If you google top mutual funds, you'd find plenty of communities or online publications tossing you some names of well performing funds.

No one can predict how markets would perform in near future (short term), or over long periods of time. And when we say no one, we really mean no one at all.

Amsterdam is the oldest stock exchange, founded in the 1460s. London stock exchange is one of the oldest, founded in 1801, with nearly ~220 years of history. US markets have been around for ~200+ years, since the early 1800s (NYSE was established in 1817). Indian markets are relatively young, been around for only a little over 40 years, in any meaningful way. BSE was founded in 1870s, but it's hard to find reliable data since before Sensex was created in 1979. Some even suggest to ignore data from before NSE was created in 1994, which gives us ~25 years worth of market data to analyse.

Despite all these data, there's no prediction algorithm or deep-learning solutions; that can predict future market behavior accurately or near-accurately. Markets would surprise you from time-to-time, and new events would keep on happening in all markets, all over the world.

Mutual funds give you exposure to markets, and their ups & downs are linked to market's movements. It's mostly not up to the fund.

Lion's share of performance of a fund, is due to luck - just having right exposure to right assets at the right time. Very little is due to fund manager's skill in asset picking.

There are different mutual funds, that invest in different types of assets. Some invest in stocks, some buy debt, while some others bet on commodities like gold etc.

The mutual fund that's best for you, is the one that help you with reaching your financial goals. If you need a certain amount of money after a given number of years; then for that financial goal, the mutual fund that helps you get there comfortably in time, is the best option.

For most retail investors, the problem is not the right fund picking. Any average fund would be good enough for most people.

Real problem is not investing enough, and relying too much on returns to make up for the low investment amount. Or not staying with a decent fund long enough.

Asking for best mutual fund is no different from asking which gym is best for you. Finding the perfect gym is not that important. Just like it's more important to be disciplined, in achieving your health & fitness goals, it's also important in achieving your financial nirvana.

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This is quite confusing to many people, since the finance world touts SIP (Dollar Cost Averaging in foreign terms) as the best way to invest.

Definitions

SIP (Systematic Investment Plan)

One invests a fixed amount of money at a regular interval (daily / weekly / monthly / quarterly). In short, it is transfer of money from cash to a particular asset (mutual fund / direct equity called the DIY-SIP or other such names).

STP (Systematic Transfer Plan)

One switches/transfers from one mutual fund to another at regular interval, if the money is already with the AMC (asset management company). In other words, you just setup a transfer from one MF to another, most commonly this is done from liquid/short term funds into equity funds.

Lumpsum

The investment of the whole lot of money into an asset.

Basic Guiding Principle: The overall average return of various asset classes vary. In the long term, the cash and cash-equivalents produce low but fixed returns, while the equity assets produce high returns with volatility (in most cases).

You have got 10 lakhs, and your investment horizon is >10 years. What should you do? So should you put your money in

1. 10L in an equity fund (or equity-oriented hybrid fund) on day 0. OR

2. Put your money in a short-term debt / liquid fund and start a STP into the equity fund at monthly (120 instalments) / yearly (10 instalments) intervals.

3. Keep your money in your bank account and start SIP into the equity fund at 120 monthly / 10 yearly intervals.

You do not have 10L, but can invest at a rate of 8k per month (Total principal amount 10L, over 10 years). What should you do?** So should you, since lumpsum is better than SIP,

1. Start putting your money into your account / liquid fund over all those 10 years, and then invest lumpsum at the end of 10 years, OR

2. You should start putting the money directly into Equity as a regular SIP.

The answer is obviously 2, since you will not be missing out on all those 10 years of equity returns.

Should you split your single SIP into multiple SIPs?

This is just another form of 1. As we understand, Lumpsums tend to win more often than not as compared to SIP, it is better to put a single SIP at a comfortable time. By comfortable time, I mean that if you receive your salary on 5th, then set up your SIP date to 15th or so; this gives you flexibility when your salary will get delayed (it is almost inevitable that this will happen). The added advantage of a single SIP is that the paperwork of future capital gains tax calculations will be easier. Having weekly/daily SIPs will have hundreds of entries and calculations after a few years.

TL;DR

if you have money to invest for a long term, put that money into a diversified equity asset ASAP. If you have got lumpsum (eg, bonus money or tax refund), then invest lumpsum. If you have regular stream, then invest at a regular interval.

There's no such thing.

It's rare for markets to move up / down so much in a single month, that a single SIP instalment being on a different date would make a sizeable difference in your long term corpus.

If you start investing today via SIP, and analyse 10 years later, you'd find that, say for example, 23rd of the month was the best day to invest for your funds. That's something you can know only if you know the NAV history of next 10 years, which no one does.

What about the apps that show you best date of SIP?

These platforms or services are showing you, the "best" date, to prevent an analysis-paralysis. It's "one less thing to worry about", therefore prompting it to the user would mean higher conversion rate (assuming this is a metric these platforms are measuring - how many people complete setting up their SIPs).

This is good for the platform, as it's helping the user feel psychologically safe that they're able to see some analysis, no matter how useless it is.

However, the only thing they've done is take past NAV data, and found out what has been best date of SIP for a particular fund over a period.

Since past performance is not indicative of future performance, anything derived from past performance is also not indicative of same metric for future.

If between 2001-2010, 5th of the month had been best for a particular fund, say SBI Bluechip (not a recommendation, just using as an example) - that does NOT mean for next 10 years (2011-2020) same exact date was best for the same fund.

For instance, some people believe that the last Thursday of the month coinciding with options expiry date, can be best for investment. This is obviously not backed by any sound analysis.

What does a sound analysis here look like?

You might find articles on the internet that draws some conclusions.

Take the 2010-2020 period. It's a 10 year period, with 120 months. That's 120 transactions. Assuming each month to be of 28 days (to account for February); this would require comparing across 28 time-series data sets, with each having 120 entries; for every fund.

But that's not all! Imagine someone investing on 28th of a month, instead of 1st of a month after salary credit (assume this person gets paid by employer on last day of previous month). Then these 28 days, this amount has been parked in savings account or overnight fund or even short term FD.

A proper analysis on best date for SIP would also have to involve the interest income from this and tax paid on these gains, which again, have varied greatly over any meaningful period.

As you can see, there are too many variables; and that's just with one single fund. India has more than a two thousand mutual funds, as of now.

Finally, consider that people don't invest the same amount via SIP over a ten year period. Some people increase the amount of SIP that they do every year as their salary increases. Some of them pause their SIPs from time to time, or skip a few installments here and there.

To sum it all up; there might be a best date for SIP in a month, and it depends on lot of factors that one cannot easily simulate with past data. But even if they did and found one, that date might not be best for your investment pattern for next 1-2 decades.

Invest on a date of month you're comfortable with.

LIC doesn't create money out of thin air. Over-simplified & shortened description of how it works: It collects premium from policyholders, then it invests that in market-linked securities (bonds, stocks, CP, CD, commodities etc.). Eventually, it pays out policyholders after keeping some cut for itself.

Unlike bank or post-office deposits, LIC returns are not legally guaranteed. Govt. of India is a major stakeholder in LIC, but that does not mean it's a major stakeholder in your future. Govt. would do its best to prevent LIC from going under. But your returns come at the cost of LIC's income - when those two are at odds with each other, Govt. would pick LIC over your financial future.

In practice, LIC returns money you'd paid as premium + some bonus. There are different categories of these bonuses: loyalty bonus, guaranteed addition etc. LIC wants to make you feel they're doing you a favor by giving you some bonus. Historically, a bank FD / RD at SBI would have had higher returns than LIC policy over a given period.

You can know your bonus after the policy matures.

LIC is also not allowed to invest freely. They are the largest financial services company in the country, and have much more cash than any other financial institution, that they can invest. However, large corpus of few lakh crores are not easy to invest. So they have to look for distressed assets, or wait for really bad market condition before deploying sizeable chunk of that cash.

There's also political interference to consider - as evident from LIC's bailout of IDBI bank. LIC's hands are tied, in when it comes to where they can / cannot invest.

Over long enough period of time, LIC returns have also significantly underperformed equity market returns, namely Nifty & Sensex Total Return Index.

Now, consider various charges on insurance (mortality charges, admin fees, risk premium etc.). These are not shown to you (the end policyholders); but these eat away your corpus and line up LIC's pockets.

Your agent would tell you to invest in LIC policy, because that helps him earn commission. Your parents would pressure you into doing it, because most likely they'd not be aware of other investment options.

The fact that it has tax benefits is of little concern, because gains from LIC policies are so low, taxing it won't make much difference in final corpus size, post-tax.

At its core, an LIC policy is an insurance policy. The cover provided by this insurance is inadequate, to take care of your family's financial needs in your absence. A pure term cover is better, which works very different from how a typical LIC policy works.

But none of the above covers real problem with an LIC policy - it locks you into a lifelong decision much early on. For a lot of people, who had subscribed to LIC policies 20-25 years ago, and seeing their policies maturing now - the maturity amount is probably not even worth a month's income.

Due to inflation, the maturity estimate which might look huge today, would be much lower in value, upon actual maturity.

These premiums cannot be changed once you start paying for a policy. You have no option of stepping up your premiums as your salary increases year on year.

Overall, an LIC policy is rigid, wasteful, and doesn't provide adequate coverage. Tax benefits are not good enough to offset the opportunity cost (i.e. you're missing out on other efficient assets and time).

Avoid LIC policies, buy vanilla pure term cover, and invest in efficient market-linked transparent assets yourself. If your question is but what if markets don't do well in next 15-20 years?, then the LIC policy also has same fate.

Addendum

The general perception of the term "LIC policy" is any moneyback/endowment policy, in which there is some investment component also, i.e. after the end of the term of the policy, you will get money returned back to you. There are pure protection plans available by LIC and other insurance companies, which are what are recommended. In case of LIC, these are Jeevan Amar and Jeevan Tech Term. All others are some combination of moneyback plans.

When it comes to ELSS, present categorization gives the fund managers wide berth in picking stock from Nifty 500 universe of stocks. They can pick any stock from top 500 stocks listed in NSE / BSE - this is different from funds that are categorized as large-cap, mid-cap, small-cap, or multi-cap funds. Only flexi-cap category of equity funds is similar.

This makes it tricky to pick an ELSS fund, because all funds from these category might not be on the same footing.

You can look at past returns, or metrics derived from past returns (alpha, beta, sortino ratio, and other greeks); but all these won't indicate how a fund would perform in next time period of similar duration.

If a fund had 4% alpha on its benchmark over last 3 years; it's not an indication of what kind of alpha it would have going into next 3 / 5 / 7 years.

Active fund picking is hard, and ELSS having widest latitude can be really hard to pick the right fund that'd perform great after you invest in that.

For instance, until 2015-16, Nippon ELSS used to be one of the popular recommendation on many mutual fund portals. Since then, next 3-4 years haven't been kind to this fund, owing to this fund's huge bets on infrastructure / manufacturing sectors.

Conversely, Axis Long Term Equity (not a recommendation, using as illustration) has done better than expected over the same period.

