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Frequently Asked Questions

Mutual funds are managed by professional fund managers that collect money from multiple investors sharing a common investment objective. The gains that they generate from the collective investments are shared proportionately among the investors.

There are various types of mutual funds that are tailored to meet diverse investment goals. Equity or Growth Funds refer to investments in shares of companies. Touted as the best long-term investments capable of generating higher returns, Equity Funds facilitate wealth creation. You can choose from the Large Cap, Mid Cap and Small Cap funds meant for investments in large established businesses, mid-sized and small-sized companies respectively.You can also choose from Blend of Large , Mid and Small caps through Flexicap and Multicap Funds. Then there are tax saving funds (ELSS), Sectoral funds which Invests in a particular Sectors like Banking-Financial , Technology , Pharma etc and thematic funds (investments in common themes entailing infrastructure, NBFCs etc ).

The Fixed Income Funds or Bonds invest into Government securities, bonds, Money Market Instruments, Treasury bills and certificate of investments. They don't offer returns as high as the Equities do, but are safer than the same as well. They are more suitable for short term income generation, temporary parking of funds etc.

Hybrid Funds are a combination of Equity Funds & Fixed Income Funds, helping you make the most of both; wealth generation and short term income. Conservative Balanced Funds, Aggressive Balanced Funds, Child Plans and Pension Plans are just a few examples.

For Further Details for Categorization of Mutual Fund Schemes. Refer to the below mentioned Link.

No. Mutual Funds schemes are governed by a number of uncertain factors like market movement, the ability of the fund management team, time period of the investment and the various avenues of investment.

Like any other asset class, the returns on Mutual Funds are calculated based on the rate of appreciation of the value of your investment over a period as compared to the initial investment. Your returns are actually the result of the difference between the sale date Net Asset Value (NAV) and the purchase date Net Asset Value (NAV) upon purchase date Net Asset Value (NAV) reflected in percentage by multiplying the result by 100.

There are several categories of mutual funds and risk and return of all funds are different.It depends on the market conditions, the kind of fund you have invested into, and the period for which you stay invested. The returns from Equity funds tend to be highly volatile especially in the short term, whereas if you're investing in debt funds, you are expected to witness lesser volatility and comparatively steadier returns.

The inception of Mutual Funds can be traced back to 1924 when the Massachusetts Investors Trust was created. In India it came into existence along with the Unit Trust of India (UTI) in 1963. The Government of India and the Reserve Bank of India had jointly set up the UTI and it was in 1964 that the first Mutual Fund Scheme was launched. Stringent regulation, impressive AUM (Asset Under Management) and constant innovation have been the key drivers of growth for Mutual Funds. In 1987 the public sector banks besides the UTI started dealing with Mutual Funds. The liberalization of the private sector in 1993 meant that Mutual Funds could now be launched exclusively by the private sector too. Currently, as of 31st March 2021, the size of the Mutual fund Industry in India has grown to 31.43 Lakhs Crores.

Usually a period of 5 years plus is considered as long term, period between 3 years to 5 years is considered to be medium term, and the period less than 3 years is considered as short term when it comes to mutual fund investing.

There, of course, are myriad benefits of long-term investments. The effects of short-term fluctuations are duly offset. You can end up accumulating better risk adjusted returns than what you do in the short term. The better risk adjusted returns outweigh the short-term losses.

A mutual fund provides diversification through exposure to multiple equity shares. The reason that investing in a mutual fund is recommended over directly investing in equity shares is that an individual share carries more risk than a mutual fund (commonly known as concentration risk). This type of risk is also known as unsystematic risk. Therefore, if you'd like to invest directly in shares, you should research how you can compile your own basket of shares so that you don't own just one share. Make sure that you are sufficiently diversified between large and small companies, value and growth companies, domestic and international companies - all according to your risk profile. It might be helpful to seek out professional help when constructing these types of portfolios. This type of research and portfolio construction and monitoring can take a lot of time. The alternative is to invest in a mutual fund for instant diversification which allows you to simplify the whole process and save time. When you're investing through Mutual Funds, you're always actually investing in stocks, bonds or other forms of investments indirectly with the help of a professional fund manager.

Both savings and investments are necessary. While it's important to save, it's equally important to invest, since it yields higher returns and is crucial to fulfilling bigger goals in life.

No, it doesn't. Please understand that when you're buying a Mutual Fund, you're investing in it and not locking your money (except in case of Closed Ended Funds and ELSS). Supervised by a professional fund manager, the money always remains yours! You can access your money easily. Not only can you specify redemption dates you can also switch from one scheme to the other. What's more? The funds are backed by easy terms and conditions to help you make an informed decision.

Yes. Non Resident Indians (NRI) and Persons Of Indian Origin (PIO) can definitely invest in Indian Mutual Funds on repatriation as well as non-repatriation basis, provided they're adhering to all the KYC norms. A few countries such as the US and Canada have restricted investments by NRIs in Mutual Funds without relevant disclosures / documentation. So, it is advisable that NRIs from these countries should seek financial advice regarding the feasibility of investing in Indian funds before investing.

