Personal Fund Management

MFs just got poorer by Rs 7,000 crore

2009-08-19T11:42:00.000+05:30

MUMBAI: The 626-point fall in the Sensex on Monday would have shaved off around Rs 7,000 crore, or roughly 4%, from the equity portfolios of all
mutual funds combined, based on their holdings at the end of July. A back of the envelope calculation on the basis of stock portfolio weightage (as per July AUMs) of mutual funds reveals that key players such as ICICI Pru MF, Reliance MF, DSP Blackrock , UTI MF, Birla Sunlife MF, SBI MF, HDFC MF and Sundaram MF would have shed their equity asset base by around 3.3-4 .5% on Monday. According to sources, the mutual fund industry is currently holding Rs 20,000 crore of cash in their portfolios, with most fund houses maintaining 8-9 % cash levels. Domestic institutional investors have bought shares worth close to Rs 3,000 crore since the beginning of this month. “Institutional investors have begun cashing out of high beta stocks and moving into market defensives. Most fund managers have been increasing investment exposure to large-cap IT stocks, energy and pharma stocks over the past few days,” said Gopal Agarwal, equities head, Mirae Asset Global Investment. As per first quarter shareholding pattern of India Inc, domestic mutual funds were overweight in consumer staples, industrial utilities and telecom companies in their portfolios. Underweight positions in technology, financials and materials funded their market purchases in highbeta sectors. Towards end-July and beginning of August, mutual funds tilted their portfolio to add financial services’ companies and defensives such as consumer goods and IT in their portfolios. “The focus now is on stocks with higher safety margins. We’ve been investing in stocks keeping in mind high valuations,” said SBI Mutual Funds CIO Navneet Munot. According to Mr Munot, the market will continue to be volatile near term. Market watchers said, apart from switching investments into low-beta sectors, mutual funds are also increasing their exposure to equity derivatives. In times of volatility, fund managers find it beneficial to allocate some part of the portfolio in extremely liquid instruments like equity derivatives where fund management strategies such as raising cash or deploying cash can be easily managed without significant impact cost. + Although, derivatives trading in India has been in existence for more than eight years, their use by mutual funds is of relatively recent origin. Previously, mutual funds could use derivatives only for hedging purposes; also, they could deploy no more than 50% of their assets towards hedging. But with changes in Sebi guidelines, mutual funds are allowed to increase net assets exposure up to 80% in the futures and options segment. According to dealers, a few fund managers have begun trading in options market by buying ‘put options’ , anticipating a further fall in share prices.

For sensible capital gains taxation

2009-08-19T11:31:00.003+05:30

The government’s proposed direct taxes code has been widely welcomed. It seeks, rightly, to bring corporate tax rates closer to the Chinese and combine lower rates with fewer exemptions.
Experts have already analysed most proposed changes threadbare. But virtually none have focused on one area where the proposed code goes seriously wrong — capital gains tax. Indeed, the underlying issues are fundamentally misunderstood globally.

Any financial expert will tell you that it is prudent to diversify your savings, putting them in different asset classes (shares, bonds, real estate). It is also prudent to diversify within each asset class like shares
— you should distribute your holdings of shares between different sectors such as finance, auto, healthcare, and IT. The sums you allocate to different assets should change with time — textiles constitute a sunset sector and IT a sunrise sector, and you should reshuffle your portfolio accordingly. A fund manager who never reshuffles his portfolio will be sacked on the ground of incompetence. He will be guilty of having harmed the savings of the clients whose interest he is supposed to serve. Yet the proposed capital gains tax will exempt people who never sell any assets, and penalise those who do. Assets rise in value whether they are sold or not. Reshuffling a portfolio of assets means selling some assets and buying others. The proposed tax will be levied only on gains from sales, not on gains in the value of unsold assets. So although reshuffling is economically efficient and financially prudent, the proposed code will tax this good practice and exempt the bad alternative. That is terrible policy.

It makes better sense to levy capital gains tax only on assets that are liquidated — converted to money. Portfolio reshuffling should be encouraged, and so the new tax code should exempt reshuffling. Three considerations should govern any tax proposal: efficiency, equity and simplicity. That is, a tax should promote economic efficiency and provide incentives for desirable behaviour; it should aim for vertical equity (rich folk should pay more) and horizontal equity (some sorts of gains should not get preferential treatment over others); and it should be simple to administer, reducing litigation and evasion. The proposed change in capital gains tax fails on all three counts—efficiency, equity and simplicity. International studies show that revenue from capital gains tax is typically under 1% of total revenue. It is nevertheless widely used to check the conversion of income into capital gains to avoid tax (zero coupon bonds are one example of such conversion). For the same reason, many countries levy gift tax: this too yields little revenue but checks evasion. This, then, is a sound reason for levying capital gains tax in India. It also improves vertical equity to the extent it gathers revenues from rich folk who are taxed relatively lightly today.