In 2020, Canara Robeco ELSS fund looked like a great fund, doing much better than its peers over last 3-4 years. But 3-4 years ago, or even a year ago, it wasn't doing anything extraordinary, that it'd get into anyone's radar.

The harsh truth is, you can pick an ELSS fund, and at best hope for it to do well-enough. We've discussed in these FAQs how picking the right fund isn't exactly a big requirement - if you pick something that does ok enough, and give it time, that's fine.

ELSS investment which would be countable under 80C deductions is capped at 1.5L per year (though you can invest more than that amount in one/multiple ELSS schemes, the amount available for 80C will remain at 1.5L as per the current IT laws). On top of this, most salaried workers have PF, insurance etc., limiting ELSS investments to much lower value. If the investment principal is small, return difference isn't that important.

Just pick one, you're as likely to be wrong as you could be lucky.

Intro💫

No! You don't need demat account / trading account, to invest in mutual funds.

Mutual funds are sold by AMC (Asset Management Companies) directly to you. RTA (Registrar and Transfer Agent) of the relevant AMC processes the transaction, and keeps records of your units purchase or selling.

It's already stored electronically, with legal ownership that it belongs to you.

For instance, if you buy units in SBI Bluechip fund, then SBI AMC would issue you units. And its RTA, CAMS, would be responsible for maintaining these transaction details as source of truth, when it comes to your holdings in the fund.

To Demat or not to? 🙇‍♀️

If you add demat on top of that, it'd create an extra layer. Now that extra layer is beneficial for you or not, would vary from person to person.

The following are the pros and cons of using Demat folios:

Upsides 👍

• Loan Against Securities(LAS): You can gain access to a variety of loans, predominantly from a bank, by offering the securities (like mutual funds) as collateral; that are maintained in your demat account. These securities can be pledged as a collateral for obtaining a loan from your bank.

• Easy Claim Process: Mutual Funds or stocks in demat are much easier to claim by dependents (nominee of demat) in the case of death. Direct plans with multiple AMC’s (fund houses) would otherwise mean multiple folios, which would be difficult to aggregate and claim.

Downsides 🥺

• Porting & Vendor lock-in: Demat folios (folios where your units are purchased through a broker in demat mode), don't let you easily port these into other platforms. In non-demat mode of holding (also known as Statement of Account mode, or SOA mode); your units are only with the RTA, and you can purchase through one platform (INDMoney, for example), and sell those units through another platform (say, MFUtility); while track your portfolio in a third platform (Kuvera or PayTM Money, for instance). You get best of all platforms, when you invest in SOA or non-demat mode. Compared to that, investing in demat mode means you must transact on those units, only via your broker.

• Extra Fees & Charges: Demat mode of holding also adds extra charges, in addition to usual charges of mutual funds like the expense ratio, for each transactions. Depository fee, annual maintenance fees for your demat account, withdrawal stamp duty etc. are examples of charges you'd typically incur, should you use demat account. For a full list of all fees, you should ideally check with respective broker.

If you are confused which one to choose, select the non-demat mode. You aren't limited by the platform in this scenario.

You can transact on your folio through any platform of your choice, track your holdings in any other platform of your choice.

If a platform doesn't offer a functionality (say, instant redemption from liquid funds, or creating new folio for tax optimizations on short-term withdrawals), you can directly use the web portal of the respective AMC to place that particular transaction in your folio.

It gives you a freedom so that you're not vendor-locked-in with your broker or platform.

Intro 💫

In India, presently there are many Mutual Fund platforms available, for free. Being spoilt for choice, it can get overwhelming to decide which one's best for you.

To begin with, this choice is not as important as you'd like to think. For most apps, if you use one and don't like it, it's pretty straightforward to be able to move to another platform. It's a reversible decision.

But there are a few that you should avoid. For instance, the ones that sell regular plans.

Coming back to existing platforms that offer direct plans to Indian investors, we can broadly categorize these in two main types of mutual fund application/service categories.

• Third party applications

• Applications or platforms provided by the fund houses or RTAs

Third Party Applications 🥉

These are provided by third parties (the investor is the first party, fund house / RTA are the second party) which offer various transaction options to users for buying funds directly.

Most commonly, these 3rd parties are SEBI registered RIAs (Registered Investment Advisory); but can also be other AMFI distributors, or an umbrella organization backed by a group of fund houses.

They act like one-stop shop for various mutual funds, provided by almost all the fund houses.

Some of the popular ones are listed below in alphabetical order.

1. Coin by Zerodha

2. ETMoney

3. Groww

4. INDMoney / INDWealth

5. Kuvera

6. MFUtility

7. Mobikwik

8. Niyo Money / Goalwise

9. Paytm Money

Available functionalities or missing features of these platforms are captured below in a table:

Explanation of parameters used in the table

• Direct Mutual Fund Per SEBI regulation, all fund houses must offer a direct plan version of all their funds; where no middle-men can earn a commission for selling that. This reduces cost for the investor buying the fund. It improves returns by reducing cost over long run. Over any given period, direct plan of a fund would do better than regular plan of same fund.

• Fees There is no charge of any kinds of fees associated with buying units in a direct plan in the app, or setting up / cancelling SIPs. Note that some of these platforms have membership programs, or make some features available for a fee. We're not considering that here - only concerned with the ability to invest in direct plans, for any amount with any number of trades.

• Goal Setting A feature to set a goal for a specific amount of time so that you will be able to invest for it & track it.

• Family Account Ability to manage portfolios for multiple accounts (For e.g., spouse, Joint account) from a single user account login.

• Assets other than MF Ability of the platform to offer other assets like Gold, FD, Stocks, Bonds etc other than just Mutual Fund. Note that Coin by Zerodha offers only mutual fund; to be able to buy shares or bonds or ETFs, you'd need to download other products from Zerodha.

• TAX Statement Does the platform provide the statements for tax filing purpose (For e.g., Capital Gain Statement), or just to estimate tax liabilities for advance tax payments?

• History Tracking Ability of the platform to track the history of our portfolio ,irrespective of whether we purchased the fund from the same platform or not. In other words, can an investor just sign up and import their portfolio, built over the years, and track the performance all in one place?

• Automated Reinvestment Does the platform to automatically change the allocation percentage of your investment to debt & equity based on how near one’s goal is?

• Skip an SIP Option to skip the SIP for a month or a predetermined time. Note: Several platforms stops the investment and then start a new round again instead of pausing. This might create issues, especially if AMC has put restrictions on new SIPs. Do check with latest updates on your fund, from your fund house.

• NAV Cutoff Time This time determines the Net Asset Value (NAV), at which you can buy the fund units for that day. If an order is placed after this cut-off time, it'd be processed as an order of next business day. Ideally, you'd want a platform that enforces same cut-off time as the fund house / AMC; and not a restricted form of it. For instance, Coin by Zerodha has a cut-off time of 1:30 p.m. for all funds on their platform; while one can place an order in equity funds after 1:30 p.m. on most other platforms, and still get the NAV of same day.

Application by fund houses and RTAs 🥝

The fund houses also provide web portals / applications to manage the funds, offered by them.

So you might end up managing a bunch of applications to track your portfolio, having to deal with multiple logins on different websites.

Another option can be to use MyCAMS or KFinTrack. While these are provided by CAMS and KFinTech respectively; these don't offer all funds on their platforms, except for the ones from the AMCs whose RTA is also providing the platform.

For instance, if you invest in Axis Bluechip (using as an example, not a recommendation) Direct Growth, it won't show up in MyCAMS app. Because RTA of Axis MF fund house is KFinTech. Similarly, an investment in SBI Small Cap Direct Growth won't be visible in KFinTech app.

Other option is to have all the mutual fund investments from a single fund house.

But that's generally not a good idea, for many reasons (for instance, similarities in fund management styles or investment philosophies can make all the funds from a single fund house perform in a similar way). Practically, most investors would've investments with more than one single AMC.

Verdict 🎎

As long as you are buying direct mutual funds and not paying any maintenance charges, you should be fine with any of the application listed or not listed above.

And if you don't like one that you'd started with, you can easily move to another platform. We highly recommend testing out these platforms, preferably by placing a small order (say, 100 INR in ICICI Liquid Direct Growth or IDFC Insta Cash Direct Growth) and testing the order flow, end-to-end. Then continue with the one you liked!

Below are the options you can consider based on our analysis.

• Kuvera: If you are a beginner and is trying to get into the market for the first time.

• Niyo Money / Goalwise: Just wanted to get the money invested for a period of time without worrying about whether the fund should be equity based or debt based or a combination of these.

• Groww: If you need a platform where you can invest in stocks and mutual fund at the same time.

• INDMoney: If you want a platform which can track everything from daily expenses / investments, to credit scores.

This is not that different from the query on LIC. Bank / Insurance company would take your money, invest in some market-linked securities, deduct insurance related charges; and give you back peanuts. Upside is limited, but bank would sell you on the idea that downside is also limited.

As a rule of thumb, any policy or plan sold by bank, especially one that has a smart in its name, can be avoided without further consideration.

ULIP (Unit Linked Insurance Policy), Endowment plan, Annuity Plan - these are all great plans for the banks & insurance companies. But they are terrible for you.

Before buying into any bank products that are sold with such hopes and optimism, ask the bank RM to put you in touch with an existing subscriber, so you can review returns-in-the hands of an investor who actually invested in that.

Note that just because a bank RM is selling you, doesn't mean its returns are guaranteed by the bank. Other than bank deposits, nothing else is guaranteed, even if a bank sells you that.

You can look at the brochure / policy doc, and you'd see nice fat projections. But that's all those are - projections. Per IRDA regulation, banks & insurers can create projections with 8% and 4% return as illustrations.

That's not a guaranteed amount.

As said above, buy term cover if you need insurance. Invest in market-linked cost-efficient assets if you need returns. Most importantly, don't mix insurance with investment, where investment pays for the insurance.

There are two parts to investing via smallcase:

• the tooling around managing a watchlist of stocks, which enables us to execute transactions at portfolio level rather than at scrip level

• the basket of stocks offered by smallcase themselves, such as the Low Risk - Smart Beta smallcase, which can have a collection of stocks, ETFs, commodities etc.

There's no doubt that the usability of smallcase, as a tool, to manage a stock portfolio is quite good. When we say "usability", we mean the user experience of using the smallcase website and its aesthetics. If you already have a plan to invest in a collection of stocks of your choice, you can create a watchlist and place orders using smallcase.

The second aspect requires smallcase having a proven track record. The people responsible for maintaining the various basket of stocks on their platform should be capable stock pickers themselves.

We're mostly concerned with the second aspect in this article.

Here's why investing in the baskets of stocks offered by smallcase might not be a good idea

• Depending on the portfolio turnover, there can be significant tax drag for you since you'll be buying and selling units regularly.

  Smallcase is typically known for rebalancing their portfolios once every 90 days, for most of the portfolios.

  The act of rebalancing could result in some stocks being sold from your smallcase portfolio, which would also attract various charges associated with selling a stock.