Yes, they should consider including Mutual Funds in their portfolio although the selection of the scheme depends upon the risk profile of the investor. A part of their retirement corpus can be invested into mutual funds, to generate a monthly income through Systematic Withdrawal Plan (more tax friendly returns than FDs). Since most of the retired people stay away from Mutual Funds, owing to the volatility of the stock market, debt funds could be a better option for them to start with.

Yes, even someone with modest earnings and savings can invest in Mutual Funds and make the most of the benefits like the ease of transaction, transparency, liquidity and dividends. Mutual Funds encourage the healthy habit of disciplined investing.

Your Asset Management Company outsources responsibilities to a Registrar & Transfer Agent (RTA), which maintains the records of investor details like address, signatures, bank details etc along with the transaction level investment details. RTA is in charge of safeguarding all your records against misuse.

Providing proper nomination facilitates the transfer of assets in case of demise of the investor. So, while opening a folio with any mutual fund, make sure you are nominating a person who can claim fund units or redemption proceeds, should anything unfortunate happen to you. Otherwise your legal heir will have to undergo a cumbersome & lengthy legal procedure to prove his/her heirship. You can choose to nominate one or more persons as your nominee and can also define their respective proportion(s). You can add or update nominees online as well. Alternatively, you can visit your nearest investor's service center, fill up a nomination form, submit all the nominee documents and you're sorted. You may also take the help of a Mutual Fund Distributor.

Alternately known as the Bond Funds or Fixed Income Funds, Debt Funds refer to the Mutual Fund schemes that encompass investments in Government Securities, Corporate Bonds and Corporate Debt Securities etc. These funds are particularly suited for the investors who are fine with comparatively lower but stable returns and have low risk tolerance. Since these funds are less susceptible to market volatility they ensure higher safety and liquidity. When compared to Equity, they are less volatile, offer lower returns but are definitely safer as well.

As against Equity Funds, the debt funds are tailored for those investors looking forward to generating regular income instead of aiming for long term wealth creation. There, of course, are different types of debt funds that you can invest in: Liquid Funds: Liquid funds are a type of debt funds that invest in very short-term money market instruments that are expected to generate fixed returns over a very short period. These funds invest in Treasury bills, commercial papers etc. of a very short residual maturity. An investor You keep earning something every day on any amount of money you choose to invest for any period of time. You can add or take your money out any time you like as well.

Corporate Bond Funds: These are investments in bonds issued by Corporates or companies. They have high rated portfolios with low to medium Duration.

Fixed Income Funds: Fairly long-term investments in company debentures, the fixed income funds have a potential to offer higher returns than the liquid funds.

Fixed Maturity Plans: It is a fixed tenure Fund where you earn interest on the money invested in Corporate Papers , G sec etc. The Fund is Close ended, the Redemption can be done through exchange if its listed or at the end of the tenure.

Credit Risk Fund : They are open ended Debt Scheme Predominantly invest in AA and below rated Corporate Papers. It aims to generate returns mainly in the form of accrual Income and partly through capital appreciation , as it holds paper with moderate duration.

Dynamic Bond Fund : They are open ended Debt Scheme investing across duration taking the view from the interest rate cycle. The duration of the fund can be actively managed by the fund manager.

G-Sec (Government Securities) Funds: These are also known as G-Sec or Gilt Funds that offer the highest degree of safety as these funds invest in Government securities issued by the Reserve Bank of India (RBI) on behalf of the government. The RBI issues securities with varying tenures to raise money for the government from various entities such as banks, insurance companies, and other institutions. They are vulnerable to changing interest rates, though.

They invest our money in fixed income securities, government bonds, money market instruments, repos, bank CDs etc.

Yes. These funds can act as a source of regular income for you because these funds are expected to generate steadier returns and therefore these funds can be used to generate tax efficient regular income vis-a-vis fixed deposits.

Debt funds are not the same as fixed deposits although both are backed by similar features. In both the cases you earn regular interests. In the case of FD, it's your bank which pays you and when it comes to Debt Funds, it's your Mutual fund House which pays you the amount received from the issuer of underlying securities of debt funds! FDs promise assured interests, while debt funds can not assure any returns, although the returns from the debt funds are more predictable than equity funds.

Debt funds usually cater to money market instruments and securities that bear interests. So, with the NAVs fluctuating, the price of these funds plummets with the rising rate of interest (Interest Rate Risk / Duration Risk) and vice versa. Then there are chances where the bond issuer may not be able to make the payment which is promised to you (Credit Risk). The credit risk also entails irregular payments from the bonds that you have invested in.

The bonds carry a fixed coupon rate at the time of issuance. If the rate of interest declines, then the bond turns out to be an attractive source of investment as it carries a higher rate of interest than what the current market has to offer you. As such, you secure higher returns from your fixed income bonds when the rate of interest goes down and vice versa. In other words we can say that the price of bonds is inversely related to the interest rate movements.