AMFI e-MATERIAL

2009-07-09T17:51:00.000+05:30

http://www.esnips.com/doc/7486d3da-edc5-4704-8f01-a12077cceee3/ICICI_AMFI_KIT

Meltdown Mutations

2009-06-18T10:22:00.000+05:30

One interesting result of the financial crisis has been a new focus on how fund investors invest and disinvest rather than just what they invest in. By how, I mean the pace at which they move in and out of funds, as well as how they book and protect the profits that they have made.
I guess this is an inevitable by-product of the sea of regret that Indian investors have been floating in since last years’ crash. Since that crash came after years of massive gains (and was so deep), most investors lost a good chunk of the returns that they had earned.
For most of us, the regret was not that we made the wrong investments, but that we ended up losing the money that we should have been able to keep. Those who came a little late to the party lost not only all the returns that they had earned but even a good part of the capital that they had invested.
A few weeks ago, I had written about a product from ICICI Prudential Mutual Fund in which gains made in stocks were regularly transferred to a safe and steady debt fund. The idea was an automated profit-booking system whereby profits once generated are made permanently safe from the vagaries of the stock markets. The product was not entirely new — asset management companies (AMCs) have long offered a triggered switch in which gains above a certain level are switched to a different fund.
However, ICICI Prudential’s product did come out at a very uncertain time and succeeded in striking a chord with investors.
Now, Bharti-AXA Mutual Fund, which is a relatively new fund company, has introduced a variation on this theme, which is better suited to the new, hopeful mood on the markets. Here, money is first invested in a safe liquid fund and then gains are periodically shifted to an equity fund.
This way, investors effectively get protection of the initial capital. The originally invested amount is always safe and only its gains are exposed to equity. Even if there’s a collapse of stock prices, the investor won’t be out of pocket. Even in the worst of times, a conservative large-cap equity fund is unlikely to lose more than 50 per cent except temporarily (something that we’ve recently seen). This effectively means that for all practical purposes, such an investment offers true capital protection.
It must be noted that despite their different packaging, both these concepts are variations of an age-old idea that lies at the heart of sound investing — that of asset allocation and asset rebalancing. The idea is simply that an investor chooses a particular balance of debt, equity and other asset types as ideal. Then, as one asset type earns more than the other, money is periodically shifted from the one that’s earning more to the one that’s earning less to restore the original balance.
The two specific products that I’ve talked about actually practise only half of this principle. In both, the movement is only one way. In one, most of the money will eventually end up in fixed income and in the other, as equity. Actually, it’s plain old balanced funds that offer the best implementation of asset reallocation, as they always have.
Depending on where profits have been generated, balanced funds can shift money either way between equity and debt. For most investors, steady investment in a good, balanced fund should take care of all asset allocation concerns.

SEBI Wants MFs to Chase Retail Investors

2009-06-18T10:19:00.002+05:30

With the mutual fund industry increasingly becoming the playground of the rich and powerful, the market regulator has issued a statement that it must give adequate representation to retail customers.
Chairman of the Securities and Exchange Board of India (SEBI), C.B. Bhave, has said that the mutual fund industry must hike the retail portion of their assets under management (AUM). In other words he has indicated that the industry as such is ignoring the very people, investors who do not fall under the category of high networth individuals (HNIs) or institutional investors, for whom it should have been of the greatest service.
Bhave indicated that this would be good not just for the retail investors, but also for the industry because, “In October 2008, when the liquidity crisis almost derailed the industry, redemption pressure had come from corporates and not retail investors”.
He was addressing the CII Mutual Fund Summit in Mumbai on Wednesday.
Bhave added, for good measure, “To prevent any such re-occurrence, the industry must diversify its assets base away from those who can give a big one-time jolt. The potential of non-corporate investors is tremendous.”
However, according to U.K. Sinha, Chairman, UTI Asset Management Company, this would not be possible till the government extended further sops to the industry. He said, “Major tax incentives are a must for retail investors to come to the industry. Also, investor education initiatives must be taken up to improve participation.”
What was clear from the industry heads’ speeches was that the industry must co-operate in a better way to make sure there was greater tangible growth and benefits for all concerned. At the moment there were many cases of the industry working at cross-purposes.
However, not satisfied with just the Rs 20,000 crore bailout package that the government had extended to the mutual fund industry in 2008 to escape the redemption pressure and remain solvent, there were more calls made for greater government support to the industry for faster growth.
According Sinha, “We need support from regulators, policy-makers and the government in equal measure to generate rapid growth.”

EXISTING SCHEMES DOWNLOAD

2008-05-14T09:52:00.001+05:30

WEB LINKS:
1. http://www.hdfcfund.com/
2.http://www.reliancemutual.com/
3. http://www.sbimf.com/
4.http://www.icicipruamc.com/
5.http://www.standardcharteredmf.com/
6. http://www.franklintempletonindia.com/
7.http://www.dspmlmutualfund.com/
8.http://www.kotakmutual.com/
9.http://www.birlasunlife.com/
10. https://www.fidelity.co.in/
11. http://www.hsbcinvestments.co.in/
12. http://www.sundarambnpparibas.in/
13.http://www.lotusindiaamc.com/
14.http://www.optimixnet.com/
15.http://www.utimf.com/
16.http://www.tatamutualfund.com/
17. http://www.jmfinancialmf.com/
18. http://www.aiggig.co.in/
19. http://www.ingim.co.in/
20.http://www.dws-india.com

PAN /KYC APPLICATION FORMS DOWNLOAD

2008-05-08T12:50:00.000+05:30

From FEB 1 onwards SEBI has made a strict announcement to the mutual fund industry saying that any application form which is 50000 Rs and above has to submit a KYC APPLICATION FORM attached with a XEROX PAN COPY and an ADDRESS PROOF

PAN & KYC Requirements for Investors SEBI Circular on PAN Points of Service(POS)
Application Forms
KYC Form for Individuals KYC Form for Non-Individuals PAN Application Form PAN Application Form - Instructions

