Mutual Funds

[badabing]

Re: Mutual Funds

@sytheuser

Anyways everyone has their own perception of making money. However the past is the past, think of the future. You cannot have your money sit in banks for years due to inflation the value of money will decrease. You will have to pay more to get less. What do you do? i will give a pakistan perspective. Start a business right so that you can make more money fast ? Thats great, business is the best. But only people with huge capital can start businesses. People here say they want to invest in real estate? Okay sure, do you have the capital? if you do thats great. Suppose you buy a property with your hard earned cash. Now what do you do ? you wait for it to increase its value, selling for the same as you bought would be considered waste of time and loss (money devaluation). So you wait, 6-8 months minimum goes by and then you sell it , if you can sell it yourself well and good, other than that you get a broker. who charges you in percentage. You pay for brokerage, you pay taxes (CGT) on your profit and you pay the transfer tax which is huge. You need a huge profit to pay these off or else we are back to step one. Can you do that and wait that much ? If yes then go in real estate. If no, what do you do ? Business is out of the picture, and real estate gone aswell. Where are you left with ? Park it in banks and get around 6% interest ? You’d be better off getting 8% at an AMC (Zero risk level and high liquidity, you can withdraw money the same day) or invest in income market and get 10-12% (risk level low, however liquidity moderate, you can withdraw money after one day you ask for redemption, not bad). You have to think in a systematic way.
we have a client who has parked 2.5 crore rs capital (in low risk) and have been getting around 3 lac rs monthly . He is very satisfied with the monthly income he gets. Which bank will give you that much ? Banks will never give you that much , but it will always give an AMC a better rate as an AMC invests in billions.
Investing in mutual funds you avail tax rebate (Biggest USP for those who pay huge taxes). you save 20% tax when investing in mutual funds and also upto 50% if you invest in VPS (voluntary pension schemes) , so you save tax and you earn money on your investment.
And about CGT you will have to pay it on your profits which in Pakistan is 12.5%. However in mutual funds its different. If you withdraw your profit before one year CGT is 12.5% , if you withdraw after one year its 10% and if you withdraw it after 2 years you dont have to pay CGT. But its not the same for real estate or business, you will pay cgt no matter how long it goes on.
Then there is principle protected funds if you are an investor who is scared that your principle amount will be down if you invest in stocks or income funds etc. This fund gives you the gaurantee that your principle amount will never go down, even if the stock market crashes the company will give you your exact amount back.

Who said anything about leaving cash in the bank. I’m a firm believer in about 70-80% of the Austrian business cycle, all you need to do is switch asset classes. Anybody who understands the basics of the expansion and contraction of the money supply knows what to do - as Joe Rodgers would say “It’s better to be early than 1 second late”.