Finance

The digital loan lending market is on the rise now, which has made access to credit very easy since many people can now access loans quickly. The personal loan apps have greatly contributed to the introduction of these loans, and any person can avail the loan at anytime and anywhere. Getting a personal loan can be useful because it will assist you in covering different costs. What’s more, a personal loan is not tied to a particular purpose. You can use the money from the loan to pay for anything.

Whether it is going on your dream holiday, paying hospital bills, consolidating debts, or more, a personal loan can be a great way to make that happen. Even though getting a personal loan has good points, it also has some bad points. Read this guide till the end to learn the pros and cons of digital personal loans.

Pros of Digital Personal Loans

Getting a loan is a surefire way to bridge your financial gap and meet your short-term goals with ease. As such, the advantages of personal loans shouldn’t be overlooked.

Here are some of the advantages:

1. Fast and Convenient

When it comes to speed or convenience, digital personal loans are at the forefront. The lenders have offered a smooth application procedure to quickly apply for the funds you need as long as you understand how to go about it. You will have to upload some of your documents to act as proof of income, identity, and proof of your address online.

Besides, most lenders have a quick funding process, and the time you have to wait for the funds depends on the lender. Most lenders take one day to 2 weeks to disburse funds to the borrowers. However, it is best to check with your lender to know how long you’ll have to wait.

2. No Collateral Required

Loan applications at banks will need you to give a security for the loan. This whole process will complicate the tedious procedure, thus making it challenging for borrowers to get credit. On the other hand, digital personal loans don’t need securities, which makes the process of getting the loan simpler and faster.

3. Minimal Documentation

Digital personal loans are processed online, which means there is no physical paperwork required. They’re convenient, flexible, and fast, and only require a few basic documents to verify your income, address, identity, etc.

Some of the documents you have to provide during the application include:

Proof of Identity: Aadhar, PAN

Proof of Income: Bank Statement, Payslip

Proof of Address: Utility Bill, Credit Card. Rent Agreement. Loan Statement

4. Paperless Transactions

Online lenders do not need physical documents since the whole process is completed online on digital platforms. This will save you time and resources. Besides, they reduce the chances of errors, identity theft, and fraud.

These transactions are possible through digital lending platforms, which partner with NBFCs and banks to provide loans to borrowers via apps and websites. The process of applying for the loan is easier and faster.

5. Builds Credit Score

One of the most common ways to improve a credit score is through a personal loan. However, this will be achievable if you repay your digital loan on time. You can use the loan to repay the credit card debt, which will help reduce the credit utilization ratio. A low ratio will boost your score. Adding a loan to your credit will diversify the credit mix and help show you can handle the different types of debt responsibly.

6. Easy to Compare Interest Rates

With personal loans, the lender allows borrowers to compare interest rates from their sites by checking the basic information without the credit score. This implies that you can easily look around with the best private lenders to check their interests and the loan amounts offered by every lender.

7. Instant Access to Funds

The major reason why people opt for digital personal loans is to get access to capital. You can quickly access cash to cater to your business or an emergency. Instead of looking for your friends who will help you, you can opt for a personal loan.

Cons of Digital Personal Loans

Some of the common disadvantages of getting loans are as follows:

1. Higher Rates

Some of the digital lending platforms will impose a higher interest rate than the traditional financial institutions especially for those with lower credit scores. Borrowing money isn’t free but at a cost which is the interest rate you pay to the lender over the agreed period. Personal loans may come at higher rates because they don’t necessarily require collateral.

2. Depends on Technology

Digital lenders largely depend on the internet connection and technology which poses a major challenge for the individuals residing in areas with restricted internet connection. Conversely, you require a stable internet connection to apply for a loan online. Aside from that, you also need a phone or a computer to access the lender’s website.

3. May Include Hidden Fees

Even though digital personal loans may advertise and enhance the low-interest rate, they may come with hidden fees. Therefore, you must know if there are any hidden fees and processing costs that may inflate the cost of the loan.

Conclusion

There are many benefits to getting a personal loan. The main advantage of a personal loan online is that it provides quick access to funds. Even so, there are still some cons, such as high-interest rates, dependence on technology, risk of fraud, overborrowing, etc. Despite that, it also comes with downsides, as stated in this guide. From these pros and cons, you will be able to decide whether or not to avail of a digital personal loan.