Brief on RBI Credit Policy and Equity Markets

2008-04-30T22:32:00.001+05:30

The Policy: No change in policy rates. No major change in stance, except a verbal stress – ‘high priority’ in terms of inflation. Though, there is admission that ‘growth’ is important and RBI does not want to hamper growth at this stage. Clearly, the current bout of inflation is a supply-side issue and that too global commodity price led and tinkering with policy rates would not have been a good for an already slowing economic growth. RBI has opted to further increase the CRR and squeeze liquidity in the interim, while expressing readiness to act swiftly in case of any further adverse developments on the inflation front. It is debatable whether tinkering CRR is going to be enough in fighting this kind of inflation. Rupee appreciation appears to be a more direct and effective way in combating inflation in the current context and for the large good.
Markets: Equity markets main worry is growth and no action on policy rates is a sigh of relief. Interestingly, RBI has projected GDP growth at 8.0-8.5% and seems more bullish than the street. Most projections are in the range of 7-.0-8.0% for FY09. Is the RBI behind the curve? Not really, considering the fact that they have been ahead of the curve in the last couple of years and have achieved a caliberated slowdown in growth through their tightening earlier in 2007. Effectively, however, the credit policy does not change much in so far as equity markets are concerned. What is crucial, going forward, is whether global growth slows down appreciably or not. If not, then the inflation pressures will continue and that can lead to serious tightening at the cost of domestic growth, especially in the light of upcoming political environment. If yes, then we benefit as inflation will come down and we can actually decouple from the rest of the world. Global slowdown and global commodity price correction is important for us to maintain the ‘higher growth, lower inflation’ period of the last few years. Meanwhile, we maintain our view expressed in our note ‘Testing Time, This too will pass’. We expect continued volatility in the short term, but in the medium to long term expect superior returns from Indian equities. Use the volatility to your advantage. Invest in a phased manner over the next few months, but with a long term horizon of at least 2-3 years.
Our Portfolio Strategy :No change in strategy. Impact on banking sector is minimal. Banking sector is a classic pass-through sector as it effectively passes on any rise/fall in interest rates. In terms of sector strategy, we are overweight on banking, oil & gas, media, consumer, and engineering sectors. We are underweight on metals, pharma, construction, IT services and real estate sectors. We continue to play our three themes – domestic consumerism, domestic investment and beneficiaries of global slowdown - in differing orders of preference

India funds among top performers for Gulf investors: Lipper

2008-04-30T09:40:00.001+05:30

It is not resident Indians alone who have gained from the country's capital market rally last year - the Gulf investors also earned big with India-focused equity and debt funds emerging among the best performers in the region. According to data compiled by international fund tracking firm Lipper, funds registered for sale in the GCC (Gulf Cooperation Council) region recorded an average gain of 19.26 per cent in 2007, with Equity India emerging as the second best performing category after Equity China. The Indian rupee-dominated bond funds were the best performers in the bond category with about 20 per cent return. The India-focused equity funds gave an average return of 71.08 per cent, against the overall average of 26.40 for all the equity funds. Returns from the rupee-denominated general bond funds and government bond funds stood at 21.56 per cent and 19.79 per cent respectively. This, compared with an overall average return of 9.94 per cent for the bond funds. Among the sector funds, those focused on technology, media and telecom (TMT) were the top performer with 106.12 per cent average return. Gulf investors took cognisance of the undervaluation of TMT sector, but they "were more attracted to funds investing in the technological sector in Asia, most particularly in India," Lipper said. While noting that utilities was the second best performing category, Lipper said Reliance Diversified Power Sector Fund-Growth was the top performer in this segment with 152.01 per cent return. Run by Anil Ambani group Reliance Mutual Fund, India's largest fund house, invests mainly in the country and has Reliance Energy and Tata Power as its top holdings. China's JF China Pioneer A-Share topped the overall equity category with a whopping 157 per cent return. However, Indian funds grabbed as many as 19 positions among the 20 top performers, Lipper said in its annual review report for GCC- registered funds. These included six funds from Reliance Mutual Fund stable, four schemes each of UTI MF and Birla Sun Life, three DSP-Merrill Lynch schemes and two HDFC MF schemes. Among the bond funds, the rupee-denominated schemes gained from the appreciation in the Indian currency. "The Indian rupee appreciated 10.65 per cent against the US dollar over the year, inflating the performance of underlying Indian assets," Lipper said. Bond INR General category was the top performer with 21.56 per cent return, followed by Bond INR Government at 19.79 per cent. Investors from the Gulf region are aggressively betting on Asia, particularly on India, the study stated, adding that "the recognised expertise and growing market of the outsourcing and offshoring business in India attracted significant foreign fund flows to the country, boosting the stock market in India." GCC countries have been aggressive during the past few years in investing abroad through sovereign funds and is estimated to have invested over the past six years around 700 billion dollars. "Equity China, Equity India, and Equity Turkey were also among the best performing classifications. The worst performing funds in 2007 were real estate Europe funds, real estate global funds and Japan small- and mid-cap funds," said Lipper.

PSEs free to park funds in any MFs

2008-04-30T09:39:00.001+05:30

Navratna and miniratna central public sector enterprises (CPSEs) will have the autonomy to invest their surplus funds in mutual funds of their choice. The government has allowed CPSEs to park 30% of their cash surplus either in equity or debt instruments or money market mutual funds. The centre has clarified that the overall cap of 30% is applicable for investment in public sector mutual funds as a whole and not just equity schemes of public sector mutual funds. “The government has not prescribed any individual cap on investment in equity or debt related mutual funds. CPSEs can put their entire money in either of them subject to the limit of 30%,” an official in the department of public enterprises (DPE) said. Earlier in August last year, the government had allowed PSUs to invest in equity schemes of Sebi-regulated public sector mutual funds. None of the central PSEs were, however, able to put in their money in mutual funds in the past eight months owing to ambiguities in the guidelines. Now, with almost all the ambiguities being cleared, PSUs can begin with their investments. “We received requests from several ministries and PSUs about the limit. Subsequently, it has been clarified that CPSEs can invest even in debt and money market related schemes of mutual funds,” the official said.