Your portfolio should reflect a healthy mix of asset categories to ensure long term financial well being. So, while equity funds entail chances of higher returns, debt funds are expected to generate lower but steadier returns. They are less susceptible to market volatility. Further, the debt funds can be used to create an emergency corpus for unforeseen financial hardships.

Debt funds are particularly susceptible to much less volatility than equities. As such it's suitable for new investors, retired people, very young investors who have just started their career and investors who are mainly looking for better risk adjusted and tax efficient returns.

Liquid mutual funds are considered when your money is lying idle in a savings bank account without being put to use. You, as an investor, might be clueless as to how to invest it. Liquid funds are a very good option to invest the surplus funds for the short term, keeping in view the value doesn't go down over the short term and the period of investment is not fixed. Keeping the money in a savings account is a good idea from a liquidity & safety perspective, though it entails low returns. The liquid funds, on the other hand, offer better returns than savings accounts, backed by complete flexibility of redemption at any time.

Alternately known as Growth Funds, Equity Funds are those Mutual funds that invest in the shares of companies. These funds can be broadly divided into multiple categories: Active and Passive Funds: In case of an Active Equity Fund, the fund manager actively researches the companies and surveys the market, has discussions with the Management of companies, to identify the companies with high growth potential and invest in the stocks of such companies. Passive Mutual Fund (commonly known as Index Funds) invests in stocks that replicate a particular stock market index like Nifty 50, Sensex, Nifty Next 50 etc. In case of a Passive Fund, the Fund Manager has no active role to play in stock selection & invests in the same securities as present in the underlying index in the same proportion and doesn't change the portfolio composition. These funds strive to offer returns comparable to the index they replicate.

Large, Mid & Small Cap Funds: Depending on the market capitalization of the companies they invest in, the Equity Funds are categorized as Large Cap, Mid Cap and Small Funds. The Large Cap funds are those funds which invest in large companies, the Mid Cap funds invest in mid-sized ones, and the Small Cap funds are those which invest in the stocks of small-sized companies.

Diversified, Sectoral & Thematic Funds: There are Diversified and Sectoral Equity funds as well. Diversified funds, of course, help you explore the entire gamut of the market across market capitalization & sectors, while Sectoral funds invest in a particular sector like Infrastructure, Banking, Pharma etc. Thematic funds are equity mutual funds that invest in stocks in line with a particular theme. These funds are a little more broad-based than sectoral funds, as they invest in companies and sectors integrated by an idea.

Just as its name suggests, a hybrid fund is basically the "hybrid" or combination of investments in two or more asset classes. As an investor, one has the option to invest in individual funds like Equity Funds, Debt Funds, Gold Funds. Besides this, one can also invest in hybrid funds to procure the benefits of more than one asset class. There are several hybrid funds that you can invest in. Some offer you the combination of gold and debt funds. Then there are the ones that include debt and equity. These are the most popular ones. You can also choose funds that invest in more than two asset categories.

Yes. There are different types of equity funds, catering to varied investor goals though the holistic purpose of Equity Funds is appreciation & creating wealth over longer periods: Large Cap Schemes: Counted among the most stable Equity Funds, the large cap schemes have an investment Universe of Top 100 listed Companies by Market Capitalization.

Mid Cap Schemes: These entail investments in the mid sized companies that have the potential to emerge as future market leaders. Thanks to the potential, these funds do carry higher returns but are riskier than the large cap funds at the same time. Mid Cap has an investment Universe of listed Companies by Market Capitalization ranked 101-250.

Small Cap Schemes: These entail the investments in the small companies with the highest potential for growth. The Small Cap Schemes are riskier than the Large and Mid Cap Equity Schemes. Listed companies which are ranked 251 and above by market capitalization form an investment universe.

Multi cap Schemes: They allow you the liberty to invest across Large, Mid & Small cap stocks to reap the exclusive benefits of each of those.

Index Funds: These funds simply mirror the composition of indices like S&P BSE Sensex or Nifty 50, without much role on the fund manager's part.

Sectoral / Thematic Funds: There are sectoral funds that invest in companies hailing from particular industries like banking, technology, pharma etc. Thematic funds are the ones that invest across industries but follow a theme like PSU, MNC etc.

ELSS or Equity Linked Savings Scheme offers a deduction from the total income up to Rs. 1.5 lakhs as per Section 80C of the Income Tax Act, 1961. Backed by both growth and dividend options, an ELSS has a 3-year lock-in period from the date of investment, post which you can either redeem your funds or choose to stay invested in. One can invest in this scheme through a lump sum investment or through SIP mode.

Yes, Mutual Funds can help in creating wealth provided you have realistic investment goals, a longer time frame and selecting the right funds catering to your financial aspirations.

You should consider investing in equity mutual funds. When it comes to long term wealth creation, you have to consider inflation as well. Equity mutual funds allow you to create wealth over a long period of time. In fact, it would be better to say that the expertise of the credentialed fund managers end up mitigating the risk associated with these funds.

