February 2022



Several investors are often apprehensive of investing in the markets given the current market situation. As a result, these investors are often on the lookout of safer investment options that can help them take a defensive position in the market. One such great investment option for such investors can be hybrid mutual funds. Hybrid funds ensure graded exposure to equity as per your risk profile. Different types of hybrid funds aim to cater to varying goals of investors. In this article, we will understand about hybrid funds, their types and why you should invest in hybrid mutual funds.

What is a balanced fund?

Balanced funds, commonly known as hybrid mutual funds are a type of mutual funds that contain both stock and bond component in a predetermined ratio in a single investment portfolio. The stock component in the fund helps the fund to earn higher returns on their portfolio, while the bond component in the fund helps to diminish the risk exposure of the fund.

Types of hybrid funds

There are different types of balanced funds an investor can choose from. Let’s have a look at some of these mutual funds. Balanced advantage funds or BAF is a hybrid fund wherein the fund manager determines the equity allocation in the fund. On the other, aggressive hybrid funds or AHF invest around 65% to 80% of their assets in equities and equity-related instruments. In the next category, equity savings funds have an equity exposure of around 20% to 40% as per the fund’s investment objectives. The remaining corpus in equity savings fund is allocated to debt instruments and hedged equity.

Advantages of balanced mutual funds

There are several benefits of investing in hybrid funds. Let’s look at a few of these advantages enjoyed by hybrid investors:

  1. Investment discipline – Hybrid funds decide their asset allocation to equity and debt instruments as per the investment objectives of the portfolio. As market movements are not uniform, this ratio of asset allocation might get distorted. If the equity markets experience rally, the originally decided ratio might work in the favor of equities.
  2. Flexibility – In all equity-fund categories, with the exception of flexi-cap funds, fund managers are bound to invest in these funds in a specific ratio. For instance, ELSS mutual funds are mandated to invest a minimum of 80% of their assets in equity investments. Multi-cap funds are mandated to invest at least 25% of assets in small-cap, mid-cap, and large-cap funds. Large-cap funds are authorized to invest in the companies of top 100 stocks. However, hybrid funds offer flexibility to investors to determine their asset allocation mix as per their financial objectives, risk profile, and investment horizon.
  3. Tax aspect – The equity component in balanced funds is taxed similar to equity funds and the debt component in hybrid funds are taxed similar to debt funds. If you are still confused about the tax aspect on their investments, you might consider availing of the services of a financial expert.

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Things to keep in mind before investing in international funds

Many retail investors can benefit from exposure to international investments. It is because they can invest in sectors and businesses that don’t exist in the Indian stock markets. Moreover, the Indian markets have a low correlation with certain international markets. This low correlation is advantageous since it lowers portfolio volatility and guarantees good diversification. These funds act as a hedge against Rupee depreciation.

While international funds have become the new trend in the world of mutual funds online, there are some basics to learn before you decide to add these to your portfolio basket.

  1. There are risks

The performance of some international funds in the last 5 to 10 years has been exceptional. Some funds clocked five-year annualized returns of more than 20%. However, the returns from some others declined to low single digits. Therefore, picking and tracking your international fund is vital.

With international funds, you are widening your geography. The theme is also potentially unfamiliar to you. As a result, it can be challenging to assess the long-term risks of investing in a particular international fund. Take the assistance of a reputable stock broking firm or financial management consultant for better decision making.

  1. It needs constant vigilance

Social, economic, and political factors in different countries influence the performance of mutual funds differently. Investors need to monitor the market movement for generating higher returns.

  1. Consider the currency impact

Investing in an international fund requires currency conversion. Your SIP in an underlying fund in a foreign capital market starts in Indian Rupees. The amount is then converted into the currency of the international market, where the underlying asset is issued. During redemption, the sale is executed in overseas currency. For payment to your account, the amount is again converted to Rupees. If the value of the Indian Rupee has appreciated against the currency of the underlying fund, you will be at a loss during currency conversion and vice versa.

  1. Focus on diversified options instead of themes

Many international funds are available today. In June 2021, there were around 50 international funds. Five years ago, the count was half. As a result, investors can feel overwhelmed while choosing an international fund. It is easy to make the wrong choice or pile on several different schemes.

Stay away from very specific themes. The chances of underperformance in these themes can be high in the long run.

  1. Tax-efficiency

It is vital to understand the tax liability on international funds. The concern of taxation can be a potential pitfall. For example, hybrid global funds allocate 65% to 70% of their corpus in domestic businesses and the remaining in international markets. As a result, their returns are subject to long-term capital gains tax.