It is 2023, a world where fast-paced living has become the norm for most people. Busy schedules, long office hours, personal commitments, and never-ending errands have made it challenging for people to give sufficient attention to their financial investments. However, regular investing is crucial for anyone who wants to secure their future financially. That’s where an SIP or a systematic investment plan can offer help.

An SIP is a disciplined and automated way of investing in mutual funds, making it easier for people to invest even in their busy schedules. But choosing the right SIP plan is equally important as there are different types of mutual funds available, ranging from equity, debt, hybrid to tax-saving funds, each with unique risk profiles and objectives.

Let’s simplify this complex decision-making process and learn smart ways to choose the right SIP plan for your financial goals in 2023. Starting from examining the fund benchmark, exploring historical returns, analysing the fund manager’s profile, and considering other critical factors that impact the performance of a mutual fund.

1. Clearly define your financial goals

Your financial goals could be anything from buying a house, saving for retirement, planning your child’s education or their weddings. Once you know your financial goals, you can list down SIP plans and find one that aligns with your objectives. For example, if you are planning a big family vacation in five years, you can choose an SIP plan with a five-year horizon, offering returns that match your investment priorities.

2. Analyse your risk profile

There are many factors that determine your risk profile like your age, income, expenses, debts, and financial responsibilities. A conservative investor who prioritises wealth preservation may consider investing in debt funds or hybrid funds, while an aggressive investor who seeks high returns may prefer equity mutual funds more.

Note that while higher risk involves higher returns, it also involves volatility and unpredictability. Therefore, it is advisable to create a diversified mutual fund portfolio and review it regularly to avoid high exposure to a single asset class.

3. Compare different SIP plans

Analyse minimum 5-year performance track record, cost structure, and benchmark indices of each fund before making a decision. Reviewing its current market performance, net asset value (NAV), and exit loads is also important to understand the fund’s long-term growth potential.

4. Read the fund related documents

The scheme documents offered by the fund contain detailed information about the scheme, including the investment strategy, past performance, asset allocation, fund manager, and cost structure. Analyse these carefully, as they give an insight into the fund’s investment philosophy, which can help you evaluate whether the plan fits your risk appetite and financial objectives.

5. Use an SIP calculator

An SIP calculator is a financial tool that helps you understand your SIP returns at maturity with just three inputs; planned investment amount, expected returns, and tenure of investment. You can also experiment with different scenarios and adjust variables to see how they affect your final returns.

This way, you can understand which plan will benefit you the most for your short- or long-term goals and select the right SIP amount to invest regularly.

Ending note

Investing is not just about saving money, but about making smart and strategic decisions. So, always do your research, stay updated with market trends, and consider other key factors to find the right SIP plan for your financial goals. You can also consult a financial advisor who can help you create an investing strategy and suggest best retirement plans as per your risk appetite and current financial position.

A car is becoming a necessity in modern India, with most families getting at least one four-wheeler for easy commute and comfort. The Motor Vehicles Act of 1988 mandates all cars to have at least third-party insurance for four-wheelers in India. These policies offer coverage for damage to a third-party person or property due to an accident caused by the insured car. However, they do not cover damages to the insured car. Hence, many people opt for a comprehensive four-wheeler insurance plan.

Talking about cars, Maruti Suzuki is one of the most trusted names in four-wheelers in India. The Maruti Ciaz is a premium sedan offering a luxurious driving experience along with stunning looks and revolutionary technology. If you are buying one, you might want to consider opting for a Ciaz insurance for complete protection.

Maruti Ciaz – Features

• There are five variants available:
  1. Sigma
  2. Delta
  3. Zeta
  4. Alpha
  5. Ciaz S
• Smart Hybrid Technology
• Smartplay Studio
• Spacious Interiors
• High-performance engine
• Cruise Control
• Tilt Steering
• Multi-information display
• Push Start-Stop button
• Rear AC vent
• Rear Sunshade
• Adequate boot space
• Rear reading lamps
• Automatic transmission

In recent years, many providers have started offering Maruti Suzuki Ciaz car insurance plans via online platforms like websites and mobile apps. This article will look at the benefits of purchasing Ciaz car insurance online.

Advantage #1: Helps reduce costs

Traditionally, car owners had to visit the office of the insurer/agent, submit physical documents, and complete the process of buying a car insurance policy offline. This was a time-consuming process and often involved multiple trips to the agent/insurer. Also, it was very difficult to compare providers and plans since all information was in physical booklets.

