Topic : Why Index Fund?

Q.

What is an Index Fund? Who should be investing in them?

A.

Index Fund is a passively managed fund which replicates the benchmark Index by investing in securities of benchmark Index in the same proportion/weightage. Like a S&P CNX Nifty Index Fund would invest in securities of S&P CNX Nifty Index in the same proportion/weightage. Investors who are looking for diversification in medium risk, long term benefit and who do not have time or expertise to evaluate individual stocks or track the actively managed funds should be the one looking towards Index Funds.

Topic : Infrastructure potential

Q.

Can you benefit from the Infrastructure boom by investing in mutual funds?

A.

The Infra space promises to be huge potential in the next few years with several projects lined up and the governments renewed thrust in infra spending. This budget has increased allocation for the infrastructure space predominantly in the power and road sector. With stability around for the next five years and anticipated increase in FII flows into the country, you can choose one of the better performing Infrastructure Fund to leverage from the Indian Infrastructural Revolution.

Topic : Shariah Investment

Q.

Who is an ideal investor for Shariah Funds? Is it for any particular community?

A.

If you believe in investing only in low-debt, high-cash companies, enter the world of Shariah funds. The transparency & rigorous risk management process makes it an ideal choice for investors wishing to diversify their portfolios. These funds are open for all, just like any other Equity Diversified Fund. The differentiating feature is that, the investment is prohibited in specific sectors (viz liquor, tobacco, gambling, interest bearing finance companies, etc). In spite of its ethical aspect the returns of such funds are not compromised.

Topic : Does Size Matter?

Q.

How important is fund size, while selecting a fund?

A.

So far as the quality of the portfolio is good and fund performance has been consistent, the size of the fund should become secondary in fund selection decision. In fact in the last financial year, small size funds have given superior returns as compared to large funds. Small funds are more nimble, hence allows the fund managers the flexibility to quickly re-align fund portfolio as per changing market trends to generate higher returns. This may not be easily possible with a very large fund.

Topic : Know about SIP

Q.	How does an SIP work ?
A.	Rupee Cost Averaging and regular investing safeguard an SIP investor from timing the market right, since a fixed amount is invested every month into the scheme. Power of compounding helps in creating wealth in long term.

Q.	What have been the historical returns from SIPs ?
A.	Historically over the last 10yrs, SIP in equity MF schemes have given a CAGR of 22-30% after accounting for the volatility & fluctuations in the equity market.

Q.	What should I do if I have lump sum amount to invest but I am fearful of the equity markets going down ?
A.	Such an investor should invest the lump sum amount in a liquid fund or ultra short term bond fund (returns are likely to be more than the Savings Bank rate with greater tax efficiency) and opt for the Systematic Transfer Plan (STP) to an equity scheme.