Final thoughts

Adding international funds to your portfolio helps with diversification. Even if the Indian market is struggling, you can earn from the performance of some international themes. However, it is not easy to predict which international fund will give you the best returns. Use the Tata Capital Moneyfy App to invest in international funds and benefit from economic productivity across the globe.

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Things You Need To Know About ELSS

It’s tax season and you have seen billboards or posters on bus stops about ELSS funds and tax benefits. Not if you are not aware of what it is let us enlighten you with the same. ELSS or Equity Linked Savings Scheme is a one-of-a-kind equity mutual fund scheme that also comes with a tax benefit. Investors get exposure to the investment opportunities in stock markets as well tax exemption over a certain invested amount. As more and more people are becoming aware of its benefits, ELSS is gradually becoming a more favored tax saving tool for Indian taxpayers.

Here are a few important things that one should know about ELSS mutual funds –

Asset Allocation of ELSS funds

Unlike conservative tax-saving instruments that invest the majority of your investible corpus in debt and related money market instruments, ELSS is a pure equity mutual fund. When we say pure equity mutual fund, what we mean is that ELSS invests a minimum of 80% of its investible corpus in equity and equity-related instruments of publicly listed companies. This is as per the guidelines set forth by the stock Indian market and securities regulator SEBI. While the majority of the portfolio has exposure to stocks, the fund manager may invest the remaining of the portfolio in fixed income securities.

A Short Lock-in Period

If you take a look at all the other tax saving instruments under Section 80C of the Indian Income Tax Act 1961, ELSS has the shortest lock-in among all. While the lock-in duration of other tax-saving instruments like PPF, bank FDs, NPS, etc. may last anywhere between 5 years to 15 years, ELSS has a short lock-in of only 3 years. Investors can redeem their investments after the 3 year lock-in period. However, if you really want to build a commendable corpus, you may choose to remain invested for a longer duration.

Invest via Systematic Investment Plan

One of the easiest ways to create long term wealth with ELSS is by starting a monthly SIP. Also referred to as Systematic Investment Plan, SIP allows investors to benefit from the power of compounding and rupee cost averaging. Investing in ELSS funds via SIP is much better than investing through lump-sum. Since the Net Asset Value (NAV) of the ELSS scheme tends to fluctuate from time to time, investors may be able to buy more units in a longer duration through SIP than they will if they make a lump-sum investment and purchase units using their entire investment sum all at once. The best part about SIP is that you can start investing with an amount as low as Rs 500 per month.

Understand the risks associated with ELSS funds

Yes, it is true that ELSS comes with a tax benefit. Yes, it is also true that ELSS may offer decent risk adjusted returns in the long run. However, that does not mean that you will get guaranteed returns on your investments. ELSS is a market-linked scheme that is constantly exposed to market vagaries. Although it has the potential to generate yields in the long run, it can be extremely volatile in the short run. Hence, as investors, it is essential for individuals to remain patient with their investments and do not take emotionally driven decisions. Withdrawing your investments when the markets are low is not a good idea as it will only lead to losses. Instead, investors must look at the bigger picture and understand that they have a chance at long-term capital appreciation. Also, one should determine their risk appetite and only invest if they are willing to take higher risks with their hard-earned money.

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Starting Tips For Building Wealth

Is increasing your wealth one of your objectives? Do you want to be debt-free and worry-free in your financial life? Would you like to know that you are not only comfortable today, but that you are also accumulating wealth that will enable you and your family to live and thrive in the future?

You can attain all of these objectives by acquiring cash. While it may appear that you must inherit money or have a high-paying profession to become wealthy, the truth is that wealth is more closely linked to one’s behavior than to the quantity of money they earn or inherit.

The first step in changing your behavior should be a mindset adjustment. You must believe in your ability to accumulate riches and be prepared to put up the necessary effort to make it a reality. One of the most crucial things you can do while trying to develop wealth is to be cash-flow positive, or bringing in more money than you spend.

Many people are oblivious to how much money they waste on non-essential purchases. Keeping track of your wages is straightforward – for many people, this simply means keeping track of their paychecks. You are, however, probably unaware of how much money you spend on a daily basis. Keeping track of all of your expenses, whether by writing them down or utilizing an app, can be beneficial. You’re in a cash-flow negative situation if you spend more than you earn and should cut back on your expenditures to expand your capital.

