COMPARISON OF PRODUCTS ACROSS CATEGORIES

Comparison of Products Across Categories

• Performance Data: Performance data for various investment products is widely available, with some data mandated by SEBI, such as for Mutual Funds and Portfolio Management Services.
• Investment Alternatives: Investment alternatives can be evaluated based on three broad parameters: Risk, Return, and Liquidity.
• Comparison of Investment Instruments:
  • Equity Linked Savings Scheme (ELSS): Invests exclusively in equities, with high risk and potentially high returns.
  • National Pension System (NPS): A mutual fund-like pension scheme with varying degrees of investment in equity, government securities, corporate bonds, and alternative investments.
  • Fixed Income Tax Saving Instruments: Includes Public Provident Fund (PPF) and tax-saving bank fixed deposits, with low to moderate risk and returns.
• Comparison of Equity Mutual Funds, Portfolio Management Services, and Alternative Investment Funds (AIF) Category 3:
  • Equity Mutual Funds: Pooled investment vehicle with units allocated to each investor, common investment for all investors in a scheme.
  • Portfolio Management Services: Customized investment in an individual investor's demat account, with a minimum investment size of Rs. 50 lakhs.
  • Alternative Investment Funds (AIF) Category 3: Pooled investment vehicle with diverse or complex trading strategies, including investment in listed or unlisted derivatives.
• Comparison of Mutual Funds and Unit Linked Insurance Plans (ULIP):
  • Mutual Funds: Pooled investment scheme managed by Asset Management Companies, with investments only and maximum charges regulated by SEBI.
  • Unit Linked Insurance Plans (ULIP): Pooled investment scheme managed by Life Insurance Companies, with insurance cum investments and maximum charges regulated by IRDAI.

COMPARISON OF PRODUCTS ACROSS CATEGORIES (Part 2)

• Introduction: Many independent media track the availability of value-added comparison disclosures and provide value-added services from independent media.
• Key Comparison Parameters:
  • Liquidity: Open-ended mutual funds can be redeemed at any time but may be subject to exit load.
  • Suitability: Suitable for any investor looking for investment options.

Comparison of Investment Products

• Actively Managed Equity Mutual Funds V/s Index Funds:
  • Nature & Purpose: Actively managed funds seek to generate additional return (alpha) over the chosen benchmark, while index funds replicate the returns from the chosen benchmark.
  • Cost: Actively managed funds have higher costs due to active involvement in decision-making, while index funds have lower costs.
  • Return: Actively managed funds attempt to get higher returns, while index funds aim to track the benchmark return as closely as possible.
• Direct Equity V/s Equity Funds:
  • Nature: Direct equity involves investing in specific equity stocks, while equity funds involve investing in specific equity fund schemes.
  • Level of Attention/Expertise Needed: Direct equity requires personal expertise or services of a PMS firm or a Registered Investment Advisor, while equity funds can be invested in with minimal expertise.
  • Risk: Direct equity has concentrated risk on the invested security, while equity funds spread risk over many securities.
• Exchange Traded Funds (ETFs) V/s Index Funds:
  • Nature: ETFs are index funds traded on the exchange like any other securities, while index funds are available for buy/sell from the concerned Asset Management Company (AMC).
  • Price: ETFs have prices available on a minute-to-minute basis, while index funds have prices available on an end-of-day basis.
  • Costs: ETFs have comparatively low management costs but may have brokerage and demat charges, while index funds may have nominally higher management costs.
• Physical Gold V/s Gold Funds V/s Gold ETFs V/s Sovereign Gold Bonds:
  • Buy Price: Physical gold can be bought at the prevailing price, while gold funds and ETFs are bought at the NAV, and sovereign gold bonds are priced based on the prevailing price.
  • GST Cost: Physical gold, gold funds, and gold ETFs incur GST costs, while sovereign gold bonds do not.
  • Purity Concerns: Physical gold has purity concerns, while gold funds and ETFs ensure purity, and sovereign gold bonds do not have purity concerns.
• Real Estate V/s REITs V/s INVITs:
  • Exposure: Real estate involves large concentrated exposure, while REITs and INVITs spread exposure over many properties or projects.
  • Type of Exposure: Real estate exposure depends on the type of asset chosen, while REITs primarily invest in real estate commercial properties, and INVITs invest in infrastructure projects.
  • Management of Properties: Real estate requires management by the investor, while REITs and INVITs are managed by investment managers.
• Debt Instruments V/s Debt Funds V/s Fixed Maturity Plan V/s Bank Fixed Deposit:
  • Safety: Debt instruments' safety depends on the instrument chosen, while debt funds and fixed maturity plans provide relatively higher safety through diversification.
  • Post-Tax Returns: Debt instruments' post-tax returns are in proportion to the risk taken, while debt funds and fixed maturity plans can provide better post-tax returns, and bank fixed deposits have pre-defined returns.

