By Ranjit Dani:
Ankush Sharma, 45, has worked in the chemical industry for nearly 20 years. He had accumulated a fund for his daughter’s wedding. He got to know of a scheme that would double his money in 5 years. He invested in the scheme as he had heard good things about it. This is a step he regrets because soon after he invested, the plan was revealed to be a Ponzi scheme. Thereafter he learnt the importance of investing only in regulated investments and avoiding unregulated ones. What are regulated investments? India has a number of regulatory authorities such as the Securities and Exchange Board of India (SEBI),
The Insurance Regulatory and Development Authority (IRDA) and the Reserve Bank of India (RBI). You should always opt for regulated investments, some of which are: Mutual Funds: Mutual fund schemes span across asset classes like equity, debt and others. They are regulated by SEBI. Bank Deposits: Indian banks offer fixed deposits and recurring deposits along with savings accounts. Banks are overall regulated by the RBI.
Post office schemes: Post offices offer schemes which are regulated by the Ministry of Finance. Insurance products: Some insurance schemes are bundled with investments. These schemes are regulated by the IRDA. What are unregulated investments? Unregulated deposits, Ponzi schemes, pyramid schemes and chit funds can be dangerous investments. The Government has already passed the Banning of Unregulated Deposit Schemes Bill, 2018. It should be noted that running of such schemes, default and wrongful inducement all now carry heavy penalties, but the ultimate onus is on the investor to do due diligence and avoid such investments. Why Mutual Funds are a choice investment for investors? Mutual funds are suited to the needs of a wide variety of investors. What’s more, there are a number of advantages in MF investing: Safety of investments: Investors can choose a mutual fund based on their risk profile and appetite.
The funds are regulated by SEBI but also come under the purview of Ministry of Finance, RBI, various stock exchanges and the Indian Trust Act. Goal oriented investments: MFs are a great avenue for goal related investments.Investors can opt for growth in funds for long-term goals like retirement or children’s education by investing in equity funds since equity provides inflation beating returns over a long period of time. Debt funds can be used for short-term goals. Professional fund management: Mutual funds are managed by a team of professional fund managers and the portfolio is built using their expertise and experience.
MFs levy nominal fund management fees; this means investors can gain from professional fund management at a very nominal cost. Convenient: Investors can invest modest amounts (as little as Rs. 500), which have the potential to grow to a significant amount over time. Moreover, most mutual funds have no lock-in period and money can be withdrawn within 1-3 days. Tax efficient: Mutual funds are tax-efficient. Capital gains on equity funds are taxed at lower rates. Gains on debt funds held for over 3 years are also taxed at a lower rate while short term gains from debt funds are taxed at the rate applicable to the investor’s total income.
You can also get a tax deduction on investment in an ELSS (Equity Linked Saving Scheme) offered by mutual funds up to Rs 1.5 lakh per financial year. Considerations before investing:- MF investment should be done carefully. Investors should pay regard to the risk-return potential of their investment. Usually higher the risk, higher the potential return. In the case of equity investments, in order to reduce risk, it is advisable to make periodic investments over time.
Mutual funds provide investors with Systematic Investment Plans (SIPs) that allow a fixed amount to be invested at fixed periods of time (weekly, monthly, etc.). Importance of good advice:- If you are unsure about how to invest in mutual funds, you should consult with an expert like a certified financial advisor, a mutual fund distributor or a wealth planner. Expert advisors can help create a financial plan and help you choose the funds suited to your financial situation. Investing is important, but making the right investment is more important. Do not be swayed by promises of high returns like Ankush was. Invest in regulated investments and if you need help or have doubts, consult a financial advisor who can show you the right path. (The author is a freelance writer and Founder Director of Think Consultants, Nagpur)