Your debt-to-income ratio, or how much debt you have, is another factor to consider. The more debt you have, the harder it is to pay it off. Saving money may be impossible in some instances. Not all debt, though, is bad. For instance, investing in a college education that will prepare you for a satisfying career while also allowing you to earn more money may be reasonable. Getting a mortgage to assist you and your family create equity in a home could also be advantageous.

The idea is to think about debt in depth and find ways to avoid or reduce it. So, if you want to go on vacation, saving for months and planning ahead is preferable to placing the trip on your credit card and paying for it afterwards.

Another part of accumulating wealth is putting money aside on a regular basis. Starting an emergency fund that you can use now and in the future is a good idea. You should also start saving as soon as possible for your retirement. Saving becomes automated and uncomplicated when an amount is debited from your bank account on a regular basis.

The resource below has more wealth-building advice.

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ESG Investing — What it means and why it matters.

One of the most hotly debated topics in boardrooms and among investors is ESG investing, or investing in companies with strong environmental, social, and governance profiles.

What Is ESG and What Does It Mean?

Many investors consider a company’s ethics and environmental impact before investing. When looking into a company’s culture and overall goals, social and governance considerations are more important to these investors. When determining whether or not to invest their hard-earned money in a firm, these factors are just as significant to some investors as financial factors. ESG investment entails taking into account a company’s strategies and achievements in the following areas:

  • Environmental: Future investors want to know what actions corporations are taking to protect the Earth’s resources while still operating in a profitable manner. What is the environmental policy of the company?
  • Social: Some investors believe that understanding a company’s connections with its employees and vendors is just as important as knowing its financials. Do they provide equal opportunities to everyone? Are they nice and approachable to other businesses, consumers, and the community in which they work? What role does the company play in the community’s growth and prosperity?
  • Governance: ESG investors are also interested in how a company’s board of directors and management team are monitored. What policies and procedures are in place to ensure that the business is operated properly and fairly, and that all employees, regardless of their demographics, have an equal opportunity?

In this case, the infographic comes in handy. Companies with high ESG scores are less likely to face regulatory fines, disgruntled shareholders, public humiliation, and other potentially negative, value-destroying occurrences. Additionally, companies that are socially responsible have reduced employee turnover and a more engaged and productive workforce. Because of these and other characteristics, high-scoring ESG companies are strong long-term investment options. Continue reading to find out more.

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5 Tips for Finding the Best Mortgage Lenders for First-Time Buyers

First-time homebuyers often have quite a few questions about what to expect throughout the process of purchasing their first house. One of the most important factors when buying your first home is finding the right mortgage lender who can help you get approved and find the best loan that suits your needs and financial goals. To make it easier, we have put together some tips on how to find the best mortgage lenders to work with you as a first-time buyer.

1) Know your credit score

The strength of your credit score is a big factor in getting approved for a mortgage. A mortgage lender will want to see evidence that you’ve managed credit responsibly to make sure that you can afford a home loan. If you have an imperfect credit history or have never used credit, then ask a family member or friend with good credit to co-sign on your loan application.

2) Find a mortgage lender you can trust

As a first-time homebuyer, you’re probably looking forward to that moment when you can sign on that dotted line and start calling yourself a homeowner. And while it’s exciting, you shouldn’t let your eagerness cloud your judgment when it comes to finding a mortgage lender. The last thing you want is to secure financing from someone who doesn’t take your best interests into account or is merely out for themselves instead of looking out for yours.

3) Understand how down payment works

If you’re a first-time homebuyer and don’t have a 20% down payment saved up, you can still get a mortgage—you just have to bring more cash to closing. A typical lender will require that you pay at least three percent of your home price in cash at closing as an alternative to paying 20% upfront.

4) Talk to other borrowers

One of the best ways to find a good lender is to talk to people who have already purchased homes. If you know someone who’s been through it, use that knowledge to help you narrow down your options. Chances are good that their lender was knowledgeable and well organized—these traits are what you should be looking for in your own lender.

5) Consider what type of loan is best

Choosing between a fixed or adjustable-rate loan requires you to take a look at your financial situation and long-term goals. There’s no wrong answer, but knowing what each option has to offer can help you make an informed decision. If you’re on a tight budget, an adjustable-rate loan could help you get in a home more quickly; if interest rates are expected to rise over time, it may be better to choose a fixed-rate loan.

When it comes to buying a home, there are many factors that need to be considered. Purchasing a home is one of life’s biggest financial decisions and finding a mortgage lender who you can trust is crucial. Whether you’re looking for an experienced mortgage professional with years of experience or someone who takes pride in providing excellent customer service, there are plenty of companies to choose from. These five tips will help first-time buyers find their ideal lender. Start your search today!

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