This Raksha Bandhan gift your sister something different

Tomorrow we will be celebrating Raksha Bandhan. The festival of love and protection between brother and sisters. We all know that on this ceremonial day of sibling love, a sister knots a sacred thread, Rakhee, around her brother’s wrist and wishes the best for him. The brother in return promises to protect her through every situation of her life.

We find brothers searching for the best possible gift from the market to get the best for their beloved sister(s). Most of us usually get some accessories like, smartphones, jewellery, apparel, cosmetic kits, boxes of sweets or dry fruits etc. So, for this year let’s consider something different and unique gift for our sister, something unconventional but useful for her whole life. This year let’s give her a financial gift which can be remembered by her forever.

1. Open a bank account in her Name

Most of the time we give money to our sister. Instead of that let’s open a Saving Account her name and deposit the money in that account, not just in Raksha Bandhan but we can deposit in other occasions also. 

If the money is significant enough then we can invest in a term deposit also. By this she will earn interest; which can provide her a source of income, may be pocket money.  Further the bank’s debit card can empower her to use the money lying in the saving account as per her will.

2. Buy a Health Insurance for her

The ladies work tirelessly first with their biological family before marriage and continues to selflessly shower care and love on her in-laws later on. During this, she often ignores her own health while making things possible for everyone else. 

Considering today's lifestyle of long working hours, stress, lack of physical exercise, skipping meals, indulging in junk food etc, we are always at a risk of serious diseases. A critical illness cover is very much essential in today’s lifestyle.

So, let’s buy a health insurance in this Raksha Bandhan for our sister so that she is adequately insured. 

3. Gift Her a SIP 

Rather than just a onetime gift we can give a gift of life time. We can do this by gifting her a SIP or Systematic Investment Plan of a mutual fund scheme.

SIP is a contemporary and effective mode of investing in mutual funds. It allows us to invest a certain sum of money regularly—say monthly or quarterly—instead of all in one go, and helps us to simultaneously plan for many financial goals. We can start with a monthly SIP of as little as Rs 500 and can gradually increase the amount with a Step-up SIP facility. 

However we may need an expert’s guidance on selecting the right mutual fund(s) for SIP based on our investment time horizon and risk appetite.

This can be an effective medium to fulfil her dream’s to buy something of her choice later on like: to start her own business, buying jewellery or going for holidays etc. By this we can help her build that corpus systematically via SIPs. 

4. Gift her the favourite

Gold is always a favourite for the girls. So why not give the gift which she always wants to have it. However this Raksha Bandhan not in physical but in paper form.

Gold Bonds issued by the government, Gold ETFs and gold saving funds are smart as well as efficient ways to invest in gold. These can be easily liquidated as per the market price.

We all know that Gold is always considered as a safe haven and a saviour in times of economic volatility. The investment in gold can strengthen our sister’s financial security over the long-term, and it is, indeed, a very much deserving gift for her in this Rakhsha Bandhan.

By gifting these financial gifts to our sister we will not just make her happy but also add to her financial security and financial freedom.

So this Raksha Bandhan; let’s think differently and think wise!!

Dynamic Asset allocation Fund: A New Animal with Smart Strategy in Volatile Market

When market is volatile and investment period is short or medium term (i.e. 2-3 years) the choice of investments need to be very carefully selected. The reason being if we invest in pure debt funds it may not give very high returns and for less than three year period the capital gain is directly added to the investor’s income making it unattractive for high tax bracket investors, on the other hand 2-3 years period is a too short period for full equity investments. For this period even hybrid funds (balanced funds) which have min 65% equity also reflect same kind of risk return profile as of equity funds.  

So what could be the other option in this kind of scenario?

The answer could be dynamic equity asset allocation funds also called as balanced advantage funds. These funds manage the equity and debt part more dynamically through certain model based portfolio allocation by which they try to give better risk-adjusted returns using predefined formula.

What are the USP of these schemes?

The basic USP of dynamic allocation funds is the active portfolio management between equity and fixed income securities, depending on the market conditions.

These funds shift more money into bonds when market valuations look expensive, and do the reverse when valuations are cheap. The funds typically keep equity portion vary between 30% - 80%, although they can go beyond these limits also.

Normally these schemes use valuation metrics to determine the level of exposure to equities at any given point. The funds uses one or multiple parameters to decide the equity exposure Like (P/BV) Book Value Model, P/E (Price to Earnings) model, Dividend yield of the index etc. Some funds also uses technical analysis like trend lines etc. along with fundamental ratios to fine tune there equity exposure.

By using model based approach, the discretion in the hands of Funds manager is limited and more rational in these funds.

The basic objective of all these type of schemes is to buy low and sell high, helping the investor ride out the volatility over the long term.

These funds also take arbitrage positions through equity derivatives. Arbitrage exposure allows them to keep the actual equity exposure low in a heated market, still maintaining the effective equity allocation above 65% to reap tax benefits, which is applicable to equity and equity related schemes.

This means the long term capital gains after one year from the investment date is exempted (upto Rs. 1 lakh) from LTCG and taxed at the rate 10% beyond that amount.

What are the advantages of these Funds?

These funds are more flexible in asset allocation which helps the investor to make the most in high market volatility situation.

Currently the valuations are high and earnings are uncertain so it makes more sense to invest in model based portfolio which reduces human interventions and emotions.

And the dis-advantages are

These funds may not give higher returns when equity market is riding high. They will generally under perform in rising market situations.

Every fund/schemes has its own unique model so the returns/output will vary scheme to scheme. This makes it little confusing and difficult for the investor to select the right fund.

Dynamic Asset allocation funds are a better choice for managing risk for most investors. In these schemes the model based asset allocations helps in riding the volatility of equity market with more rational and balanced approach. There are other balanced funds categories also where the equity asset allocation is predefined as per the category like—65-80% for aggressive hybrid funds, 40-60% for balanced hybrid funds, and 10-25% for conservative hybrid schemes; however they are not managed very actively.  Dynamic funds allow for higher wealth creation in the long run, while limiting volatility to some extent.   These are better option for conservative investors even for longer time frame, whereas investors with a moderate/higher risk profile can go for hybrid equity funds if their time horizon is medium to long term.