Investors worry over March 31 MF nomination deadline.
MF People who invest together can run into problems with the online process, so they have to send in paper forms instead.
The deadline for nominations of mutual funds (MF) is March 31, 2023. By this date, you must make sure that either you have a nominee or nominees for your MF investments, or you must opt out of the nomination. For each of your MF folios, you must do this.
Folios that you don’t do this with will freeze. That is, you won’t be able to add money to or take money out of these folios until you submit the necessary information. In June 2022, the Securities and Exchange Board of India (SEBI), which is in charge of the stock market, sent out a circular saying this.
But be prepared for problems during the online nomination process, especially for MF investments (folios) that are held jointly, even in “either or survivor” mode. For nominations, these investors will have to go the physical or offline route. “For a nonfinancial transaction like nomination that could have consequences in the future, all the folio holders must agree on a nominee,” says Foram Shah, a Mumbai-based financial planner and senior manager with ACE FnSupermarket Pvt Ltd.
This is just the start. “There was no way to give the contact information of a second or third holder for very old investments, since many of them were done in person. Most people are having trouble with the online mode because of this,” says Shah.
Note that the nomination process talked about in this article only applies to your MF holdings that are not already nominated. For mutual fund investments made through a brokerage account, the nominee that applies at the demat account level is the one that matters.
Read – Enforcement Directorate seeks Franklin Templeton’s Roopa and others.
What to hope for
One, you might not even be able to update the nominations online for jointly held folios. This is the case with MFCentral, a platform for MF transactions that is backed by the registrar and transfer agents (RTAs) CAMS and KFintech. Or, even if you can do the MF nominations process online, like on CAMS and KFintech, you may run into trouble if the MF folio doesn’t have the contact information of all the joint holders.
Vignesh Kumaran S, the deputy vice president of KFintech, says that updating nominations won’t be hard if there is the contact information for all the joint holders of the folio. Since a one-time password, or OTP, is sent to each folio holder, it can be hard to tell which OTP goes to which holder on some platforms (first or second). He says that this problem has been fixed on KFintech (“as of March 16”) by adding the name of the folio holder to all the OTPs that are sent. This is to prevent confusion.
The CAMS spokesperson also said that this can’t be done online because the nomination process depends on OTP-based authentication and the contact information of all the folio holders is not available. As he says, this would mean having the email addresses or cell phone numbers of everyone with a folio. And this can cause problems for a lot of investors. Harshad Chetanwala, co-founder of MyWealthGrowth, says that for most jointly held folios, only one investor’s contact information has been given.
For these investors, the only way out may be to turn in nomination forms in person at the CAMS and KFintech branches. Still, and this is how the online method makes sense, all unitholders must agree. In simple terms, all of the joint holders must sign the nomination form.
Shah says that for her clients who are having trouble with the online process, she is submitting a physical nomination form, which she calls the “old-school way.” She talks about a time when one folio holder was in India and the other was in the United States. So, they sent the person in India the nomination form that could be found on the website of the fund house. The Indian resident was told to print out the form, sign it, scan it, and then email the signed and scanned copy to her daughter who lives abroad. The foreign resident was told to do the same thing and send a signed and scanned form from her registered email address to the fund house.
The CAMS spokesperson said that joint folio holders who live in different places can follow the same steps: download the form from the CAMS website, get the signatures of all the folio holders, and bring it to one of their offices.
People who hold their folios individually may be able to update their MF nominations online, though. Still, some operational problems can also make the process harder for them (see tables).
Get started on your MF nominations right away to make sure you get them in by March 31. Even if you don’t need them, having a nominee for all of your investments is very important and should be your top priority. “Having a nominee makes sure that the MF investments of the person who has died are transferred smoothly. Rajat Dutta, founder of Inheritance Needs Services Pvt Ltd, says, “The nominee is just a keeper, and he or she is legally required to give the legal heirs what they are entitled to based on the deceased person’s will or, if there is no will, according to the applicable succession laws.”
Where to start?
So, how do you start the MF nomination process, and what are the most likely problems you will face?
The authors of this story did a test on their own MF investments, using MF Central, CAMSonline, KFintech, and Mutual Funds Utility (MFU) across their portfolios, all online, to see how well the online nomination process works. We also checked the experiences of distributors and advisors to give you a reality check.
We found the following.
If you use distributors or advisors to invest in mutual funds, try to get them to do it for you.
If you invest in mutual funds on your own (directly), an online platform where you can see all of your investments at once is a good place to start. You could go to the websites of each mutual fund where you have money invested, but that would be hard to do if you have money in more than one fund house.
We started with MF Central, which is a new online platform made by RTAs and the Association of Mutual Funds in India. It lets you buy and sell MFs and gives you a single view of all your investments. Once you know what your investments are, check the nominations that have already been made.
With MFCentral, you can choose a nominee, change the details of an existing nominee, or opt out of nomination for single-held folios across all mutual fund houses in one place. MFCentral covers all fund houses, whether they’re serviced by CAMS or KFintech.
The bad thing is that you can’t use MFCentral to name nominees for your jointly held folios or choose not to have nominees.
The two largest RTAs in the Rs 40 trillion Indian MF industry, CAMS and KFintech, let you change nominees in jointly held MF folios. MFU is another way to do this. All three platforms can be used to make changes to nominations for folios that are only held by one person. There is a big difference, though.
Both new and old users of CAMS and KFintech can update their MF nominations (update nominee details, change a nominee, switch from nomination to no nomination, and so on). Amol Joshi, the founder of Plan Rupee Investment Services, said that in the case of MFU, existing holders of a common account number (CAN) cannot change their nominations online. They can only do this by sending in paper nomination forms.
“Investors can easily change their nomination online when they open a CAN. Ganesh Ram, MD and CEO of MFU says, “For any future changes in nomination, we are still waiting for RTAs to give us an online option, which we think will happen soon.”
Check out our graphics for more information.
Options for holding MF folios together
Investors with jointly held MF folios can first use the RTA websites to try to update their nominees or opt out of the nomination. Depending on where your MF investments are, you may have to do this on the CAMS or KFintech websites, or both.
If you can’t finish the nomination process online, the only other option is to hand in paper nomination forms at the offices of CAMS and KFintech. Kumaran from KFintech says that one of the folio holders can turn in the form in person or by mail. What matters most is that the signatures on the form match those in the RTA records. Since it can take longer to update the nomination information for people who send in paper forms, it’s even more important that you do this right away.
