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4 reasons for the new generation to start investment right from their first salary Overall RATE RATE (0.00)

Positive demographic dividend, higher disposable incomes, and greater life aspirations are the best ways to describe today’s young India. Your first salary is that special moment that you will cherish for a lifetime. Many of us throw a party with friends to celebrate this moment or buy mementos and gifts to greet the moment. Therefore, the need for investment for the new generation or young India starts right from the time the first salary falls into the bank account. Your first salary becomes your stepping stone for a successful and bright financial future. Here is why the new generation must start investment right from the time they receive their first salary:

It’s ideal to adopt the 70:30 approach when you start your career very young

Most people in India start their careers very young. Therefore, the best way to start investing is by doing it using your first salary. Simply allocate 30% of your first salary towards starting a mutual fund SIP scheme. Remember, you are paying this money for your good future. Now, keep the remaining 70% for celebrating your first job with friends and for managing monthly expenses.

Don’t you want to repay your education loan?

Each one of us would love to repay our education loans, in case we have taken one, and our first salary would be the ideal starting point. However, you must note that an education loan could reduce the amount that you have allocated for SIP to lesser than 30%.That’s why starting your investments very young become crucial to balance your risks and expenses through good returns. Repayment of education loan has tax benefits under section 80E of the Income Tax Act. Thus, it would be a decent start towards freeing yourself from debt very young, which will enable you to save more for your future, especially when you get married and have a family.

Fighting the monster called inflation, which continues to wreak havoc

Worried about rising prices of food items and every important thing in your day-to-day life? Prompt investment is the only way for you to fight inflation, especially for funding your children’s education, marriage, and your retirement plans. When you start spreading your income into Equity, Debt, Gold, and Cash at an early age, the returns that you will derive from these investments will help you fight inflation more effectively, especially at crucial junctures of your life.

The importance of having a life and health insurance cover

In today’s world, stress has become a buzz word at the workplace. Falling ill, developing allergies and other stress-related health conditions such as diabetes and high cholesterol has become a common feature. Therefore, sudden hospitalisation can take away a major chunk of your salary. Thus, starting a health insurance plan when you are young would cover you from such emergencies while providing you with the benefit of lower insurance premium owing to your age. Health insurance will not only cover you, but will also cover your family while giving you income tax benefits under sec 80D. Similarly, investing in life insurance cover would help you secure your family’s financial future in case of an unfortunate event.

To know more about financial planning at an early age, visit us on www.investmentz.com

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Dividend funds vs. Growth funds in India Overall RATE RATE (0.00)

You can invest in mutual funds in India in two schemes – Dividend and Growth funds. The main feature of Dividend mutual funds is that they pay out money to the investors. However, Growth mutual funds do not pay out any money to the investors, which makes them different from Dividend funds. Mutual funds earn money in diverse ways. They might invest in the equity market where they get dividend from companies. Moreover, they might invest in debt where they would receive interest. Further, they might buy and sell for profits and while keeping the excess money. The bottom line is that this money earned by mutual funds could be paid out as a dividend.

Mutual funds by themselves are not taxed as an entity. Therefore, if a mutual fund earns profit, it would retain the profit within the fund and the fund is not taxed at all unlike in the US. Dividends as part of the tax law are not taxed in your hands as the investor. Therefore, to make extra revenue the government charges dividend distribution tax (DDT) on the mutual funds. DDT is different for various types of funds. For equity funds with greater than 65% equity, there is no DDT. However, there will be a very small STT of 0.25% when you sell your units in an equity fund. DDT for liquid funds is 25% while all other funds have 15% DDT. Liquid funds invest in short-term money markets or overnight markets and are supposed to compete with bank FDs and savings accounts. Thus, to bridge the difference they charge a higher DDT.

