What are the risks when you invest in mid-cap schemes?

Mid-cap funds in India are equity-oriented mutual fund schemes which invest in the stocks of mid-cap companies, i.e. companies which have a medium market capitalization ranging from Rs.500 crores to Rs.10, 000 crores. These companies are in their growth stages and so, when markets become bullish, mid-cap funds in India can offer attractive returns to investors. This return is what pulls investors to mid-cap funds but what about the risks involved?

Being an equity mutual fund scheme, mid-cap funds are, by default, in the high-risk category. This risk is heightened by the fact that mid-cap funds invest in growing companies which are not fully established in the market. Here are some of the risks associated with mid-cap funds in India which you should know about –

• Volatility risk

If there is a fall in the market or when the market enters a bearish phase, mid-cap stocks lose out the most. In such cases, mid-cap funds can even offer negative returns. So, mid-cap funds have a high risk of market volatility and their returns are dependent on a bullish market or growing market.

• Liquidity risk

In a bearish market, finding buyers for mid-cap stocks is an issue because the value of such stocks falls considerably in a crisis. As such, fund managers of mid-cap funds find it difficult finding buyers for the portfolio if they want to sell specific stocks and the fund, therefore, carries liquidity risk.

• Limited stock choices

There are a limited number of quality mid-cap stocks which fund managers can pick to create a good portfolio. When investors start favouring mid-cap funds and investments increase, fund managers find it difficult to find the quality stock. They either dilute their stockholding or pick up stocks of less valuable companies which has a risk of affecting the valuation of the fund portfolio. Thus, under mid-cap funds, fresh investments might be stopped by fund managers when they do not have suitable opportunities for investments.

These are some of the relevant risks which are associated with mid-cap funds in India. Despite these risks, the return potential of these funds cannot be ignored, especially if you pick the top-performing mid-cap mutual fund. So, if you have a high-risk appetite and want to invest for the long haul, you can invest in mid-cap mutual funds. Some of the top-performing mid-cap mutual funds are as follows –

Name of the fund	1-year return*	3-year returns*	5-year returns*
Axis Midcap Fund	18.46%	13.52%	14.43%
DSP Midcap Fund	18.26%	6.94%	13.59%
Invesco India Midcap Fund	17.66%	7.69%	12.74%
Kotak Emerging Equity Fund	15.17%	5.52%	12.9%
PGIM India Midcap Opportunities Fund	38.31%	8.69%	NA

(*Returns as on 20th November 2020)
(Source: https://www.etmoney.com/mutual-funds/equity/mid-cap/35)

To invest in these top-performing mid-cap mutual funds in India you can choose ETMONEY’s best personal finance platform. ETMONEY has the best personal finance platform because it allows you to invest in the best mutual fund schemes online with some simple click your mouse or by tapping the touchscreen of your Smartphone. ETMONEY offers you the choice to invest through its website or its mobile app making it easier for you to invest and manage your investments on the go. What’s more, no commission or brokerage is charged by ETMONEY which solders its image as the best personal finance platform for all your investment needs.

NPS vs pension plans from insurance companies: which is better?

Retirement planning is essential if you want to create a substantial corpus to last you for your life. When doing so, choosing a suitable investment avenue is also crucial.

There are different types of retirement saving solutions available in the market. Two of the most popular of them are the National Pension System (NPS) and life insurance pension plans. Which do you think is better?

What is the NPS scheme?

The NPS scheme is a retirement scheme which helps you create a retirement corpus and also receive pensions from the accumulated corpus. Your investments to the NPS scheme online are allocated to market-linked funds for maximum returns.

What are life insurance pension plans?

Life insurance pension plans are retirement oriented plans which come in two variants. The deferred pension plan is one which helps you accumulate a retirement corpus. The immediate annuity plan, on the other hand, pays lifetime annuities immediately after you buy the plan. You can choose either or both of these plans to plan your retirement.

NPS v/s life insurance pension plans – which is better?

To find out which scheme is a better alternative, let’s have a look at the similarities and differences between the two –

• Similarities 

• Both NPS and deferred pension plans help in the creation of a retirement corpus

• Market linked returns can be availed under NPS and unit-linked pension plans

• Lifelong pensions are paid by both NPS and immediate annuity plans

• You can commute up to 60% of the accumulated corpus under both the schemes

• Partial withdrawals are allowed under both the schemes

• Tax benefit on the amount invested and the commuted corpus is available under both the schemes

• The facility of switching is available under both NPS and unit-linked deferred pension plans

• Differences 

• You can withdraw from the NPS scheme online from the third year. Under unit linked deferred pension plans, such withdrawals are allowed from the sixth year

• NPS plans provide an additional tax benefit under Section 80CCD (1B). Moreover, if your employer contributes to the NPS scheme, the additional deduction can be claimed under Section 80 CCD (2) both under the old tax regime and the new tax regime

• You have the choice of selecting and also switching the pension fund manager under NPS. Under unit linked pension plans, the company once selected cannot be changed

Which is better?

