies only with us. Taking these decisions requires mental toughness since at any time, there will be people who have different views – some optimistic and some pessimistic. The success in investing comes when one can take decisions with a calm state of mind. To get a better perspective, please read the story of “Mr. Market” from the book “Intelligent Investor” by Benjamin Graham.
Hence, I would make a simple change in the SMS we spoke about in the first paragraph: One does not need a cardiograph or blood pressure report; one needs a mental fitness certificate. One needs to develop better abilities to take proper decisions to succeed in the world of investing.
Happy investing!
Amit Trivedi
The author runs Karmayog Knowledge Academy. The views expressed are his personal views. He can be reached at

Amit has authored a book "Riding The Roller Coaster - Lessons from financial market cycles we repeatedly forget. The book is available in two languages - English and Gujarati.