Some Basic Questions

#1
Hey all,
im a newbie in investing so sorry if the questions below seem v basic or ridiculous :)

some questions that i had:
1) if i have a lumpsum amount of say 30/40k would it be better to invest it at one go into a MF or should i still take the SIP route. also is there a way that i invest in something and the returns from that get translated into a SIP for another MF.

2) how are the returns calculated for the lumpsum amount and the SIP investments. if SIP is used and i wanted to withdraw in 2 years time how would the returns be calculated

2) i did some research and found that most MFs seem to have a great return in 2 years time as against a 3 year period, need clarity on this since i have heard most experts say that a 3-5 year bracket is the best period to stay invested in any fund.

4) what is the best way to time your withdrawal - do you set a return percentage as a target or do you set an amount as a target or do you target staying invested for a certain number of years

Please advice

regards
shilpa
 
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rvm123

Active Member
#2
1) if u have a lumpsum, u can invest in one go. returns in one mf can be ploughed back into the same MF through Dividend reinvestment option
2) Calculation of returns is based on individual's whims and fancies. If sip is used, Net present value method may be used.
3) It depends on the market sentiments. Suppose, market has fallen heavily in one year and in the next year gone up steeply, NAV in the second year will be more, resulting in one year return more than 2 or 3 years return. GENERALLY, on a long term - say 3 or 5 years, it may be the best
4) This is also to be determined by individual. If u are satisfied with a certain % of return, once it is achieved u may sell; if u want for a long term investment, u may hold for longer terms and whenever u require funds, u may sell.
 
#3
Hi Shilpa,

You have asked some wonderful questions. Some answers below.



1) if i have a lumpsum amount of say 30/40k would it be better to invest it at one go into a MF or should i still take the SIP route. also is there a way that i invest in something and the returns from that get translated into a SIP for another MF.

Ans: You can currently invest into one fund and then initiate a STP (Systematic Transfer Plan) into another fund as SIP. However, if you just starting off, I would suggest break your corpus into 2 and invest into 2 good mutual funds (HDFC Equity, HDFC Top 200/DSPBR Top 100)


2) how are the returns calculated for the lumpsum amount and the SIP investments. if SIP is used and i wanted to withdraw in 2 years time how would the returns be calculated

Ans: Returns or rather Profit = Net Sell Value - Net cost value. If you buy lumpsum, the cost value is the NAV on the date of purchase. In case of SIP, you accumulate funds over a time period, each of which has a cost. This is then averaged and then cost is calculated.

If your question was from tax angle, then the unit accumalated till 1 year back is considered as Long term and all units later are short term. You can get the NAVs of individual purchases online from Camsonline.



3) i did some research and found that most MFs seem to have a great return in 2 years time as against a 3 year period, need clarity on this since i have heard most experts say that a 3-5 year bracket is the best period to stay invested in any fund.

Ans: Your observation is correct in the current scenario. In last 3 years, there has been a major correction in 2008. Hence, you would have seen that 3 year returns would be lower as compared to 2 years. However, the suggested period of investment is 3-5 years as you have correctly read.


4) what is the best way to time your withdrawal - do you set a return percentage as a target or do you set an amount as a target or do you target staying invested for a certain number of years

Ans: Invest according to your needs. Withdraw only if you have a need. Else, let your money grow. There is one school of thought where you will remove portion of your corpus once you hit some levels. However, my philosophy is simple. If you have the need for money, remove. Else, let it grow.

Happy Investing !!
 
#4
1) if i have a lumpsum amount of say 30/40k would it be better to invest it at one go into a MF or should i still take the SIP route. also is there a way that i invest in something and the returns from that get translated into a SIP for another MF.
In the current scenario, I personally would not go for a lumpsum investment but rather a SIP. The market could fall and you could see your investment drop in value.
If you are willing to keep holding for say 3 years, even if you are in the negative, go for it.

40K as a corpus is a little to small for you to invest the interest in a SIP. Assuming even 12% return (actually <10% right now) you will only get Rs 400 per month as investment and the minimum for most SIPs is Rs500 per month.
Alternatively you can invest in a debt fund and start a STP from there into an Equity fund. This is your corpus amount not the interest.
2) how are the returns calculated for the lumpsum amount and the SIP investments. if SIP is used and i wanted to withdraw in 2 years time how would the returns be calculated
Same as previous posters said.
2) i did some research and found that most MFs seem to have a great return in 2 years time as against a 3 year period, need clarity on this since i have heard most experts say that a 3-5 year bracket is the best period to stay invested in any fund.
There was a recession in 2008. Things started looking up from March 2009.
4) what is the best way to time your withdrawal - do you set a return percentage as a target or do you set an amount as a target or do you target staying invested for a certain number of years
Exactly what asterix24 said.
 
#5
thanks guys, will keep all this in mind during my investigations and post my initial shortlisted funds to get your views about the same before i actually invest.

thanks again :)

one more quick question - when you say stay invested for 3-5 years its 3-5 years from the last SIP right?
also when it says exit load (=1% for redemption within 365 days) this again is 1 year from last sip right?
 
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#6
Hi asterix24

You have answered a very common question here. I was so confused about profit booking at certain levels. I would also like to keep it simple like you. Just one doubt though.. Let us say the market is at present 18K and rose to 27K in the next 3 years.. and then there is a crash like 2008 and say it drops back to 15K..

I know this is some imagination, but would like inputs how to deal with such a situation, you keep the money still invested as if nothing is happening because you do not want money for another 10 years?

Pls put in your inputs.

Thanks

Jeet

Hi Shilpa,
4) what is the best way to time your withdrawal - do you set a return percentage as a target or do you set an amount as a target or do you target staying invested for a certain number of years

Ans: Invest according to your needs. Withdraw only if you have a need. Else, let your money grow. There is one school of thought where you will remove portion of your corpus once you hit some levels. However, my philosophy is simple. If you have the need for money, remove. Else, let it grow.

Happy Investing !!
 
#7
Hi Jeet,

Short volatility is part of the system. If the market has to crash the way you have described, then there should be a huge global event of humongous magnitude. That's scary man...

In general, if you are in the game for 10 years, don't bother. If you are in the game for 5 years, you can do some profit booking because 3 years (60% of your tenure) has elapsed. More often than not, such crashes will be avoided to the extent possible. I have answered some relative points on your other thread about sensex levels and I feel the same is relevant here too.

Coming to 2008, we in India didn't have huge impact (though our indices went down quite dramatically). Our indices were up relatively faster and hence, we didn't have to bear the effect for too long.

Happy Investing !!
 

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