  Since these are all negative cashflow transactions in your portfolio, your portfolio XIRR would end up falling behind the advertised CAGR of the same smallcase, over the same time period.

• There's a lack of a proven track record that can be independently audited and verified.

  Asset Management Companies (AMCs) are legally required to publish the Net Asset Value (NAV) of their mutual funds everyday, and the list of holdings held by their mutual funds every month. This means that an AMC can’t give you random numbers. They are forced to keep everything in the public’s eye.

  This is not true for smallcases.

• Smallcase is selling Backtested Models.

  Backtesting needs to be free from various biases, such as look-ahead bias. Strategies derived from a backtest would always show great results when simulated over the same time period.

  It’s hard to say if that’s what’s happening here; but since the appropriate data and disclosures around their modeling and backtesting is not present in the public domain, it makes sense not to just take them at their words.

• There used to also be some concerns around smallcase not being upfront with some of their numbers. They include backtested portfolio in computing returns of the smallcase, which is not at all how any asset management services report their returns.

  According to their recent blog post, they’ve updated some of their reporting to exclude such misleading data that could have potentially enticed curious investors to invest in hopes of high gains.

Finally, keep in mind that past returns are not indicative of future returns; and asset returns can be very different from portfolio returns.

What would make the basket of stocks offered by smallcase good investments?

A good investment is an outcome of a fact-based logical process. It should be rooted in better reasoning than just reported past performance of the asset.

Here are a few bars that the baskets of stocks offered by smallcase has to meet for it to be an investment worth considering:

• Disclosure on Insider Holdings

  It’s easy to trust an asset if the entity offering it themselves believe in the same, and invest in it.

  Smallcase should, ideally, indicate net insider holdings against each basket of stocks that they offer on their platform.

  Anyone can come up with a portfolio of stocks. However, if people from smallcase showcase that they're investing in their own basket of stocks offered on their website, it’d engender more trust in smallcase.

  A commonly accepted qualitative metric of mutual fund selection, is to look at key insider holdings — after all, why would someone else invest in a basket of stocks, if the entity offering it cannot get their own employees to invest in those? AMCs have to disclose insider holdings in their mutual funds as a percentage of net AUM to show how key insiders are invested in those.

  This clarity is need of the hour.

• Disclosure on Portfolio XIRR

  Smallcase Baskets, by design, are a product where return difference due to both behavior gap and costs can be very high. They're not a standard buy and forget product.

  Behavior gap is a well-defined term. In short, it denotes the difference between underlying asset’s returns, and returns as investors see in their portfolio, due to behavioral reasons.

  This is a well-known phenomena in investment, and various firms over the years have published studies on anonymized bulk data, that even when assets perform decently, most investors who invested in those assets, over same period of time, wouldn’t see those returns in their portfolio. It’d be significantly lower.

  A mutual fund is structured as a trust, so rebalancing doesn’t create any tax events for end investors who are invested in the same mutual fund. As for costs of STT, brokerage, and other fees associated with selling; all covered under expense ratio of the fund, which would be minuscule on a per-investor basis.

  As discussed above, mutual fund NAVs are already post-cost, therefore so are the returns.

  In addition to reporting CAGR of the portfolio, one should also expect to see on an average how a typical investor’s portfolio has performed, after costs, in that smallcase basket.

  Publishing these numbers would only make it easier to trust smallcase that they have the best interests of investors in mind.

• Disclosure on Portfolio History

  Due to periodic rebalancing, the latest version of stock portfolio of a smallcase basket won’t be how the same as it was a few months ago. It could even be wildly different from how it was a few years ago.

  If they were to publish stock portfolio history of their own smallcase baskets independently, it gives an investor an opportunity to validate:

  • whether the smallcase basket in question has stayed true to its mandate or not, as the theme of the smallcase basket dictates

  • whether the actual computed CAGR of the smallcase basket matches the CAGR advertized on the smallcase website

TL;DR: use the product if you like its usability; but not because you think their investment advice alone would make you great returns.

When using the smallcase website, you should use it as a tool to narrow down a watchlist of stocks and then do your own due diligence into underlying companies before investing in them.

Intro 💫

When buying a term cover, anyone would want to do their best to ensure their nominee(s) can claim the cover amount in their absence, if the worst were to happen. But it's easy to let our emotion guide us, what should be a rational process.

With various restrictions in place by IRDA (Insurance Regulatory and Development Authority), there aren't that many advantages of paying a premium to large reputed companies for their insurance cover.

Let's analyze various concerns you might be having, and how those stake up.

Concerns & Related Regulations 🤷

Insurance companies will find a way to enforce exclusions

Do investigate under which all circumstances they could reject a claim. It can be done by reading policy terms & conditions carefully, or getting details in writing from insurer.

But unlike health insurance, term insurance is much simpler. As morbid as this sounds, this question has a binary response.

Either insured person is dead or they're not dead. Even suicide is covered after 1-3 year of policy depending on the policy, which essentially means after a certain point of time insurer cannot reject a claim holding insured person responsible for their death.

Small companies will reject my claim no matter what

This is not true. According to Insurance Laws (Amendment) Act 2015 Section 45 ()

No policy of life insurance shall be called in question on any ground whatsoever after the expiry of three years from the date of the policy, i.e., from the date of issuance of the policy or the date of commencement of risk or the date of revival of the policy or the date of the rider to the policy, whichever is later

This means, after 3 years of continued payment of premiums, even if they find that some information about your medical history isn't correct in the insurance forms you had submitted, they can’t reject the claim on grounds of non-disclosure.

So, ensure that you provide correct information to the best of your knowledge when you take a life insurance.

But no need to worry about claims getting rejected because you missed to cross a ‘t’ in your form; if you've paid insurer premiums for at least 3 years.

They will make us wait a long time to settle

They cannot!

As per the regulation 14 (2i) of the IRDAI Policy holder’s Interest Regulations 2017, companies need to settle the claims within 30 days of receipt of the documents. If they require further investigation, they need to do it in 90 days.

Maximum time period one's family needs to wait, is 90 + 30 = 120 days.

Insurance broking companies like Policybazar, Coverfox etc. have representatives in major cities who will be able to do the documentation on our behalf in case of any claim.

They will be able to guide us in getting the needed documentation thus decreasing the chances of delay.

What if the insurance company gets closed?

Sections 35, 36 and 37 of the Insurance Act provide guidelines of amalgamations and transfers of insurance business.

As per this, an insurance company just cannot exit the business.

It can only merge with other companies and that too with certain conditions, thus protecting our insurance cover.

They're also required to maintain the solvency ratio of 1.5 which means if the company gives 100 Rs cover, they need to keep aside 150 Rs (see note), thus ensuring that the company will be reasonably able to provide the insurance money.

Note:

• Solvency ratios in insurers is (Net Income + depreciation) / Liabilities. So example is not 100% accurate, but an approximate.

• You can check the history of Aegon Life & IndiaFirst insurance on how the partners exited the business, merged with others etc. due to business and regulatory reasons; without affecting policy terms and conditions with insured persons.

Higher Claim Settlement Ratio

CSR (Claim Settlement Ratio) is number of insurance claims settled, as a percentage of claims received by the insurer. It's a metric every insurer has to publish with the regulator.

While this is an important number to look at; some of us really overdo it, extrapolating to imaginations that aren't apparent from the raw data itself.

To begin with, if an insurer has a CSR of 96%, then it does NOT mean that your claim has a probability of 96%, of getting approved. Your case, if it ever comes to that, would be treated by claims department of insurer, as a standalone case of its own.

CSR is a lagging indicator, i.e., it only says what has happened; not what would happen in future.

What you should be more interested in, is the potential future value of your insurer's CSR, around the time of insurer's demise. Since there's no way to predict that (can you really predict what would be CSR of Max Bupa in another 10 years, looking at its CSR of past 5 years?), it's almost pointless to look at CSR as a guiding north star.

A relatively new entrant in insurance market, would've a younger insurance user base; and therefore lower CSR due to higher chances of rejection.

CSR can be sensibly used as a baseline selection criteria. For example, one might not consider insurers that have not scored more than 90% on their CSR in last 5 years.

But it's naive to think that if CSR of insurance company A is 98%, while it's 95% for B; therefore your family might've 3% extra probability of getting your claim approved if you were to get it from insurer A.

Chances are, if B has a good reason to reject a claim, most likely so would A.

Conclusions 🎏

These arguments are based on the rules as of today and is subject to change it future.

But historically, the rules have only gotten stricter, and not the other way around.

So, it is safe to assume that there is no real advantage of going with the company with good names. What you may consider is the solvency ratio and the customer service

What really is term cover?

A term cover is an income replacement plan. It should be covering you, till you've dependents who're reliant on your income, and miss it if something were to happen to you.

This money would never be yours. It's meant for your family, in the event of something highly unlikely.

How does it matter?

It matters because for most people with income from salary or contract work; it'd be hard to sustain their income after age of 55-60.

At that point, they'd ideally have enough savings or investment corpus, or annuity or pension to take care of their day to day expenses , for the rest of their remaining life.

It's hard to imagine one having to support their immediate family members financially, after an age of 60.

While most term insurers offer insurance coverage up to age of 70-75, or even 80 years of age; it only serves to increase the premium.

You shouldn't have to buy a cover for a scenario, and pay extra in premiums; when you don't even need it.

Optimally, a term cover up to age of 55-60 makes sense.

Ideally, if you reach a state where your savings + investments far exceed the cover amount (for example, by more than 2x-3x); then it makes sense to cancel the policy and stop paying further premiums. In the event of your demise, your nominee(s) would simply inherit your corpus.

If you plan well, you would actually make the term cover moot well before your retirement

In a well run plan, you would start creating assets soon enough. Even if you have a few years of earning/investing left, your corpus may be sufficient to take care of all the financial goals that outlive you. When you reach this state, you don't require term covers. Example: Say you have two financial dependents and are building a retirement corpus for the three of you. There may be a few more years required to build the corpus for all three, but you would have built the corpus for the two dependents earlier. You can then cancel the policy.

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If you want to discuss anything on this website with other people, please check out our sub-reddit and discord below.

Beginner

If you're just starting out, have never had to think about finances, investments etc., you can start from the link below.

FAQs and How To

You might be here because you've a specific query that just can't wait. Do browse through our common queries sections below, to see if your query already has been answered by us.

Series

Here are some of the topics we presently cover in our wiki, in the form of their own dedicated series:

We also have some miscellaneous entries which might be helpful.

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Acknowledgements

Special thanks to Gitbook for accommodating us in their premium tier, free-of-cost.

It's been a fantastic journey working with the great folks over at Gitbook team. They've helped us out every step of the way whenever we've asked for it.

Wishing them all the best in continued success of this amazing product.

Contributors ✨

Our heartiest gratitude, to these wonderful people (emoji key):

This project follows the all-contributors specification. Contributions of any kind welcome! Start here

Introduction

Though stock-screeners calculate a lot of things, you must do your own calculations too. You will miss a lot of good opportunities or make some expensive mistakes if you consider only the pre-calculated values.

