On reading your articles, I have found that you focus mainly on mutual funds as an investment option.

I invest around Rs 40,000 every year in various mutual funds or in unit link policies.

I was told that an investor would get an NAV appreciation of around 20% to 40% every year. But if they charge 20% as administration fees, returns will definitely drop.

Also, every mutual fund claims to be the best. How must I decide whom to invest with?

- Sandeep Gupta

On mutual fund expenses

The maximum load (fee) that a mutual fund charges is 2.25%. The annual expenses of the most expensive funds are not more than 1.75% of its assets (the amount of money available with them for investment).

The regulation of the Securities and Exchange Board of India, the mutual fund regulator, does not permit expenses to be more than 2.5%.

On ULIPs

You can use unit linked policies too, which cover insurance and investments. But it is important that you understand what the insurance cover is and what the investment is. 

An ULIP -- Unit Linked Insurance Plan -- is a financial product that offers you life insurance as well as an investment like a mutual fund. Part of the premium you pay goes towards the sum assured (amount you/ your beneficiary gets from a life insurance policy) and the balance will be invested in whichever investments you desire -- equity, fixed-return or a mixture of both.

Investments in ULIP work as a tax benefit under Section 80C.

However, don't mix the two -- insurance and mutual funds -- just to save some taxes.

If you are looking for a tax-efficient and lower cost investment option, consider a Systematic Investment Plan in an Equity Linked Saving Scheme. 

An SIP allows you to put in small amounts every month into your fund. Depending on the NAV at that time, units are allocated to you.

An ELSS is a diversified equity fund that offers a tax benefit under Section 80C. To understand how an ELSS works, read Which ELSS Fund should you invest in?

To get a list of all the investments falling under Section 80C, read All about Section 80C.

If it is insurance that you seek, you can look at a term policy. Read Insurance for your 20s.

Selecting the right mutual fund

If you have to choose among the various mutual funds, look for the track record, returns, risk and performance in good and bad markets, apart from the costs. 

Read How to compare mutual funds and How risky is your fund?

• Is the Super SIP a great investment?

I'm 27 and earning around Rs 35,000 per month. I wish to invest/ trade in share market.

I am aware that mutual funds are relatively lower risk when compared to directly buying shares. However, investing in shares gives wider options if you watch the market well.

My question is if I trade on my own with a budget of Rs 1,00,000, would it be better to go for intra-day square offs (buy and sell within a day) or trading in settlements (settle all claims at the end of the settlement cycle).

Please note, I'm a beginner in this field.

- Anand

Since you seem to think you can get into F1 racing because you love to watch the race, and also drive your car fast, I will not stop you. 

Investing is serious business and requires formal training both in skill and attitude. 

What you describe is pure gambling on stock prices. Know without a doubt that you are fooling yourself that you are 'investing'. 

No doubt, stock trading has the thrills of losing and winning. As long as you have Rs 1,00,000 to bet, and would not mind losing your shirt in return for what you see as fortune at the end of the rainbow, you should get going.

Since you are considering day trading (buy, sell and settle accounts at the end of the day), I suggest you read Greed=Loss at the stock market to follow a day trader's experience.

Illustration: Dominic Xavier

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