With an increase in digitisation and the use of the internet for buying products and services, many insurers have started offering online Ciaz insurance plans. You can complete the entire process online and save the time and money you would otherwise spend by visiting the insurer/agent. You can also choose add-on covers per your needs and use the free online calculator to estimate the impact on the premium.

Some popular add-on covers are zero depreciation or bumper-to-bumper car insuance, roadside assistance, NCB protection, etc. Lastly, you can easily compare providers and plans to find the most cost-efficient policy for your needs. But remember, add-ons can influence your Maruti Suzuki Ciaz insurance price, so choose the add-ons carefully.

Advantage #2: You can get the best features

Since comparing policies and their features is easier online, you can go through the policy wordings of multiple insurers and compare them hassle-free. Hence, you can look for a plan that offers the best features as per your needs.

Advantage #3: Limited scope of miscommunication

Traditionally, many car owners were unsatisfied with their policies because their insurance agents misinformed them about certain features and/or benefits. When you buy a policy online, you do not require an agent. You can look for information online by visiting the insurance company’s official website.

Advantage #4: A simple buying process

Compared to the offline process, the online Ciaz insurance buying process is much simpler. All you need to do is enter the details of your car and your personal information and select the IDV, deductible, and add-on covers. Using this information, the insurer will provide an instant quote for the premium. If this is within your budget, then you can pay the premium online. Once the insurer receives the payment, your policy documents are emailed to you. Hence, buying car insurance online is simple and hassle-free.

Summing Up

Every year, the number of accidents and collisions is rising. Besides the risk of getting injured, disabled, or killed, car owners also have to bear the financial burden of repairs if they cause an accident. A comprehensive Ciaz car insurance plan offers complete protection to car owners, including third-party liability cover and own damage cover. Make sure you compare providers and plans and choose the best policy for your needs. Good Luck!

Market corrections are inevitable and occur regularly in stock trading. A market correction is defined as a decline of 10% or more from a recent market high. During these periods, investors may feel anxious and tempted to sell their investments to minimize their losses. However, this often leads to selling at a loss and missing out on future gains. Here are some tips on how to trade stocks during a market correction.

Stay in control and avoid panic selling: It is imperative to remain calm during a market correction and avoid panic selling. Selling during a market dip only locks in your losses, and in most cases, the market eventually recovers. Market corrections can be volatile, and investors need to stay calm, and patient, and resist the urge to sell in a panic. When you check about how to open demat account, you would learn more about it.

Follow an extended-term investment strategy: Long-term investment strategies can help investors weather market corrections. Investors should consider their investment goals, risk tolerance, and financial situation to develop a long-term investment strategy that aligns with their needs. This approach can help investors avoid making impulsive decisions during market downturns, and position them to benefit when the market rebounds.

Rebalance your portfolio: Investors should regularly review their investment portfolios and rebalance them to maintain a diversified allocation that aligns with their long-term investment goals. Rebalancing encourages investors to sell investments that have increased in value and buy those that have decreased in value. This ensures that the portfolio remains diversified and aligned with its investment goals. Learn more about opening a demat account by checking out the question.

Look for opportunities: Market corrections can uncover opportunities in oversold companies. Investors can use market corrections to identify quality stocks with favorable fundamentals that are undervalued. Investors should look for stocks with strong balance sheets, reliable dividend payouts, and solid growth prospects. These stocks are well-positioned to capitalize on economic growth over the long term.

Consider defensive stocks: Defensive stocks, such as utilities, consumer staples, and healthcare, can also provide a buffer during market corrections since they tend to be more immune to economic downturns. Investing in defensive stocks can help investors mitigate market volatility and downturns. You can find the answer to the question – of how to open a demat account.

Diversify your portfolio: Diversification is a critical risk management strategy during market corrections. Investors should consider diversifying their portfolios across different asset classes, sectors, and markets to minimize their exposure to any particular security or market segment. A well-balanced portfolio can manage risk and maximize returns during market downturns.

In conclusion, investing can be challenging, especially during market corrections. However, following a long-term investment strategy, diversifying your portfolio, and looking for opportunities during market corrections can help investors navigate these challenging times. While market downturns can be unsettling, they are a natural part of the market cycle, and investors should approach them with patience and a long-term perspective. By following these tips and remaining vigilant, investors can capitalize on market corrections and achieve their long-term investment goals.

