Dilzer Consultants - Investments and Financial Planning

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Mutual Fund Options

As per SEBI Guidelines of 2013 Mutual funds are to be divided as per risk profile of the client needs:

(BLUE) investors understand that their principal will be at low risk

(YELLOW) investors understand that their principal will be at medium risk.

(BROWN) investors understand that their principal will be at high risk

Types of Mutual Funds

Debt funds (BLUE)

These funds invest in fixed income bearing instruments like corporate bonds, debentures, government securities, commercial paper and other money market instruments. These funds are relatively low-risk-low-return schemes. The returns from debt funds include interest receipts and capital gains. If you desire relatively stable performance, these schemes are right for you.

Debt funds can be further categorized into –

  1. Money market/floating rate schemes: Liquid or money market / floating rate funds invest in highly liquid money market instruments for very short investment periods such as a few days upto 180 days maturity. These funds are suitable for parking surplus money for a very short period of time.

Fund Suitability: For Corporates and individuals who would like to park money for few days before making advance tax payments or payment of liabilities/ salaries etc.

2.      Gilt funds:  Gilt funds invest in sovereign securities like central and state government bonds. These funds carry no credit risk but are subject to interest rate risks. The prices of these securities fluctuate with interest rate movements. These funds have varying investment periods to suit investor needs.

Fund Suitability: For Investors: both individuals and corporate’s seeking liquidity safety through a portfolio of Government of India Securities (GOI). Ideal for a time horizon of two to three years.

     3.    Income funds: These funds invest in corporate debenture instruments normally AAA and AA rated, gilt securities, PSU / PFI bonds and various money market securities to ensure adequate liquidity.

The fund manager invests in a portfolio of companies of the nature stated above which are rated by CRISIL (mandatory requirement as per SEBI guidelines in the recent budget).

Fund Suitability: For Investors both individuals and corporate’s seeking liquidity safety and regular income through a portfolio of debt and money market instruments. Ideal for a time horizon of two to three years.

Income funds come with various investment horizons like ultra-short term, short term, medium term and long term funds to suit varying investor needs.

4.   Fixed Maturity Plans (FMPs): These have a fixed tenure like deposits, though no return is promised or guaranteed. These funds invest in securities that mature in line with the fund’s maturity period. Returns on these funds are generally high when short term interest rates are dearer.

Fund Suitability: Suitable for investors not willing to take any risk on their investment with a one year to three years maturity at a fixed return of 9-10% per annum


Hybrid funds: (YELLOW)

These funds invest in equities and debt investments in varying proportions.

  1.  Monthly Income Plans: These are debt funds with a potential of a maximim of 20% exposure to equities and most suited for retiring or retired investors seeking regular income in a tax efficient manner or just for the purpose of asset allocation in a portfolio. This plan would ensure a real rate of return above inflation. The dividends are payable monthly and quarterly or a cumulative option can also be selected for those persons who do not want a regular income, but wish to receive the same on maturity. Their is no lock in period in MIP funds. The taxation is like a normal debt fund- that is for withdrawals made before one year, the tax is 30% or income tax bracket and withdrawals made after 1 yr, the benefit of indexation with 20% tax or 10% flat. Even after this, the post tax return is far higher than an FD, or RBI bonds.

Fund Suitability: Ideal for investors seeking medium safety, liquidity and regular income through a portfolio of predominantly high quality debt instruments and a slice of equities. Ideal for a time horizon of three years.

2.  Balanced Funds: This option caters to those investor needs who are willing to take a little extra risk.It is suitable for those investors who want their investments to be safe but at the same time would like to create wealth by investing in equities. A Balanced Fund typically invests 65% in equities and 35% in debt. The returns are in the range of 11%-15% per annum.

Fund Suitability: For Investors seeking long-term capital appreciation through a balanced portfolio of equity and high quality debt instruments. Ideal for an investment horizon of three to four years.


Equity Funds (BROWN)

Equity funds invest predominantly in equities with a small portion in money market securities. The objective is to generate potentially superior returns by taking on higher risk. As these funds invest in stocks, returns do fluctuate thereby posing higher risk. Therefore, these funds are not for risk-averse investors.

Equity funds can be further categorized as –

Diversified funds: These funds invest in equity of companies across market capitalizations (the market value of a company’s shares) and sectors.

Sectoral funds: These funds invest in companies of a particular sector. For instance, an IT sector fund will invest in just IT companies while a banking sector fund will invest only in banking stocks. These funds are relatively of higher risk due to their sector concentration. And then there are the thematic funds like infrastructure funds which invest in a particular investment theme.
Index funds: These invest in equities of companies forming part of a stock market index. The fund invests in these companies in the same proportion as their weightage in the index. Thus, returns offered by these funds largely match the returns generated by the underlying index, subject to certain tracking error. For instance, an index fund which is based on the BSE Sensex will invest in stocks forming part of the Sensex in the same proportion or ratio as the constituent stocks in the Sensex.


Tax Saving Schemes:

 Tax planning is one of the most crucial aspects of one’s investment planning. For individuals, a deduction of 30% on the gross  income is allowed upto a maximum of Rs 100000. (That is Rs 30000 can be saved on an investment of Rs 100000).

Equity Linked Savings Schemes (ELSS) and the Rajiv Gandhi Equity Schemes (RGESS) are variants of these, offering tax benefit on the investment. However, you need to keep in mind that you need to stay invested for three years to be eligible for the tax benefit.

 Other types of funds


1.       Exchange Traded Funds (ETF): ETF is a fund whose units trade like a stock on the stock exchange. These could be based on a stock index or any other underlying asset. These can be bought and sold only in the stock market at real time prices which could be different from its unit NAV. These have lower expense ratios when compared to index funds and other equity funds. You would need a demat account to invest in these funds. These funds aim to closely mirror the returns generated by the underlying asset.

2.  Gold ETFs: Gold ETFs are funds that are based on gold. You can bet on gold without buying physical gold by investing in these gold ETFs. With these funds, you are not only relieved of the hassles of safekeeping your gold but are also assured of purity since these funds invest in certified gold bars. You are also spared of the wastage and making charges that you would typically incur when you buy gold from jewelers. With certain forms of paper gold, you also get the option of converting it to physical gold with select jewelers.      

3. NASDAQ based ETF fund!: Want to invest in Google, Apple, Microsoft and many more companies whose services we use every day and who have high pay back ratios and deliver returns and dividends to clients? Read on!

Motilal Oswal MOSt Shares NASDAQ-100 ETF, (MOSt Shares NASDAQ 100) is an open ended Index Exchange Traded Fund that seeks investment return that corresponds (before fees and expenses) generally to the performance of the NASDAQ-100 Index, subject to tracking error.

  Fund of Funds (FoF): FoFs invest in other mutual funds either of the same fund house or others. There are funds that invest in mutual funds abroad. There are multi asset funds too that invest in units of debt, equity and gold too. It is easy to achieve diversification and lower risk through FoF. However, you will have to bear higher management expenses.

For more information and investment in the same, please contact us