If you want to register more than one nomination per folio, make sure that the total number of units (percentage allocation) given to all the nominees in that folio adds up to 100%. If not, your request to be nominated will be turned down.
Before you can use MFU, you have to apply for a common account number. See the table for more information. You can change your nomination during this process. The CAN is made by MFU for a unique combination of PAN, mode of holding (single/joint) and tax residency status. So, if you live in India and have both single- and joint-held MF investments (two ways to hold), one CAN will show your single-held folios and the other will show your joint-held folios across all fund houses.
Amol Joshi says that since nominations are made at the CAN level, they show up in all the folios that are linked to that CAN. But if the nomination doesn’t show up in a certain folio, you can sometimes send MFU an online complaint.
Join Our Telegram Channel For More Updates | IPO INFO
Important: These 5 mutual fund investment rules will change in the new year.
Important: These 5 mutual fund investment rules will change in the new year. In the new year, the market regulator Sebi will change the rules for joint funds. Changes are being made to the rules to make mutual funds safer and more open to buyers. Some of these changes will happen on January 1, and some will happen after that. If you want to invest in mutual funds in 2021, you need to know about these changes to the rules. Tell us what these changes are.
New riskometer tool
Investors can use the SEBI riskometer to figure out how risky a purchase is before making it. Now, on January 1, 2021, the category “very high risk” will be added to this tool so that investors can get a more true picture of the product. The 1st of January is when this service will start. Also, it will be looked at every month. From January 1, each scheme will have its own risk group, and the fund house will have to tell investors if the scheme’s risk profile changes.
Also, Read – Before investing in mutual funds, bumpers will benefit from lower risk.
Portfolio distribution for mutual funds with investments in more than one company
In September, Sebi changed how the portfolios of multi-cap stock mutual fund schemes were divided. Now that the rules have changed, a multi-cap mutual fund plan would have to put at least 75% of its money into stocks instead of just 65%. Multi-cap equity mutual funds have to put at least 25–25% of their money into large-, medium-, and small-cap stocks. In the multi-cap fund group, there are currently no limits on how investments can be made.
Changes to the NAV formula
Mutual fund investors will get the net asset value after their purchase hits NAV Asset Management Company (AMC) on January 1, 2021. This is true no matter how much they invest. This won’t be true for mutual fund schemes that are liquid or last only one day. Before now, NAV would buy up to 2 lakhs a day before the money got to AMC.
Transfer of shares between schemes
From January 1, 2021, investors will have to move close-ended funds between schemes within three business days of getting a unit in a scheme. After three business days, this kind of move will no longer be possible.
Change what the payout choice is called.
All dividend choices in mutual fund schemes will be called “income distribution cum capital withdrawal” as of April 1, 2021.
Before investing in mutual funds, bumpers will benefit from lower risk.
If someone wants investing in Mutual Funds for the first time, they should start with a big-cap fund.
New Delhi: Investors who invested money into Mutual Funds during the coronary time did very well. People are becoming interested in mutual funds because of this. But if this is your first time buying in mutual funds, you should be careful and know a few things.
Experts say that someone who wants to invest in a mutual fund for the first time should choose a big-cap fund. Then index funds should be given the most attention.
He says that the mutual fund estimator shows you how much your money will grow over a certain amount of time. But they don’t say which mutual funds will make your money grow if you put it in them. So, people should only spend in it if experts tell them to. The unique thing about mutual funds is that you need a plan to make money with them.
Also, Read – Risk in mutual funds can be measured in 6 ways.
Profits that are both good and come with less risk
Large-cap funds and index funds have been the most popular choices for first-time buyers in mutual funds so far. Money can be made with them because they have low risk. But you should remember that mutual fund investments are subject to market risks. No plan for a mutual fund is risk-free. In this news story from Live Mint, tax and financial expert Jitendra Solanki says that for the first time, large-cap mutual funds are better than small-cap mutual funds if you want to invest in mutual funds. Fund managers put money into shares of the top 100 companies on the stock market with these funds. There is a lot less change in these stocks than in small and medium companies. Because of this, funds that invest in big-cap stocks also have less risk.
Using these funds, you can: Advice: Invest in Mirae Asset Large Cap Direct Growth Fund, Axis Blue Chip Direct Growth Fund, and Canara Rebeco Bluechip Direct Growth Fund from Gaure Jitendra Solanki. Also, he tells investors to put their money into a straight growth plan. This is because the broker’s part in the direct growth plan gets smaller, and investors get an extra 1% to 1.5% in mutual fund interest over time. Solanki has also said that if you don’t have enough money to spend all at once, you should use SIP instead.
Index funds are a better choice as well.
Moneymaking Singhal of goodmoneying.com says that index funds are also a better choice for people who are just getting started with mutual funds. They have very little risk, and how well they do is tied to how well the index does. Singhal says that people who have never bought a mutual fund can buy UTI Nifty 50, HDFC Nifty 50, or HDFC Sensex. He also says that you should keep an eye on how index funds of different mutual funds grow, because the more money you spend on the funds, the less money you will get back.
Risk in mutual funds can be measured in 6 ways
Risk in mutual funds can be measured in 6 ways. From the point of view of an investor, the risk is the bad chance of losing some or all of the original investment. And the chance of losing money is the most important thing to think about when choosing between different types of funds with different levels of risk.
For example, some investors choose low-risk Short Duration Debt Funds. Some people choose moderately risky Hybrid Funds. And Equity Funds give comfort to people who like to take risks. But one thing that all Mutual Funds have in common is that they all have some risk.
Risk can come from many different places. This can be caused by changes in the economy, industry, political situation, currency, interest rates, inflation, change in management, fraud, cost of raw materials, and dozens of other external and internal factors. The good thing is that you can measure risk. And it would help you to analyze and choose Mutual Funds if you used risk statistics.
In this blog, we’ll look at six ways that Equity Mutual Funds are usually analyzed in terms of risk. We’ll also talk about how you can use these factors to choose Mutual Funds.
Beta is a common way to measure risk. It is used to figure out how volatile a stock or mutual fund’s returns are compared to their benchmark. So, Beta only shows how risky an asset is compared to other assets. It doesn’t show how risky the asset itself is.
A benchmark is used to measure beta. In other words, the stock market or benchmark will always have a Beta value of 1 because that is how it is set up by default. Since the returns of Mutual Funds are compared to the benchmark, Beta can have any value.