SEBI flags off real estate mutual funds

2008-04-30T09:32:00.000+05:30

More than two years after the idea of real estate mutual funds was mooted in India, stock market regulator SEBI on Friday finally gave its blessing to fund houses looking to launch this product. Under the guidelines announced by SEBI, all existing mutual funds will be eligible to launch real estate schemes, but a corporate looking to launch such a product will have to show proof of five years experience in the real estate business. The guidelines also suggest that the assets of real estate schemes be valued every quarter by two valuers. However, net asset values (NAVs) may have to be declared on a daily basis, since these funds will be close-eneded and listed on stock exchanges. “With this move, true diversification has arrived in India,” says Vineet K Vohra, MD & CEO of ING Investment Management, whose fund house has a scheme that invests in real estate properties across the world. “Now, retail investors can invest in real estate as an asset class, which has a low correlation with equity and bonds, and enjoy the benefits of asset class diversification.” Besides directly investing in real estate, SEBI has also permitted investments in mortgage-backed securities, securities of companies engaged in dealing in real estate assets or in undertaking real estate development projects and other securities. However, it has mandated that at least 35% of net assets of the scheme should be invested directly in real estate assets. “Taken together, investments in real estate assets, real estate-related securities, including mortgage-backed securities, shall not be less than 75% of net assets of the scheme,” SEBI said. Pranay Vakil, chairman of Knight Frank India, an international property consultant, said: “It is a positive development as far as the real estate industry is concerned. However, there is some confusion on the NAV aspect. Every 90 days, the net asset value of real estate assets may not really change. Like in the stock market, property valuations do not vary on sentiments. ” However, he added that restrictions in investments that have been suggested were justified. SEBI has said caps would be imposed on investments in a single city, single project and securities issued by a sponsor or associate companies. Each asset is to be valued by two valuers — accredited by a credit-rating agency — every 90 days from the date of purchase. Lowering of the two values shall be taken for the computation of NAV, enhancing investor returns. AMCs have also been banned from transferring real estate assets amongst its schemes or undertaking any lending or housing finance activities. SEBI also plans to bar investment in any real estate asset, which was owned (or held tenancy or lease rights) by the sponsor, or the asset management company, or any of its associates during the last five years.

NFOs download

2008-04-30T09:27:00.001+05:30

1.ICICI Prudential Focused Equity Fund.pdf
2.Sundaram BNP Paribas Financial Services Opportunities Fund.pdf
3.Sundaram BNP Paribas Entertainment Opportunities Fund.pdf
4. AIG World Gold Fund.pdf

Dividend Update

2008-04-30T09:17:00.002+05:30

Fund Name Dividend Record Date
1. Birla Advantage Fund 50% 25-Apr-08
2.Birla India GenNext Fund 10% 25-Apr-08
3.Birla Sun Life Basic Industries Fund 20% 25-Apr-08

Understand the risks involved in real estate MFs

2008-04-30T09:14:00.000+05:30

Mutual fund (MF) houses are rejoicing the securities and exchange board of India’s decision to allow MFs to launch real estate schemes. In fact, they have been waiting for almost two years to get the nod from the stock market regulator . For late comers, you don’t need lakhs or crores of rupees to invest in real estate anymore. You can buy a share of the pie with few thousands, just like you do in any other MF scheme. How does it work? The MF will collect money from people like you and invest it in realy and related assests as per Sebi norms. The units will be listed in the stock exchange and, just like any scheme, the net asset value of the scheme will be declared everyday. That means, you can track how much your investment has grown on an everyday basis. That was for the concept? But is it such a great news for individual investors? “Certainly ,” says Ladder 7 Financial Planners chief financial planner Suresh Sadagopan. “The real estate investment trusts which already exist have high ticket size of 25 lakh or above. Now, with a few thousands, people will get an opportunity to invest in real estate MF.” But don’t run to the bank to withdraw money to invest in REMF. First, understand the risk behind it. Before that you should also keep in mind that REMF will essentially help you diversify your portfolio. That means, you have to decide what percentage of your total portfolio will be invested in real estate . Also, like any sector, real estate may also go through cycles. Sure, we have seen the prices skyrocketing in the last few years. But what goes up may also come down. So, you should have time on you side if you are investing in the real estate sector

GREAT BOOKS TO DOWNLOAD

2008-03-28T22:22:00.000+05:30

Trading Stock Market Wizards - Jack Schwager
Reminiscences Of A Stock Operator - Edwin Lefévre
The Real Warren Buffet - James O'Loughlin
The Equity Options Strategy Guide

The Intelligent Investor - Benjamin Graham
The Warren Buffett Way

AMFI LATEST E-MATERIAL PPT VERSION

2008-03-28T22:01:00.000+05:30

1.ppt762K View as HTML View as slideshow Download

2.ppt221K View as HTML View as slideshow Download

3.ppt190K View as HTML View as slideshow Download

4.ppt99K View as HTML View as slideshow Download

5.ppt412K View as HTML View as slideshow Download

6.ppt1112K View as HTML View as slideshow Download

7.ppt122K View as HTML View as slideshow Download

Eight mistakes to avoid while investing

2008-03-28T09:20:00.000+05:30

Investing is not just about picking winners, but also about avoiding mistakes. Retail investors can be better off if they avoid making the following mistakes.

1. Overconfidence - Don't be unrealistically optimistic :
A bull market makes retail investors believe that they are geniuses - after all, anything they put money into goes up. This overconfidence in their own abilities leads to a complete disregard of the risks involved. Every new generation that invests in the market ignores past experience. These new investors wrongly believe that stock prices only go up. Don't be overconfident and don't start believing that you have superior skills compared to the market. Recognise that in a bull market you are benefiting because the whole market is going up. If those around you are getting unrealistically optimistic, start managing your risk accordingly. Remember that sometimes markets do come crashing down.

2. Over enthusiasm to trade - Not every ball should be hit :
Good batsmen realise that some balls outside the off-stump should be left alone. Similarly, professional investors realise that sometimes its better to just stand still than to rush into a stock. Retail investors often make the mistake of "flashing outside the off-stump" because they cannot resist the temptation to trade in every opportunity. And, like an inexperienced batsman, they suffer the same fate. Too much trading will lead to a lot of churn, extra commissions to your broker and huge tax implications for you. Some of the world's best investors follow a buy and hold strategy - you should too.

3. Missing the benefits of compounding of capital - Learn from Einstein :
Albert Einstein is reputed to have said that compounding of capital is the 8th wonder of the world because it allows for the systematic accumulation of wealth. Even though any one in class 5 could tell you how compounding works, retail investors ignore this basic concept.
Compounding of capital can benefit you only if you leave your money uninterrupted for a long period of time. The sooner you start investing, the bigger the pool of capital you will end up with for your middle-aged and retirement years.