When it comes to investing in mutual funds, one of the most popular options among investors is Equity Linked Saving Schemes or ELSS. ELSS offers a tax-saving benefit to investors, along with the potential to earn good returns in the long term. However, as with any investment, it is crucial to have a well-diversified portfolio that includes different types of mutual funds. In this blog, we will discuss the role of sector specific ELSS in a diversified portfolio and how they can be used in combination with other funds like debt funds and SIPs.

What are sector specific funds?

Sector specific ELSS funds are mutual funds that invest in a specific sector or industry. For example, some ELSS funds may invest in the healthcare sector, while others may focus on the technology industry. By investing in a sector specific ELSS fund, investors can take advantage of the growth potential of a particular industry. However, it is essential to note that investing in a single sector can be risky, as any adverse developments in that industry could negatively impact the fund’s returns.

How can such funds help in wealth creation?

In a well-diversified portfolio, sector specific ELSS funds can play an important role in enhancing the overall performance. By combining different sectors’ funds, investors can achieve a more balanced exposure to the market. For example, if an investor has a well-diversified portfolio that includes funds in sectors like healthcare, technology, finance, and energy, they can capture the growth potential of different industries while minimizing the risks of sector-specific investments.

Moreover, combining sector specific ELSS funds with other types of mutual funds like debt funds can help investors reduce the overall risk in their portfolio. Debt funds invest in fixed-income securities like bonds and treasury bills and offer a steady source of income. By combining sector-specific ELSS funds with debt funds, investors can balance their portfolio and ensure that they have a mix of high-risk, high-reward investments and low-risk, stable investments.

Systematic Investment Plans or SIPs are another way to diversify your portfolio. SIPs allow investors to invest small amounts of money regularly and build their portfolio over time. By combining SIPs with sector specific ELSS funds and debt funds, investors can achieve a well-diversified portfolio that offers both growth potential and stability.

To sum it up

Sector specific ELSS funds can play an important role in a well-diversified portfolio. By combining these ELSS funds with other types of mutual funds like debt funds and SIPs, investors can achieve a balanced exposure to the market while minimizing risks. However, it is crucial to remember that investing in mutual funds carries risks, and investors should always consult a financial advisor before making any investment decisions.

An SIP (systematic investment plan) is a prudent financial mode using which you can easily invest in the mutual fund of your choice. Through this route, you can invest a predetermined amount at fixed time periods in a mutual fund. This route makes use of an electronic clearance service (ECS) mandate to automatically deduct a predetermined amount from your savings account at fixed intervals, say, monthly, quarterly, half-yearly or yearly as per your instructions in the selected scheme. Continue reading to understand ways to strategically meet your different financial goals.

How can you use a mutual fund SIP to fulfil your different financial goals?

• Early work phase

This is a phase that may cover an age range of anywhere between the early 20s and late 20s. In the case you are in this stage, then there are high chances of you being unclear regarding your financial goals, particularly those with long-term time frames. Remember that this is the best phase, to begin with, your investments for your long-term goal to create massive wealth through the power of compounding using SIP mutual funds.

Starting your SIP mutual fund investment at this stage will also allow you to become financially disciplined and responsible. At this phase, one of the important long-term financial goals, you must eye on is corpus creation for your post-retirement life. Starting your retirement investments at this phase will allow you to generate a higher corpus over a long time-period with a small investment amount. For example, if you start mutual fund investment through SIP at 21 years with an investment amount of Rs 1,000 per month at an annualised rate of 13 per cent per annum, you will generate a retirement amount of Rs 1.94 crore by 60 years of age. However, if you begin your SIP investment in a mutual fund at 50 years, you will need to invest a monthly amount of Rs 75,000 in the same fund generating the same return rate to form the same retirement corpus of Rs 1.94 crore.

• Middle-aged or sandwich phase

This stage covers time frames between the 30s and 50 years. At this phase, all the family obligations may be upon you ranging from taking care of your ageing parents to paying your kid’s tuition fees to repaying EMIs towards a home loan or car loan. Once your child starts going to school, you must ensure to start investing in a preferred mutual fund to generate a higher corpus for your kid’s higher education costs within the deadline.

Also, you must start investing to create an adequate corpus for your child’s marriage. To attain this goal also, you must make sure to start your investment in a mutual fund via SIP. Besides these, simultaneously make your short-term goal investment through SIP in debt funds. Short-term financial goals may include corpus creation to build an emergency fund, arrange a vacation trip abroad, etc. A debt fund is a recommended instrument to meet your short-term goal as it offers satisfactory returns and capital preservation features.

