Ajay works in a multi-national company. Ajay’s take home salary after all deductions is Rs 80,000 per month while he falls into 30% tax category.
Ajay was satisfied with his financial life until he came to know about mutual funds threw his friends. It was eye-opening for Ajay to learn how his friends are earning returns way higher returns than his existing investments. Ajay wants to sort out his investments now and seek to earn superior returns with moderate risk involved to maximize his wealth creation.
Stocks, Mutual Funds, Fixed Deposits, Bonds, Real estate, Gold etc., are various Asset Classes that are popular among the investor community. It’s very important for investors to have a proper asset allocation to achieve financial goals. Different asset classes have different tax implications. The returns (or) gains generated by these various asset classes are taxed differently.
Mid-cap and small-cap funds do well in spite of a fall in benchmark indices. This may continue for some more time. Year 2015 was bad for the stock markets. The Nifty 50 fell 4.8 per cent while the Sensex shrunk 5.06 per cent. However, BSE Mid Cap and BSE Small Cap indices bucked the trend and rose 6.75 per cent and 5.46 per cent, respectively. “It is rare for small-caps and mid-caps to outperform their large-cap peers in a falling market,” says Mahesh Patil, Co-Chief Investment Officer, Birla Sun Life AMC.
If you are an investor seeking good returns with little tension of market volatility and the associated risks, balanced funds are for you. Balanced Mutual funds are mixed or hybrid investment schemes that bridge the gap between the riskier equity market and the relatively safer debt market. Steady returns and equity fund-like tax treatment have made them popular.
It is important to diversify a portfolio, but it is even more important to understand that diversification will typically lower portfolio return and not enhance it!
Technically, diversification is for risk reduction, or to be precise – reduce the daily ups and downs in the portfolio value (aka volatility). However, volatility reduction almost always results in return reduction, unless there is some kind of tactical allocation to assets.
We invest so that our money earns more money – I think NO. We invest so that we can achieve our goals – now you decide the investments which can help you in achieving your goals. But of course there is some trade-off between risk and investment returns – mostly higher risks are associated with higher returns or vice versa. (But… – what is Risk?) It is important to understand risk and risk management associated with investments.