Micro-cap Funds: Advantages and Disadvantages

Equity Mutual Funds that invest in stocks are further divided into three types on the basis of market capitalization such as micro-cap funds, small-cap funds, mid-cap funds and, large-cap funds.

Market capitalisation defines the market value of the outstanding shares of a company which is calculated by outstanding number of shares multiplied by per stock price.

• Micro-Cap Funds

A type of equity mutual fund that has a market capitalisation which ranges between 50 crores and 300 crores is termed as a micro-cap fund. The general understanding relates to lesser risk of investment in case of large market capitalisation as well as small potential returns. Similarly, there is more risk of investment in case of small market capitalisation and larger the potential returns.

• Features

Micro-cap funds are considered very volatile and relatively riskier than companies that are associated with large market capitalisation. These funds are present in majority on the list of publicly traded companies. Most of these companies belong to the segment of family businesses.

• Advantages & Disadvantages

1. Portfolio Diversification: One of the best advantages of investing in a micro-cap fund is the diversification it provides. This means one can invest in different types of assets and securities.
2. Increased Returns: The growth of an investor is based upon the profits one makes. Micro-cap mutual funds have a strong potential of producing unpredictably high returns. Apart from the good chances, there are possibilities of meagre returns during periods of low performance.
3. Risk Factor: The risk factor is shared by buying funds where majority of the stock is owned by the management. For those capable of taking high risk, micro-cap funds serve the good purpose. However, the risk may not always serve right.

Before investing in any kind of equity scheme, it is important to check the statistics of each type of fund. An investor should engage in a detailed research of the best performing micro-cap funds.

Mutual Fund Calculators: Power to the lay investor!

In this day and age of internet connectivity, researching your investment options have become much easier and accessible. It is easy to assume, that tools like returns calculators, sip calculators, retirement planners, etc. have helped people choose the right Mutual Fund with ease. These Mutual fund calculators have helped the lay investors answer questions like "Will this mutual fund give me good returns?" without the trouble of physically going to the mutual fund office.

More than that, these online calculators have greatly increased the number of investors in the market, which has taken the economy ahead, greatly. This is mainly because consumers have been better educated about investment options like Mutual Fund based Systematic Investment Plans and have learned how it is the answer to preventing the pitfalls of equity investment while still enjoying high returns.

Once a person figures out how much they want to set aside to invest regularly, SIP calculators do the rest for them. Other than guiding investors, these calculators have also been very effective in explaining the importance of retirement planning.

But it isn't just these returns calculators that are encouraging people to invest in Mutual funds; it's also the numbers that speak for themselves. Over the last 10 years, some MF schemes have given returns in excess of 25% CAGR. Add to that the fact that, historically, SIPs absorb market volatility, give compounding returns, & inculcate a sense of a savings discipline in the individual and you know why this perfect wealth-building tool has stood the test of time.

However, we are moving away from the point. Yes, Mutual fund SIPs are awesome and have been the common person’s weapon against inflation, but the fact remains that SIPs & Mutual Funds would have continued to be misunderstood if it had not been for these interactive, self-help calculators. These tools revolutionized SIPs by allowing the lay investor out there, to start an SIP within minutes, sometimes, without any bureaucratic paper work involved.

Take matters into your own hands, and start an SIP today!

Strike Gold with Investments!

Due to the maddening world of investments and returns, most people today are highly sceptical when it comes to putting in their money into a fund that may not yield results up to expectations. This difficulty also makes it tougher for managers to pitch their schemes as viable vehicles for investment, as every penny matters when it comes to profiting on your own money. However, one mode that is unanimously preferred is that of betting on precious metals. But before you quickly find a gold or silver stock for allocating your money, here are some things you should know.

• Why such funds?

Unlike static monetary or security-based funds, a lot of people prefer to invest on commodities because the prices rarely fall drastically. Moreover, because of their value amongst businesspersons, traders and families, metals such as silver or gold are nearly always in high demand when it comes to investment. Thus, having gold mutual funds as your primary stock-earning vehicle may turn out to be a good idea.

• What to know?

Just like any other mutual fund, there is a degree of risk involved here. Thus it is important to read the fine print and know your obligations as well as the expected returns on the money. Unlike a rudimentary method of straightaway pawning your money against the gold, in such funds the fund manager operating on your behalf will place your money against the securities of gold-mining companies, thus equalling the monetization of those shares when it comes to your returns.

• How to get one?

These are complex mutual funds so it is always important to take your time before deciding on one. Many brands and mutual fund corporations are offering schemes centred on gold, such as the DSP Blackrock World Gold Fund, wherein the objective is to achieve capital appreciation through exactly this. The World Gold Fund is one among several others such as BSL Gold or Kotak Gold Fund to offer this.

So strike the right spot and hit the jackpot!

Different Fixed Income Products

Fixed Income Schemes accommodate a return on a fixed schedule while the payments can vary. Conservative investors often look forward to a safer form of investment instruments that carry minimum investment risk. While bank deposits have always been the first choice of such conservative investors, people keep looking for better avenues for investment. For such investors, fixed income schemes are appropriate options.

This is unlike a variable income security where the payments change on the basis of short term interests. Mentioned below are the few fixed income products for better understanding:

• DSP BlackRock Ultra Short Term Fund

The main objective of this scheme is to generate returns that involve some risk. The portfolio constitutes of money market securities or debt securities. The asset size is about Rs. 287.07 Crores.

• Public Provident Fund (PPF)

This fixed income schemes was introduced by the National Savings Organisation in the year 1968 in order to mobilize small savings. Individuals can open this account on their names as well as on the behalf of a minor. The investment limits are about a minimum of Rs 500 and the maximum you can invest/deposit is Rs. 1.50 Lakh per annum. The duration of the scheme is for about 15 years which can be extended for about 1 or more blocks of 5 years.