The best part about Mutual Funds is that no matter what your Financial goals are, you can find a suitable scheme for it. You can choose debt funds, liquid funds or Equity Funds to fulfill your short, mid and long term financial goals successfully. Debt funds with their low but safe returns have the potential to generate regular monthly income. Invest in liquid funds if you've surplus money. The Equity funds are highly volatile schemes meant to weed out short term fluctuations and pave the way for long term wealth creation.

Fixed Deposits & other Traditional investments will offer you safe and steady returns but these returns are less immune to inflation. One must always consider taxes on the investment return and generally post tax returns for fixed deposits are lower than the inflation. The gap between inflation and investments will only widen over the years. Therefore one must consider having a diversified portfolio containing fixed deposits / traditional investments and mutual funds / other contemporary investments in order to achieve the financial goals.

Yes. You can. You might as well want to take a trip to a foreign country in 8 months or so. If you have surplus money, you can definitely park them in liquid funds/Short term Debt Funds and redeem them when you need it. You can also plan through the Mutual Fund route to fulfill other short term goals like buying a Bike or renovating your house.

There are various types of risks associated with different schemes of mutual funds. Market Risk, Business Risk, Credit Risk, Duration Risk & Liquidity Risk. Now, please don't forget that not all these types of risk end up affecting all the funds out there. Different funds experience different degrees of exposure to different risks. Please read the Scheme Information Document (SID) thoroughly to understand which fund is affected by what type of risk.

Seek professional help, follow SEBI guidelines and diversify your assets to mitigate risks. And yes, please don't think that a Mutual Fund house can run away with your money. The regulations governing the Mutual Fund Industry are way too stringent.

Let us tell you that though Mutual Fund risks remain a major source of concern for the investors, these can definitely be controlled provided you're informed about the right ways to do so. And, by allaying the fears, you would be able to make the most of the rewards. Here's a quick look at the same: The very first thing that you should know in this regard is that Mutual Funds are managed by experienced professionals that bring years of knowledge and expertise to the table to mitigate, if not completely, eliminate the risks.

It is very important for you to study & examine the different types of Mutual Funds thoroughly to understand how risky they are and how successfully they cater to your investment goals and risk tolerance. For instance, long term investments like Equity Funds might as well be impacted by short-term fluctuations in the market but in the long-term, they do have a potential to generate higher returns.

You will always endeavour to diversify your portfolio so that the underperformance of a particular asset is offset by the steady performance of the other one.

There is no direct answer to this. However, since Mutual Funds allow you to invest as low as Rs 500, it's advisable that you start investing as early as possible - ideally right from when you start earning. The amount should depend on your savings, earning, expenditures, financial goals and risk tolerance.

Choosing any one depends on your familiarity with Mutual Funds and your Goal. If you're looking to invest regularly in order to accumulate capital for a goal over a long period of time then opt for SIP in Equity funds. Those who have surplus cash flow in the form of regular incentives, bonuses or proceeds from a property sale, but not sure how to use it, can opt for lumpsum investments in Debt or Liquid funds.

Systematic Investment Plan (SIP) is an investment route offered by Mutual Funds wherein investors can invest a fixed amount in a Designated Scheme at regular intervals- it can by once a month or Quarterly .The installment amount could be as low as INR 100 a month and is similar to a recurring deposit.It's convenient as you can give your bank standing instructions/NACH mandate to debit the amount every month. SIP has become a popular Investment Route among Retail investors, as it helps in a getting discipline approach towards investing without worrying about market volatility and timing the market. Systematic Investment Plans offered by AMCs are easily the better way to enter the world of investments for the long term.

One should compare the performance of schemes having the same investment objectives like comparing two Bluechip funds or two Mid cap funds over a same time period. You cannot conduct a performance comparison of funds belonging to different asset categories quite simply because different asset categories cater to different investment goals, carrying variant levels of risk.

The two most important factors governing your choice of mutual fund scheme are your investment goals and your risk profile. The myriad mutual fund schemes that are available in the market cater to different investment goals. The different investors have different aspirations from their investments. While some of the investors look for long term wealth creation, there are others who only want their funds to generate a fixed income for them. When it comes to risk tolerance, there are a few funds that yield higher returns but are highly susceptible to market fluctuations, while there are others that offer low, but consistent returns. Investors with high risk tolerance usually prefer the former, while those with low risk appetite choose the latter. You may take the help of a mutual fund distributor for selecting a suitable fund for you as per your risk profile.

You should start investing as early as possible in your career, ideally in the beginning of your career. Save a little every month and start investing in mutual funds to give your money ample time to grow. If you start early, you will get the benefit of the power of compounding which is considered as the 8th wonder of the world. Even if you haven't started early, it's never a wrong time to do the right thing.

No, you need not have to invest a fortune in mutual funds. Depending on the type of fund you choose you can start investing with as low as Rs. 100. Even with a small amount, you as an investor would be entitled to benefits such as tax exemptions, diversified portfolios and professional management.