The objective of this article is to explain the importance of your own calculations. The article provides examples where the screening portals might not give right results. The examples are not to demean any portal but to explain the reasons for the difference in numbers across websites.

Examples of dividend yield

Lets consider the dividend yield of Britannia Industries as on 29th April 2021 (#britannia-industries-dividend-yield):

Screener.in:    4.18%
MoneyControl:   0.95%
MorningStar.in: 1.78%

Correct value:  ~2-5%
Depends on your judgement on how repeatable these dividends are

The differences are because of different treatments of interim dividends. While screener.in considers all the interim dividends of FY21, MoneyControl considers only FY20's dividends. MorningStar considered only one of the two interim dividends (probably assuming the other one as a one time special dividend).

Another interesting case is that of Majesco. The dividend yield as on 29th April 2021 on various websites is (#majesco-dividend-yield):

Screener.in:              1,353 %
MorningStar.in:           1,351 %
ValueResearchOnline.com:  1,355 %
(Yeah, 1000+% in all the cases)

Correct value:            ~0-5%

The company sold off its US subsidiary and distributed most of the proceeds from the sale. The US subsidiary contributed over 90% of the company's revenues and assets. Thus it is safe to assume it was a one time dividend. The future dividend yield in such a case would be around 0 to 5%.

Relying on any screener and buying highest dividend yields shares blindly can make costly errors in such cases.

Examples of PE Ratio

Let's consider PE ratio of ONGC on different websites as on 29th April 2021 (#ongc-pe-ratio):

MorningStar.in:           shows blank
Screener.in:              13
ValueResearchOnline.com:  144
NseIndia:                 79
MoneyControl.com:         146

The company reported:

Standalone TTM EPS:       ₹ 1.32
Consolidated TTM EPS:     ₹ 0.73
The price was:            ₹ 104
Exceptional losses:     ~ ₹ 7.98 / share

Exception losses were of 4899 Cr pre-tax on an old GST liability.

The differences across websites is because:

• ValueResearchOnline and MoneyControl considered consolidated EPS as reported by the company.

• Screener.in considered consolidated EPS but added back the exceptional losses.

• BseIndia.com and NseIndia.com considered standalone EPS.

The correct PE depends on your individual judgement on how you interpret the impact of exceptional items on future earnings.

The PE based on last 5 years average earnings will be 8.29. This is what Benjamin Graham recommends to use in such cases.

Operating margins and gross margins

The text-book definition of gross profit margin (GPM) is sales - cogs.

COGS is cost of goods sold.

Most websites will show the gross margins on this standard definition. However, this can sometimes be misleading.

Example in case of TCS - screener.in shows the GPM as 100%. This is because TCS has no inventory. But the correct metric for COGS in this case should be their employee cost.

Similarly in case of banks, most websites (eg screener.in), don't consider their interest cost in OPM (operating profit margin) and GPM (gross profit margin). Thus these numbers are shown exceptionally high.

Screening companies on margins can often yield incorrect results for:

• Insurance companies

• Banks

• Finance companies

• Mining companies

Return ratios

In case of Abbott India, the ROIC reported as on 29th April 2021 is (#abbott-india-roic):

Screener.in:        22.90%
MorningStar.in:     21.53%
TijoriFinance.com:  131%
Correct value:     ~138%

The company held fixed-deposits (cash equivalents) of ₹ 2,197 Cr in FY20. While TijoriFinance excluded these cash-equivalents in the calculation of capital employed, other two websites didn't exclude it.

These differences in the methods of calculating ROCE, ROIC, ROA and other return ratios can yield wildly different results. You can sometimes miss some interesting companies because their calculated return might be much lower than their economic return ratios.

Summary and Wrap-up

The auto-calculated ratios on websites can often be different from manual calculations. Those calculations will often miss sector specific adjustments or "special cases" which are too frequent in the investing world.

Don’t rely blindly on any portal or report. Do your own due-diligence.Cross-check the numbers with your calculations.

Trust, but verify.

Though the websites and portals do their best, there are lots of nuances in the footnotes and schedules which are hard to capture. This mandates the due diligence from the investors and also provides opportunities to them.

To understand how to use a screener, you might want to check this out

Footnotes

Web-archives for case studies

Britannia Industries dividend yield

• Company's dividend history

• Screener.in

• MoneyControl

• MorningStar.in

Majesco dividend yield

• Company's sale of its US subsidiary

• Company's presentation about dividend

• Screener.in

• MorningStar.in

• ValueResearchOnline.com

ONGC PE Ratio

• Company's exceptional losses

• MorningStar.in

• Screener.in

• ValueResearchOnline.com

• NseIndia

• MoneyControl.com

Abbott India ROIC

• Screener.in

• MorningStar.in

• TijoriFinance.com

First of all, it should be clear what you mean when you say "park money". You intend to keep some money safe somewhere for a requirement that's going to come up in the near future (somewhere between a few days to 1-3 years down the line).

Bank Savings Account

As a thumb rule, avoid co-operative banks and small finance banks. Although DICGC insures your deposits in a bank account up to ₹5 lakh, it's better not to rely on it and take unnecessary risks.

Check out the links mentioned below if you want to know how to evaluate the health and safety of banks in India.

• How to see if a bank is risky for placing your deposits? [A guide from a banker] (old reddit link | archive.org link | archive.is link)

• Indian [private] Banks - Health scorecard (old reddit link | archive.org link | archive.is link)

Bank Fixed Deposits

Debt Mutual Funds

You can also park your money in certain debt mutual funds. This includes overnight funds and liquid funds for parking money for a few months and money market funds for a few years. However, note that unlike savings account and fixed deposits, debt mutual funds are marked to market which means that you should expect some volatility in day to day NAV. This volatility is mostly negligible in overnight and liquid funds, but we have seen events like the Covid-19 crash in March 2020, when even liquid funds experienced a few days of relatively high volatility.

Here are the NAV graphs of HDFC Liquid fund, the biggest liquid fund in India in terms of AUM, and Parag Parikh Liquid fund, during the covid crisis.

Indexation benefits and taxation

Prior to the 2023 Budget, debt funds used to enjoy indexation benefits when it comes to taxation if they were held for 3 years or more. This is no longer the case for debt fund investments made on or after 1st April, 2023.

We've considered the Cost of Inflation Index (CII) values between FY19 and FY21, which are 280 and 301, respectively. The indexed cost of investment, at the time of redemption in FY21, becomes

Arbitrage Mutual Funds

Last, but not least, there are arbitrage funds. These debt MFs are taxed like equity MFs so you don’t have to pay any taxes if you park your money for more than a year and your gains during redemption don’t exceed ₹1 lakh. This might sound good on paper but arbitrage funds are significantly more volatile than liquid funds and don’t offer instant redemptions either. The returns from arbitrage funds also depend on the availability of arbitrage opportunities and this has started to come into question. For more details, check out this article (archive.org link | archive.is link).

At the end of the day, when it comes to parking money in arbitrage funds, buyer beware.

DO NOT park money in these instruments

Now that we've covered where you can park your money, we'll list some instruments where you probably shouldn't park money for planned redemption in the near future.

• any debt mutual fund with somewhat significant interest rate or credit risk This includes credit risk funds, dynamic bond funds, gilt funds, banking & PSU funds, ultra short, short, low, medium, and long duration funds, and corporate debt funds.

• hybrid mutual funds

• index funds like UTI Nifty index fund

• any other sort of equity mutual fund

• stocks

The difference between regular plans and direct plans of mutual funds is explained in the article linked below. In short, regular plans have an additional cost of distributor commission. This doesn't go to the AMC.

UTI Nifty Index Fund

The list of expenses borne by UTI Nifty index fund in FY20 are as follows

People might argue that UTI could've reduced their expenses by not spending as much on Marketing & Distribution or Investor Education but considering they don't have enough AUM or TER to make any profits whatsoever, would cutting back on Marketing expenses help UTI at this point? The longer the fund has meager AUM, the longer UTI would suffer losses here. We should also consider that UTI Nifty index fund was launched back in March 2000, more than 20 years ago. I'm not sure if UTI has made any profits on this fund whatsoever and yet we hear people complaining about the TER of this fund being high.

Motilal Oswal S&P 500 Index Fund

Unfortunately, the scheme financial documents of MO's S&P 500 fund aren't available yet. It should hopefully be published in the next few months so we can know more about the expense details of MO's S&P 500 index fund.

Vanguard S&P 500 Fund

The Vanguard S&P 500 Fund is actually a class of several different funds all collectively known as Vanguard S&P 500 Fund. The different classes are

Each share class has different minimum investment amount requirements and other minor differences. Combined, these share classes have an AUM of 731$$ billion. Using the TER and AUM mentioned in the table above, we can come up with an approximate figure of earnings of 240$$ million in the year 2020. The actual amount is probably somewhat lesser since we haven't considered average AUM in this case.

The total expenses of Vanguard S&P 500 fund across all of its share classes was 184$$ million. This means that Vanguard earned only about 50$$ million in profit.

It should be kept in mind that Vanguard itself is structured differently than most AMCs and the company is owned by the investors in its funds. It was founded by the father of index investing, Jack Bogle, who was a proponent of low cost index investing. It would be fair to say that we haven't had any AMCs similar to Vanguard or influential index investing pioneers in India yet.

Summary

https://utimf.com/forms-and-downloads/

https://investor.vanguard.com/etf/profile/portfolio/voo

https://investor.vanguard.com/mutual-funds/profile/portfolio/vfiax

https://investor.vanguard.com/mutual-funds/profile/portfolio/vffsx

https://investor.vanguard.com/mutual-funds/profile/VFINX

https://personal.vanguard.com/funds/reports/q400.pdf

Past performance is not indicative of future returns. If you pick assets after they have performed well, you'd most likely miss out on assets that performs well after you have invested in it.

If Gold has gone up 50% this year, right time to invest in it would've been 1 year ago.

Instead, question your asset selection process: is your selection criteria good enough for it to have picked Gold as an investment a year ago?

In other words, what were Gold's 1Y / 3 Y / 5Y / 10Y returns, 1 year ago on this date? Most likely, it won't have been good, and you'd have passed on that.

Chasing past returns, hoping for a repeat of performance, is called return chasing. It's common among new investors, but even veteran investors fall prey to this. As a rule of thumb, avoid greed in decision making.

This is not to say Gold is a bad investment for next 1Y / 3Y / 5Y. It might be, it might not be. But the fact that Gold has surged in price in recent times; is not a good reason to invest in Gold.

Introduction ✨

Before we get to the answer for this, we need to define and establish common understanding around some domain specific terms.

A Base Policy, which could either be a group, an individual, or a family floater policy, covers you and/or your family members up to the Sum Insured.

This is for any hospitalizations; for a minimum period of 24 consecutive in-patient care hours, except for specified procedures/treatments where such admission could be for a period of less than 24 consecutive hours.

