When you allow your capital to be deployed with some other entity (i.e. by buying into financial securities such as equities, bonds) or in an asset (real estate, gold etc) for a period of time, with an expectation of earning returns (in the form of interest income or capital appreciation) by deferring current consumption expenditure, it is called investing. If done wisely, it helps you to secure your future and meet your financial goals.

While it is possible to undertake your investments by yourself, it involves a fair amount of time, sufficient knowledge and significant effort as one has to evaluate the myriad investment options available and select the most appropriate option, suited to one’s risk profile and return requirements. Our relationship managers are well trained and accredited and follow a personalized approach to serve your financial planning needs. Today, with the help of our Relationship Manager you can avail of a full range of financial services like wealth management, retirement planning, insurance etc.

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There are various investment avenues available today - including traditional avenues like equity stocks, bonds, bank fixed deposits, Government sponsored small savings schemes, post office schemes, gold, mutual funds, real estate, insurance and emerging options such as commodities etc. You can design for yourself a portfolio of various investment instruments to suit your financial needs and help you meet your financial goals. The following explanation will give you a fair idea on each of these instruments -

Mutual funds

A mutual fund is a type of investment where a number of investors’ money is pooled together and used by the fund manager (referred to as the Asset Management Company or AMC) to invest in underlying securities in line with the objectives of the scheme. The key point here is that the fund’s assets are owned by investors in the same proportion as their contributions bears to the total contribution of all investors put together and hence, the gains and losses are also shared in the same proportion. A mutual fund is constituted as a trust and hence, the investors buy into units of scheme launched by the AMC– representing investor’s part ownership of fund’s assets.

Bank fixed and recurring deposits

These are products offered by banks which allow you to invest your money for a pre-determined span of time and offer a fixed rate of interest on the invested monies. These are considered to be reasonably safe but the returns are relatively low

Insurance

While basic insurance products, like term plans and non-life insurance plans, offer protection from the consequences of unforeseen events, other products, namely Unit Linked Insurance Plans (ULIPs) invest in equity stocks and double up as an investment instrument offering market linked returns.

Real estate or property investment

Real estate investment refers to acquiring exposure to real estate properties either directly or indirectly (via investment funds/trusts) with the expectation of earning returns, either via price appreciation or rental income. While the direct route of acquiring a property may be highly illiquid, as it may not be possible to exit from the investment at the prevailing market price at short notice, the indirect route of real estate investment e.g. REITs (Real Estate Investment Trusts - which can be broadly considered as an equivalent mutual fund route to real estate investment) offers higher liquidity (as they are normally listed on an exchange) together with a potential for regular income, as well as capital appreciation.

Gold

Gold offers easy liquidity and has been an effective hedge against inflation in the past. You can invest in gold in the physical form or indirectly via the futures markets or ETFs / mutual funds which in turn invest in physical gold, gold futures or even equity stocks of gold mining companies.

Equity Stocks

Equity stocks represent ownership in the particular company and offer a relatively high potential for capital appreciation, relative to most traditional investment avenues. Equity investing is normally considered to be an excellent route to generating higher real returns (adjusted for inflation) over the long term. However, the risks associated with this investment route (for example volatility of returns, capital preservation over the shorter term etc.) are higher.

Commodity investments

Exposure to commodities as an investment normally refers to investments in bulk products like agricultural produce, metals, minerals etc. While direct exposure to commodities in the physical form is not widespread, commodities as an asset class is becoming increasingly accessible to domestic investors with the emergence of commodity-specific mutual fund schemes which invest in commodity futures trading on various commodity exchanges as well as equity stocks of companies in the commodities space. Similar to the equity asset class, risks associated with this investment route – in terms of volatility of returns and capital preservation - are higher.

Post office schemes

Post office schemes are normally fixed income products (PPFs, NSC, MIPs) offered by the Department of Post / Government. of India and are available at post offices across the country. These investment avenues are relatively safe as they are guaranteed by the Government of India, although the returns on these investments are relatively low.

