Question 1 – Are Balanced Funds and Balanced Advantage Funds one and same thing?

Answer – No. Balanced Funds and Balanced Advantage Funds are two different concepts. Balanced Funds, now known as Aggressive Hybrid Funds invest around 65 to 80% of their corpus in Equity while Balance Advantage Funds normally invests 33% in equity, next 33% in equity arbitrage and the remaining part in Debt. When the equity market is witnessing turbulent conditions, balance advantage fund will be less volatile and will give better returns than balanced funds.


Question  2 -  Why do Balanced Advantage Fund invests in equity arbitrage?

Answer- The advantages of investing in Equity arbitrage is that the return of balance advantage fund is less volatile than traditional Balanced Funds .

Secondly, the tax treatment of the return of Balanced Advantage Funds  is like an equity scheme despite investing only 33% in equity.


Question 3 -  Is performance of Balanced Advantage Fund is always better than that of Balance Fund ?

Answer – Not always . When the equity market is highly volatile, the performance of Balanced Advantage Funds will be superior to that of Balanced Fund. But during normal conditions and  over a longer duration ,  the performance of Balanced Funds, now known as Aggressive Hybrid Funds will be superior to the performance of Balanced Advantage Fund.


Question 4 – What is the ideal duration of SIP?

Answer – There are no clear-cut rules regarding the duration of SIP. However, the ideal duration of SIP is between 6 to 10 years. Minimum duration of SIP should be at least six years which could be stretched to 10 years or more.


Question 5 – What is the ideal duration of STP ( Systematic Transfer Plan ) ?

Answer- There are no clear-cut rules as to the duration of STP. However, if you have got some modest amount for investment, then you can choose six months to 12 Months as the duration of STP. If you have got  the sizable amount which needs to be invested, then the ideal term will be anywhere between three years to 5 years for STP.


Question 6 – I am an investor with moderate risk appetite. I do not intend to take an extraordinary risk, but at the same time, I am not very conservative investor also. What should be my strategy for equity investment?

Answer – You should invest around 40% of your funds in large-cap equity funds, 40% of your funds in the mid-cap fund and remaining 20% could be invested in small Cap fund. 


Question 7 – Should I invest my entire money in one fund house.

Answer – No. ideally you should do some in-house research and data mining and invest your money in 3 to 5 good fund houses.


Question 8 – Should I make my entire investment in one equity scheme only?

Answer – No.  You should never invest all of your funds in one equity scheme only. You should choose 3 to 5 good equity schemes for the investment of your funds.


Question 9 – Should I invest my entire money in all the equity schemes managed by one fund manager only.

Answer –  No. You should choose 3 to 5 good equity schemes and Ideally, these equity schemes should be managed by different Fund Managers. That way, you will get the advantage of the expertise of 3 to 5 good fund managers.


Question 10 – Should I invest my entire money in large-cap only?

Answer – You should make a diversification – you should invest 40% of your money in large-cap equity schemes, 40% of your money in mid-cap equity schemes and the remaining 20% in small-cap equity schemes. The ideal situation will be that you choose one or two good large-cap equity schemes, one or two good large and mid-cap equity schemes and one or two good multi-cap equity schemes.


Question 11 – I want to invest in large-cap equity. Should I invest in large-cap equity schemes or the index funds like nifty Index?

Answer- After reclassification of schemes by Sebi, Fund Managers will find it very challenging to create alpha as compared to Index Funds. Hence prudent strategy will be that you invest 50% of your money in large-cap equity schemes and remaining 50% in Nifty Index schemes and then watch which performs better.


Question 12 – Should I take a loan to invest in equity schemes?

Answer – No. Taking Loan means committing to the payment of interest and repayment of the Principal amount at fixed periodicity. You can not avoid these payments. While Investment in Equity market could sometimes be fluctuating and  very volatile, hence you should not incur the liability of taking a loan for  making an investment in equity scheme. That will be a blunder. Avoid it.


Question 13 – How the Long Term Capital gains of equity scheme are taxed?

Answer – If  you have invested in equity schemes of mutual fund for more than a year and after that, if you withdraw or switch your investments into some other schemes of a mutual fund, you are liable to pay long-term capital gain tax. The long-term capital gain of Equity Schemes over  Rs One Lac during a Financial Year will be taxed @ 10 %.


Question 14 – How the short-term capital gain of equity schemes are taxed?

Answer – If you invest in equity schemes of a mutual fund for less than a year, capital gain on withdrawal  or switching off the investments will be subject to short-term Capital gain tax at the rate of 15%.


Question 15 – How the long-term capital gains of debt mutual funds are taxed?