This base policy might have restrictions on Room Rent (all major hospital expenses are linked to this parameter, as discussed before) and ICU charges; require you to co-pay a specified percentage of the admissible claim amount and have other restrictions/exclusions under the policy.

Given all other conditions like your age, any pre-existing illnesses, number of family members being insured being the same, your base policy premium will increase with every increase in the sum insured. Hence a ₹2,500,000 (25L INR) sum insured policy will have a higher premium than a ₹1,500,000 (15L INR) sum insured policy.

Is my base policy enough? 🤔

Cost price inflation of medical services and medicines (closer to 10%-15% per annum) and lifestyle diseases can make a base policy of 25L inadequate in the next 5 years, since the time of subscribing in the policy.

Any new policy will also have a waiting period for pre-existing illnesses (PED’s) along with higher premiums due to the PED’s. If you want to future-proof your medical expenses, the base policy alone will not be enough.

The option you then have is to buy an additional top-up or super top-up policy. Both these policies are based on a clause called a deductible.

What is a deductible? 🌵

As per IRDAI’s guidelines on standardization in health insurance:

Deductible means a cost sharing requirement under a health insurance policy that provides that the insurer will not be liable for a specified rupee amount in case of indemnity policies and for a specified number of days/hours in case of hospital cash policies which will apply before any benefits are payable by the insurer.

When you buy a top-up or super top-up policy you must choose a deductible - the maximum cost you need to bear when making claim.

Assume you are buying this policy with a deductible of ₹500,000 (5L INR). What it means is that the first 5L INR of any eligible claim will first be paid by the insured either through a separate base policy or out-of-pocket.

Top-up vs Super Top-up? ☯️

In case of a top-up the deductible is applicable for each hospitalization, whereas in case of a super top-up the deductible is cumulative for the policy year.

Which one do I buy? 💰

Assuming you already own a base policy and are choosing between a top-up vs super top-up, it’s usually recommended you buy the super top-up.

The higher the deductible that you choose, lower will be the premium for the super top-up policy.

Ideally your super top-up policy should have the same renewal date as your base policy. This ensures that both policies overlap each other 100% and the benefits of having these two policies are maximized.

Super top-up policies are available for sum insured of up to 1 crore with some insurers.

Why is the premium low for Super top-ups? 🐤

Insurers can offer super top-ups at a cheaper rate compared to base policy. This is because of much lower probability of higher expenses, that’d require you to use your super top-up policy claim options.

Statistically, it's more likely that your hospitalization costs would be within the deductible limit of super top-up policy. Hence, insurers can afford to offer lower premium.

Filing an Income Tax Return (ITR), and paying taxes are two different things. A return filing is a declaration. Even if you're not eligible to pay taxes in a particular financial year; we recommend filing a return nonetheless.

An ITR is a piece of document that might need to be used in the event of a loan application, credit card application, or even visa interviews.

In fact, until you review your form 26AS, you won't know if there's an entity out there who's deducted TDS against your PAN. If so, you can claim a refund from IT dept. only via completing a return filing.

There's no harm in filing one, it clears up a lot of things and get those on the record.

These days, there are services like ClearTax, Quiko etc., that would let you file most common type of ITRs for free of cost. You can prepare and submit directly from these apps.

A mutual fund is not free from costs. An asset management company (AMC) is a for-profit entity who aim to make some profit from their venture. They also have to pay their security analysts, operations teams, pay brokerage fees for market participation, and record keeping fees to registrars like CAMS and KFintech, formerly known as Karvy.

A regular plan of a mutual fund has one more additional expense — distributor commission.

Why is distribution commission bad for an investor?

There are many reasons why regular plans shouldn’t exist.

• Erosion of Value

  Regular Plans add no value to the portfolio of an investor. All it does is eats away at your portfolio valuation and make the distributor richer.

  This cost scales with your portfolio valuation. The more your investments grow in value, the more money is taken out of your investment.

  It’s a classic case of tyranny of compounding costs, words made famous by Jack Bogle.

• Distributors are Inherently Biased Against the Investor

  The distributor which subscribes an investor to a regular plan is inherently biased against an investor because the distributor would recommend funds which have high distributor commissions regardless of whether the fund is actually good for an investor or not.

  To prove our point, here’s an example.

  This stark difference in the source of AUM should be enough to highlight where the priorities of regular plan distributors lie.
• It’s unfair

  You might’ve placed a purchase order five years ago in the regular plan of a fund, to purchase some units. This one transaction and subsequent payments, have been lining up pockets of the distributor, every day, for the last five years. And it would continue to do so as long as you have even a single unit in the regular plan of the fund.

  Meanwhile, the distributor is not at all involved in the process of managing your portfolio — that’s being handled by the respective AMC.

  This payment model of perpetual payment in eternity is rarely ever seen in nature, outside of this one use-case. Imagine visiting a doctor who demands 1% of your income every month in perpetuity till you’re alive.

• It’s sneaky

  For most mutual fund investors out there, the disadvantages of investing in regular plans are not well understood. Lack of financial knowledge, and fear of complexity have driven a generation of investors to blindly trust their distributors without looking too closely at account statements.

  But this charge is so sneaky, there’s no column in most account statements sent by AMCs, that include an entry for the amount that went to your distributor in the last 1M / 1Y / 5Y. Fortunately, your NSDL / CDSL consolidated account statement (CAS) would include this information.

  If distributors have faith in their financial advice and planning, they should have no shame in openly sharing with their clients, how much they’ve made blindsiding them. Or, the distributors should send an invoice to said clients. But they don’t, and to hide this daylight robbery, the payment is done by an AMC to the distributor directly, at periodic intervals.

What difference does an extra 1% make?

Let’s try to understand, with real world scenarios, exactly how much one can stand to lose investing in regular plans. However, before we get there, let’s discuss what direct plans are.

The only difference between a direct plan and a regular plan of a mutual fund is that direct plans do not have distributor commissions. The word direct must be present in your NSDL / CDSL / AMC account statements if you’re investing in a direct plan of a mutual fund.

Although it may not be straightforward to calculate the difference in returns between a regular plan and a direct plan of a mutual fund from AMC account statements, we can calculate it by simulating the same transactions on the same date in the direct plan of a fund.

Lumpsum Purchase in Axis Long Term Equity and Tata Large Cap

Next time, when a distributor tells you to keep your SIPs going, you have to wonder whether it’s because they don’t want to see their income disrupted, which is tied to total portfolio value.

Total Expense Ratio from an AMC’s Perspective

We can use this data to get some insights about the expenses generated by this fund.

SIP for 8+ Years

As on 9th April 2021, the direct plan of mutual funds have had more than 8 years of history since they were started back in January 2013.

We are considering some large-cap funds that have mostly stayed true to their large-cap stock selection mandate, i.e., mostly having bluechip stocks in portfolio of the fund. Mirae Asset Large Cap fund has been excluded, as it was operated as a multi-cap fund throughout most of this time period (2013-2018) that’s being considered.

UTI Nifty Index

HDFC Top 100

Franklin Bluechip

ABSL Frontline Equity

SBI Bluechip

DSP Top 100

ICICI Prudential Bluechip

Nippon Large Cap

As we can see, in the large cap space, equity mutual funds have mostly performed in-line with the index funds over the last 8 years. Most of them have underperfomed, but some of them have outperformed.

Let’s look at the data presented above from a different perspective. We’ll focus on distributor commissions and their impact on our portfolio.

As you can imagine, no popular distributor was publicly recommending UTI Nifty Index fund’s direct plan, back in 2013-14. This isn’t surprising considering the fact that for a regular plan distributor, recommending UTI Nifty Index fund’s regular plan would’ve been the least profitable.

How Bad Will It Be in the Long Run?

Unfortunately, investing in the regular plan of a mutual fund is only the beginning. As more and more time passes by, staying invested in the regular plan of a fund will erode your portfolio further.

As Jack Bogle said:

The miracle of compounding returns has been overwhelmed by the tyranny of compounding costs.

The recurring cost model of regular plans can unleash this mythical tyranny right on your portfolio, without you even realizing it.

Falsehoods and Myths about Regular Plans

As you’d imagine, regular plans are a juicy proposition for every participant involved, except for the investor whose capital is being eroded.

An investor might come across some of the following arguments in favor of regular plans. We’ll go ahead and debunk them.

But why would AMCs purposefully lower their returns in regular plans? It doesn’t make sense.

AMCs don’t have a reason to compete on performance, when they can just offer more commissions on their funds. The distributors would then sing praises of such funds over other available options.

AMCs like Mirae Asset, have been artificially reducing the TER of the direct plan of their funds well below that of their competitor fund houses, creating large TER differences between their funds’ direct plan TER and regular plan TER.

This incentivizes distributors to recommend Mirae Asset equity funds over other funds and lures in direct plan investors with unusually low expense ratios. Of course, the unusually low TER of direct plans can simply be increased later once Mirae Asset’s AUM targets are achieved. It’s unfortunate that there are no regulations on frequent TER changes made by AMCs.

As on 9th April 2021, this is how the TERs look like for flagship funds from Mirae Asset AMC:

Of course, Mirae Asset isn’t the only AMC which is doing this. You might come across unsustainably low TERs in direct plans of other AMCs, with reasonably high TER in the regular plan of the same fund.

But why would my distributor recommend such funds? He’s our family friend / relative and has our best interests at heart.

Regular Plan distributors don’t have to recommend good funds, because if it doesn’t perform well, they could just tell you that the markets were bad this year, keep your SIPs going, and buy at lower prices. Your uninterrupted inflows in regular plans makes the regular plan distributor richer.

To understand how deep this nexus is, take a look at AMFI disclosure reports on commission to distributors, from past years:

But the NAV of Regular Plans are lower than Direct Plans. Shouldn't I buy low and sell high?

The NAV of regular plans is lower because it includes distributor commission and it'll always be lower than the NAV of its direct plan counterpart. In this case, your purchase price doesn't matter. What matters, is the rate of growth after you purchase.

As we just saw, the NAV purchase price and the number of units that you get are irrelevant and do not affect the final portfolio value. The CAGR, however, does, and it should be evident that the CAGR of a direct plan will always be higher than its regular plan counterpart.

But it’s just a difference of 1%. It won’t have much impact.

I know regular plans are bad but if I switch, I'd have to pay taxes. I don't want to pay taxes unnecessarily.

Taxes are on realized gains. Commission is on entire corpus.

Just like the largest ant is no match for the smallest elephant, your taxes might be low enough, if any, compared to your potential commission losses over next few years. Even if it’s not, tax is a one-time headache. Commissions are forever, till the date you’ve zero units to your name in that regular plan of a fund.

You could also switch out partially, and not all at once. That’d save you some taxes by spreading your redemptions over more than one financial year.

In a scenario like this, it’s best to compute the potential values for tax liabilities, project losses in commissions, and make a choice on a case-by-case basis.

If not for my distributor, I wouldn't have started investing in mutual funds. I'm grateful to him. I can't just switch to direct plans now.

It's your decision to make but we'd advise you to think rationally about this, and keep your emotions aside when making decisions about your money.

