I often get the impression reading Business Newspapers and watching business TV channels that anybody and everybody is investing in stocks. Except me! But then the fact is that less than 10% of household savings enter the stock exchanges.

Roughly 55% goes to fixed deposits of Banks. Now that is an easy and safe option for those who don’t want to take risk.

But even when you don’t want to take risk, there are far better options. Like the ones below. These are debt oriented hybrid mutual fund schemes that gives much more return than your fixed deposits. Generally, their objective is to provide income and capital appreciation along with diversification by investing in a basket of debt and equity mutual fund schemes.

Additionally, Investing in fixed-income products through mutual funds carries a distinct advantage over bank deposits and post office monthly schemes in that the returns are earned by way of dividends that are tax free in the investors’ hands as opposed to interest earned on deposits which are taxable. Hence, while comparing these products it is important to check the post-tax returns — and these could vary depending on your tax slab as well

While you research these Mutual Funds, it is important to look at a few things.

Like the AUM (Asset Under Management). Bigger is better.

Or the expense ratio. Lower is better, obviously.

And the Fund Objective. Is it in sync with your asset allocation policies?

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From the newsletter “The Honest Truth” from EquityMaster.

On August 1st, 2009 the Indian mutual fund industry enters a new era.

After years of pushing mostly irrelevant products through a distribution channel that grew fat on the ignorance of investors, the Indian mutual fund industry has been forced to lay bare the facts. From August 1, 2009 all Indian mutual funds will have a cap on what they pay their distributors.

And investors can pay their distributors and financial advisors what they believe to be the value of the advice given.

Over the years, the elephants in the Indian mutual fund industry – and the distributors that made these elephants dance to their tune – have spread a series of questionable “facts”.

Each “fact” was in many ways designed to support the immoral practice of letting commissions earned by many distributors determine which mutual funds they recommended. Funds were sold based on the commission structures paid to distributors, not based on which funds were best suited for the investors.

The elephants in the mutual fund were happy to dance along to the tune of many distributors. Every time a fund was sold (or mis-sold) it meant a larger “total assets under management” for the industry – and more fees for the mutual fund house. And better salaries and bonuses for all in the system.

Now, the mutual fund industry is in new territory, not because the giants chose to take the side of the good and right (in fact, they fought it) but because the regulator put a stop to the rot. The days of the symbiotic relationship between the elephants and the distributors are over.

From August 1st the mutual fund industry has to learn to focus on what is good for the investor. A new playing field for those not used to it. So many in the mutual fund industry stand at the gate, nervous and anxious.

However, there is already an AMC, Quantum Mutual Funds which does not pay commissions to any distributors because they were alarmed at the scope for mis-selling in the industry.

More power to these guys.

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