For example, if the Beta of a Mutual Fund scheme is 1, it means that the fund moves in the same way as the benchmark. So, if the NIFTY 50 goes up by 1%, the fund will probably go up by the same amount. To put it another way, the beta of an index fund is 1.
Also, let’s say that a fund’s Beta is greater than 1. Think it’s 1.5. So, if the NIFTY 50 goes up by 1%, the fund that is based on the NIFTY 50 will probably go up by 1.5%. When the Beta is less than 1, a similar pattern is seen.
As an investor, you can use this information about Beta to set up your Mutual Fund portfolio based on how much risk you are willing to take. For example, if you are a cautious investor, you might want to pay attention to low Beta portfolios.
Remember that beta is a relative measure that doesn’t tell you how risky an asset is on its own. So, if you are a conservative investor who only looks at the Beta when classifying an investment, you might be in for a rude awakening. Because of this, you should never just look at Beta when choosing a Mutual Fund.
Beta is still useful as a statistical measure, especially for diversification, which can be used with other ways to control risk, such as asset allocation.
Also, Read – What are Funds of Funds (FOFs), their types, pros and cons, and how they work?
The word “Alpha” is not just a way to measure risk. But it is often used with Beta.
Alpha is a simple way to figure out how much better a fund did than its benchmark index. For example, if the NIFTY 50 index returned 10% last year and the fund that was compared to the NIFTY 50 returned 11%, then the Alpha is +1%. And if the fund didn’t do as well as it could have and only made 8%, the Alpha is -2%.
So, Alpha can be positive or negative for actively managed funds, depending on how well the fund manager runs the fund. In fact, the whole point of investing in an actively managed fund is to get a positive Alpha.
On the other hand, Alpha will not be made by index funds. But a zero Alpha isn’t always a bad thing, especially since most Large Cap Equity Funds are having trouble beating the NIFTY 50 index right now.
Both Alpha and Beta are based on past data and change over time. So you would be smart not to think that how they did in the past is a sign of how they will do in the future.
The R-Squared tries to figure out how similar a fund’s performance is to that of its benchmark. This is done on a scale of 100. So, if the R-Squared is 100, it means that the performance of the Mutual Fund is perfectly linked to that of the benchmark.
Index Funds, for example, have an R-Squared close to 100. On the other hand, R-squared values can vary for actively managed Mutual Funds. When it comes to performance, mutual funds with an R-Squared of 80 or less tend to not act like a typical index. But there aren’t many of these in India’s Mutual Fund space.
The question now is what to do with this information.
In general, if an actively managed fund has a high R-squared value, it is probably structured like an index and, as a result, is performing like one.
The standard deviation shows how far apart the data are from the mean. And from the point of view of a Mutual Fund, it shows how volatile or risky the fund is.
For example, let’s say that a Mutual Fund’s average return over time is 10%. But, as was to be expected, this fund has had both good and bad months, with returns ranging from +20% to -15%.
Standard deviation takes into account the up-and-down path of returns in the past NAV of mutual funds and shows it as an annualized number.
For example, let’s say that this fund has a standard deviation of 3% and has an average return of 10%. In general, this means that 68% of the time. You can expect the fund’s returns to be between 7% (10% – 3%) and 13% (10% + 3%) at the low end and 14% at the high end.
So, 68% of the time, the average return on a fund will be between 7% and 13%. This is called the mean plus or minus one standard deviation. The same idea can also be used to measure a mean plus or minus two standard deviations, which covers not 68% but 95% of the events.
The Sharpe Ratio measures how well an investment did in relation to the risk it took. It is found by taking the risk-free rate of return and subtracting it from the returns of the fund. Then, the result is divided by the standard deviation.
In other words, the Sharpe Ratio shows whether a Mutual Fund’s returns are because the fund manager made good investment decisions or because they took too much risk.
In order to figure out the Sharpe Ratio, the standard deviation of the total volatility is used. This is where the Sortino Ratio is different, because it only uses the fund’s downside standard deviation in its calculations.
So, the Sortino Ratio is a formula that, like the Sharpe Ratio, takes the fund returns and subtracts the risk-free returns. But instead of dividing it by the total standard deviation, it divides the difference by the downside deviation.
What are Funds of Funds (FOFs), their types, pros and cons, and how they work?
In this article, we’ll look at what Fund of Funds are, how they work, and their pros and cons so you can decide if investing in them is a good idea for you.
Imagine that you want to visit several cities in India in the next few months. In these different cities, you need to book a room to stay in comfort. You can easily book your rooms through an aggregator portal instead of going to several different sites. And if you want to change or cancel the reservation, you can do it easily through one platform. So, with this one platform, you have access to more than one hotel. A Fund of Funds (FoF) is a bit like this.
What does FoF stand for?
Fund of Funds (FoF), also called a “super fund,” is a type of mutual fund that lets you invest in multiple funds with a single payment. A mutual fund that invests in other mutual funds is called a “fund of funds.” So, instead of buying stocks or other financial instruments directly, the fund manager buys a portfolio of different mutual funds.
How does FoF do its job?
Mutual funds invest in different kinds of securities, such as stocks and bonds. They buy stocks and debt papers from a company on behalf of their investors.
A FoF buys shares of other mutual funds. Here, the fund manager can invest in a single fund or in funds from different fund houses, depending on the underlying investment strategy.
Let’s look at the ICICI Prudential Debt Management Fund as an example (FOF). It puts money into both its own mutual funds and those of other fund houses. As of October 31, 2021, the fund had money in eight mutual funds, three of which were from the fund house that managed the fund.
But as of October 31, 2021, the top holdings of funds like Quantum Equity Fund of Funds are all mutual funds from other fund houses, like Invesco India Midcap Fund, Axis Bluechip Fund, Mirae Asset Large Cap Fund, and so on.
Different kinds of Funds of Funds (FOFs)
Funds of funds can be of different kinds, depending on what the fund wants to do with its money. The different kinds of FOFs are listed below:
Also, Read – Should I invest in multiple-category mutual fund schemes?
Asset Allocators or Multi-Asset Funds
Asset allocators and multi-asset funds invest in a variety of things, like stocks, bonds, and commodities like gold.
These types of FoF buy shares in other funds to spread their investments across different types of assets. FoFs could, for example, put their money into a mutual fund that buys stocks, a debt fund that buys bonds, and a gold fund. The goal of this strategy is to give you access to a wide range of asset classes, such as stocks, bonds, gold, and other commodities.