The NPS scheme scores points over life insurance pension plans in many aspects. Firstly, the additional tax benefit makes NPS schemes a clear winner. Under the new tax regime, you wouldn’t be able to claim tax benefits if you invest in life insurance pension plans but the NPS scheme would give you such tax benefits if your employer contributes to it. Secondly, access to funds is allowed within a shorter time span in the NPS scheme. Lastly, the facility to change the pension fund manager is an advantage as it allows you to pick the company which gives the maximum returns. Taking these points into consideration, the NPS scheme is a better choice for retirement planning.

To invest in the NPS scheme online you can choose ETMONEY’s best personal finance platform. This best personal finance platform allows you to invest through a computer or through your Smartphone through the ETMONEY app. Moreover, you can invest and complete your KYC formalities online with a minimum of hassles.

So, choose the NPS scheme for building a retirement corpus and invest in it through the best personal finance platform of ETMONEY.

 

Are overnight fund is a good choice for Short term investment?

Debt mutual funds are divided into different types of categories and most of these categories are characterized by the average maturity duration of the underlying assets. Long term debt funds invest in debt instruments which have an average maturity of 10-15 years while short term funds invest in instruments with a maturity of 5-10 years. Overnight funds, similarly, are debt mutual funds which invest in instruments with a maturity of only one day.

What is an overnight fund in India?

An overnight fund is a debt mutual fund which was introduced by SEBI in the year 2018. This fund invests in securities which have maturity duration of one day and hence they are called overnight mutual funds.

Features of overnight mutual funds

Here are the salient features of overnight mutual funds –

• The primary source of return for these mutual fund schemes is the interest income paid by the underlying security. Since these funds have a very short maturity period, there is no possibility of capital gains

• These funds invest in cash and cash equivalents like overnight repos, CBLOs, etc.

• If the interest rate is falling, the return of overnight funds decreases because of the increased liquidity in the market. On the other hand, when interest rates are rising, liquidity is limited and so returns on overnight funds increase

Are overnight funds good for short-term investments?

If you are looking to park your surplus funds for a very short time, i.e. for a few days, you can opt for the top overnight mutual funds. They give you the following benefits –

• They have a very low expense ratio, lower than 1%, giving maximum returns on your investments

• Since they are a type of debt mutual fund, they have no risk of market volatility

• Since the average maturity duration of the underlying assets is one day, there is negligible credit risk

• You can invest in overnight funds if you want to start an STP (Systematic Transfer Plan) into a mutual fund scheme and redirect your investments into equity in a systematic manner

So, if you have a very short term investment horizon, you can consider investing in an overnight fund in India. However, if your investment horizon is longer, i.e. you want to invest for a few weeks or months, liquid funds would be a better alternative as they would give you better returns than overnight funds.

Tax implications of overnight mutual funds

Being a debt mutual fund scheme, overnight funds have the following debt taxation –

• Returns earned within 36 months of investment are called short term capital gains. Such gains are taxable at your income tax slab rates

• Returns earned after 36 months of investment are called long term capital gains. You get the benefit of indexation on such capital gains and they are taxed @20%

However, since overnight funds are meant for short term investments, their returns would most likely be short term capital gains and would be taxed at your income tax slab rates.

Top overnight fund in India

Here is a list of the top overnight mutual funds which you can consider if you want to invest for a short term period –

Name of the fund	1-year return*	3-year returns*	5-year returns*
UTI Overnight Fund	3.74%	4.98%	5.98%
L & T Overnight Fund	3.71%	5.33%	5.95%
SBI Overnight Fund	3.69%	5.26%	5.75%

(*Returns as on 2nd November 2020) (Source: https://www.etmoney.com/mutual-funds/debt/overnight/59) 

Choose the top overnight mutual funds only if they meet your investment goals and if you want a short-term avenue for parking your funds. To invest, you can choose the best personal finance website of ETMONEY. ETMONEY offers you the ease of investing online which makes it the best personal finance website. Moreover, there is no commission involved and you can get your KYC verification online through scanned documents. So, choose ETMONEY’s best personal finance website and invest in overnight mutual funds for short term investments.