• Pre-retirement phase

This is a stage that ranges from your early 50s to retirement. Your major focus at this stage must be to attain your required retirement corpus. As you may have the highest income at this stage and may be free of any debt obligation, you must ensure to invest bigger investible to attain your retirement corpus through SIP.

Also, as you approach your retirement age, say once you are 2-3 years away from retirement, it is advised to liquidate your retirement investment in an equity mutual fund via SIP to invest in short-term debt mutual funds. This measure is recommended to save your retirement fund from any market volatility. However, instead of completely switching to debt investment from an equity fund, you must opt for a steadier approach where you need to calculate the expected annual expenditures during your post-retirement. Once you are done, you must start transferring this computed amount periodically before reaching the age of retirement. Using this approach will help you to maintain adequate exposure to equity during your retirement days also. This would lead to higher inflation-adjusted returns and reduce the risk of witnessing a shortage in your retirement corpus during your retirement years.

Ending note

So, you see, by periodically investing a small amount systemically through an SIP in a mutual fund, you can attain your long-term goals easily. Note that to make the most out of your long- and short-term financial investments, you must use an online SIP calculator. By using this calculator, you can get an accurate and quick outcome on the returns you may expect to receive based on your investment.

You’ll hear a lot of different advice regarding retirement planning these days. Depending on who you ask, you get a different answer each time. It is because retirement planning is highly individualistic. It will look different for everyone and can depend on several factors.

Investing in a retirement plan through an insurer is one way to plan your retirement. However, the best retirement plans are ones that have been customised to care for your unique expenses post-retirement.

5 Golden Rules Of Retirement Planning

Despite everyone having a different opinion of how you should be planning for retirement, there are five standard rules people usually agree on.

• Determine Your Retirement Expenses

When planning your retirement, try visualising or writing down what you want your post-retirement life to look like. This can help you narrow down what you need to do and the expenses you need to consider. Remember to keep the inflation rate in mind when calculating your future costs.  A good retirement plan takes this into account.

For example, Tata AIA pension plans offer guaranteed returns on their retirement plans. In addition, their retirement calculator allows you to calculate the funds and savings you need during your retirement years. It will give you clarity on how much money you should save for yourself and your family.

• Start Planning Your Retirement Early

Most experts agree that starting your retirement planning early is a good idea. It’s suggested that you should start planning from the first day you start earning. The easiest way to do this is by investing 12% of your salary, with an equal contribution from your employer, into your Provident Fund account.

The best part of an Employee Provident Fund (EPF) is that it is mandatory. It acts as a default retirement plan for most individuals. Remember, the later you start, the more you will have to save.

• Invest Wisely

There are many ways to do this. As a general rule, you should save 10% of your income for retirement. This 10% will be from your total income at any given point.

So if your income gradually increases in the future, you should maintain that 10%. It will ensure that your retirement funds don’t fall short of your requirements. So each time you get a raise, consider allocating half of it to your savings.

• The 4% Rule

A big challenge many retirees face is ensuring that they don’t outlive their savings. This is entirely understandable. It is due to two main factors: rising living costs and an increase in life expectancy. Enemy number one would be rising inflation rates.

The 4% rule is commonly used in retirement planning as a workaround for this issue. It states that you can withdraw 4% of your savings during your first year and adjust that percentage for inflation every following year. This method ensures you don’t run out of money for at least 30 years.

However, this rule may not work for everyone, especially if you expect your spending habits to change during or after retirement. In addition, this rule is based on asset allocation, where you invest 60% in stocks and 40% in bonds. So if you’ve chosen other investment methods, this rule may not support you for long.

• Get A Retirement Plan That Suits Your Needs

Retirement plans from insurers often require you to invest a portion of your income into your plan of choice. The main objective behind these plans is to ensure regular income post-retirement.

Guaranteed pension plans with life cover are a popular choice with most people. These plans will provide you with a life cover and a steady income on maturity. Additionally, these plans are also eligible for tax benefits under Section 80C.

Conclusion

One of the best things about retirement is being able to reap the rewards of your hard work. Note that these rules aren’t set in stone. The main takeaway here is to invest wisely and choose a good retirement plan to fulfil your financial needs.

