Money Matters

  • Ifthikar Bashir
  • Publish Date: Jan 21 2018 9:32PM
  • |
  • Updated Date: Jan 21 2018 9:32PM
Money Matters

I HAD INVESTED RS 4.5 LAKH IN A CLOSE-ENDED MUTUAL FUND THROUGH A BANK AROUND TWO YEARS AGO. NOW I NEED SOME MONEY TO PAY FOR MY SON’S COLLEGE FEE. HOW CAN I WITHDRAW MY MONEY?

Ghulam Hassan, Soura Srinagar

 

In a close-ended fund, you cannot withdraw/redeem your units till the maturity of the fund. But since close -ended funds are listed on a Stock Exchange and trade just like a stock. You may be able to sell your units there. However there is a catch. The trading volumes of close-ended funds are usually very low or even non-existent, making it difficult for investors to exit through this route. Even if you find a buyer on an exchange, the fund may be trading at a discount to its NAV, which means that you will have to sell your units at a price lower than the actual worth.

 

WHAT ARE GILT FUNDS? CAN ITS VALUE GO DOWN AND HOW BENEFICIAL ARE THEY IN THE LONG TERM?

Syed Adnan, Chanpora, Srinagar

 

Gilt funds invest in Government bonds. Any kind of bond carries two types of risks: the first is if interest rates go up and down and the second is if the interest or principal is not paid back in time. Gilt funds do not generally face the latter risk because governments do not generally default on debt. However, if interest rates decline, gilt funds tend to fall much more than others. This is because they generally hold long-term bonds, which are more affected by movements in interest rates.

For Long-term investing equity mutual funds are the best bet purely because of the kind of returns they generate.

 

I WANT TO START SIPS IN FIVE DIFFERENT FUNDS. SHOULD I CHOOSE DIFFERENT DATES FOR EACH SIP OR ONE DATE FOR ALL?

Syed Shahid, Rajbagh Srinagar

 

Ideally the date of your monthly SIP should not make much of a difference to your long term returns as there is no single best day to run your SIPs. Over a long period of time, the date of your monthly SIPs do not make any meaningful difference to your returns. Therefore, there is no point in sweating it out over the date of your SIPs.

Generally, salaried class people find it more convenient to set an SIP at the start of the month as that is when their salaries normally flow in.  However, if you are investing a higher amount on a monthly basis in a single SIP, I would suggest to break it into a weekly SIP under the same mutual fund scheme.

 

 I AM INTERESTED IN INVESTING IN EQUITY MUTUAL FUNDS AS I HAVE BEEN READING ABOUT THE SAME IN PRINT AND ELECTRONIC MEDIA. I AM APPREHENSIVE TO INVEST IN ON-GOING EQUITY MUTUAL FUND SCHEMES HAVING VERY HIGH NET ASSET VALUE (NAV). IS IT OK TO INVEST IN SUCH SCHEMES OR SHOULD I CHOOSE A MUTUAL FUND SCHEME WITH LOWER NAV?                                                 

Hilal Ahmad, Lal Bazar Srinagar

 

 Some investors have the misconception that a fund with a low NAV is better than that with a higher NAV as you get more units of a fund when the NAV is low. In mutual funds, it doesn’t matter what the NAV is. A low NAV fund isn’t better than a high NAV fund. So, don’t read too much into NAV. What determines a fund’s performance is not its NAV but its underlying stocks.

 

 WHAT IS DIFFERENCE BETWEEN A DYNAMIC BOND FUND AND AN INCOME FUND AND WHICH ONE DO YOU SUGGEST FOR AN INVESTMENT HORIZON OF 10 YEARS?

 Irfan Ali, Sopore

 

Debt funds remain puzzling even for the savviest of investors. Dynamic Bond funds invest across all classes of debt and money market instruments. They invest across various maturities. Their actively managed portfolio varies dynamically with the interest-rate view of the fund manager. They are ideally suited for investors who don’t want to take a call on future interest-rate movements but still want to benefit from any positive movements.

On the other hand income funds invest in corporate bonds, government bonds and money -market instruments with an average maturity of 4.5 years or more. They are highly vulnerable to the changes in interest rates. These funds are suitable for investors who are ready to take high risk and have a long term investment horizon.

Since you already have a investment horizon of approximately 10 years in mind, my suggestion would be to simply ride the equity mutual fund wagon, as it has the potential to do wonders over such a time-period. There is hardly any asset class that can beat the potential returns expected from equities.