With FoF, a fund manager doesn’t have to pick out securities from different asset classes one by one. This makes it easier to manage a portfolio with more than one asset class. The fund manager only needs to choose one or two funds for each asset class. The fund manager of the underlying scheme will choose the stocks.
Fund of Funds International (FOFs)
International FOFs put their money into International Funds, which then put their money into global companies. So, you can see that investors in these funds get indirect exposure to large multinational companies without having to open a trading account with an overseas broker. Also, being exposed to the world makes sure that there is healthy diversification.
Also, in this case, the fund manager of the FOF can use the knowledge of the fund manager of the foreign fund, who knows how to invest in the country’s securities.
ETF-Based Fund Of Funds (FOFs)
ETF FOFs buy Exchange Traded Funds (ETFs), which are a group of investments that track a market index like the NIFTY 50 or the BSE SENSEX. The movement of a benchmark index gives us a good idea of how the market is doing as a whole and is seen as a key indicator of how the market is doing.
But if you want to invest in ETFs, you need a trading account and a Demat account. Fund houses make FOFs so that investors who don’t have a Demat account can easily buy ETFs even if they don’t have a Demat account.
For example, Bharat Bond FOF by Edelweiss Mutual Fund invests in units of Bharat Bond ETF, while Mirae Asset NYSE FANG+ ETF Fund of Fund invests mostly in Mirae Asset NYSE FANG+ ETF.
Gold Fund Of Funds (FOFs)
Investors can buy units of gold ETFs to put their money into gold. These gold ETFs invest in gold that is 99.5% pure. But some investors may not be able to buy Gold ETFs because they don’t have a Demat account. Gold FOFs come into play at this point. Investing in a gold fund of funds means buying gold ETFs. For example, the ICICI Prudential Regular Gold Savings Fund (FOF) invests in the ICICI Prudential Gold ETF.
Pros Of Fund Of Funds (FOFs)
Now, let’s take a look at some of the best things about FOFs.
Rebalancing is a very important part of managing your investments. In order to rebalance your investments, you may have to sell some and buy others. If this is the case, you may have to pay capital gains tax on investments you sell.
On the other hand, there is no capital gains tax on portfolio rebalancing that is done by the different funds that make up the FoFs. So, you can get the benefits of rebalancing without having to pay more in taxes.
The best thing about FoFs is that they let you invest once and get access to many different mutual funds with different investment goals.
For example, the ICICI Prudential Asset Allocator fund invests in about 20 of the ICICI Prudential mutual fund’s equity and debt schemes. It would have been a lot of work for the investor to put money into all 20 schemes on his own.
The Investment Style Of Different Fund Managers
FOFs put their money into several mutual funds, both domestic and international. So, FOF investors get the benefit of investing in a portfolio that is managed by different fund managers and their research teams.
For example, International FOF lets you learn from people who are experts in a certain market segment. Take the DSP World Mining Fund as an example. It puts money into the BlackRock Global Funds & World Mining Fund (BGF–WMF), which puts at least 70% of its total assets into equity securities of gold mining businesses. It may also put money into the stock of companies that mine other types of precious and base metals.
Making investments on international markets and in gold is easy.
International FOFs also make it easier to invest in companies that operate around the world. To invest in stocks of multinational companies, you don’t need to open a separate account with another middleman. With international funds, you can start investing quickly. In the same way, gold funds make it easy to invest in gold without any paperwork.
Cons Of Fund Of Funds
There are some bad things about FoF, just like there are some bad things about everything good. Let’s look at some of FoFs’ problems.
Not being able to change.
One big problem with FOF is that investors can’t choose the mutual funds or investment strategy that a fund manager invests in. If you don’t like a fund, you have to stay invested or get your money back if you’ve already put money into it.
So, if a fund manager has money in seven mutual funds, you automatically have money in all seven of those funds.
For example, Motilal Oswal Asset Allocation Passive Fund of Funds uses a strategic asset allocation and limits gold exposure to 10% for both Aggressive FoF and Conservative FoF. You can’t get more gold through this fund, even if you want to. You’ll have to invest on your own.
Higher cost-to-income ratio
FOFs may sometimes have a higher expense ratio. The fee that fund houses charge each year to manage the investments is called the Total Expense Ratio (TER). It is worked out as a percentage of the fund’s total assets. SEBI has also put the FoFs into different groups based on the underlying schemes and put a limit on how much these funds can charge for fees.
FoFs that invest mostly in liquid, index, and ETF schemes, for example, can charge no more than 1%. FoFs that invest mostly in actively managed equity and non-equity schemes can charge up to 2.25% and 2%, respectively.
But it can be seen that a few FOFs have a higher expense ratio than regular schemes because they pay for the costs of the schemes in which the FoF has invested.
Possible Duplication of Portfolios
Since FoFs put their money into different mutual funds, they may be exposed to the same stock or debt security in more than one fund. This will lead to portfolio duplication, which could make it harder to spread out your investments.
Tax breaks for equity are not available.
Mutual funds, including FoFs, are split into two groups by income tax rules: funds that focus on stocks and funds that don’t. Most of the time, an equity-oriented fund must put at least 65% of its assets into stocks and other instruments that are related to equity.
But the criteria for classifying FoFs are a little bit different. If FoF puts at least 90% of its money into Exchange Traded Funds (ETFs), which then put at least 90% of their assets into shares of Indian companies traded on stock exchanges, FoF is considered an equity fund. But all other FOFs are taxed as debt schemes or other than equity-oriented schemes, even if a FOF invests all of its net assets in other equity funds.
If FoF is considered an equity fund, the tax on Short-Term Capital Gains (STCG) is 15% on investments sold within one year of purchase, and the tax on Long-Term Capital Gains (LTCG) is 10% on profits over Rs 1,00,000 on investments sold after one year.
But if a FoF is considered a debt fund and units are sold less than three years after they were bought, the short-term capital gains tax (STCG) is applied. The gains are added to the person’s income and taxed based on the person’s tax bracket. On the other hand, investments sold after three years are subject to an LTCG tax of 20% plus indexation.
Should you put your money into Fund Of Funds?
If you are new to investing, the fund of funds category can be a good place to start. It is a basket of different mutual funds that invest in different assets and securities.
Fund of Funds gives investors access to certain types of assets, like international companies, that would be hard to invest in through regular mutual fund schemes. So, if you have been investing for a while, you can diversify your portfolio by buying international funds.