It is very important to know what happens to the NAV when dividend is paid out by mutual funds. When the funds pays out dividend, the NAV falls by the dividend amount and the DDT. For instance, let’s take the example of a Dividend and Growth fund with NAV of Rs. 20. Let’s assume that a dividend fund declares Rs. 2 dividend. Thus, the fund pays out Rs. 2, which amounts to DDT of Rs. 0.30 at 15%. There is no payout for the Growth fund. In this example, the NAV of the Dividend funds would reduce to Rs. 17.70, reducing by Rs. 2.30 (Dividend + DDT). However, NAV of the Growth fund stays at Rs. 20. Therefore, there is a vast difference between the NAV of a Dividend and Growth fund.

Did you ever ask yourself why you would choose a Dividend fund option? Some investors like being paid regularly, Dividend funds help you in this regard. Thus, they go in for options such as monthly, daily dividends, or weekly dividends. Sometimes, dividends are not paid at specified time intervals and are paid as per the plan when the fund manager decides to pay. There’s a perception that monthly dividend can provide you cash or high liquidity. However, investors must note that the mutual fund cannot guarantee these dividends in terms of frequency or value. In simple words, if the fund does not have the money at the end of the day, week, or month, it won’t pay you. Suppose the markets rise, the mutual fund manager declares a dividend. It’s a way to get your money out of the markets as the market rises. Therefore, profits are getting booked when the markets rise and your money is coming back to you. When the markets are down, the fund manager will not declare dividends anyway. Therefore, investing in Dividend funds is a way to book profits.

Now that we know why you would choose a Dividend mutual fund, let’s try to understand why you would choose a Growth mutual fund. Let’s say your tax rate for debt mutual fund is less than 15%. This would apply even more to a senior citizen who would need about Rs. 3-4 lakhs of income and his real tax rate may hover even in the 10% region on the income that he earns. If he invests in dividend funds, he would have to pay 15% DDT. Therefore, if you are an investor who is interested more in safety, Growth mutual funds in India will be a better investment option. Growth funds are beneficial for long-term capital gains. For instance, if you hold investment in Growth funds for more than a year, especially if it is a debt fund, your first 6-8% income is absolutely free because of the indexation benefit. The best part is debt mutual funds, which are Growth funds, generally tend to give you around 10-11% returns. If your first 6-8% of those returns is free, your taxable income will be much lesser since you are using a Growth mutual fund. In Dividend funds, you will pay 15% DDT for sure. One of the best aspects of Growth funds is that they will always benefit those who want to stay invested from a long-term perspective. If you are an investor who does not want to constantly book profits or exit the markets and in fact, want to stay invested, Growth funds are the best way. They will not only help you with the power of compounding, they provide you with the opportunity to plan your own exit. Therefore, in a Growth fund, you will not be depending on the fund manager to provide you with the exit or the dividend, which may not be the best strategy. You can plan your investments better with a Growth mutual fund.

At ACMIIL, we choose the best mutual fund basket for you based on your risk profile and financial objective. Following is the list of top Growth funds in India for investment:

Fund Name Rating AAUM (Rs Cr) NAV













    31-Mar-17 Rs 1 Year 3 Years 5 Years 10 Years CYTD FYTD Since Inception




Return % Rank Return % Rank Return % Rank Return % Rank Return % Rank Return % Rank Return % Rank
Birla Sun Life Frontline Equity Fund ««««« 15279.11 197.51 24.30 10 15.37 3 20.55 2 13.73 1 15.80 13 2.28 19 22.45 2
SBI Bluechip Fund ««««« 11396.46 34.37 20.06 22 18.69 1 21.42 1 11.18 8 15.27 18 2.38 18 11.58 16
Franklin India Bluechip Fund ««« 8076.89 420.65 20.35 20 14.20 9 16.46 11 11.96 3 14.60 22 2.91 15 21.69 4

 

 

To know more about investing in diverse funds in India and for assistance in financial planning and investment, give a missed at +91 8010968308 or write to us at investmentz@acm.co.in

*Mutual Fund investments are subject to market risks. Please read the Statement of Additional Information / Scheme Information Document carefully before investing.

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