COMPARISON OF PRODUCTS ACROSS CATEGORIES (Part 3)

• Growth Schemes: Allow investors to grow their wealth over time by investing in a variety of assets, with the option to withdraw needed amounts, ensuring a large element of capital.
• Liquidity:
  • Debt Instruments: Tend to have poor liquidity in India, with high costs for early redemption.
  • Redemption Facility: Available from the fund house, but may include exit loads.
  • Instant Liquidity: Available from banks, but may include clawback of interest paid and/or pre-mature redemption penalties.

Index Products

• Index Futures:
  • Time Horizon: From a few days to a maximum of 3 months.
  • Cost: Interest cost for delayed purchase.
  • Risk: Same as buying an index fund.
• Index Options:
  • Time Horizon: From a few days to a maximum of 3 months, with long-dated options available.
  • Cost: Interest cost for delayed purchase, plus premium for implementing the option.
  • Risk: Maximum risk equivalent to the option premium paid.
• Index Funds:
  • Time Horizon: Can be for a very long tenure or lifetime.
  • Cost: Actual market cost at the time of purchase, plus management cost paid to the AMC.
  • Risk: Risk of buying the underlying securities.

Gold Products

• Gold Futures:
  • Time Horizon: Up to 12 months.
  • Cost: Interest cost for delayed purchase.
  • Risk: Same as buying an index fund.
• Gold Options:
  • Time Horizon: As per the contract launch calendar.
  • Cost: Interest cost for delayed purchase, plus premium for implementing the option.
  • Risk: Maximum risk equivalent to the option premium paid.
• Gold ETFs:
  • Time Horizon: Can be for a very long tenure or lifetime.
  • Cost: Actual market cost at the time of purchase, plus management charges to the AMC.
  • Risk: Risk of buying gold and fluctuations in its price.
• Gold Funds:
  • Time Horizon: Can be for a very long tenure or lifetime.
  • Cost: Actual market cost at the time of purchase, plus management charges to the AMC.
  • Risk: Risk of buying gold and fluctuations in its price.

Company Deposits and Debentures

• Company Deposits:
  • Risk: Unsecured, with a relatively higher risk level.
  • Return: Tends to be slightly higher than debentures from the same company.
  • Liquidity: Redemption facility provided by the company, but no interest can be paid if redeemed within a year.
• Company Debentures:
  • Risk: Secured, with a relatively lower risk level.
  • Return: Tends to be slightly lower than company deposits from the same company.
  • Liquidity: Depends on the market, with liquidity always an issue.

Retirement Accumulation Products

• Market-Linked Products:
  • Risk: Linked to market returns, with varying levels of risk depending on the chosen option.
  • Returns: Linked to market returns, with varying levels of return depending on the chosen option.
  • Liquidity: Tends to have lock-in periods to ensure resources are available for retirement.
• Non-Market-Linked Products:
  • Risk: Low, with a focus on return of principal.
  • Returns: Moderate to low, with increasingly no long-term fixed return products.
  • Liquidity: Tends to be poor due to lock-in periods.

Insurance Products

• Personal Accident Insurance:
  • Covers: Death due to accident, temporary or permanent total or partial disability.
  • Suitability: Suitable as additional cover, especially for permanent total disability arising from accident.
• Life Insurance:
  • Covers: Death due to any cause, including accident.
  • Suitability: Essential for income earners with dependents.