• DSP BlackRock Bond Fund

This is an open-ended scheme which seeks to generate returns along with considerably lesser risk. The portfolio constitutes of debt securities and the scheme seeks capital appreciation. This is a long-term investment that invests the money market and has an asset size of Rs. 315.77 Crore.

• GOI Bonds

This bond is issued by the Reserve Bank of India whose rate of interest is about 8 percent per annum. The interest is taxable by the investor and is extremely safe since the bonds are issued by the government. There is a lock-in period of about six years and the minimum amount for issuing a bond is Rs. 1000.

The Various Types of Equity Funds

Equity Funds and equity schemes are mutual funds that invest in stocks and can be managed either actively or passively; however one chooses to. These funds are also known as 'stock funds' and are categorised in accordance to the style of investment holdings in the portfolio and the company size.

These stock funds can be domestic or international and their size is determined by the company's market capitalisation. The investment style that is reflected in the fund's holding is made use of in order to categorise equity mutual funds.

There are various types of equity funds and each of them differs from one another. Therefore, depending upon the investment objectives, you can classify the types of equity funds and equity schemes in the following ways:

Large-cap Equity Funds

These equity funds invest the maximum portion in companies that possess a large market capitalization; hence, known as large-cap funds. This equity fund is renowned to offer stability and sustainable returns over a certain period of time.

Mid-cap Equity Funds

These types of equity fund invest in stocks of companies that are medium-sized, also known as developing companies. Similarly equity funds that believe in investing in stocks of smaller companies are known as small-cap equity funds.

Thematic Equity Funds

These equity funds are meant to be invested in securities of sectors such as pharmaceutical or IT. The performance of each of these schemes depends upon how well each of these industries is doing in the market. These funds promise you higher returns but at higher risks.

Multi-cap funds

These forms of equity funds and schemes invest into different sectors in order to reduce the risks associated with investments. Also known as diversification of investment, this process helps if some sectors are affected negatively in the market. This process is quite necessary in order to reduce the risk factor associated with investments.

Equity Linked Savings Scheme

This form of an equity scheme provides you with tax savings where you have the option of locking your funds for a period of three years.

Therefore, if you wish to invest in equity funds and schemes, then you should know that they come with a higher risk but you have a chance to earn better returns.

The Top Rated Growth Funds

A long-term fund is a diversified portfolio of stocks whose aim is capital appreciation with very little or no dividends. Most of these growth funds are at a higher risk but a higher potential for capital appreciation. These funds are volatile than other fund in nature which are not really expected to pay dividends. If you wish to invest in growth funds, then you are required to develop a tolerance for risk and a holding period for a period of about five to ten years.

This fund aims to achieve capital appreciation and revenue growth and mentioned below are a few of them:

• DSP BlackRock Money Manager Fund

The primary objective of this Money Manager Fund is to generate returns from a portfolio that constitutes of money market securities. You can invest over a short period and there is low risk while investing. The asset size of a Money Manager Fund is about Rs. 1878.47 Crores while there has been a phenomenal growth in the past year.

• IDFC Super Saver Income Fund - Investment Plan B - Institutional Plan (G)

This fund seeks to generate stable returns from a portfolio that invests in good quality fixed income and money market securities. The asset size is about Rs. 10.5 Crores while the minimum investment is about Rs. 5000. The average return for the past year is about 10.8 percent.

• ICICI Prudential Income Plan - Direct Plan (G)

This particular fund is to generate income in debt and money market instruments in order to maximize income by balancing the yield, liquidity and safety of the fund. The asset size is about Rs. 1709.84 Crore while the minimum investment remains Rs. 5000.

The fund returns over the past year is about 15.7 percent.

• ICICI Prudential Long Term Plan - Premium Plan (G)

Its asset size is Rs. 0.80 crore while the minimum investment is about Rs. 5,00,000. The fund returns for the past year is a growth of about 15.7 percent.

Things to Keep In Mind Before You Apply For SME Loans

If you wish to set up a small business or expand your existing business, then a Small and Medium Enterprise (SME) loan is one of the most preferred options in order to fuel your business aspirations. But before applying for a small business loan, one should be well-versed with the documentation work so as to sail through the entire procedure. Mentioned below are few tips that you can consider while preparing for your loan application.

• Research is the key to success

This is one of the most important steps that you should undertake that will help you pick the right small business loan. If you already have good relations with your bank, then rest assured because this can be one of the major reasons for receiving an approval for a loan. You research should include reading online reviews of companies and organisations that are touted as potential leaders. The most ideal situation would be to select a bank that has a great network and presence. This also requires one to constantly keep looking out for bank websites and read their terms and conditions for further insights.

• Reviewing

If you look through potential websites, you should look out for terms of repayment, tax benefits, loan tenure and other conditions before making the final choice.

• Your documents should be up to date

This is one of the major factors that banks take into consideration. You have to create a business plan that is internally approved. Also, you should make a note of the document requirement after which you should immediately start putting them together. Your income documents, PAN card details and bank statements are the necessary documents along with the following:

• Passport copy
• Loan application form
• Address proof
• Passport sized photographs
• Track record of repayment
• Professional qualification
• Bank statement of six months
• Financial record of two years (audited)
• Copies of partnership deed
• Proforma invoice of the equipment

• The Application

Make sure your application letter is free of errors along with your documents that will ensure brighter chances of an approval.

• Prepare yourself for the interview

This preparation is essential for you to present your business plan and ideas with confidence. You should provide clarity to the interviewer about how you plan to utilize the money in business. All relevant information should be provided to the officer along with a complete list of documents and material that will support your business requirement.

So increase your chances of receiving a small business loan by preparing in advance and following these tips.