But before you invest in a FoF, make sure that it doesn’t have a lot in common with your other securities or assets. It is important to make sure that your investments match your risk profile and fit into your overall asset allocation strategy.
Should I invest in multiple-category mutual fund schemes?
Should I invest in multiple-category mutual fund schemes?
There is a lot of overlap between large-cap funds, but not as much between mid-cap funds and especially small-cap funds.
Diversification is a word that investors in mutual funds know a lot about. Diversification is, without a doubt, a very important part of building an investment portfolio. But the right way to diversify is different from owning too many funds in the name of diversification.
Diversifying a portfolio is an easy idea to understand. Different stocks do well or badly at different times, depending on things like the type of business and the size of the market. So, an investment in a well-diversified portfolio will be spread out over a number of companies in different sectors, industries, and market caps.
And because different fund managers have different strategies and styles, a good portfolio should also have a variety of fund managers and asset management companies.
I have said many times that both active and passive funds have a place in an investor’s portfolio. Going passive-only is fine, too, if investors are willing to take on a little more risk. In that case, they can use active funds to get exposure to mid-and small-cap stocks and passive funds to get exposure to large-cap stocks.
Comparing schemes in the same category
The rules say that each asset management company can only offer one scheme in each type of mutual fund. And because the rules and definitions for many of these categories are strict, fund managers don’t have much room to offer something different.
The large-cap category is a good example. A large-cap fund must put at least 80% of its money into large-cap companies, which are the top 100 companies by market capitalization.
If an investor chooses four large-cap funds, there will be a lot of overlap because 80 percent of the money has to be invested in about the same 100 companies.
Let’s look at how the four largest active large-cap funds by assets under management overlap to get a clear picture:
OVERLAP AMONG LARGECAP FUNDS
|ICICI Pru Bluechip||SBI Bluechip||Axis Bluechip||Mirae Asset Large Cap|
|ICICI Pru Bluechip||–||76%||68%||78%|
|Mirae Asset LargeCap||78%||70%||68%||–|
There is a lot of overlap between the plans in this category. In general, if the average overlap between two plans is more than 50–60%, you can expect them to give you similar returns.
Most of the time, they will move in the same direction. So, there is no way to spread your risk by investing in similar schemes.
Also Read: Assets under Management (AUM)
To be fair, many flexi-cap fund schemes are also similar to large-cap funds and act in the same way. So, many investors who choose flexi-cap funds that focus on large-cap stocks think that they don’t even need pure large-cap funds.
And since the definition of flexi-cap funds is that they give fund managers a lot of freedom to use their own styles and strategies, having more than one scheme in the flexi-cap category can also be thought about.
The same logic can be applied to large and midcap funds as well as multi-cap funds, though the latter is a newer category that hasn’t been around long enough to be trusted.
- Choose just one fund, preferably a passive index fund, to get exposure to large-cap stocks. A large-cap flexi-cap fund is also an option for moderately risk-taking investors with smaller portfolios.
- It’s fine to have more than one scheme from the flexi-cap and/or large and midcap categories, as long as the styles are different and there isn’t too much overlap or correlation between them.
- For most midcaps, one or two schemes should be enough. At least one of the two can be a passive factor fund or a pure passive fund.
- Going the active route is best for small-cap stocks. For bigger portfolios, you might want to have up to two or three small-cap schemes.
- If you follow these rules, you can diversify your stocks, sectors, and market capitalization. You can also diversify your fund managers’ styles and AMCs, which are also important.
- What about funds for specific industries or topics? Most people who invest do not need them.
Join Our Telegram Channel For More Updates | IPO INFO
Assets under Management (AUM)
The size of an investment portfolio can be measured by its assets under management (AUM). It is the total value of all the assets that a bank or investment manager is in charge of for its clients. It is very important for investors to understand AUM. Let’s look at it in detail.
Assets under management Means (AUM)
Assets under management (AUM) is the total market value of all the stocks, bonds, and other securities that a mutual fund house manages on behalf of its investors.
Asset management companies use investor funds to develop a portfolio of professionally managed assets. The value of these assets changes all the time because of changes in the market. This changes the AUM of the mutual fund.
Mutual funds utilize AUM to measure their size and investor retention. It is also used to figure out how much mutual funds charge for expenses. The more AUM an AMC has, the more money it can make from its funds.
Assets under management: how to figure it out
Each fund house has its own way of figuring out the AUM. The AUM of a fund depends on three things: money coming in, money going out, and the market price. Inflows and outflows occur simultaneously, therefore net flows can be seen (inflows minus outflows). Most of the time (but not always), assets go up when there are positive net flows. The asset’s market price can also increase AUM (again, not always).
If the market price goes up and net flows are positive, the AUM will go up. The AUM will decrease if there are negative net inflows and a corresponding decline in the market price. If one is positive and the other is negative, the AUM will change based on which one is bigger.
Also Read: The One Thing Successful Investors Always Do
Why AUM is important in mutual funds
Some of the most important reasons why AUM is so important are as follows:
- Reflects the size and scale of a fund: The AUM of a mutual fund shows how big and important it is. A larger AUM usually means that a fund has been around for a long time and has enough money to attract more investors and make bigger investments. Investors who desire a fund with an excellent track record and lots of growth may like this.
- Impacts a fund’s investment decisions: The size of a fund’s assets under management (AUM) can have a direct effect on its investment decisions. Because its universe involves small enterprises, a large small-cap fund may struggle to invest. It will be hard for it to get the attention of the companies it wants.
- Influences a fund’s performance: Large AUM funds may struggle to discover investments that may generate strong returns without upsetting the market. But, a smaller fund may have greater leeway to take advantage of unusual investing possibilities and achieve higher returns.
- Impacts a fund’s fees: A mutual fund’s AUM can also have an effect on the fees investors pay to invest in the fund. SEBI has put in place a tiered structure for the expense ratio. This means that small funds can have higher fees than large funds. However, larger funds may have higher minimum investments, making them difficult to enter.
How AUM and Expense Ratio Affect Things
A fund house will charge you a fee based on how much money it manages. This fee is a percentage of how much the investor put into the fund. It is used to pay for the costs of running the fund. The fee is taken out of the returns, and it is part of the fund’s total expense ratio (TER).
SEBI has made it a rule that TERs for large funds will be lower. Smaller funds have been given permission to charge higher fees. Look at the list below.
