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Information provided on this newsletter has been independently obtained from
sources believed to be reliable. However, such information may include
inaccuracies, errors or omissions. https://www.compasscapital.in and its
affiliates, information providers or content providers, shall have no liability
to you or third parties for the accuracy, completeness, timeliness or correct
sequencing of information available on this newsletter, or for any decision made
or action taken by you in reliance upon such information, or for the delay or
interruption of such information. https://www.compasscapital.in, its affiliates,
information providers and content providers shall have no liability for
investment decisions or other actions taken or made by you based on the
information provided on this newsletter.

TOPIC 1: WHAT IS AMFI

AMFI stands for Association of Mutual Funds in India. AMFI India is an
association of SEBI registered Mutual Funds. It was incorporated on August 22,
1995, as a non-profit organization. AMFI was set up to maintain overall
standards in the Mutual Fund industry.

AMFI is entrusted to maintain and define the ethical and professional standard
in all operational areas of the industry. AMFI recommends the code of conduct
and best practices for all its members.This includes all agencies, distributors,
AMC’s etc that are engaged in activities of Mutual Funds. AMFI also makes
representation to SEBI, the Government, RBI and other bodies on matters related
to the Mutual Fund industry. It also undertakes the activity of getting a
training and certification program in place for all intermediaries (Mutual Fund
Distributors etc) engaged in the Mutual Fund industry.

AMFI strives for ethical and uniform professional standards in the Mutual Fund
industry. It encourages members and investors to maintain ethical business
practices and regulations. AMFI guidelines are followed by AMCs, agents,
distributors, advisories and other bodies involved in the capital market or
financial services. AMFI spreads awareness across the country on safe mutual
fund investments. All AMC’s pay 0.01% of their AUM to AMFI for investor
awareness.

Investors can approach AMFI for their grievances and register complaints against
a fund manager or a fund house. AMFI is also popular for “AMFI NAV” facility it
provides. This provides historical NAV’s for all Mutual Fund schemes. This is
used by AMC’s, distributors and various research analysists.

TOPIC 2: HOW TO BE A SMART INVESTOR?

Have an investment objective in place: 

All individuals have unique sets of needs like providing for children
education/marriage, buying a car/house or traveling abroad, retirement planning
etc. Individuals must prioritize their goals and develop portfolios dedicated
for achieving the same.

Investors need to be aware of their risk profile while making any investment
decision. Broadly speaking the ability to take on risk reduces as one ages.
Thus, it should be understood that each individual has a unique risk profile and
recognizing the same should be the first step. Hence, a risk-taking investor
(e.g. young working professional with practically no liabilities)may invest in
equities and equity mutual funds. On the other hand, risk-averse investors
should hold a portfolio dominated by “fixed income” instruments like fixed
deposits and debt mutual funds. 

Don’t ignore asset allocation:

Asset Allocation is a crucial exercise to follow while investing. Investing a
large portion of the portfolio in the same asset class can prove to be a risky
proposition. Diversifying your investments across asset classes like equities,
fixed income, gold and real estate among others is as important as investing
itself. A well-diversified portfolio helps investors diversify their risk across
various asset classes.

Track your investments:

Investing is an ongoing process; investors need to continuously monitor the
performance of their investments. This keeps them updated and also gives them an
understanding to make necessary alterations to their portfolio as and when
needed. Remember monitoring of your investments makes you feel in control and
goes a long way in making smart decisions.

Select the right investment advisor:

Most investment advisors are self-centric and do not keep investors interests’
as a priority while advising. Service of an unbiased and professional advisor
(intermediary) is imperative. Good advice and a good advisor is half the battle
won.



TOPIC 3: WHAT ARE ARBITRAGE FUNDS

An arbitrage mutual fund generates returns by en-cashing on the price variation
in securities on different stock exchanges. The stocks in an arbitrage fund is
not held for long. Arbitrage fund buys the stock in cash (spot) and
simultaneously sells the same stock in the futures (derivatives) market.
Difference between the spot price and future price is the return. Typically, an
arbitrage fund will invest minimum 65% of the corpus in equity-related
instruments. This makes arbitrage fund as an equity-oriented fund. Hence lower
taxation as compared to debt funds.