4.Worrying about the market - But there is no answer to your favourite question :
Smart investors don't worry about the direction of the market - they worry about the business prospects of the companies whose stocks they own. Retail investors are obsessed with the question "Where do you think the market will go?" This is a wrong question to ask. In fact, no one knows the answer. The right question to ask is whether the company, whose stock you are buying, is going to be a much bigger business 10 years from now or not? Don't take a view on the market, take a view on long-term industry trends and how your chosen companies can create value by exploiting these trends.

5.Timing the market - Around 99% of investors will fail in this strategy :
Its very difficult to time the market, i.e, be smart enough to buy at the absolute bottom and sell at the absolute top. Professionals understand that timing the market is a wasted exercise. Retail investors always wait for that elusive best opportunity to get in or to get out. But by waiting they let great investment opportunities go by. You should use systematic or regular investment plans to make investments. You'll have to make fewer decisions and yet can accumulate substantial wealth over time.

6. Selling in times of panic - You should be doing the opposite :
The best opportunity to buy is when the markets are falling and there is fear in the minds of investors. Yet, many retail investors do exactly the opposite. They sell when the markets are falling and buy only when the markets are high. This way they end up losing twice - by selling low and buying high, when they should be doing exactly the opposite.
If nothing has changed about the long-term outlook for the company that you own, then you should not sell this company's stock. Use this opportunity to buy more of the same stock in falling markets. Some of the world's biggest fortunes were made by buying when others were selling in panic.

7. Focusing on past performance - Its like driving forward while looking backwards :
It is a very common perception that because a stock has done well in the past one year, it's the best stock to invest in. Retail investors do not realise that often the best performers will underperform the market in the future because their optimistic outlook has already been priced into the stock.
Don't go after hot sectors that are currently producing high returns. Don't let greed drive your investment decisions. Look forward to see whether the gains produced in the past can get repeated or not. Short-term trends of the past might not get repeated in the future

8. Diversifying too much will kill you - Investing is all about staying alive :
Beyond a point, having too many names in a portfolio can be counterproductive. You might end up duplicating, or end up taking too much exposure to a sector. Over-diversification can upset your portfolio, especially when you have not done enough research on all the companies you have invested in. If you are an active investor in the stock market, maintain a manageable portfolio of 15-25 names. Instead of adding new names to this portfolio, recognise ideal ones. Then back them with more capital. In the long-run, this will produce better returns for you than adding another 20 names to your portfolio. Investing is all is about patience and discipline. By avoiding mistakes you can improve the long-term performance of your portfolio, whatever the economic conditions prevailing in the market.

TATA ASSET MANAGEMENT TO START A NATURAL RESOURCES FUND

2008-03-28T09:01:00.000+05:30

Tata Asset Management Ltd on Thursday sought approval from the market regulator to launch an open-end equity fund to invest in firms engaged in natural resources. Tata Natural Resources Fund will invest at least 65 per cent of its assets in companies discovering, developing, producing or distributing natural resources, the fund house said in its offer document. The fund can invest up to 35 per cent of the assets in stocks of other companies, debt and money market

Word of Caution!!!

2008-03-19T22:01:00.001+05:30

Dear Sir/Madam,
The stock market indices movement of late has been pretty volatile and even though might seem to be serious ,but it is certainly not critical. You must all be knowing that it is a fall out on account of reasons beyond our control. It is more done to global phenomenon esp That of US economy Than due to Indian economy. Our Fundamentals , corporate earnings and other basic parameters that determine our countrys growth are quite sound and intact .THERE IS NOTHING TO GET PANICKY ,nor is the time right to review your equity portfolios .May be it is time now for you to invest in good select diversified mutual funds if u can lay your hands on some liquidity .However it is advised to stay invested longer.Also investment thru the route of SYSTEMATIC TRANSFER PLANS/SIP should prove to be wiser and more prudent in volatile conditions like the PRESENT SCENARIO .In our considered opinion if we stay invested on a reasonable period of 1 yr and above then we are likely to reap rich rewards.
Hope everything comes to a positive correction in the near future.
For any further guidance and services please feel free to get in touch

Regards
Arvind
9941324972

Recent Debt Market Events

2008-03-19T16:06:00.000+05:30

U.S. economic conditions have continued to worsen with the housing market showing no signs of finding a bottom, credit turmoil still rampant and a continuous wave of defaults from financial entities. This has caused a sharp fall in the value of the USD against the other currencies. Commodity prices have increased sharply on account of good demand from funds and a decline in the USD value. Oil and Gold prices, in particular, have been hitting record highs. Against this backdrop, domestic market conditions have also been impacted. There has been continuous selling pressure from the FIIs in the stock market and they have pulled out around USD
3.24 bn (around Rs 13,200 Crores) year to date (till 14th March 2008). (Source: LIAMC research; Bloomberg). Ballooning trade deficit on account of high oil import bill coupled with FII outflows have resulted in dollar shortage and consequent dollar appreciation against the rupee. This also has negative implications for imported inflation from the supply side. The government as well as RBI have been concerned on this account and have indicated that inflation would remain at the top of their fiscal and monetary policy agenda, respectively. Indeed, the recent inflation numbers have surprised on the upside and have postponed rate cut expectations from the RBI. On the flip side, Index of Industrial Production (IIP) numbers have surprised on the downside with January 08 y-o-y growth at 5.3% against expectations of around 8% (Source: Bloomberg, LIAMC research). The worrying part was a sharp decline in capital goods growth to a meager 2.1% (the lowest monthly y-o-y growth since 1994) leading to fears that investment spending might be slowing down. Consumption spending is already showing signs of a slowdown as evidenced by a decline in consumer durables (-3.1% in January 08) during FY08. Given this scenario, we believe that the Central Bank is likely to keep policy rates unchanged in the near term while it analyzes incoming data on economic growth. We expect growth concerns to take prominence over inflation fears in the coming months as global economic growth slows, led by the United States. The other key factor to take note of is the Chinese economy which has grown at a blistering pace in the last few years. The Chinese monetary authorities have been trying to moderate economic growth and rising inflationary pressures by following a continued tightening in interest rates and increasing the level of cash reserves in the Banking system. Lagged impact of tighter interest rates and the fact that this being the year of the Olympics, Chinese economic growth is likely to slow, going forward. This coupled with slower growth elsewhere in the world could have a salutary impact on commodity prices, going forward.
Coming to the debt market, yields at the short end inched up towards Feb end as systemic liquidity tightened on outflows towards MSS auctions, state loan auctions and increasing government balances with the RBI. Yields were also carrying a “March premium” as the market was expecting tighter liquidity conditions in March. However, liquidity conditions have remained normal in March so far due to government spending and the fact that market participants have been maintaining liquidity on expectations of tightness. Additional Liquidity Adjustment Facilities (LAF) Auctions by the RBI on 14th March and 17th March 2008 have been conducted in order to manage liquidity conditions. Consequently there has been a downward movement in yields at the short end with the 1 year prime rated Certificates of Deposits’ yield correcting by 25-30 bps compared to end February levels. However, yields in the 1-2 year segment continue to be higher due to continuous supply from issuers.