Your distributor may have introduced you to mutual funds but if he signed you up on regular plans, he probably didn't sign you up because he was thinking of your welfare first.

At this point, you have the power to make decisions about your own money and switch to direct plans to save expense costs. You don't even have to find different funds.

If you're not comfortable choosing funds, you can start investing in the direct plans of the same funds offered by your distributor. Even in that case, you'd save on a lot of expenses.

But my distributor also gives advice. I don’t know anything about mutual funds. Investing in direct plans is only for advanced investors.

As we saw in the previous section, in the last 8 years, regular plans of large cap funds haven’t been able to achieve for the average SIP investor, what the direct plan of a low-cost Nifty index fund has generated.

Clearly, the so-called financial advice from regular plan distributors hasn’t been good enough to even make-up for the cost.

Investing in direct plans is a risk-free way of improving returns. A good advisor would recommend direct plans to their clients.

Also, when you invest in a mutual fund, the fund manager manages your portfolio. They are responsible for managing the investments in the you’ve invested in and adapt it according to market conditions. Your distributor has no role to play there.

SEBI has already issued notices saying that mutual fund distributors cannot be advisors. A person can either sell or advise but not do both.

Unlike a few years ago, we have many platforms today that offer investment in direct plans to every investor in the country. It has become much easier to invest in direct plans and manage your portfolio these days. One doesn’t need to visit an office, or use clunky AMC websites with bugs and errors.

If you’re wondering which website / app you should use to invest in direct plans, check out the following article.

If you’re wondering which mutual fund should you invest in, check out the following article.

We’d like to mention that choosing a “good” or a “best” fund isn’t important or required. Pick a decent actively managed fund and stick with it unless something fundamental changes about the fund. Or, if you’re still confused, pick an index fund and call it a day. The choice of the fund isn’t as important as sticking to that fund and investing in it in the face of market turbulence.

Wrapping Up

The real takeaway here is that recurring costs can affect your investment corpus in a really bad way over the long term. As an investor, avoiding regular plans is important. But in the same spirit, we should also avoid other recurring costs as well, which add up over the years, such as (but not limited to):

• brokerage commission, in percentage terms (and not fixed), for equity delivery

• rebalancing costs

• frequent selling leading to capital gains taxes

• high asset management fees of exotic products

Unlike regular plans, some of the above aren’t always avoidable. But do keep the adverse effects of costs from repeatedly doing these in mind, when engaging in, say, rebalancing.

Quantum AMC started offering direct plans of their flagship funds, Quantum Liquid and Quantum Long Term Equity, back in 2006. They were the first AMC to do so in India. They chose to not tie up with distributors, but rather offer a direct purchase option to the investors via offline mode (CAMS or KFinTech offices) and on their own website.

Since January 2013, SEBI regulations have forced all AMCs to launch direct plans for each and every mutual fund that they had and would come up with in the future.

If you haven’t done it yet, take a look at your NSDL / CDSL CAS, and see if the word “direct” appears in the name of the funds that you’re invested in. If not, you’re most likely invested in the regular plan variant instead. Ideally, all your funds should be in direct plan mode, and no fund should be in regular plan mode. You might be losing money to a rent-seekers without receiving anything of value in return. If that’s the case, start the process of switching to direct plan today.

Intro👋

There are 2 ways to hold mutual funds. One in the demat form and another in physical (rematerialized) format. The method of transfer will vary depending on the form that your mutual funds are stored in.

Transfer Procedure📇

Demat Mutual Fund transfer 🚧

Rematerialized mutual fund transfer 💻

Since the mutual fund are handled by the fund house, you don’t need to ‘transfer the fund’. To see the funds in the platform of your choice, you need to

1. Stop the SIP if you have any in your existing platform

2. Go to the platform of your choice and select import folio

3. You will then be taken to the CAMS / KFintech site where you need to enter the requested details

4. You will receive a CAS (Consolidated account Statement) in your email shortly

5. Depending on the platform and the access permission given, you will either have to forward the mail to the mail ID specified by the platform or they will automatically fetch it from your email.

6. You now can select the existing folio for SIP or lumpsum transaction

Intro ✨

Investing in US equity markets can be rewarding, if done for the right reasons, with right expectations.

When it comes to overseas investments; costs are usually the biggest factor to keep in mind. Unlike market returns, costs are in your control, and can be a determining factor in outcome of your investing journey.

There are currently two main ways in which retail Indian investors can invest in US stock market:

• Direct Investing: Investing via a platform or broker, which allows one to direct buy US stocks, ETFs, and other securities directly.

• Indirect Investing: Investing in India-domiciled mutual funds, FoFs (Fund of Fund - a mutual fund investing in another mutual fund), or ETFs (Exchange Traded Fund) which invest in US companies’ stocks.

If one is investing in smaller amounts (or SIPs) of less than ₹2L or so at a time, India-domiciled mutual funds are the more efficient choice due to lower costs (as low as 0.49% TER currently) and a simpler tax compliance process.

Explanation 📜

There are India-domiciled US index funds available to retail Indian investors at reasonable low costs.

There are also actively managed funds starting at a sightly higher (but still pretty reasonable) TER; that offer exposures in US equity markets.

But if one were to try and invest directly, one would run into a few challenges. At present, the international fund transfer process is cumbersome and expensive. Mainly because:

• Banks typically charge ₹500 - ₹1500 for every single international fund transfer.

• There is another 1% in currency spread / forex costs on the transaction, that's incurred for every transfer.

• There is an LRS form (called the A2 form) that needs to be physically submitted and presented to the bank for international transfers for the purpose of investing. Some banks might pick up this document from your place, or allow an online submission, but it can take up to two weeks for the funds to show up in your international trading account. Which means two weeks of opportunity and interest cost.

• The same costs and time, when withdrawing the funds back to Indian bank accounts; effectively doubling all above costs.

As a result of the above fees and taxes, average retail investors might lose up to 5% of their capital even before they’ve bought a single stock.

Because of the cumbersome and expensive fund transfer process and additional tax compliance, it is recommended that for now, Indian retail investors should prefer India-domiciled mutual funds and ETFs for investing in the US.

An Estimate of Fees 💱

One's fees will vary depending on the bank or service one uses, and tends to get more reasonable as a fraction of total investments the larger one’s investment amount is. As an illustration one can refer to the below table ($1 = ₹72.5):

The above table doesn't consider the forex conversion spread, which can be estimated as 1%.

A conversion spread means you get to buy USD from bank, at higher price than it's worth, and sell to bank at lower price, than it's worth at that time.

On the other hand, as you invest and accumulate larger and larger corpus; the proportional cost model (i.e., where you get charged a percentage of your asset size) becomes costlier.

For instance, if you're investing ₹50,00,000 (50 Lakhs INR), an effective expense ratio of 1.5% would eat away ~₹75,000 (75k INR), every year. At that corpus size, it might be cheaper to actually invest directly into a US ETF (domiciled in IRE / LUX), and incur compliance costs.

List of Direct Platforms ✔️

Types of Platforms

There are broadly, two types of platforms providing US investing services to Indians:

• An Indian brokerage or platform, having a tie-up with an international or US based-brokerage like Drivewealth or Saxo.

• An international brokerage.

The international brokerages generally require a minimum account value (total value of investments held with that broker - similar to minimum relationship value used by banks) and charge higher brokerage.

On the other hand, Indian platforms generally don’t require a minimum account value and generally have lower brokerage charges (some even offer zero brokerage).

Common Platforms

Some of the common platforms are:

Aspects such as fees/charges, features and range of stocks available for investment vary from broker to broker and keeps changing over time.

Tax Implications 🧾

Direct Option

When you invest in the US stock market directly, there are two types of taxation events:

• Taxes on investment gains: You will be taxed in India for this gain. Taxes will not be withheld in the US. The amount of taxes you have to pay in India depends on how long you hold the investment. The threshold for long-term capital gain is 24 months, with the rate of 20% with indexation benefit. If you sell a stock in less than 24 months, capital gains are considered short-term and are taxed according to your income tax slab.

• Taxes on dividends: Unlike investment gains, dividends will be taxed in the US, at a flat rate of 25%. Fortunately, the US and India have a DTAA (Double Taxation Avoidance Agreement) which allows taxpayers to offset income tax already paid in the US. However, availing proof and paperwork for DTAA is not straight-forward. The 25% tax you already paid in the US is made available as FTC (Foreign Tax Credit) and can be used to offset your income tax payable in India.

Indirect Option

India-domiciled mutual funds and ETFs holding more than 35% of their overall portfolio in foreign stocks are taxed similar to debt mutual funds and provide indexation benefits on long term capital gains after three years.

If held for less than 3 years, gains are added to your overall income and taxed at your income tax slab rate. If held for more than three years, gains are taxed at a flat rate of 20% after indexation.

While Indian equity funds have an advantage over international equity funds when it comes to taxation, taxation shouldn’t be the most important criteria if one is investing for long term and one is investing according to one’s asset allocation.

Also, one must keep in mind that tax rules can change over time.

Things to Keep in Mind 🧠

• Investments in US equities must be made in USD. One has to first wire (remit) USD to one’s broker’s partner bank in the US to fund one’s account. In order to do this, the investor must fill out an LRS form (called the A2 form) and submit it to their own bank.

• On placing a withdrawal request, the money should be wired directly to your bank account in India. It may take 3 to 5 business days for the wire to come through.

• The Indian securities market regulator SEBI doesn’t have any effective oversight of these entities.

  Hence, as a cursory check, investors should verify that the brokerage they are investing through is registered with the SEC, FINRA and SIPC which are the primary US regulatory bodies.

It is advisable for Indian investors to also go through the prospectus, factsheet or other such scheme documents of the underlying fund to get a better idea of any hidden fees and charges.

Intro ✨

As an Indian equity investor, there are plenty of reasons for you to invest in the US equity markets. Equally, there are good reasons why one should avoid investing in US markets, if they are already exposed to Indian equity.

Reasons in Favor 👍

Diversification

Diversification is an important part of an investment journey. It helps one reduce volatility and risk of their portfolio, especially at larger portfolio sizes.

As portfolios get bigger over time, drawdowns can also be larger in absolute terms. When your portfolio has ~₹100,000 (1L) in valuation, a 1% drop is a nominal loss of ₹1,000. At ₹1,00,00,000 (1 Cr.), same 1% drop is a 1L nominal loss. As portfolios grow with time, many investors seek to reduce day-to-day volatility and large drawdowns.

Investing in overseas or foreign equity can provide some geographic diversification.

The rationale for diversification is clear — domestic equities tend to be more exposed to the narrower economic and market forces of their home market, while stocks outside an investor’s home market tend to offer exposure to a wider array of economic and market forces.

In other words, unless there's a big global driver, most of the times, India and US equities won't move up and down, won't move up and down, in same direction nor necessarily with the same pace, simultaneously. Hence moderating the swings based on percentage allocations one takes in US equities.

Size

US equity markets are the largest equities markets in the world. As an investor looking to build long term wealth with equities, over decades, you should have some exposure to largest equity market in the world.