The best way to know this would be to consult with a Mutual Fund Distributor for suitability analysis. Understand the investment horizon, examine your investment goals and risk tolerance and then select funds.

Investing in mutual funds remains a simple and hassle-free procedure. You only need to complete a one-time KYC documentation with any of the KRAs. On the completion of the KYC verification process, you are ready to invest funds in various schemes across all the mutual fund houses. You can either get in touch with a mutual fund distributor to help you through the process or complete it yourself through eKYC. The next step would be to decide on a suitable set of mutual fund schemes as per your risk profile. You may choose to take the help of a Mutual Fund Distributor in this process. However, if you're confident of investing on your own (without the help or any kind of guidance whatsoever) you can do that as well.

There are multiple avenues through which you can track your investments like online tools, Mobile Apps, periodical account statements available to check the value of your investment and Periodic updates from mutual fund distributors as well.

One of the main advantages of Mutual Funds is Liquidity; the ease with which investors' units can be converted into cash. One needs to place a request for redemption with the Fund House either through an online or offline mode. Once the request for redemption is processed, the redemption proceeds would be transferred to your Bank account within 1-3 business days from the day you lodged your redemption. In certain cases, you might have to pay an exit load if you're withdrawing money before a specific period.

No. Not all the mutual fund schemes have a lock-in period. There are few schemes like Equity Linked Savings Schemes (ELSS) which have a lock-in period of 3 years post which you can either continue to stay invested or redeem the funds. Further, there are Fixed Maturity Plans (FMPs) and Close Ended Equity Funds where you have to stay invested for a specified period, as specified in the offer document for a captioned fund.

In case of an open ended scheme there is no restriction on the amount of money that you would want to withdraw. You can withdraw your money in an open ended scheme anytime and any number of times. However, in case of Closed Ended Schemes or Fixed Maturity Plans generally the redemption is done automatically at the end of tenure for the scheme. In some cases the liquidity is available through stock exchanges for such funds.

In case of an Open-ended Mutual Fund, you can redeem your units after the stipulated period at no cost. However, you'll have to bear an Exit Load if you're redeeming your units before the stipulated period. This exit load is meant to inspire investors (the ones with short-term goals) to spend the specified time in a particular fund and not redeem the funds that require a longer holding period. Exit Load is nothing but the percentage of NAV that's charged while you're redeeming your units. Besides Exit Load you will incur capital gains tax basis the type of mutual fund schemes you have and for the period that you've been holding them. In addition to this Securities Transaction Tax (STT) is also levied on the redemption of equity funds.

Open-ended schemes impose no penalties on withdrawal. However, there is a nominal exit load on the specific schemes, in case you're redeeming the funds earlier than the predefined exit load period.

Exit load is primarily imposed to discourage investors from withdrawing their funds earlier than the predetermined tenure. Staying invested for a longer term is expected to yield higher returns. A nominal exit load doesn't hurt liquidity much but definitely discourages you to withdraw money earlier.

NRIs are allowed to invest in mutual funds in India- subject to requisite compliances of Foreign Exchange Management Act (FEMA). However, some Fund Houses do not accept mutual fund applications from NRIs pertaining to Canada and the USA.

Mutual Fund Houses in India are not allowed to accept investments in foreign currencies. Hence, the first step to investing in the Indian mutual funds is to open an NRO / NRE account with an Indian bank. Investments done through NRO account are not freely repatriable whereas the investments done through NRE account are freely repatriable.

If you have made the payment via cheque or a demand draft or through online transfer from an NRE account, then you must provide a foreign inward remittance certificate (FIRC) to the Mutual Fund House. In case FIRC is not available a statement of the NRE account reflecting the debit transaction for investment or a letter from the bank confirming the source of the transaction as NRE account can also be submitted. It is important to note that the investor needs to submit the proof of payment from the NRE account at the time of each transaction to the fund house, if such transaction has been made through an NRE account.

A. Photograph

B. PAN card

C. Local Address Proof (India)

D. Overseas Address Proof

E. Copy of Passport

To complete the KYC process, you must submit self attested copies of all the above mentioned documents to the fund house along with the KYC Form & FATCA Form. KYC is a one time activity and a single KYC can be used to invest across financial instruments in India. Power of Attorney: Another popular method for NRIs is to appoint someone else in India to invest on your behalf. The POA holder can be one of your relatives or friends whom you can trust for your investments. Mutual Fund Houses allow the power of attorney POA holders to invest on your behalf and also make investment decisions. However, signatures of both the NRI investor and POA holder must be present on the KYC documents if you wish to invest in mutual funds in India through this route.

At the time of redemption of your mutual fund units, the Fund House will credit the redemption proceeds to your bank account registered in folio, after TDS deduction if applicable. One may choose to provide relevant documents for the Double Tax Avoidance Agreement of India with your country of residence. If that is registered in the folio, TDS applicability will be as per the DTAA and not as per the Income Tax Act.

