What is cost averaging? How does it provide higher returns compared with lump-sum investing?
Cost averaging is a technique that forms the backdrop of a systematic investment plan (SIP). In an SIP, you invest a fixed sum of money every month or quarter in an equity scheme. When the scheme’s net asset value (NAV) goes up, you end up buying fewer units. When it drops, you buy more units. As a result, the cost price of units is balanced out. In a rising market, lump-sum investments score over SIPs as your entire corpus starts to grow from Day 1, as against SIPs, where your money starts to work as and when it gets invested. SIPs generally work best in volatile markets when timing the market becomes difficult.
Are sector funds risky in the current investment climate? If I do opt for them, which funds should I look at?
Sectoral funds are one of the riskiest funds, and you should not to go for them unless you already have a well-diversified portfolio. What is important is that you must have the appetite to stomach the risks that sectoral funds are fraught with. As these funds invest their entire corpuses in one or two sectors, their fortunes depend on these sectors alone.
Typically, mutual funds avoid launching too many sectoral funds and instead play safe by launching thematic funds that diversify across sectors and scrips bound by a common theme. It is also safer to invest in these funds once you are sufficiently diversified in large-cap and mid-cap funds. Opt for infrastructure funds if you are already well-diversified, and look at an investment horizon of at least three years.
I haven’t operated my savings bank account for five years. How do I reactivate it?
If no transactions have taken place in a savings account for a considerable period (12-24 months), or 6-12 months in the case of a current account the bank declares the account dormant or inoperative. To reactivate your account you will have to give an application in writing, addressed to the branch manager of the bank and provide a photo-identity proof. The bank will verify your signature and, in some cases, may also charge a small fee for reactivating your account.
How do I connect my savings bank account with my fixed deposit account? What is the process and what are the benefits?
This is a good way of earning higher interest on your money. You can link your savings account with your fixed deposit (FD) in the same bank by opting for a sweep-in facility. You can link your savings bank account with multiple FDs in the same bank. Any deficit in your savings or current account will be met by the withdrawal of an exact value from your FD. Since deposits are broken down in units of Re1, you will lose interest only on the actual amount withdrawn from the FD. You will have to give a request in writing to the bank.
How important is it to have a clean credit history? How can I ensure that my credit history is clean?
It is very important to have a clean credit history. Otherwise it is difficult to get a new line of credit. It’s fairly easy to maintain a clean credit history. First, you will need to pay all your credit card bills on time. Further, ensure that you do not default on any of the loans that you are currently servicing. Once you have paid a loan in full, insist on a letter from the institution stating that you have paid the loan in full and there is no amount outstanding.
All content on this page is provided by Outlook Money
Write to us at email@example.com