AUM (In Crores) Equity funds Debt funds 0-500 2.25 2.00 500-750 2.00 1.75 750-2000 1.75 1.50 2000-5000 1.60 1.35 5000-10000 1.50 1.25 10000-50000 Starts at 1.5%, and goes down by 0.05% for every rise of Rs 5000 cr in AUM Starts at 1.25%, and goes down by 0.05% for every rise of Rs 5000 cr in AUM >50000 1.05 0.008
Also Read: Don’t want your MF SIP anymore? Don’t wait until it’s too late.
Effects of Having a Lot of Assets to Manage
As of December 31, 2022, the Indian mutual fund industry had 39.89 trillion AUM, up from 7.60 trillion in 2012. This is a fivefold increase over the past ten years. This growth shows that AMCs have a lot of room to keep growing their businesses.
Investors shouldn’t just look at the AUM to judge how well a fund is doing. The size of a fund’s AUM does not always show how well it does. It’s important to remember that having a lot of assets under management (AUM) doesn’t always mean getting more money back. How well the fund does depends a lot on how good the portfolio manager is. Instead, investors should look at how the fund has done over time compared to its benchmark, how much risk it takes, how long it has been around, and how much experience the fund manager has, among other things.
AUM and NAV are different in some ways.
The investment industry uses the terms AUM and net asset value (NAV), but they mean different things.
AUM is the total amount of money that a fund manager or financial institution manages on behalf of its clients. This includes all the money in the fund, whether it’s in cash, stocks, bonds, or other assets.
On the other hand, NAV is the value of a single fund unit. It is found by dividing the total value of the fund’s assets by the number of outstanding units.
AUM can change as more money is put into or taken out of the fund, while NAV can change based on how much the fund’s assets are worth.
Join Our Telegram Channel For More Updates | IPO INFO
Don’t want your MF SIP anymore? Don’t wait until it’s too late.
Don’t want your MF SIP anymore? Don’t wait until it’s too late. Once you make a request, it takes about 10–15 days to stop or pause a mutual fund’s automatic investment plan. You may have to give up one payment.
Systematic investment plans (SIPs) make it easy for regular investors to put money into mutual funds (MFs) on a regular basis without having to worry about when to invest. They help you be more disciplined when you invest and can help you build up a nest egg over time.
So, if you want to stop your SIP in an MF plan, you can either pause or stop it, or you can cancel the SIP.
Choose the “pause” option if you only want to stop your SIP for a short time, like if you’re having trouble getting money in the short term. If you want to stop your SIP call and not pick it up again, choose “Cancel.”
A few people we talked to in the industry said that most MF houses offer these options. Depending on the fund house, it can take between 10 and 15 days for your request to stop or cancel to be processed.
Also, Read – Strategies for maximizing profits on mutual fund investments for salaried persons.
The debit file (the order to take the SIP money out of your bank account) has to be sent to the payment aggregator 5–7 days before the SIP date.
If you don’t ask at least a few days ahead of time, your upcoming SIP won’t be paused or stopped. In that case, the change won’t happen until the next SIP.
Mutual Funds Utility (MFU), a platform for MF transactions supported by the industry, offers an online SIP Stop and Start (SIPSaS) service. Sunil Nair, Chief Operating Officer at MFU, says that this makes it possible to pause or end a SIP call right away.
With this feature, once you send in the request, the next SIP is put on hold. Only SIPs that have been signed up with MFU can be used with SIPSaS.
CAMS did not answer questions about pausing or canceling SIPs on MFCentral, which is a platform for MF transactions. registrar and transfer agents (RTAs), CAMS, and KFintech back MFCentral.
So, should you stop a SIP or put it on hold?
There may be a limit on how many times and for how long you can pause a SIP at a mutual fund house. For instance, you might only be able to do this three times during the time you have a SIP. Even there, you will only be able to pay in three or four parts. Some SIPs, like those that happen monthly, quarterly, or annually, might not have the option to pause.
These rules can be different from one fund house to another. On the websites of fund houses, you can find all the information you need about the SIP pause/cancel form.
For example, the “pause” option is only available for monthly-registered SIPs with Axis Mutual Fund and Mirae Asset Mutual Fund. All types of SIPs can be put on hold at SBI Mutual Fund. With SBI Mutual Fund, a SIP can be put on hold more than once. With Axis MF, Mirae Asset Mutual Fund, and Edelweiss Mutual Fund, on the other hand, it can only be put on hold up to two times. Again, the pause option is only available at fund houses like Axis Mutual Fund and Edelweiss Mutual Fund for SIPs that have reached six payments.
Once the break is over, the SIP will automatically start again with the next payment. On the other hand, if you cancel a SIP, you’ll have to sign up for a new one. Cancelling a SIP can be done as many times as needed.
Who to talk to
It’s important to remember that the request to pause or cancel the SIP must be sent to the same place where the original SIP was registered. This could be the mutual fund house, the distributor, or any MF investing platform.
One person in the MF industry who didn’t want to be named said that the request to pause or cancel might not go through if you go to the wrong place.
What happens if you forget some details?
If you can’t remember how you invested, you can contact the mutual fund AMC. If you’ve been buying mutual funds through a distributor, you can talk to him about stopping or ending the SIP. This can be done online through the platform of the distributor or by sending in a physical SIP pause/cancel form.
If you made the investment through one of the online platforms, you will have to use the online platform to pause or cancel the SIP.
For investments made directly through the fund house, you can make the pause/cancel request by logging into the fund house website or handing in a physical SIP pause/cancel form at the fund house or RTA office.
It is best not to stop your mutual fund SIPs unless you are unhappy with how the fund is doing, but if you do want to, you should do it early.
Strategies for maximizing profits on mutual fund investments for salaried persons.
Here are some important things that can help salaried persons choose the right mutual fund scheme.
People who get a salary know how much money they will get each month. Most of the time, they prefer to stick to a strict budget that is based on their income and helps them reach their financial goals. So, with their limited income, they have to focus on getting the best return on their investments, paying the least amount of taxes, and making sure their money is safe.
Mutual funds are a good way for salaried people to reach their financial goals through investments. But because there are so many options on the market, salaried people often don’t know which mutual fund schemes to choose. Here are some important things that can help salaried people choose the right mutual fund scheme.