Answer – If you have invested in debt scheme of mutual fund and after  three years of investment t if you withdraw your investment or switch your investment into some other schemes of a mutual fund, you will be liable to pay long-term capital gain tax on such gains. The rate of tax on the long-term capital gain of debt schemes of a mutual fund is 20% with the inflation indexation benefit on your original investment.


Question 16 – How short-term capital gain on debt mutual funds is taxed?

Answer – If you have invested in Debt Fund for less then three years, gains on such investments will be treated as short-term capital gain and will be subject to the tax rate as per your applicable income tax slab.


Question 17 – Should I invest in one SIP only for all my future needs?

Answer –  No. You may be having the needs of investing funds for your education of your kids , marriage of your children, buying a house for yourself, your retirement planning etc. Hence an ideal course will be that you should plan to start investing in  separate SIP for each requirement. Since the purposes and duration of each of your financial needs will be different, hence  better you begin separate SIP for separate needs.


Question 18 – How are gains of arbitrage funds taxed?

Answer – Tax treatment of the gains of arbitrage fund are treated like gain of equity schemes.


Question 19 – I want to invest for five years. I wish to invest two third of my funds in equity and remaining one third in debt. Please tell me whether I should go for a Balanced Fund or should I invest in equity and debt schemes separately.

Answer – It will be better if you invest in Balance Fund, now known as Aggressive Hybrid Funds. In Balance Fund, the Fund Manager automatically balances your portfolio depending on the condition of the equity market and debt market. You don’t have to do anything. Besides, when fund manager reshuffles your portfolio, you are not subject to any tax implication.


Question 20 – Which one is better -  close-ended funds or open-ended funds?

Answer – There is nothing on record to establish whether the close-ended fund is better than an open-ended fund or vice versa. It entirely depends upon the fund manager, selection of stocks and an efficient strategy of deployment of funds.


Question 21 -  Should I invest in a sectoral equity fund or diversified equity funds?

Answer – Investing in sectoral equity fund could be little riskier. For a common investor, it will be better if he invests in diversified equity funds. Sometimes a particular sector like Technology or Pharmaceutical etc. works very well, but sometimes it may do very bad also. Fund manager of sectoral Equity fund feels helpless as, despite the particular sector not working well, he still has no choice but to invest in the specific sector only. On the other hand, the fund manager of diversified equity fund has complete freedom of investing in one sector or other depending on the market and overall economic conditions. Hence it will be better if you invest in a diversified equity fund – it could be a multi-cap equity fund or large and mid-cap equity fund.


Question 22 – I wish to invest in equity funds. My time horizon is 6 to 8 years. I have got above moderate risk appetite and will not be scared if the value of my portfolio falls by 30% around. Please suggest me what should be the proportion between large-cap, Mid Cap and Small Cap Equity Schemes.

Answer – In case of above moderate risk appetite with a time horizon of 6 to 8 years, I will suggest you to invest 35 % of your funds in large-cap, 40% of your funds in mid-cap and 25 % of your funds in small cap. To attain this objective, You can choose two  large and mid-cap schemes and two multi-cap scheme based on the past track record of the Schemes and their Fund Managers.


Question 23 -  I have invested in the close-ended scheme and I want to redeem the units before maturity of the scheme. Can I do it?

Answer – If you have invested in the close-ended scheme, you cannot redeem units of the scheme before maturity. However close-ended schemes are listed in stock exchange. So you can sell units of the scheme in stock exchange but please  keep in mind that volume of such transactions are very less and you may find that you will be able to sell your units at a  discount.


Question 24 – I invested in eight equity schemes around five years back. A few of them are doing very well, a couple of them are doing reasonably okay, and two of them are not doing well at all. Presently, I need funds. Should I redeem the schemes which are doing well and stay invested in schemes which are incurring a loss?

Answer – Normal mistake committed by the investor is that whenever he needs money, he redeems the good performing schemes, but remains invested in bad performing schemes with the idea that since this is a loss-making scheme, so he should wait as he does not want to book the loss. The right approach will be that you should exit from the bad performing schemes and remain invested in good performing schemes. Hence answer in your case is that you should redeem the schemes which are not performing well and stay invested in good performing schemes.


Question 25 – What is the ideal strategy for investing in small cap funds?

Answer – Investment in Small Cap fund has got the potential of generating an attractive return over a longer duration. However, investment in small-cap funds could be very volatile. Whenever small-cap stocks fall, there will be a sharp decline in their value. Volatility in the valuation of the small-cap stocks is always there hence prudent course will be that you invest in small-cap funds through SIP route only.



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