Mutual fund returns

[yoogi]

well, because of the fact that there is a 3 year lock-in period, they are likely to perform better than other diversified funds and on average basis they do so. Dont worry about fund not performing well.

The entry load is same whether it is lump-sum or SIP. 2.25%

If you have lump sum, may be you can reduce SIP to 6 months instead of an year. ie, for 10,000 you can invest about 1700 every month for next 6 months. So you can withdraw funds within 6 months.

If you have monthly income, best thing will be to find out how much you will save every month (for tax purposes) and saving that part in a ELSS via SIP works best for you,

[mf_investor_me]

Thanks for the replies. I also wanted to know if there is any restriction in redeeming the units after 3 years when investment is thru SIP. Can I sell all the units at one go any day after the lock-in period?

[yoogi]

your units become eligible as and when they cross the 3 year lock-in period.

If it is a 6 month SIP it is a six month long process after the 3 years. Instead of redeeming at 6 regular intervals, you can redeem all at one go after 3.5 years.

If it is 12 moth SIP, you can redeem all after 4 years or after the three years redeem monthly units after each month.

If tax savings is not a concern go for other diversified schemes. There the lock in doesnt exist. However there is exit load if exited before 6 months. So your 3 year calculation will be perfect there.

[mf_investor_me]

So my assumption is correct.
Conclusion:
1. SIP is the best option for investing in MF (but not favored by agents as they get low commission)
2. Entry load is payable only for the first installment and nothing for subsequent ones.
3. SIP has a downside of not being able to redeem all units exactly after 3 year lock-in. So it is gradual-in-gradual-out process.
4. I can stop investing after minimum period required.

Am I right, yoogi?

[yoogi]

1. Sip is best. Correct. Not favoured by agents? I am not sure. They get the same comission for both, except a NFO. Thats a entirely diffrent issue,

2. Wrong. Entry load is payable for each Entry. whether SIP or Lumpsum or new investment doesnt matter. Only dividend re-investment is exempted from entry loads.

3. Correct. (Or wait for some more time to withdraw all money or more money.)

4. You can stop investing after any time. There is no minimum period required. Usually all recommends a 6 months. But you can stop after first installment too. That is probably not possible if your monthly installment is too low. ie less than 1000 rs. Otherwise it wont be a problem to stop any time.

[mf_investor_me]

Thanks for the info. One more thing, there is a fund management charge that is deducted frequently. How is this calculated and how will it affect my returns? In general What are the charges other than entry load?

[yoogi]

One of my statement is factually incorrect. Some funds have waived entry load for SIP investments. Example JM Tax saving fund series - 1. But they put a exit fee if you stop SIP midway. You must continue SIP for 1 year.

Fund management charges are the fees deducted by the fund managers to run day to day operations and doing their research work, printing reports to investors etc. It cannot exceed 2.5% per year. For many small funds (funds where investment is very low) this is almost 2.25% to 2.5%). They do it on a daily basis, ie like cutting around 0.01% each business day. If the fund is fairly large the expenses are less and it is in the region of 1.8 - 2.2%. Your report (quarterly or half early report by the mutual fund) will have actual expense occurred.

[mf_investor_me]

Thanks for the reply. I am fairly informed now.