The realised return (yield) can be computed by plotting the cash flows (SIP amount) against respective dates in an Excel spreadsheet; and using the ‘XIRR’ formula.
Mutual fund investors do not require a demat account and do not have to shell out any other costs other than the expense ratio.
Is it better to invest in stocks or go for mutual fund SIP? In mutual funds, there is expense ratio but direct investment in stocks is almost free of cost through some apps. —Sameer Dhanjal Direct investments require professional expertise on global and domestic macro environment, sectors, stock research, management quality, etc., for asset allocation and security select-ion. Mutual funds meet these key requirements at reasonable costs, offering exposure to well-diversified portfolios, which an individual investor may not be able to achieve given a low investment corpus. The portfolio manager positions the portfolio based on his assessment of the macro-environment/ sector/security, and monitors and churns the portfolio according to developments in the market and the economy. Hence, mutual funds are ideal for investors who need to focus their time and resources in their primary profession.
Individuals have to pay capital gains tax when shares are sold while churning his/her portfolio. Investors are not subject to capital gains tax when the portfolio manager sells securities. Also, direct equity investors are subject to annual maintenance charges of the demat account, which is needed to invest via the direct route and brokerage charges as applicable. Mutual fund investors do not require a demat account and do not have to shell out any other costs other than the expense ratio. Hence, investing through equity mutual funds is better than direct stock investing unless one is a professional investor and aligned to above criteria.
I invest Rs 10,000 every month in a large cap fund. The cost of investment is Rs 4 lakh and the current value is Rs 4.68 lakh. What is the rate of return my fund is generating? —Nitin Kumar The realised return (yield) can be computed by plotting the cash flows (SIP amount) against respective dates in an Excel spreadsheet; and using the ‘XIRR’ formula. Assuming investment on the 1st of each month for past 40 months, and current market value as of November 20, 2020; the fund has done well as it has outperformed its category benchmark (S&P BSE 100 TRI) and peers delivering annualised growth of 9.54%, compared to 8.43% by category bench-mark and 7.36% by large-cap peers on average.
The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to email@example.com