Things that usually affect your decision to invest in a mutual fund
Employees’ decisions about mutual funds depend on a number of things, such as their age when they invest, their risk tolerance, their financial goals, how they handle their taxes, how many years are left until they retire, etc. Employees can save money from their monthly paychecks to invest in mutual funds on a regular basis, or they can use the extra money, like a bonus, to invest in mutual funds all at once. They should put their money into different mutual fund schemes to spread out their risk and reach different financial goals. Here are some ways that salaried people can invest in mutual funds to help them reach their financial goals.
Also, Read – SIP Benefits: How to get your first Rs 1 crore quickly.
Invest in an Equity-Linked Savings Scheme (ELSS) to save on taxes.
With ELSS, an investor can put money into an equity mutual fund scheme and get a tax break under section 80C for up to Rs 1.5 lakh in a financial year. So, people who get a salary can save money on taxes and get a good return on their investments at the same time. But because ELSS is based on stocks, they are subject to high volatility risks. So, investors should choose to invest through the SIP mode to reduce the risk of volatility and get the long-term benefit of rupee cost averaging.
Invest in short-term debt funds to build an emergency fund.
Salary workers need the fund for more than just tax savings. They also need it to deal with unexpected financial problems. So, it’s important for salaried people to keep a good emergency fund over the long term. It is important that a fund for a financial emergency has a lot of money in it. So, you can put your money into short-term debt funds like liquid funds, ultra-short duration mutual funds, and arbitrage funds, which have low risk and let you get your money out quickly and easily. You can lower the risk even more by putting your emergency fund money into two or three different liquid funds.
Long-term wealth can be made by putting money into equity funds.
You can invest in equity mutual fund schemes and get a return in a number of different ways, depending on how much risk you are willing to take. For example, if you want a high return and are willing to take more risks, you could put your money into a small or mid-cap mutual fund. On the other hand, you can invest in a large-cap fund if you are willing to take a moderate to high risk. If you’re young, just starting out in your career, willing to take more risks, and don’t have many financial obligations, you should invest in small and mid-cap funds. This way, you’ll have more time to invest until you retire and give your mutual fund investment more time to grow. On the other hand, as you get older, you gradually become less willing to take risks, while your financial responsibilities tend to grow at the same time. So you can switch to a mutual fund plan with less risk, like a large cap fund. Putting your money into an equity mutual fund scheme can help you build wealth over time.
Put lump sums and short- to medium-term goals into debt funds.
Salaried people usually have a set amount of money coming in every month. They need to be able to reach each of their financial goals with the help of a steady source of income. But when their investments like FDs, life insurance policies, etc. reach their end dates, they may get a big sum of money. Now the question is, how should a salaried person invest a lump sum in a mutual fund scheme?
People who get a salary can invest a lump sum in the right debt funds, which are less risky than equity schemes, have better liquidity, and give a stable return at the same time. You can choose a debt fund that fits your risk tolerance and return expectations. For instance, if you don’t like taking risks, you could invest in a mutual fund that owns short-term debt instruments. On the other hand, if you are willing to take more risk and want a higher return, you can invest in a fund that invests in longer-term debt instruments.
You can choose a balanced fund if you are willing to take a little more risk and want to make more money. A balanced fund puts money into both stocks and bonds.
Considerations to make when picking a mutual fund scheme
When choosing a mutual fund scheme, you should always compare and analyze the different schemes based on things like the expense ratio, past and present performance, the quality of the investments in the portfolio, and so on. When investing in mutual funds, it’s important to keep a good level of diversification.
Adhil Shetty, CEO of Bankbazaar.com, says, “Investors often think they need to put in a lot of money to make a lot of money back. That’s wrong. With SIPs, you can put away as little as Rs 500 per month. If your income goes up, you can always make it bigger. Even if you only put in Rs 2,000 per month, you can make Rs 200,000 in 20 years if the rate of return is 12% per year.
Salaried workers should gradually increase the size of their SIPs as their salaries go up and as their lifestyles change. For the best results, it’s also important to look at the mutual fund portfolio from time to time.
SIP Benefits: How to get your first Rs 1 crore quickly.
Systematic Investment Plan (SIP) Benefits: Know how to reach the Rs 1 crore goal fast by investing in a mutual fund SIP.
Benefits of Systematic Investment Plan (SIP): Personal finance experts often say that it is hard to get to Rs 1 crore in savings with SIP mutual funds. After that, the power of compounding works like magic to make your money grow very quickly. So, is there a quick way to get to Rs 1 crore?
Increasing the SIP amount by a lot is a clear way to reach the Rs 1 crore goal quickly. The second option is to wait until the rate of return goes up a lot. The first choice is up to you, but investors can’t do anything about the second. But not everyone may be able to make a big change to the amount of their SIP. So the best thing to do is to slowly raise the SIP amount, say by 5% or 10% each year.
A calculation in FundsIndia’s Wealth Conversation Report December 2022 shows that the number of years needed to reach the Rs 1 crore goal is cut by a large amount if an investor increases the SIP by just 5% or 10% per year. Let’s see how long it will take to reach Rs 1 crore if you increase your SIP amount by 5% or 10% every year and your investment’s Compound Annual Growth Rate (CAGR) is 12%.
Rs 10,000 SIP
With a SIP of Rs 10,000 per month in a mutual fund scheme, it would take 20 years and 1 month to reach Rs 1 crore. At 12% interest, you would reach Rs 1 crore in 17 years and 10 months if you added 5% to the SIP amount every year.
Rs 20,000 SIP:
A monthly SIP of Rs 20,000 in a mutual fund scheme would take 15 years to reach Rs 1 crore. At 12% interest, if you added 5% to the SIP amount every year, it would take you 13 years and 5 months to reach Rs 1 crore.
Rs. 25,000 SIP
A monthly SIP of Rs. 25,000 in a mutual fund scheme would take 13 years and 5 months to reach Rs. 1 crore. At 12% interest, you would reach Rs 1 crore in 12 years and 1 month if you added 5% to the SIP amount every year.
Rs. 30,000 SIP:
A monthly SIP of Rs. 30,000 in a mutual fund scheme would take 12 years and 4 months to reach Rs. 1 crore. At 12% interest, if you added 5% to the SIP amount every year, you could reach Rs 1 crore in 11 years.
Rs. 40,000 SIP:
With a SIP of Rs. 40,000 per month in a mutual fund scheme, it would take 10 years and 6 months to reach Rs. 1 crore. At 12% interest, you would reach Rs 1 crore in 9 years and 6 months if you added 5% to the SIP amount every year.