market updates from a fund managers perspective

2008-03-14T22:01:00.000+05:30

http://www.njindiainvest.com/partnerdesk/popups/prashantjain_note.pdf

upcoming dividends

2008-03-14T19:12:00.000+05:30

1.Reliance Vision Fund 70% 14-Mar-08
2 Reliance NRI Equity Fund 15% 14-Mar-08
3 Kotak Opportunities Fund 20% 14-Mar-08
4 DBS Chola Opportunities Fund 75% 14-Mar-08
5 Fidelity Equity Fund 25% 13-Mar-08
6 Franklin India Flexi Cap Fund 30% 12-Mar-08

factsheet upload

2008-03-14T10:01:00.000+05:30

http://www.njindiainvest.com/regupload/factsheet.pdf

Has the stock market bottomed out?

2008-03-12T22:01:00.003+05:30

The global turmoil has pushed Indian stock indices to levels unthinkable. Is there more pain ahead or is it time to buy? Three experts weigh in
International credit markets are in a crisis and the stock markets have been shaky. Nobody is in a position to react to the big macro issues such as where the dollar is going, what is the likely GDP growth of US or China, and so on. For every smart person on one side of the question, there is another smart person on the other side. The Indian financial markets have also been witnessing sustained volatility and clearly global cues are the deciding factor, in the absence of any strong domestic positive news. The US economy and its future course will be a critical factor in assessing the FII mood and market sentiments, going ahead. As far as the valuations are concerned although the Indian markets are now trading at 14-15x FY09E, and a large part of the froth generated is now out of the system, the sustainability of any upward move in the market clearly depends on global factors.

Analysts feel that the markets are trading closer to fair fundamental value but a minor down-move is not ruled out in the short term. One key deciding factor for the Indian markets will be FII liquidity, which seems to have completely dried up and unless this revives substantially way, we may continue to see volatile and choppy markets for another 3-4 months, followed by a noticeable recovery that could start from September ’08 onwards. However, even this will be subject to the forthcoming general elections, which now look scheduled early. As mentioned earlier, the full effects of a global meltdown are not yet fully factored in by the markets. Any fresh adverse news on subprime crisis, and slower US economic growth will continue to have a negative impact and will be a cause of concern for emerging markets like India, where one could see redemption pressure from FIIs to fund their subprime losses in other markets. Clearly, retail investors should look at the SIPs (systematic investment plans) of mutual funds as the right investment option if they do not have the ability and the capacity to take risk directly. Equity as an asset class will definitely bounce back and offer significantly better returns over the next two-to-three year horizon. With elections looming near the corner, the markets will continue to remain choppy and volatile and this may keep investors away from the markets. Nevertheless, this is an excellent time for an investor to build a quality portfolio of stocks because prices of almost all blue chip stocks have come off by almost 50% and hence returns from these levels over the next two to three years will be a significant for any retail investors. However, they will have to be patient and have the conviction in their investment decisions and take a long-term call on the markets without looking at the short-term aspects. It should be very clearly understood that the India story continues to remain strong but sentiment has taken a beating due to unfavourable global developments. Retail investors should never try and time the market; they should be in the market for a time. Other than equity, traditionally, retail investors have been investing in instruments like National Savings Certificates (NSCs), RBI bonds, post office, etc., and all these investments are for five years or more. However, unfortunately, while investing in equity, retail investors tend to take a short-term view and look for almost instant gains. This short-term approach needs to be curbed and equity, as an asset class, needs to be considered by the investors for long-term deployment. If this approach to investment is followed, the current market scenario is ripe for retail investors to enter for making substantial long-term gains.

IDFC to buy StanChart MF for Rs 830 cr

2008-03-12T22:01:00.001+05:30

Infrastructure Development Finance Corporation (IDFC) will buy Standard Chartered Mutual Fund. IDFC will pay $205 million (Rs 830 crore), way above $135 million (Rs 542 crore), the amount offered by UBS for the AMC in January last year. Standard Chartered has agreed to sell Standard Chartered Trustee and Standard Chartered Asset Management, including the local minority shareholders. The UK major has a 74.9% stake in the AMC with the remaining being held by Atul Choksey, the former co-founder of Asian Paints. The consideration is before deductions of local taxes and deal expenses. ET had on Thursday reported that IDFC and Shinsei were ahead in the race. StanChart regional CEO (India and South Asia) Neeraj Swaroop said: “We will concentrate on the distribution side of the business.” This means the bank will continue to sell products of other fund houses. IDFC CEO Rajiv Lall said: “This is in line with our wider strategy of broadening our footprint in the asset management business and diversifying our fee-based revenue streams.” What may have swung the deal for IDFC is the consideration that a local institution would be quicker in getting regulatory approvals. IDFC and Japanese group Shinsei had emerged as the frontrunners in what has been a long drawn race. After the deal with the Swiss banking group UBS fell through, Standard Chartered had invited fresh bids in January. The sale fell through as UBS was not able to get a regulatory approval. Following this, close to 20 players — mostly international — had shown interest. A few weeks ago, StanChart had shortlisted around seven players. The minimum bid price was $175 million as against a base price of $137 million, quoted by StanChart. IDFC is said to have initially bid $175 million, but reportedly revised its bid to around $205 million. Shinsei is also said to have bid around $200 million. Sources said the top 10 employees in the fund will get a retention bonus, which would be staggered over 18 to 24 months. The payment is likely to be around $3 million. This transaction is expected to be complete in the second quarter of 2008. As on February 29, 2008, Standard Chartered MFs assets under management stood at Rs 14,180 crore. Around $1 billion (approx Rs 4,000 crore) of this is equity