As of 2018, U.S. equities accounted for ~44% of the global equity market, far greater than the next largest market China (~9%). Indian market capitalization was only ~3% of the global market.

Why is size important?

Due to its vast size, most of the retail and institutional investors all over world, would always be chasing US equities, and be willing to take position in this. Its size makes it so that it remains efficient, and provide cues to other markets globally.

Being the biggest market it also attracts companies from around the world to be listed here as getting investing capital is easier in this market. Eg: Spotify (NYSE: SPOT), Makemytrip (NASDAQ: MMYT), Alibaba (NYSE: BABA)

The liquidity and quality of top US stocks are simply unmatched anywhere else in the world.

Lower Price Correlation

Just buying different stocks (or other assets) alone, won't automatically result in diversification benefits. The assets into which one is diversifying should have low price correlation with the assets already present in one’s portfolio. Price correlation measures how closely the prices of two different assets are related.

Price correlation can either be positive or negative - the closer to zero, the better. A high positive correlation (approaching 1.0) means that the asset prices move in tandem, offering diversification in name only, while a high negative correlation (approaching -1.0) would mean that the investments' price movements will virtually cancel each other out, defeating the purpose of investing.

For example, large-cap Indian equity mutual funds will usually have a high positive correlation with the Nifty 50 index; because many of the stocks held by these funds would be from the Nifty 50 space.

As seen in the table below, US markets have historically, had low price correlation with Indian markets

This table based on data provided by Bloomberg, considering prices of these indices between Feb 2005 and Feb 2020.

Nifty 50, Nifty 500 are Indian equities index benchmarks. We use TRI (Total Return Index) to account for dividends.

NASDAQ 100 and S&P 500 are popular US equity indices. Here we also use TRI, converted to Indian currency (INR).

As expected, Indian equity and US equity benchmarks have close to 1 as correlation co-efficient among themselves. But any time an Indian equity benchmark is compared with a US equity index, or vice versa, the price correlations are drastically lower.

Marquee Names

Some of the biggest and most famous brands and companies are listed in the US.

Think Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Google (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), Facebook (NASDAQ: FB), Tesla (NASDAQ: TSLA), and many other similar ones.

Most of these companies are also MNCs (Multi National Corporation) and have internationally diversified businesses and revenue streams.

In that sense, taking exposure to US equities can be viewed as getting access to equities growth of companies with global revenue and user-base.

But Also Consider These 👎

Currency Risk

Foreign investments are subject to currency risks. If you're an Indian resident, your investments would be valued in INR (Indian Rupee). And not in USD (US Dollar).

If INR appreciates against USD, then your US investments would lose its market value, and show up as a loss in your portfolio.

Opposite is also true (that's how risk works!) - if INR depreciates against USD, then your foreign holdings become more valuable, as it's priced in INR.

Forex movements would affect your portfolio. In addition to market risks that come with every equity investments, you'd also be assuming one extra risk which would impact your portfolio.

Taxation and Compliance

US taxation rules are different from Indian taxation rules.

Depending on how exactly you've been taking exposure to US equity markets, you could be on the hook for various legal and tax-related compliance and reporting.

That adds cost of management (e.g. you having to take the extra time and effort to understand US taxation), and compliance cost (e.g. foreign holdings requiring filing ITR-2 every year during tax filing seasons).

In addition to that, there might be forex exchange costs, remittance costs etc. that'd eat into your portfolio.

Wrong Expectations of Higher Gains

Often, investors wrongly assume that investing in US equities would mean higher than Nifty returns.

In reality, diversification works both ways. It's a trade-off.

For example, in 2018 December, US markets dropped in a big way over a period of just last two weeks of the year. S&P 500 was down nearly 20%.

Indian equities were not as affected, over same time-period.

But if someone had wrong expectations of US equities always doing better than Indian equities, and invested on the basis of that; they'd have learned a tough lesson the hard way.

Similarly, towards the end of 2020 and beginning of 2021, Nifty outperformed S&P500 over a period of 3-6 months.

In summary, there'd be periods of underperformance and outperformance from US equities, compared to Indian equities. As an investor, you shouldn't assume US equities always do better than Indian equities.

Wrapping Up 🎁

There are great reasons to invest in US equity. It adds much needed geographic diversification to your portfolio, and gives you exposure to equities that reflect global revenue and economic growths, in a stable currency that's recognized all over the world.

If you can take cost-effective positions in US equities, and have well-tuned expectations; you should go for it.

Intro 💫

In India, there are plenty of small and big brokerage platforms available to you, that let you open trading and demat accounts for equity, bonds, ETFs (Exchange Traded Fund), commodities etc.

Read this to get an overview of features / functionality of popular brokerage services, and the costs you'd be incurring if you were to go with one of these.

Broadly speaking, there are two types of brokerage services in India at present:

• Discount Broker

• Full Service Broker

Full service broker 🏦

These are the traditional stock brokers, most commonly sharing a parent corporation with a big bank, which offer more than just buy / sell / hold functionalities. To name a few add-on services, for instance, most full service brokers provide:

• Brokerage reports and analysis

• Stock advisory

• Portfolio management / wealth management services etc.

Typically, these platforms have both online and offline presence to serve you.

Axis Direct, Citibank Securities, HDFC Securities, ICICI Direct, Kotak Securities, Motilal Oswal Financial services, SBI Securities etc. are examples of full service brokers.

A tell-tale sign of a full service broker, is that they charge a percentage of your investment as brokerage fee, which means costs scale with investment amount.

After the penetration of internet, it became less and less necessary to have a physical location to cater to the customers' needs.

So with reduced staff by not having physical customer service locations, discount brokers are offering the trade with discounted rate.

They also don't provide the research / advisory services, portfolio or wealth management services etc. to keep the operational costs low.

As a result, they can afford to charge lower trading fees. Most discount brokers have zero fee on equity delivery trades, and close-to fixed fee for intraday trading / BTST etc.

One also needs to keep in mind economics at scale. By offering lower costs, these services are reducing barrier to entry. That means larger number of users, and higher trade volumes. Even if per trade costs are lower, it has the potential to help these discount brokers pocket higher revenue than some of the full service brokers.

Such businesses want the volume, and while they operate on lower revenue margins per trade (not to confuse with margin provided by a broker) compared to a full service brokerage; they make bank on volume.

A few popular ones are listed below, in alphabetical order.

Comparison of Discount Service Brokers

The following table is a comparison-at-a-glance for these discount brokers. The information presented in this table maybe out of date at any moment in time. We'll do our best to update this table whenever we come across new information.

*Add-on pack: Some platforms offer subscriptions plans which will enable to advanced users to get more features, reports, reduced trade fee etc. for a monthly fee.

*Number of accounts: It's indicative of trust, as larger user-base might mean more audits & compliance requirements. These numbers change everyday, so exact value is not that important. By the time you're reading it, most likely exact number of accounts on each of these platforms could be higher than what you see in the table above.

The above table compares some popular discount service brokers, in terms of the following parameters:

• What are the aspects the platform make easy for you (USP)

• What are the factors the platform make harder / costlier for you

• Fees / charges on various types of trades

• Funds credit options to trading account, and time it takes to credit the amount

• Approximate number of accounts on the platform, as reported, at the time of writing this

Wrapping Up 🎁

Selecting a brokerage service might require some care. Unlike picking a mutual fund app, it's not that easy to migrate between brokers. This is not an easily reversible decision.

Some brokerages make it so easy to trade, that you might end up placing too many orders, and lose big on brokerage fees.

Most brokers ideally provide a cost calculator to get an estimate of various fees & charges that might show up against your account, for the volume of trades you'd want to execute.

We highly recommend being careful with F&O, intraday trading and BTST trades. Ideally, as a retail investor, if you're looking to buy for long term, most discount brokers are quite cost effective.

An important aspect to understand, is your broker has lot of control over your holdings; unlike your mutual fund app.

For instance, the Karvy brokerage scandal of 2019-20, exposed how even full service brokers can exploit dormant holdings, keeping those shares as collateral for their other business arms to get loans.

It's of paramount importance that you evaluate a brokerage service on these two parameters:

• Does the brokerage house have a history of lending out shares, to arrange for some liquidity?

• Does the brokerage platform have enough retail accounts, that they'd be subject to more audits and compliance?

This is why it's important to go with a broker that has been around for past few years, have healthy financials of their own, and have good volume. On that front, Zerodha comes out ahead of other brokers covered above.

It doesn't just end at choosing a broker with decent fees and nice UI / UX. You've to keep track of your holdings outside of the brokerage app. Check your monthly CDSL or NSDL CAS, to confirm your holdings are as shown in the portfolio section of your broker's app.

Intro 🍁

According to IRDA (Insurance Regulatory & Development Authority) of India

A group insurance policy gives you advantages of standardized coverage and very competitive premium rates

The risk for a group insurance provider is spread over a larger population, hence making the premiums cheaper.

Group covers have lot of benefits.

Salient features of Group health insurance:

• PED’s (pre-existing diseases) are generally included from day one, with some exclusions.

• An option to increase Sum Insured (SI) as well as insure your parents/in-laws by paying an additional premium.

• TPA (Third Party Administrators) services are comparatively better in group insurance schemes due to higher absolute premiums paid by the group.

• You can port to another policy of the same insurer, to avoid having to wait out the exclusion periods for pre-existing conditions.

  However, you’ll have to start the porting process at least 30 days before you leave the organization, and the new policy will provide fewer benefits, as it’d no longer be a group policy.

Limitations 👎

Limitations of Group health insurance are as follows:

• Sum assured is generally lower than Individual or Family floater policy options.

  Due to the lower sum assured, they may have a room rent/ICU capping clause.You will end up paying more if your stay is in a more expensive room, since all major hospital expenses are linked to the room rent.

  Imagine if your medical bill is 2L, and room-rent cap in the group policy is 8k / night; but your actual rent for room in the hospital was 10k / night. Then all your bills would be scaled down by a factor of 0.8, by insurer, and not just the room rent.

  Out of 2L, insurer would at most pay 1.6L (= 2L x 0.8).

• Group policies could have a co-pay clause. Even if they don’t have it this year for your policy, they might next year when policy is renewed. It's common in most firms, or corporates, to negotiate for better rates with new insurers, every year. TPA for the insurance remains same, but actual underlying insurer changes frequently. New insurers come in with new clauses.

• The coverage of the group policy ends immediately, if the employee resigns or is terminated. You and your family will be without coverage in the transition period between jobs.

Verdict ⚖️

Group health insurance is adequate when you’re starting out in your career, do not have dependents, and are relatively healthy (confirmed by an annual health check) or less likely to fall ill.

You can have two options here:

• Continue with the group cover alone, hoping that you won’t need additional health insurance in the near future.

• Buy an additional individual/family floater plan, in personal capacity

Biggest risk in depending solely on the group cover, is that any illnesses that you or your family members later develop could result in a significantly higher premium for a floater plan or an insurer declining to underwrite your policy.