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Your investment approach should ideally depend on your investment horizon, risk appetite and return expectations. These in turn, are determined by your personal circumstances and other factors like age, standard of living and other future financial commitments. Broadly, however, there are three basic approaches to investing:

1. Conservative: This refers to investment approach of focusing on preservation of capital. This can be achieved by investing in low risk securities, albeit at the cost of a relatively low return potential.
   
2. Moderate: This investment approach is followed by investors who are willing to accept a moderately higher level of risk, to earn higher returns as compared to a conservative investor. This strategy primarily focuses on achieving higher risk adjusted returns.
   
3. Aggressive: This refers to an investment approach that accords the highest priority to earning returns, even as the risk undertaken to generate these returns may be commensurately higher.

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Investments reap fruit only if done wisely. The choice among the various options depends on your age, personal circumstances, financial commitments, liquidity needs and risk appetite.

Personal circumstances and financial needs

Your age along with your personal requirements are key factors to be considered while making an investment decision. If you are young and are looking for a long term investment, you can invest in equity oriented mutual funds, etc. On the other hand, if you are nearing retirement and prefer capital preservation, investments in debt mutual funds, bank deposits or fixed maturity plans are ideal.

Liquidity

Liquidity refers to the ability of a security to be bought or sold without a significant negative impact on the price. This is one reason why it is a key factor in deciding the right investment option. Gold and open ended mutual fund schemes are normally easy to liquidate, while post office schemes and real estate assets have low liquidity.

Risk Appetite

Risk appetite refers to the overall level of risk exposure that one is willing to undertake to earn the desired returns. Normally, equity oriented investments are associated with higher risks in terms of volatility in returns/protection of capital, while the risk is relatively low for debt oriented funds.

Returns

Returns from an instrument are normally directly commensurate to inherent risks of the instrument. Thus, equity oriented instruments are associated with a higher return potential, while debt instruments are preferred avenues for capital protection and regular income, rather than capital appreciation.

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The mutual fund route to investing offers a host of benefits – accessibility to professional management despite small capital, reduction/diversification of risk, low transaction /related costs, relatively better liquidity, convenience/flexibility of conducting various transactions.

• Portfolio Diversification: Mutual funds offer opportunities to invest in a well diversified portfolio of securities with a small amount of investment which otherwise would require significantly large capital. Moreover, it is generally accepted that by spreading your investment you are spreading your risk. That is why investing in mutual funds is considered to be exposed to lower risk than direct investment.
  
• Professional management skills of mutual fund managers along with intensive research support normally ensures better returns to the investor, in today’s fast moving and sophisticated markets
  
• Availability of a plethora of investment strategies: Mutual funds offer a number of schemes with different investment strategies – value, contra, growth etc. This helps in diversification and in turn reduces investment risk.
  
• Certain debt securities are available only through the mutual fund route: Retail investors cannot invest directly in certain debt securities such as treasury bills or participate in the money markets (lending between banks), or purchase commercial paper. However, retail investors can access these instruments via debt mutual funds.
  
• Convenient and cost effective: Investing in a mutual fund is hassle-free. All you need to do is fill in an application form and submit it to the asset management company or the distributor house along with a payment instrument for the investment amount. You will receive an 'Account Statement', which will indicate a folio number assigned to you. This statement details the investment you have made – scheme name, income option (dividend payout, dividend reinvestment or growth), number of units, cost per unit, etc.

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There are several advantages of investing in mutual funds vis-à-vis stocks. Some of them include:

• One can achieve higher portfolio diversification via the mutual fund route, especially when the capital is relatively low, which in turn reduces the investment risk.
• Investing in stocks directly is far more time consuming than investing through a mutual fund, as you may have to devote significant time and resources to research the huge universe of stocks to select a suitable option.
• You get access to high priced stocks and professional management skills despite limited capital outlay.
• Administration and other transaction costs are comparatively lower for mutual funds simply on account of the larger transacted volumes as compared to an individual’s direct transactions. Reduction in overall costs, also positively impacts the fund performance.
• It is easier to invest via the mutual fund route (no requirement of demat accounts etc) and it also offers flexibility like STP, SIP, STPs etc.
• The mutual fund route to investment is relatively more liquid as compared to direct investing – you can purchase/sell MF units based on the NAV on every business day – unlike circuit filters on stocks which curtail the investor’s liquidity.

