We all know that there is a lot to insure, but do we really know what insurance is? The dictionary definition of Insurance is the act, system, or business of providing financial protection for property, life, health, etc, against specified contingencies, such as death, loss, or damage, and involving payment of regular premiums in return for a policy guaranteeing such protection. A comprehensive and cover-it-all definition, don’t you agree?
Most of the time (and specifically in India), we think of insurance either as tax saving option or as an investment. Both are big myths that we need to be aware of!
Even though we do get tax exemptions for insurance premium, provided we satisfy certain conditions (like your life cover should be more than 10 times the premium paid etc), there are many other options on tax saving that you can choose from depending on age and profile, like ELSS Continue reading →
How would you feel if you didn’t have to worry about money issues after retirement? Good? Or is the answer – relieved?!
Financial security alleviates one of the most stressful issues in our lives and helps build confidence for the future. Building this security is an arduous process, if you start late. On the contrary if you start early, the same process Continue reading →
I am not sure that I have an answer to that question. Investing can be a little tricky. Most of us have this perspective that stock markets are complex and that it is extremely tough to identify value stocks. But, investing is all about basic observation Continue reading →
Whenever a discussion on mutual funds comes up, I am surprised to find myself negating the same misconceptions over and over again. So I decided to elaborate on some of the common myths in this post.
Bur first, we should be clear on what an NAV is. A New Asset Value or NAV is a mutual fund’s price per share, or exchange-traded fund’s (ETF) per-share value. The mutual fund’s per-share dollar amount can be easily calculated by dividing the total value of all the securities in the fund’s portfolio, minus any liabilities, by the number of fund shares outstanding. Continue reading →
Mutual Funds have always been a hot topic, and I have lost count on the number of times I have been asked about mutual funds. One of the most common queries has been the evaluation criteria. How do we evaluate Mutual Funds?
I would suggest that you look at these top 3 metrics when evaluating Mutual Funds:
Standard Deviation: It is a measure of mutual funds volatility. It measures the degree to which a fund’s return fluctuates in relation to its average return over a period of time. The higher the standard deviation – the more risky the fund.
Sharpe Ratio: The Ratio explains whether the fund returns are due to intelligent investment decisions or the result of the excessive risk taken by a fund manager. This measure shows how much return a fund gives per unit of risk it takes. Always go with a fund with a higher Sharpe Ratio.
Beta: It measures the sensitivity of a fund’s return to the swings in the market. The markets beta is always one.
A more volatile fund will have a beta above one. Investors who lack the ability to stomach high volatility should go with low beta funds, as they are likely to yield a smoother performance.
It is very important to have a complete understanding of how the markets work. The right approach with the right set of goals in sight should be setting the stage for your success. As Benjamin Franklin puts it, “An investment in knowledge pays the best interest” .So, the next time you are looking at a Mutual Fund, evaluate it on the basis of these 3 metrics and let me know how the fund performed.