If you have an additional individual/family floater policy:

• You can use the group cover for minor hospitalizations.

• After 3-4 years, the waiting period for any pre-existing illnesses would be over and subsequent hospitalizations due to these PED’s will be covered in your personal Individual / Family floater plan.

• You and your family will have a health cover if you decide to take a sabbatical or during a transition period in-between jobs.

• You can also buy a super top-up plan using the floater plan sum insured as a deductible.

Intro 👋

Let us first begin with what nomination means.

According to AMFI (Association of Mutual Funds in India):

Nomination is a facility that enables an individual unit-holder (including sole proprietor of sole proprietary concern) to nominate a person, who can claim the units held by the unit-holder or the redemption proceeds thereof in the event of death the unit-holder.

In short, nominees do not inherit the assets after the death of the unit holders. They are responsible for distributing the assets, as per the will, or to the legal heir of said unit-holder.

Nominees are usually added to a mutual fund folio at the time of its creation; but it can also be added or altered at a later phase.

Mutual Fund Folios 📒

There are various ways to go about updating nominee details in mutual fund folios.

Option 1: MFUtility

You'd need to fill out a nominee update form, which can be found below

Investor needs to print the form, duly fill it as instructed, and then can do one of the following:

• Send it to MFUtility head office at Thane, Maharashtra; via registered post. Address is mentioned at the bottom of the form.

• Visit a CAMS or KFinTech office in your city, and submit the form there.

This will update the nominees for all the mutual funds folios, mapped with the Common Account Number(CAN). Benefit of this process is to use one single form, and update all nominees, across all folios with all mutual fund houses, that have been mapped to the CAN.

Option 2 : Visiting an RTA Office

Another way to update nominee details is to visit the nearest office of the AMC, or the nearest Registrar and Transfer Agents (RTA) office. RTAs are responsible for managing the records of investor folios, for the AMCs.

There are predominantly two RTAs these days — CAMS and KFinTech,;and together they serve all the AMCs (except Franklin, which is served by FTAMIL presently, though they plan on moving to one of the two major RTAs).

You can find the RTA responsible for a particular AMC, by checking these links below:

Investors can download the nominee update form from the website of the AMCs or download a generic form, from the RTA’s website.

Disadvantage of using this method - investors need to fill a separate form for every AMC in which they want to update the nominee details, and submit the form physically at the nearest center. In some cases, one might even need to fill out one form for each folio.

Or, with the RTA forms, one would need to find out which RTA their AMC is using for record-keeping, and pick specific form.

Option 3 : Online Update

Some AMCs (like DSP Mutual Fund, at the time of writing this) allow investors to update nominee from their investor portal.

Just log on the portal and visit the folio section, and you will find nominee details.

Option 4: Through Broker / RIA / Distributor

Plenty of us invest through third party platforms, in mutual funds - Coin, Groww, Kuvera, PayTM Money, INDMoney, FundsIndia, ScripBox, Wealthy.in, ICICI Direct, HDFC Securities etc.

In such cases, it'd be instructive to follow up with respective platform's service team. They'd be able to guide you better with respect to nominee update process, specific to their platform.

For the mutual funds units that are held in demat (for instance, Zerodha Coin or HDFC Securities), nominee(s) will be same as the nominee(s) for the trading and demat account.

If the investor updates the nominee for their demat account, the nominee will be updated for all the folios held in the demat account with the respective broker.

Demat Account : Stocks & Bonds 📈

Steps to update the nominee for trading and demat account is similar for all the brokers.

Investors can, and should, directly contact their broker’s support teams for the exact process for updating nomination.

Generally, the first step is to download and print the nomination form from the website of the broker.

Copy the text and replace “Name of broker” with the name of your broker.

"Name of Broker" AND "Nomination"

For e.g. if the investor wants to update the nominee for demat account with HDFC Securities then they can search for:

“HDFC Securities” AND “Nomination”

Visit the link that is from the website of the broker and the form will be available on the page.

Once the form has been duly filled, investor can send the nomination form with an attested proof of identity, to the registered office of the broker.

For brokers with pan-India presence, investors can also submit the form to the nearest office. These are usually traditional brokers like ICICI Direct, HDFC Securities etc.

Some brokers charge a service fee for updating nomination. For e.g. Zerodha charges ₹25+18% GST, at the time of writing.

Bank Accounts 🏛️

To update nominee in a bank account, usually you've to visit the local branch with identity proof, close to your residence, for that bank.

However, some banks these days, do allow updating these details via their app / web portal. It's best to contact email or call or chat support of your bank, or just checking their website once, before physically visiting a branch to update nominee(s).

Intro👋

If you know which mutual fund you want, it is always better to buy a direct mutual fund since it eliminates the commission deducted by AMCs as fees for distributors (the person or entity who had facilitated the transaction(s) for you to invest in the fund).

The difference between TER of regular and direct plan normally varies between 0.5% to 1.5%.

Charges 💰

Switching a mutual fund is just two transactions of selling a fund (the regular plan), and buying another fund (the direct plan) from same AMC in a single order. Because of this, you will attract either STCG (Short term Capital Gains Tax) or LTCG (Long term Capital Gains Tax). You may also attract exit load if applicable and TDS for NRIs

Since the LTCG is lower, it would be better to convert the mutual fund units which are eligible for LTCG as and when the mutual fund units become eligible for it. Platforms like Paytm Money, Groww, INDMoney, Kuvera (with their tradesmart feature) etc. are offering this feature along with the option to convert just those units to direct mode if you need. You may opt for STP (Systematic Transfer Plan) to convert the required unit in a fixed frequency if you need.

Options for preforming the switch 🛣️

There are two modes by which you will be able to perform the switch

1. Online Mode

2. Physical Mode

Online Mode💻

This is the easiest method for switching a fund.

1. Login to the fund house or Mutual fund platform website (Create account if you don't have)

2. Select the fund you need to switch

3. Stop the existing SIP (if you don't, the SIP in regular fund will continue to get processed)

4. After selection, you will be presented with options like switch, redeem etc.

5. Select switch and then select the fund to which you would like to switch

6. Then select whether you would like to do switch for full investment or partial.

7. Once you do the authorization by means like OTP after this, you will get a confirmation that the fund is under process for switching.

Offline Mode📄

If you have an old fund where the email ID is not updated, then this is the only option for you.

1. Go to the office of the fund house and ask for the form to do the switching

2. You will be receiving a communication from them once the fund is switched

3. If the fund house doesn't have that facility offline, ask for form to redeem the fund. Once the fund is redeemed and the amount credited to your account, invest via offline by filling the purchase form or online

How does a chit fund work: ELI5 version

It is a savings plus credit / loan product. There is an organizer (a.k.a foreman) and there are a specified number of members, who agree to pool/pay/deposit a specified amount of money periodically for a pre-decided fixed duration.

E.g. there can be a chit fund with 20 members (and a separate 21st organizer who conducts the whole show), and they agree to pool Rs 1000 every month for 20 months. So, a fixed number of members, periodic deposit monthly, deposit amount of rs 1000 and fixed total period of 20 months. In the first month, the total amount of deposit would be 20,000.

This total monthly amount is called the Pot/Prize/Kitty. Each member, either by lot or by auction, will be entitled to this prize/Pot amount. The lowest bidder (one who demands the least amount) will get the money after paying the organizer fees and rest of the money will be distributed among the members. The lowest bid can be up to a discount of 40%. The distribution is usually by way of decreasing the monthly amount.

Eg. if selection is by auction, and there are only two members (A and B) who want money in this month, then they can bid for anything less than 20,000. If A says he is ready to take the pot for 19k (he will leave 1000 for the rest of pool provided he gets the money right now) and B says he is ready to take the pot for 18k, the winner of the first month will be B. The foreman will deduct the organizer money (maximum of 5%, in this case 5% of 18,000 = 900) and give 17,100 to B. The remaining amount of 2,000 will be distributed equally among the 20 members, by way of this month's monthly instalment of 900 (and not 1000). In this case, the lowest allowable bid would be 40% lesser which would be 12,000.

Every month the same process goes on. Members who have taken the Pot in the previous months cannot bid again during rest of the chit fund period. And every month, depending upon the amount of final lowest bid, the monthly instalment gets decreased.

If there is no one to auction in any month, then a lucky draw is done and the entire pot, after deduction the foreman fees, is given to that member.

Types

Organized Chit Funds

There is a central govt Chit Fund Act 1982 and multiple state government chit fund acts, which govern the organized chit funds. Nowadays, there are online chit funds also with different prize groups and ability to pay/receive payments online.

Unorganized Chit Funds

And there are lot of local chits/kitties/committees, which have their own particular models of deposits and withdrawal systems.

Tax on Income from Chit Funds

The dividend income earned per month is neither tax deductible nor taxable. No TDS applies on them.

The overall income is taxable as income from other sources.

The overall loss can be claimed as business loss.

E.g. if a member receives Rs. 22,000 instead of Rs. 20,000, then Rs. 2,000 would be taxable as Income from other sources.

While if a member receives Rs. 18,000 instead of Rs. 20,000, then the difference of Rs. 2,000 can be claimed as a business loss.

Benefits of Chit Funds

Those members who are in need of money (for small business, marriage, construction of house, big expense, etc ) can bid for the Pot in the initial months and use that money for their own purposes. Effectively, it works as an advance loan for them with EMI-like payments in the later months.

While those members who are not in need of money prefer to take the pot in the later months, and therefore make more money. They get lumpsum money while saving smaller periodic amounts.

In short, chit funds connect loan seekers with savers with the foreman as the person who guarantees the transfer of money. It is an overall less than zero-sum game, some member lose money while others gain money, while the foreman takes his payout.

Risk

Both the foreman and members are exposed to credit risk since the members can default on their payments, either before or after getting the prize. The foreman can sue the defaulters in court but timely settlement is a problem. Many foremen require some form of surety by members who have won the auctions. There is no bank/govt insurance for the chit fund payments, so it is riskier than bank deposits.

So if one sees that parents, or friends or relatives have earned a lot from chit funds, then they should understand that the above-FD returns are because of taking on the credit risk which may or may not occur in future. Consider your own risk appetite and financial situation before putting money in a chit fund. If you still want to take such a risk, at least go by organized reputed chit fund groups, and not local unorganized ones.

Red Flags

1. Promise of high returns: Chit funds cannot promise return rates in advance, and if any of them does it, it is better to run away. They cannot do so because no one can predict at what discount would the members bid for the prize money during the entire duration of the chit fund.

2. Unregistered: Please don't. You will have no recourse to get any money if there is any default.

3. Incentive to get new members: If the chit fund offers any incentive to get new/additional members, then it is outside the normal rules of the chit fund and is likely to be a Ponzi scheme. Run.

4. Allows to stop future instalments after getting the prize money. This structure is also against the basic chit fund system, and should make you think of what else? Run.

5. Online unknown chit fund schemes. Go only with groups backed by large groups/state governments who have been doing proper rule-based chit fund schemes. Don't entertain small unknown groups.