For more details of TDS, you may refer to the Tax Reckoner (LINK)

Till the time one maintains the status of NRI, your investment has the right of repatriation of the amount invested and amount earned subject to deduction / payment of applicable taxes.

Submitting local and overseas address proof is mandatory. Hence, one must provide a self attested copy of the proof of local and overseas address along with the application for investment.

The compliance requirements in the United States of America and Canada are more stringent as compared to other nations.

In short, NRIs can choose to invest in his/her home country. The process may have some initial hassles. However, in the long run, the return on investment should be worth it.

Currently, only few fund houses accept mutual fund investment from NRIs residing in the US and Canada. So, there is certainly no reason for you to be left out of investing in one of the fastest-growing economies of the World.

The National Pension Scheme or The National Pension System is a government-backed pension scheme that can be accessed by employees from both the public and private sectors. Even employees from the unorganized sector can apply for this scheme, provided they don't belong to the Armed Forces. The scheme, launched by Pension Fund Regulatory and Development Authority of India (PFRDA) in 2004 allows subscribers to invest as low as Rs. 6,000 p.a., which can either be paid as a lump sum or in installments.

Tier-I and Tier-II. Tier-I is a primary default account while Tier-II is a voluntary addition. Here are the differences between these two accounts:-

NPS Tier-I Account does not permit withdrawals while Tier-II does The former entails tax exemption up to Rs 2 lakh (in the ambit of 80C and 80CCD) while the latter allows 1.5 lakh tax exemption only for Central Government employees. The central government employee's contribution towards Tier-II of NPS for availing income tax deduction under Section 80C (up to Rs. 1.5 lakh) per year will have a lock-in period of 3 years You have to deposit a minimum initial contribution of Rs. 500 for Tier I account whereas the minimum initial contribution for Tier II account is Rs. 1000, payable at the time of registration. Subsequently, a Subscriber can make contributions subject to the following conditions:

Tier I:

Minimum amount per contribution - Rs. 500 Minimum contribution per Financial Year - Rs. 1,000 Minimum number of contributions in a Financial Year - one Over and above the mandated limit of a minimum of one contribution in Tier I, a Subscriber may decide on the frequency of the contributions across the year as per his / her convenience.

Tier II:

Minimum amount per contribution - Rs. 250 No minimum balance required There is no maximum limit of deposition in case of both the accounts

You have to be an Indian citizen KYC compliance is a must The minimum age limit is 18 years, while the maximum is 65 years You cannot open an NPS account if you have a pre-existing NPS account NPS account can be opened only in individual capacity and cannot be opened or operated jointly or for and on behalf of HUF

Can you open an NPS account if you are an NRI?

Yes, NRIs can open an NPS account subject to the following conditions:

One should be a Citizen of India, OCI (Overseas Citizens of India) and PIO (Person of Indian Origin) are not eligible Entry age is between 18-65 years Only individual accounts can be opened same as in case of resident Indians KYC compliance is must Contributions made by NRI are subject to regulatory requirements as prescribed by RBI and FEMA from time to time Contribution can be made either from NRE or NRO account At present, POA facility is not available in NPS

The National Pension Scheme is recommended for those who want to plan early for retirement but have low risk tolerance. Now, having a reliable retirement scheme is particularly advisable for those engaged in private-sector jobs. Salaried people looking for the 80C deductions (details below) must consider this one.

Some of the immediate benefits of this fund designed to secure the financial future after retirement have been mentioned below:

It has the potential to offer higher annualized post tax returns than other traditional retirement schemes Premature withdrawal is allowed under special circumstances. Post 3 consecutive years of contributing to the NPS fund, you can withdraw 25% of the fund for purposes like higher education, medical emergencies etc

Contribution to NPS is eligible for tax deduction under section 80C (upto maximum deduction of Rs 1.5 lac) and section 80CCD (upto Rs. 50,000 in addition to 80C) of the Income Tax Act, 1961 Subscribers can diversify within the NPS by choosing from Active Choice (where you can split funds as per your risk tolerance) and Auto Choice (relies on the risk profile and age of the investor) funds

You can contribute anytime throughout the year and change the amount in accordance with your convenience You can open an account without any hassle just by visiting eNPS website or at any one of the point Of presence (POP) It entails transparent investment norms strictly regulated and monitored by the Pension Fund Regulatory and Development Authority You can change the fund manager if you aren't satisfied with the performance of the fund manager You can withdraw 60% of the fund post retirement which will be tax free and the remaining 40% has to be mandatorily utilised for purchasing the annuity from the insurance company of your choice

The investor is not allowed to withdraw the entire corpus post retirement. It's mandatory to keep at least 40% of the corpus aside in order to keep receiving a regular pension from an insurance firm registered under PFRDA. The remaining 60% of the corpus can be withdrawn, which will be tax-free.