Upcoming dividends

2008-03-07T09:50:00.000+05:30

Upcoming Dividends
1.ING Domestic Opportunities 30% 29-Feb-08
2.Kotak 30 30% 28-Feb-08
3.ABN AMRO Tax Advantage Plan 20% 29-Feb-08
4. DSPML Tax Saver Fund 36% 29-Feb-08
5. Principal Personal Tax Saver 200% 26-Feb-08
6.HDFC Equity Fund 55% 07-Mar-08
7.HDFC Tax Saver Fund 80% 07-Mar-08

Exit of I-T rebate on STT makes it tough for MFs too

2008-03-05T09:36:00.000+05:30

It is not just high net worth individuals and day traders who will be hit by the Budget proposal to scrap the IT-rebate on securities transaction tax (STT) and treat it as any other normal business expenditure. If broking circles are to be believed, it could also affect the ability of fund houses to churn their portfolios effectively. The proposals relating to STT are expected to push up the tax liability of a day trader and thus squeeze his returns. This could lead to a drop in trading volumes, say brokers. This lack of liquidity could in turn push up the impact cost for fund managers, thus affecting their net asset value (NAV). Most fund managers will claim that the best approach to stock market is taking a long-term view. But the pressure of maintaining NAVs in volatile market conditions means they have to adopt short-term measures as often as they take long-term calls. In normal corrective phases, fund managers steer their portfolios away from taking big hits by investing in a mix of shares of diverse sectors. This helps them to compensate any loss of value with appreciation in the other shares. “But this time round, the correction has been so flat-out that fund managers are not left with many choices, but to time the market in order to improve their returns,” says a institutional broker. A look into MFs’ trading pattern over the past two months show that invariably on most market falls, MFs have purchased and on most upswings, they have sold. For instance, when the market shed 1,408 and 1,175 points on January 21 and 22, MFs net bought shares worth Rs 2,000 crore and Rs 1,175 crore respectively. Likewise, picking out the major sell-offs by MFs, when the broader market rose 245 points on January 11, funds sold shares worth Rs 274 crore. On February 19, when the Sensex closed marginally up, domestic institutional investors (DII) sold shares worth Rs 327 crore. DIIs sold shares worth Rs 141 crore, when the market closed above 300 points on February 25. “It cannot be termed as breach of investment ideals as fund managers are adopting short-term hold strategies to make money for unitholders. Taking a cash call in active fund management is perfectly fine,” said Dhirendra Kumar of Value Research, a mutual fund research and advisory firm. “Positively, there are risks with regards to timing the market; a wrong call can be embarrassing for fund managers,” Mr Kumar added. Investment managers often point that given the volatile trends in Indian market and extensive availability of quality stocks, equities portfolio churning is indispensable. Another factor not to be ignored is market sentiments, which often force fund managers to include momentum picks in their portfolio. This is a short-term strategy, but nonetheless, it adds to the churning rate. Unexpected redemptions also influence fund managers to off load securities.

FM's Robin Hood Budget out to please Bharat; leaves India Inc. to bat alone

2008-03-04T19:27:00.001+05:30

Finance Minister P Chidambaram's ballot box budget is clearly oriented at the common man; sops to the electorate include --- farm loan waiver, additional investments in agri and irrigation, enhanced social sector spending in areas such as education, women and child welfare etc, and finally the icing - hike in income exemption limit to Rs 1.5 lakh.

The markets were in for a big disappointment, as it did not get the STT (Securities Transaction Tax) rate cut. The FM did not touch DDT (Dividend Distribution Tax ) either. The markets also reacted badly to the farm loan waiver for small and marginal farmers with holding of 1-2 hectare. The BANKEX is down 2.11%. Another big blow was the proposed hike in short term capital gains from 10% to 15%. The budget also proposes to introduce a commodities transaction tax, like STT.

He has left corporate tax rates and the surcharge on corporate tax unchanged. Peak customs duty rates have been left unchanged; CENVAT is down from 16% to 14% on all goods. He has withdrawn the banking transaction tax, perhaps with an eye to the upcoming elections. PAN requirement has been extended to all financial markets.

Personal income tax exemption limit has been hiked to Rs 1.5 lakh, Rs 1.8 lakh for women, and Rs 2.25 lakh for senior citizens. Income tax slabs have also been changed. These include 30% tax for income above Rs 5 Lakh, and 10% for income in the range of Rs 1.5-3 lakh.

The FM said he is confident of maintaining GDP growth at 8.8%. The government has maintained GDP growth at 8% in 12 consecutive quarters. Keeping inflation under check is key to government policy. He estimates agriculture to grow at 2.6% in FY08. Current year fiscal deficit is at 3.1% as against Budget estimates of 3.3%.

SEBI asks mutual funds to slow risk warnings in commercials

2008-02-27T20:07:00.009+05:30

India's mutual funds are going to have to pause for breath: the market regulator has asked them to more than double the time they spend on risk warnings to investors in their radio and television commercials. The funds, which now take two seconds in their commercials to tell customers that "Mutual Fund investments are subject to market risks, please read the offer document carefully before investing," must do so in five seconds, the regulator said. "The rapid-fire manner in which the standard warning ... is recited in the audio-visual and audio media renders it unintelligible to the viewer/listener," the Securities & Exchange Board of India said on Tuesday. India's booming economy powered a sixfold increase in the main stock index in the five years to the end of 2007, attracting hordes of retail investors to the mutual funds, prompting scores of commercials from funds to attract investments. The new rule is effective April 1.