When it comes to investing, diversification is crucial. It entails distributing capital across many asset classes and investing in various securities within those asset groups. Diversification is intended to decrease risk by minimising the negative consequences of an entire asset class sinking. Furthermore, diversifying assets reduces the influence of any single investment on an entire portfolio. Diversification also helps to boost returns by providing exposure to diverse types of assets and enabling the capture of investment possibilities that would otherwise be ignored. Diversification is extremely important when investing a lump sum amount of money in an investment vehicle like mutual funds. Read on to find out more about the importance of diversification in lump sum investing and the ways to do that.

What is a lump sum investment?

A lump sum investment in a mutual fund is when you put a significant sum of money into a certain fund all at once. Often, lump sum investments are made using cash or profits from the selling of stocks, bonds, or other assets. Because the money is invested all at once and market timing is less crucial, this sort of investment plan has the potential to generate higher returns and advantages than investing smaller sums over time. Yet, because the investor is exposed to the market’s performance at the time of their contribution, lump sum investing might be riskier than investing smaller sums at regular periods.

Diversification in a lump sum investment

The primary reason for diversifying your lump sum assets is to decrease investment risk. Spreading your money across different asset classes will allow you to limit your losses if any one asset loses value. This implies that even if one sector suffers a setback, your whole portfolio will stay relatively stable and will not be completely depleted.

Furthermore, diversification allows you to invest in a wide range of asset classes & investment options like SIP, ensuring that your portfolio is not unduly reliant on any particular asset. Instead of depending entirely on the success of one asset class, you may profit from the performance of numerous asset classes.

Lastly, by diversifying your lump sum investments, you may capitalise on possible benefits from investing in several asset types. You may take advantage of any possible gains from any given asset by investing in several asset classes.

In order to optimise your profits, it is critical to diversify your lump sum investments across many asset types. Stocks, bonds, mutual funds, real estate, commodities, and foreign currency are some of the most prevalent asset groups. Each of these asset classes comes with its own set of risks and benefits, so it’s critical to do your homework and understand the various asset classes before investing.

Conclusion

Overall, diversifying your lump sum investments is critical for maximising returns while minimising risks. Spreading your assets across different asset classes ensures that your investments are independent of any single asset and that you may benefit from possible gains from numerous asset classes. Additionally, before investing, it is critical to understand the various asset classes since each has its own set of risks and benefits.

Mutual funds are investment portfolios that professionals manage. They pool the money of multiple investors to buy a basket of stocks, bonds, or other securities. Trading mutual funds in Dubai has become popular among investors due to its low fees and simple structure. This article will discuss essential steps for trading mutual funds in Dubai.

Research

Before making any investments, it is essential to research and evaluate the investment options available in Dubai. It includes researching the different types of mutual funds, and understanding how they work, fees, and associated risks.

Investigate the mutual fund companies

Once you understand mutual funds better, you must investigate which companies offer them in Dubai. Look into the company’s track record and read reviews to determine whether they are a reliable source.

Compare fees/costs

Fees and costs associated with mutual funds may vary from one provider to another, so it is essential to compare them to maximize your return on investment. Consider factors such as the management fee, custodian fees, trading costs, and other associated expenses.

Understand the regulations

Understand the regulations surrounding mutual fund investing in Dubai, including various aspects, such as capital gains or dividend taxation policies. It would be best to familiarise yourself with the Central Bank of the UAE’s regulations and guidelines to ensure compliance when investing in mutual funds.

Open an investment account

To start trading mutual funds in Dubai, you must open a brokerage account with an authorized firm approved by the Securities & Commodities Authority (SCA). The broker will guide different types of accounts available for investors depending on their experience level and risk appetite. A good example is Saxo broker Dubai, where traders have a wide range of mutual funds from which to choose. The broker is especially good for intermediate to advanced traders, thanks to its bespoke platforms and a collection of professional tools available.

Select your mutual funds

Once you have opened your account, you can select mutual funds and make investments. You will need to analyze the different fund options available to find those that meet your investment objectives.

Make an investment decision

Before investing, you should estimate potential risks associated with the mutual fund and ensure it aligns with your financial goals. Consider factors such as liquidity, risk tolerance, diversification needs, and desired return on investment when making an investment decision.

Monitor your investments regularly

After investing in a mutual fund, monitoring them regularly as market conditions change over time is essential. It means reviewing the performance metrics of the mutual fund periodically and making adjustments when necessary.