NPS also provides the facility of Partial withdrawal before attaining the retirement ager subject to the following conditions:-

Subscriber should be in NPS at least for 3 years Withdrawal amount will not exceed 25% of the contributions made by the Subscriber Withdrawal can happen a maximum of three times during the entire tenure of the subscription. Withdrawal is allowed only against the specified reasons, for example;Higher education of children Marriage of children For the purchase/construction of a residential house (in specified conditions) For treatment of Critical illnesses

Financial planning is no different from a structured problem solving framework. Every structured business problem solving exercises has specific steps (the same can be applied in financial planning as well). However, there are broadly 6 steps in the financial planning process. Most certified financial planners (CFPs) and financial advisers will be very familiar with these steps. However, investors should understand that, while financial planners or CFPs can play an important role in the financial planning process, the success of the financial plan ultimately depends on the investor. Therefore, it will be useful for investors to familiarize themselves with the process, so that they can work efficiently and effectively with their financial planners or advisers.

Step - 1: Understanding and defining the life goals

The first step of financial planning process is to understand and define your specific goals. The more specific the goals are the better it is. Sometimes, you may not have enough clarity about all the financial goals in your life. An expert financial planner can help you define the goals across your savings and investment lifecycle and determine the specific numbers you need to reach for each of the specific goals. You should remember that a financial plan is not working towards a singular goal, like retirement planning, Children's education or marriage or buying a home etc.

Step - 2: Collecting and consolidating data through personal meeting

The second step in the financial planning process is to collect the data regarding the your income, expenses, existing fixed and financial assets, life and health insurance, lifestyle & other important expenses, your family structure and other liabilities that will form the inputs in your financial plan. The Financial planner may employ different methods to collect the data from you. Some financial planners or advisers may send you a survey form or questionnaire that you will have to filled out and send back to the financial planner. Many financial planners prefer face to face meetings with their clients to collect this data. Face to face meetings is often more effective than just sending a survey form or questionnaire. Through a face to face interaction, the financial planner or adviser can clarify certain details about you that the questionnaire may not be able to. A personal meeting also helps the investors clarify doubts, expectations or share additional details with their financial planners or advisers. We recommend that, you should have a face to face meeting, even if your financial planner does not ask for one. It is always helpful for you. Whatever the method is for interaction and data gathering, it is always beneficial for you to share as much information as possible with your financial planner. Withholding financial or other important information from him is never useful. You should remember that the role of the financial planner or adviser is very much like a family physician. Just like, we should share all medical and health related information with our family physician, we should share all our financial information or any other information that may potentially have an impact on our financial situation with our financial planner.

Step - 3: Detailed analysis and suggestions

The third step of the financial planning process is the data analysis part. The financial planner will review your financial situation - assets & liabilities, current cash flow statements, debt or loan situation, existing insurance policies (both life and non-life insurance), exiting savings & investments and other legal documents (if required). Through a structured financial analysis process, the financial planner will determine your asset allocation strategy and insurance (life and health/ critical illness) needs to meet your financial objectives. The financial planner may also suggest additional life and health insurance, if he or she determines, based on your financial analysis, that you are not adequately insured.

What is your responsibility at this stage? While all the work in this step is done by the financial planner, as an investor, you should also involve yourself in this process by scheduling review of the plan and making sure that you understand the analysis. After all, it is your financial plan!

Step - 4: Asset allocation strategies and investment recommendations

After the above 3 steps are covered, your financial planner will make the actual recommendation with respect to your comprehensive financial plan. This will include your's asset allocation strategy based on your risk profile, alternate investment options like, mutual funds, equities, traditional debts, tax saving strategies, life and non-life insurance requirements etc. Your financial planner should schedule a meeting with you, to discuss these recommendations. This is a very important step in the whole process as you should make sure that you understand all the recommendations he or she has made and the reasons thereof.

At this stage, you should ask him/ her as many questions as you would like to, regarding each strategy or product investment recommendations, because they will be crucial in meeting your financial objectives. You should note that the final investment decisions rest with you, and therefore you should ensure that you are comfortable with the financial plan drawn and its execution strategy. Recommendations can change during this step and altered based on your inputs to the financial planner.

Step - 5: Filing up the necessary investment forms and understanding terms & conditions

The penultimate step of the financial planning process is the implementation of the investor'€™s financial plan. This involves the actual process of purchasing the investment and insurance or other products. At this stage various regulatory and procedural requirements need to be fulfilled, depending on the each product involved. As an investor, you may have to submit the documentation for Know Your Client (KYC), fill up the application forms for mutual funds, opening of Demat and share trading accounts for equity investing, and finalising proposal forms for life and non-life insurance plans.

Your financial adviser will play a big role in fulfilling these requirements, including collecting the documents for KYC and helping you in filling out the application or proposal forms. However, it is important, that you remain involved in the entire process. Even if you delegate the responsibility of filling the major portions application or proposal forms to him, make sure you verify the information in the forms post t is filled up, to ensure nothing is incorrectly stated. You should also carefully read the brochures/ scheme information documents of the products that you are investing in, so that you understand all the terms and conditions of the product(s).