BENEFITS OF ARBITRAGE FUNDS

Arbitrage funds are low risk funds: One of the greatest benefits of these funds
is that they are low-risk funds. There is virtually no risk involved in trading
these funds in the longer-term since each security is purchased and sold
simultaneously.
Arbitrage funds flourish when the market is volatile: Another major benefit of
arbitrage fund is that they are probably the only low-risk securities which
actually flourish during highly volatile market conditions. Volatility provides
the managers of arbitrage funds opportunities to buy and sell and encash on the
price differential.
Better post tax returns:  Since Arbitrage funds are low risk, they are
comparable to debt funds. However, they provide better post tax returns as
compared to debt funds



TOPIC 4: MUTUAL FUND SYSTEMATIC WITHDRAWAL PLAN: A SMART LONG TERM INCOME
SOLUTION

What is SWP? And how can it help in financial planning?

In Systematic Withdrawal Plan (SWP), you can draw a fixed amount from your
mutual fund investment at a specified frequency (monthly, quarterly, annual
etc); you can specify the day of the month when the withdrawal should be made
and the amount will be credited directly to your bank account on the specified
day. You can continue your SWP as long as there are balance units in your mutual
fund scheme account.

Over the last 4 – 5 years with growing popularity of mutual funds among retail
investors, dividend paying schemes have attracted a lot of investor interest.
Several mutual schemes have maintained good monthly dividend pay-out track
records over the last few years and are seen as good investment options for
regular income. However, investors should know that mutual fund dividends are
paid at the discretion of the fund house and are not guaranteed unlike FD
monthly interest.

Investors should understand that as per SEBI regulations, dividends can paid
only from the accumulated profits of a scheme. In a prolonged market downturn,
schemes which continue to pay regular dividends, may deplete their reserve of
accumulated profits and may not be able to declare dividends until conditions
improve.

Systematic Withdrawal Plans is a smart investment option for investors who need
regular income from their investments because of the following reasons -
 * It gives fixed cash-flows to investors till the time they have sufficient
   unit balance. Unlike mutual fund dividends, you can decide how much cash-flow
   you want to receive.
 * For reasonably low rates of withdrawals, you can get both regular cash-flows
   as well as capital appreciation. Mutual fund returns in the long term are
   usually much higher than traditional savings products.
 * Systematic Withdrawal Plans is one of the most tax efficient income solutions
   for investors.

How does Systematic Withdrawal Plan work?

Systematic Withdrawal Plan generates cash-flows (income) for investors by
redeeming units of mutual fund scheme at specified intervals. The number of
units redeemed to generate cash-flows in an SWP depends on the SWP amount and
the scheme Net Asset Values (NAV) on the withdrawal dates. In an SWP, your unit
balance will diminish over time, but if the NAV grows at a faster rate than your
withdrawal rate in the long term, then your investment value will be higher
resulting in capital appreciation, intermittent volatility not with standing.

Tax Advantage

Interest income from FD and most post office small savings schemes are taxed as
per the income tax rate of the investor. SWP from equity / equity oriented
mutual funds are subject to capital gains taxation. Withdrawals made within 1
year of investment are subject to short term capital gains tax @15%. Capital
gains arising out of withdrawals made after 1 year of investment are tax free up
to Rs 1 lakh of capital gains per year. Long term capital gains in excess of Rs
1 lakh are taxed at 10%. The beneficial tax treatment makes SWP one of the ideal
long term income solutions.

Conclusion

SWP is a smart and convenient option for getting predictable cash-flows from
your investment; at the same time, there are multiple considerations that you
need to be aware of, to get the desired results from your SWP. If you need
regular income from your investments, you should discuss Systematic Withdrawal
Plan or SWP option with your financial advisor.
Please mark all your queries / responses to
Information provided on this newsletter has been independently obtained from
sources believed to be reliable. However, such information may include
inaccuracies, errors or omissions. https://www.compasscapital.in and its
affiliates, information providers or content providers, shall have no liability
to you or third parties for the accuracy, completeness, timeliness or correct
sequencing of information available on this newsletter, or for any decision made
or action taken by you in reliance upon such information, or for the delay or
interruption of such information. https://www.compasscapital.in, its affiliates,
information providers and content providers shall have no liability for
investment decisions or other actions taken or made by you based on the
information provided on this newsletter.