Benefits of investing in mutual funds

Professional management

Professionals manage mutual fund investments with extensive stock market knowledge. Investors who need more time or expertise to make decisions can benefit from professional management.

Diversification

Investing in mutual funds allows you to diversify your portfolio, reducing risk and maximizing returns. Investing in multiple stocks simultaneously also spreads out investment costs and reduces volatility.

Convenience

Buying and selling mutual fund shares is convenient as traders can do it quickly and easily through a broker account. You can also set up automated investment plans that allow regular contributions to your investment portfolio with minimal effort.

Low minimum investment

Mutual funds have low minimum investment requirements, making them accessible to investors with smaller capital amounts.

Liquidity

Mutual funds are highly liquid investments, with investors able to buy and sell shares quickly and easily. It makes them ideal for those who need access to their capital at short notice.

Mutual fund risks

Market risk

Mutual fund prices are subject to performance in the stock market, meaning that investments can be worth more or less than what you originally paid.

Fund manager risk

The success of mutual funds is dependent on the decisions made by the manager. Poorly managed funds can lead to significant losses, so selecting a reputable fund with good returns is essential.

Taxation

Capital gains taxes may apply when selling fund shares, so investors must consider this when selecting an investment option. Investors should also understand taxation policies related to dividends and other income from mutual fund investments.

Expenses

Mutual funds are associated with various fees, such as management fees and trading costs. Investors should carefully assess the cost of investing in a mutual fund to ensure that it suits their financial needs.

The securities and exchanges commission of India is responsible for the purview of everything that comes under the regulated investments in India. This includes mutual funds as well. Mutual funds, being one of the most popular market-linked investment options, have to be closely regulated to protect the interest of the investors. For, SEBI brings about changes to how the mutual funds function every now and then to best fit the current conditions. The introduction of IDCW is such a new age.

If you are a mutual fund subscriber, chances are you have already noticed this difference. But for the uninitiated, Income Distribution cum Capital Withdrawal is introduced to replace the ‘dividend option’ in mutual funds. But how does it work? How is it different from the dividend option? Read on to find out. 

What is the change?

There are two main ways from which a mutual fund can earn income – through dividends and from the sale of underlying equities or other securities. The new IDCW is introduced as a regulation to this to brng more clarity.

The idea behind it is that SEBI wants to emphasise that this income comes from the investment value only.  In other words, when you receive this income, it amounts to a withdrawal of capital.  According to SEBI, this squashes some misconceptions that dividend scheme mutual funds had. But what were those misconceptions? Let us see. 

Myth – Dividend pay from mutual funds accounts only for the income that comes from the underlying stocks. 

Reality – The income includes both dividend payments and the income that comes from the selling of underlying shares. The term ‘dividend option’ may not accurately describe this, resulting in the above misconception. 

Myth – Dividends from mutual funds are extra income that comes over and above the capital appreciation. 

Reality – Dividend payments are actually a part of capital appreciation. It is not above and beyond the potential capital appreciation a fund has. If you were ever subscribed to a dividend option fund before, you might have noticed the fund’s NAV falling right after the dividend pays out. This is the reason for this fall. 

Myth – Dividend option mutual funds book profit on a regular basis. 

Reality – The working of a mutual fund, doesn’t matter whether it is growth or dividend options, is the same. The only difference here comes with how profits are distributed.

In the case of a growth option, the profits that are booked are reinvested in the fund. For instance, if your investment of Rs.1000 booked a profit of Rs.100, the same will get reinvested, and the compounded amount will start earning profit.

In the case of the dividend option (now IDCW), the fund gets distributed once the profit is booked. This helps investors garner regular income from the same. 

Company dividend vs mutual fund dividend?

Even though the working of both dividends may sound similar, they are some differences.

Most importantly, companies pay only a portion of their profits as dividends. They make enough reserves that are needed for their operations before declaring the dividend.

At the same time, mutual fund companies can only pay dividends from the profit the fund has garnered, and they have to pay the same in full.

The dividend payment doesn’t affect the company’s stock price in any way. This is because the stock price is not linked to the profit the company has.

On the other hand, the NAV of an IDCW mutual fund always goes down after dividend payment. This is because, as said above, dividends are a part of the capital.

Although you may not realise any change, the change to IDCW is important as it enables you to understand more about the fund. Understanding in detail about the fund is necessary before investing.