Step - 6: Track investments and review the financial plan regularly

The final step of the financial planning process is to monitor and tracking the progress made on your financial plan. You should review your financial plan in order to evaluate the effect of changes in your income levels, your financial situation, tax obligations, new tax rules, new products and changes in market conditions. Normally, your financial planner should schedule meetings with you at a regular frequency (once every 6 month or 12 months) to review your portfolio and discuss if any change needs to be made in your financial plan, asset allocation strategies and investments.

But even if your financial planner does not schedule regular review meetings, you should insist on meeting with him/ her at some regular frequency, e.g. Semi-annually or annually etc. At the end of the day, it is your financial plan and your financial future is at stake. Therefore, the onus is really on you, to make sure that your financial plan is on track. Also, you should remember that financial planning is not a static, but a dynamic exercise. Your financial situation, goals and aspirations may change over a period of time. Therefore, you should meet with your financial planner or adviser on a regular basis, to ensure that your portfolio is doing well and at the same time, ensure that any change to your financial situation, goals or aspirations is appropriately reflected in your financial plan, and executed upon.

There are many benefits of having a financial plan. Once you have defined the specific goals and save or invest for it, you actually start a journey which helps you reach your financial goals. A financial plan actually helps you lead a disciplined and stress free life so that you can enjoy the life to the fullest. We will now discuss the various benefits of having a financial Plan.

The first step of financial planning is to define specific goals. The more specific the goals are the better. As an investor, especially if you are young, you may not have enough clarity about all the financial goals in your life. This is where an expert financial planner helps you. Through a financial planning process, the biggest benefit is that you can define the goals across your savings and investment lifecycle and save towards it for achieving the different life goals. Investing or saving without knowing the goals is like embarking on a journey without knowing the destination.

The next benefit of financial planning is budgeting. This is probably the most important step of financial planning, but also the most ignored one. Even if you have the most detailed and well-structured financial plan, if you are not able to save enough, you will not be able to meet your financial goals. Saving habits are very personal, depending on your lifestyle, relative to your income levels.

While the financial planner may not actually prepare your budget, he or she can help you give you guidance on how to prepare one. Budgeting is not a hugely time consuming exercise. While preparing your budget, you should try, as much as possible, not to skip minor details, because through a careful budgeting you may be able to identify expenses, which you can easily reduce, without any noticeable impact on your lifestyle.

Remember, through budgeting even if you can make a small additional savings. It will have a big difference to your long term wealth as power of compounding helps over long term. Just to give you an example, even an additional Rs 500 monthly savings, invested in equity assets yielding 20% return, will generate a corpus in excess of Rs 1 Crore over 30 years. Therefore, financial plan teaches you the importance of budgeting and helps you save more.

How you invest your save (debt or equity or real estate), plays a very important role in ensuring the success of your goals. Different asset classes have different risk return characteristics. Too much risk can result in loss of money, while too little risk may prevent you from meeting your long term financial objective's While drawing your financial plan the emphasis is on Asset allocation which is the process of balancing your risk and return objectives.

It is one of the most important aspects of financial planning. You can reap rich benefits if you just follow the provided guidance on asset allocation in your financial plan. Asset allocation is the only sure shot way for you to meet your short term, medium term and long term financial objectives.

Having a financial plan helps you prepare for risks. Risks are unforeseen events that can cause financial distress. The worst case contingency is an untimely death, which can result in financial distress for the family, apart from the emotional trauma. Financial planning can help us prepare for such contingencies through adequate life insurance. Another contingency is serious illness that can have an impact on your savings and consequently your short term or long term financial objectives. A good financial plan will make adequate provisions for health insurance and critical illness. There can also be other contingencies like temporary loss of income or major unforeseen expenditures. Financial plans helps you prepare for such contingencies.

It is another important aspect of financial planning. When you have income, you come under the ambit of tax. Tax planning starts when a person starts working and continues almost through-out one's life, even after retirement. Different investment products are subject to different tax treatments. Financial planning can not only help you save taxes (under Section 80C, Section 80CCD, Section 80D etc.) every year.

The benefit of having a financial plan is that it helps you reduce the taxes which you have to pay on your investment income or profit, by saving in various tax planning avenues.

If you start your financial planning A early in your working careers it will give you a head start in meeting your financial objectives even earlier. Saving and investment is not the most important priority for many young professionals. While lifestyle is an important consideration for many young people, you should be careful to not build a liability in your personal balance sheet. Economic lessons learnt from the west over the past 2 decades have taught us that we can easily get into debt trap without even realizing. Young people should think long term, because a small amount of money saved now can create wealth for you in the future.

The benefit of having a financial plan earlier in your work career will put your savings and investment on autopilot mode, with minimal impact on your lifestyle. You will realize the benefits of early financial planning, when you approach important life goals, like buying your house, funding your children's higher education, your own retirement etc. Early start can also help you buy adequate life and health insurance at much lower premium as the premiums rise rapidly as your age increases.

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