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Mutual funds can be broadly classified in two ways: a) by structure and b) by asset category. There are hundreds of specific schemes designed around these parameters, to meet different investment objectives with regard to risk, return and investment horizon.

By structure

By structure, mutual funds schemes can be classified as –
· Open-ended funds – These funds do not have any fixed maturity period and are available to investors, for subscription and redemption, on an ongoing basis
· Close-ended funds – This type of funds have fixed, normally predefined, maturity periods – which usually vary from 1-month to 15-years. These units are available for subscription only during the NFO period.

By Asset Category

By asset category, mutual fund schemes can be classified broadly as –

1. Equity funds – These funds predominantly invest in equity stocks of companies, with an objective of capital appreciation over the longer term
   
2. Debt funds – This type of scheme predominantly invests in coupon yielding instruments like corporate bonds, government securities, money market instruments etc. These are primarily designed to protect capital, rather than deliver capital appreciation.
   
3. Hybrid funds - These schemes invest in both equity and debt assets with varying combinations.
   Under each of these categories, several schemes have been designed with various investment styles and strategies to meet different investment objectives.

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With an SIP, you can invest fixed amounts at regular pre-determined intervals (monthly or quarterly) in a mutual fund scheme. The number of units you get each time you invest will depend on the prevailing Net Asset Value (NAV) at the time of the investment. As a result, when stock prices are high, you automatically buy fewer units and vice-versa for the same amount (this is known as rupee cost averaging). This method of investing helps you overcome market volatility and prevents you from timing the markets.

Undertaking SIPs is extremely convenient. You can invest in an SIP either by submitting post-dated cheques with your application form or issuing a standing instruction to your bank to periodically transfer funds from your savings account to the mutual fund scheme.

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Under a Systematic Withdrawal Plan (SWP), you can withdraw small fixed amounts at regular pre-determined intervals (monthly or quarterly) from your mutual fund scheme. The number of units you redeem each time will depend on the prevailing NAV at the time of redemption.

There are two types of SWP withdrawals that you can undertake – ·

Fixed withdrawal

In this type of SWP, you specify an amount that you wish to withdraw from your mutual fund investment on a monthly/quarterly basis. Therefore, in this case, you may also at times break into the capital that you have initially invested.

Appreciation withdrawal

In this case, you can withdraw all or part of the appreciation that has taken place in your mutual fund investment. As a result, the initial investment amount remains untouched, as the SWP amount is limited to the appreciation that has taken place in your mutual fund investment.
This strategy is useful to receive a periodical cash flow to meet your recurring expenses.

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Under an STP, a fixed amount of your capital is automatically transferred at regular pre-determined intervals (monthly or quarterly) from one mutual fund scheme to another scheme of the same fund house. For example - if you have received a lump sum amount and if you wish to invest the same in an equity-oriented fund through an SIP, you can first invest the entire amount in a liquid fund. You can then issue an instruction to the mutual fund to transfer a pre-determined sum of money at pre-determined intervals from the liquid fund to the equity fund. Alternatively, if you have invested in an equity scheme and would like to book gains at regular intervals, you could instruct the mutual fund to transfer only the capital appreciation on a regular basis to a liquid fund.

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Although mutual funds are professionally managed and most fund houses have robust risk management policies, investing in mutual funds is risky (in terms of possibility of a financial loss). This is because mutual funds invest in equity or debt markets, which could be volatile, especially over the short term.

Specifically, following are some of the risks involved in investing in equity funds – stock selection, degree of diversification (normally the larger the portfolio, the lower the volatility of returns), the fund manager’s ability/skill. Besides, an investor in mutual funds is also exposed to other risks which could be 1) company specific 2) sector specific or at a 3) broad market level.

