Investing in DSP Mutual Fund During Economic Uncertainty
Economic uncertainty is one of those common phases with which most investors have been going through in view of the turbulent stock market, changing global policies, and other fluctuations in the macroeconomic realm. It is during such ambiguous times that mutual funds open a doorway for the creation of wealth for most investors.
Among several equity and debt mutual fund options available in the Indian financial market, DSP Mutual Fund has been in the spotlight due to its consistency in performance these years. In any case, before moving into this avenue of investment, it is very important to learn crucial things starting with TER and compare alternatives like Bajaj Mutual Fund.
Understanding the Total Expense Ratio and Its Impact on Returns
It reflects the total annual charge taken by the mutual fund house for maintaining the investor’s portfolio. It also covers all the fund-operating expenses that normally comprise administration, management, advertising, and other expenses. This TER plays a very crucial role in mutual fund returns since high expenses dent the returns which the fund generates.
Example Calculation
Take, for instance, the TER of the DSP Equity Opportunities Fund, an actively managed mutual fund and one of the consistent performers in recent times:
Fund A: DSP Equity Opportunities Fund TER:
Expense Ratio: 1.92% for Regular Plans.
Amount invested: ₹5,00,000.
Annual Return Estimate: 12%
Here is the calculation of the expense impact:
Gross return: ₹5,00,000 × 12% = ₹60,000.
Cost of Issue: ₹5,00,000 × 1.92% = ₹9,600.
Net yield: ₹ 60,000-₹9,600 = ₹ 50,400.
As may be illustrated from the above calculation, the TER plays an important role in deciding the actual return: funds with lower TERs retain more of the growth generated, thus translating into higher yields.
How to Invest During Economic Uncertainty
This is the economic uncertainty that usually sends investors looking for safe investment avenues due to inflation, change in interest rates, or geopolitical tensions. It’s to such conservative investors that DSP Mutual Fund offers a host of different schemes relating to equity and debt mutual funds. DSP Mutual Fund has a balanced fund scheme that reduces risks while allowing exposure to growth in the market.
Another important comparison in this regard is between DSP Mutual Fund and Bajaj Mutual Fund.
Let’s now consider the TERs of similar schemes.
The regular plans in the DSP Equity Opportunities Fund have a TER of 1.92%
Bajaj Finserv Flexi Cap Fund: The TER is 1.80% for regular plans.
Suppose an investor, at a time of economic uncertainty, has ₹ 10,00,000 to invest.
DSP Equity Opportunities Fund Returns Post-TER
Estimated Annual Return: 14%
Yield Pre TAX: ₹1,40,000.
Expenditure value: ₹19,200.
Final yield: ₹1,40,000 – ₹19,200 = ₹1,20,800.
Bajaj Finserv Flexi Cap Fund Returns Post-TER
Annual Return Estimate: 15%
Yield Pre-TER: ₹1,50,000
Total cost: ₹18,000
Final yield : ₹1,50,000 – ₹18,000 = ₹1,32,000.
Although both the funds are performing well, the Bajaj Mutual Fund gives a little more return after deduction of the TER. Whatever be the choice of the fund, an investor has to assess other parameters like the past performance, expertise of the fund manager, investment horizon, and market stability before financial decisions can be taken.
Risk Management Strategies with DSP Mutual Fund
A well-established mutual fund house like DSP would have investment strategies that reduce risks in volatile markets.
Portfolio diversification: DSP Mutual Fund invests in various industries ranging from finance and pharmaceuticals to information technology.
Debt Mutual Funds: During times of economic uncertainty, there is normally a squeeze on liquidity. DSP debt funds invest in fixed-income securities like Government Bonds and Corporate Bonds to bring in stability during these chaotic times.
SIP Strategy: The whole concept of SIP, in simple words, reduces timing risks and allows one to average out market fluctuations over a period of time.
Notice to Prospective Investors
No different from any other investment, DSP Mutual Fund or Bajaj Mutual Fund needs to be closely watched. The volatility of the financial market, besides the different risk factors of TER, demands cautious analysis of pros and cons. Hence, investors are advised to consult with financial counsellors, assess their individual risk-bearing capacity, and match their investment goals with those of mutual funds. Historical returns can indicate but do not guarantee future profitability.
Overview
Therefore, investment in DSP Mutual Fund is a better option in turbulent economic scenarios; however, it essentially requires fundamental research. Basically, understanding TER and how it affects gross returns means estimation of the net financial outcome of an investment decision. Considering the example of DSP Equity Opportunities Fund, its TER is 1.92%, and the approximate annual return is 14%. Thus, the value after deducting the expenses shall be ₹1,20,800 on an investment of ₹10,00,000. On the other hand, the Bajaj Mutual Fund Flexi Cap Scheme gives higher returns after accounting for the TER.
DSP Mutual Fund creates cushions of stability in times of economic turmoil through diversified portfolios and debt mutual funds. The risk is reduced, and at least marginal returns can be assured even in situations where liquidity is tight. At the same time, however, every investor has to take calculated risks and make informed decisions based on their financial goals. I, therefore, recommend taking the advice of advisors and doing a detailed analysis of the performance history of the funds before commitments in the market are made.
Disclaimer
Trading in Indian financial markets inherently involves risks and is always subject to the fact that past performance is not indicative of future results. Investors are advised to do an extensive review, consult with financial professionals, and take into consideration all implications before arriving at investment decisions.