Read also: How to Invest in Mutual Funds and Make Money?
Rs 50,000 SIP:
A monthly SIP of Rs 50,000 in a mutual fund scheme would take 9 years and 2 months to reach Rs 1 crore. At 12% interest, if you added 5% to the SIP amount every year, you could reach Rs 1 crore in 8 years and 4 months.
Rs 75,000 SIP:
A monthly SIP of Rs 75,000 in a mutual fund scheme would take 7 years and 1 month to reach Rs 1 crore. At 12% interest, if you added 5% to the SIP amount every year, you could reach Rs 1 crore in 6 years and 6 months.
Rs. 1 lakh SIP:
A SIP of Rs. 1 lakh per month in a mutual fund scheme would take 5 years and 10 months to reach Rs. 1 crore. At 12% interest, you would reach Rs 1 crore in 5 years and 5 months if you added 5% to the SIP amount every year.
Adding 10% to SIP every year
Rs 10,000 SIP:
With a SIP of Rs 10,000 per month in a mutual fund scheme, it would take 20 years and 1 month to reach Rs 1 crore. At 12% interest, you would reach Rs 1 crore in 15 years and 10 months if you added 10% to the SIP amount every year.
Rs 20,000 SIP:
A monthly SIP of Rs 20,000 in a mutual fund scheme would take 15 years to reach Rs 1 crore. At 12% interest, if you add 10% to the SIP amount every year, you’ll have Rs 1 crore in 12 years.
Rs. 25,000 SIP:
A monthly SIP of Rs. 25,000 in a mutual fund scheme would take 13 years and 5 months to reach Rs. 1 crore. At 12% interest, if you add 5% to the SIP amount every year, you’ll have Rs 1 crore in 10 years and 10 months.
Also, check out the best large-cap funds since they began (December 2022)
Rs. 30,000 SIP:
A monthly SIP of Rs. 30,000 in a mutual fund scheme would take 12 years and 4 months to reach Rs. 1 crore. At 12% interest, adding 5% to the SIP amount every year would let you reach Rs 1 crore in 10 years.
Rs. 40,000 SIP:
With a SIP of Rs. 40,000 per month in a mutual fund scheme, it would take 10 years and 6 months to reach Rs. 1 crore. At 12% interest, you would reach Rs 1 crore in 8 years and 8 months if you added 5% to the SIP amount every year.
Rs 50,000 SIP:
A monthly SIP of Rs 50,000 in a mutual fund scheme would take 9 years and 2 months to reach Rs 1 crore. At 12% interest, you would reach Rs 1 crore in 7 years and 8 months if you added 5% to the SIP amount every year.
Rs 75,000 SIP:
A monthly SIP of Rs 75,000 in a mutual fund scheme would take 7 years and 1 month to reach Rs 1 crore. At 12% interest, you would reach Rs 1 crore in 6 years and 1 month if you added 5% to the SIP amount yearly.
How to Invest in Mutual Funds and Make Money?
How to Invest in Mutual Funds and Make Money? Investors can be overwhelmed by the huge number of mutual funds, but with patience and discipline, it is possible to build a profitable investment portfolio and make money.
Mutual funds have become more and more popular as a way to invest in the stock market over time. Investors can be overwhelmed by the huge number of mutual funds, but with patience and discipline, it is possible to build a profitable investment portfolio and make money.
Here are some steps you can take to help you reach your investment goal.
Know your investment goals and how much risk you’re willing to take.
This is the first thing you have to do when you want to invest. Before you invest in mutual funds, you should set clear goals based on how much risk you are willing to take. Knowing what you want to get out of your investments will help you decide how much to invest, for how long, and what kind of investments to make.
Also, Read – Debt funds: Why the yield-curve inversion offers investors a chance.
“You can divide your goals into three groups: short-term goals that are due in three years, medium-term goals that are due in three to five years, and long-term goals that are due in more than five years (due after 5 years). After that, you can sort your goals by how important they are. Buying a luxury car might not be as important as paying for a child’s college education. Your level of risk tolerance is how much you can and are willing to lose on your portfolio. Lovaii Navlakhi, Board Member, Association of Registered Investment Advisors, says, “If you have a higher risk tolerance, you are usually willing to take on more risk in exchange for the chance of making more money” (ARIA).
Look into mutual funds
The next thing to do would be to look for mutual funds that fit your needs. You can increase your chances of making money when you invest if you do a lot of research on mutual funds that match your investment goals and level of risk tolerance. Make sure to read the mutual fund’s prospectus, which has a lot of information about the fund’s investment goals, strategies, risks, and fees. Consider putting your money into a mutual fund with a wide range of investments, such as stocks, bonds, and other types of financial instruments.
Pick the best mutual fund.
Choose a mutual fund based on your research that has a good long-term risk-adjusted return and a stable and experienced management team. “There are many different kinds of mutual funds, such as stock funds, debt funds, index funds, and international funds. The funds you choose should depend on your goals and how much risk you are willing to take. For example, if you have a big goal that is due in two years, even if you are a high-risk investor, you must choose a mutual fund from the debt fund category. “The goal’s time frame, how important it is to you, and your risk tolerance all play a role in choosing funds,” says Navlakhi.
Keep an eye on your investments.
Keep an eye on your investments in mutual funds to make sure they are still in line with your investment goals. Check the performance of each fund and the fees that go with it on a regular basis. Also, keep in mind that a bad performance can be caused by a number of things, such as a bad market or the fund manager choosing the wrong stocks or sectors. Before deciding what to do, it is smart to compare the fund’s performance to the benchmark and let the fund go through different market cycles.
Rebalance your portfolio
Your mutual funds’ performance may change over time, which could make your portfolio less stable. “Rebalancing your portfolio from time to time can help make sure you have the right amount of diversification. If you do this on a regular basis, you can keep your desired asset allocation and minimise risk. This means you have to buy and sell mutual funds to get your portfolio back in line with your investment goals and how much risk you are willing to take, says Navlakhi.
Imagine that you put money into equity mutual funds seven years ago so that you could reach a goal in the next two years. In this case, you should slowly switch your investments from equity funds to debt funds or liquid funds, keeping in mind how the market is doing. This is to make sure that sudden changes in the stock market don’t lower the value of your investment and keep you from getting what you need.
So, investing in mutual funds can be a great long-term way to build wealth, as long as you follow the steps above.