Investments in debt funds are exposed to 1) Credit risk – risk of default by borrowers, 2) Interest rate risk – Price of bonds normally fall with a rise in the interest rate thereby adversely impacting the fund’s performance 3) Liquidity risk – the bond may not be easily saleable in the market primarily on account of lack of buyers.

Understanding the various risks involved in mutual fund investments will help investors in choosing the right scheme.

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No, they do not. Mutual funds are designed to suit various investors’ risk appetites. There are different types of mutual funds designed on the basis of the investors approach to investments such as conservative, moderate and aggressive. You, therefore, need to decide what level of investment risk you are happy to accept and then choose a mutual fund scheme. The graph below amply explains the return potential and the associated risk of the different types of mutual fund schemes.

You therefore need to recognize your risk appetite and return expectation and then accordingly choose a suitable mutual fund scheme.

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Retirement plans are primarily designed to help you meet your financial needs post your retirement. This is very important at this stage, as you do not earn a steady income from your employment. The main features of a retirement plan you should look for, are:

• It should provide you with a regular monthly income, along with a lump sum amount in cash on retirement.
• It should offer add-on benefits like accidental and critical illness riders.
• It should have a variable vesting age.
• It should give you a range of investment options in sync with your risk – return profile and investment horizon.
  

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HSBC provides Financial Planning Service free of cost to its customers.

Charges vary between different types of mutual fund schemes to reflect the level of fund management and the type of underlying security involved. However, there are three main types of charges involved but you must refer to the offer document of the fund for fund related charges and their amounts.

Entry Load

This is a charge that is levied on investors at the time of investment into a scheme. Entry loads are typically restricted to Equity funds and Balanced funds and have the impact of reducing the net amount that is available for investment by the scheme.

Exit Charges / Exit Loads

Although described as a charge, this is a penalty for early encashment. Not all mutual funds include this charge. This tends to be expressed as a percentage of the amount to be encashed. Some fund managers use this type of charge where the underlying securities are illiquid in nature or where they do not charge an initial charge or to discourage premature redemptions from their funds. A variant of the exit load is a Contingent Deferred Sales Charge (CDSC) where the exit load is charged on a graded basis and declines with increasing time period.

Annual recurring expenses

These are charged to meet the regular expenses incurred in managing the fund, including investment management fees, marketing and communication expenses, registrar expenses, etc. SEBI, the industry regulator, has fixed limits beyond which the AMC cannot charge and these are directly proportionate to the size and nature of the fund.

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You can invest through HSBC by contacting a HSBC Relationship Manager at your nearest branch.

Apart from other regular banking services, HSBC also offers you Financial Planning Service. This service helps you analyze your financial needs and guides you to meet your financial goals. Your relationship manager will suggest an appropriate financial solution for you, which is a combination of investment and insurance products.

Our white listed investment products, are well researched by our investment specialists and are well suited to meet your financial needs. To endeavour to keep you updated on your investments at all times, we bring you ongoing research, monitoring and review reports.

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We at HSBC at all times endeavour to suggest a range of products and convey our rationale for why we believe they are suited for you, based on your investment profile. However, the decision to invest in specific products ultimately will be yours and we shall assist you in executing your investment decision.

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We will provide updates on your investments by way of regular statements. You are welcome to contact us in order to review your existing portfolio in light of any adhoc market /economic developments or sudden personal financial requirements. We will provide suggestions for your consideration, in line with your changed circumstances.

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You will have to invest at least the minimum amount in the mutual fund scheme which varies from fund to fund. Where as in case of an SIP, you commit the specified amount at designated intervals. Specifically, with respect to close-ended funds, you should be prepared to commit funds until the completion of the tenure of the scheme.

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Yes you can. You will, however, incur any exit load/CDSC (Contingent Deferred Sales Charge) as may be applicable. In case of close-ended fund, premature the exit cost can be very steep.

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Equity oriented mutual funds predominantly invest in equity stocks which are inherently volatile in the short term and hence returns from such schemes could be volatile. On the contrary, these normally have the potential to offer high real returns (adjusted for inflation) over the medium to long term by which we mean a period of over 3 - 5 years.

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