DSP ML plans energy sector fund

2008-02-27T20:07:00.004+05:30

DSP Merrill Lynch MF has mooted an equity fund that will invest in energy stocks in India, with a limited provision to invest in units of a couple of funds managed by Merrill Lynch internationally.
The proposed DSP Merrill Lynch Natural resources and New Energy Fund will aim at generating capital appreciation and providing long-term growth opportunities by investing in equity and equity related securities.
Two broad categories of companies will be chosen, the offer document filed with SEBI has mentioned. One, Indian companies selected whose pre-dominant economic activity is in the “discovery, development, production, or distribution of natural resources” – that is, energy, mining and the like.
Two, the fund’s investment universe will also have Indian companies that dabble in the “alternative energy and energy technology sectors”. The emphasis here will be on renewable energy, automotive and on-site power generation, energy storage and enabling energy technologies.
The fund will also invest a certain portion of its corpus in the equity and equity related securities of companies domiciled overseas (which are chiefly engaged in the discovery, development, production or distribution of natural resources and alternative energy) and/or units of Merrill Lynch International Investment Funds – New Energy Fund and Merrill Lynch International Investment Funds – World Energy Fund. Similar other overseas investment vehicles may be selected too.Benchmark
The fund’s benchmark will be somewhat unique: 35 per cent in S&P CNX Energy, 30 per cent in BSE Metals and 35 per cent MSCI World Energy, the offer document has stated, adding that the fund manager will pick up equities on a bottom-up, stock-by-stock basis, with consideration given to low price-to-earnings, price-to-book and price-to-sales ratios. Besides, growth, margins, asset turns and cash flows will be considered.
At least 65 per cent of the portfolio will be exposed to equity and equity related securities of companies domiciled in India. Likewise, under normal market conditions, not more than 35 per cent of the portfolio will be invested in companies domiciled overseas.

Systematic investment in balanced funds is good for long-term investor

2008-02-27T20:07:00.003+05:30

If you want to maintain a simple portfolio and yet have the benefits of diversification, a systematic investment in balanced funds is a great option As an investor, if you are saving regularly for the long-term and want a low-involvement, hassle-free instrument, then balanced funds are the right choice. Balanced (mutual) funds have been around for over a decade — and manage assets of over Rs 16,000 crore between them. They, by mandate, invest at least 65% of their portfolio in equities, and up to 35% in debt and related instruments. In practice, the equity component of most balanced funds varies between 65% and 80%, depending on the fund manager’s outlook of the markets. Long-term and discerning investors would no doubt have heard of the UTI Balanced Fund and Prashant Jain’s HDFC Prudence Fund. Of course, today, there are over 15 balanced funds offered by different fund houses. They have systematic investment plans (SIP), growth/dividend options, and all the other investor-friendly features provided by ‘pure’ equity and debt funds. But how effective are balanced funds from a tax, load and performance point of view, compared to, say, investing partly in equities and partly in debt? For those who do not wish to enter into nitty-gritties, here’s the simple answer: if you want to maintain a simple portfolio, and yet have the benefits of diversification, a systematic investment in balanced funds is a great option.
If you are the more discerning and involved kind, you might want to synthetically ‘manufacture’ a balanced fund type of portfolio instead; by investing in two or more funds, each of ‘pure’ equity and debt nature. If you want some mathematics around, how we came to this, then read on! For a fair comparison, we consider a Rs 100 investment for three years in a balanced fund on the one hand; and compare it with a combination of two investments for the same duration — of Rs 65 in an equity fund and Rs 35 in a debt fund. Of course, if your desired asset allocation is far different from this (say you are risk averse and want to stay away from equity markets), you should not consider balanced funds. We assume an annualised equity market return of 15% and a debt market return of 7%. Thus, the balanced fund return, ceteris paribus, is expected to be 12.2%, before load and tax. Nature of portfolio Balanced funds would invariably invest the equity component of the portfolio in a well-diversified basket of securities, in different sectors. This is ideal for an investor who wants to participate in the long-term growth of the economy, without any active sector or stock preference. Indeed, balanced funds are best suited for such investors. For someone wanting to take sector calls or ride a mid-cap rally, a ‘pure’ (sector or mid-cap) equity fund exposure is called for.

Indian funds dominate world's top 100 list in 2007

2008-02-27T20:07:00.002+05:30

Indian equity funds stormed into the Lipper list of the world's 100 top-performing stock funds of 2007, with 40 funds making a mark compared with none a year ago, as Indian shares turned in their best performance in four years. A power sector fund from the country's largest asset manager Reliance Capital led the Indian top performers in 2007. The top-100 list, carved out from a set of 24,887 funds tracked by global fund intelligence firm Lipper also includes five India-dedicated offshore funds. Over the 10-year period ended December 2007, local funds are clear winners with seven of the world's top 10 funds from India. "Indian funds had a revelling year, with the broader markets faring well and the mid- and small-cap segments outperforming their bluechip peers by a significant margin in 2007," Dhruva Raj Chatterji, research analyst with Lipper in India, said. Country’s main stock index rose 47 per cent last year, clocking six straight years of gain, as foreign funds, attracted by strong economic growth and corporate performance, poured more than $17 billion in local shares, the highest in a single year.

The BSE Mid Cap and Small Cap indices grew faster, gaining 69 per cent and 94 per cent respectively, powering returns of funds which invested 40-48 per cent of their assets in such stocks, data from fund tracker ICRA Online Ltd showed. Nearly three-fourths of the funds secured a place in the top 1,000, while majority of India-based funds tracking auto, pharmaceutical and battered tech stocks were pushed to the bottom with Franklin India Infotech getting the worst rank of 22,790. Twenty-nine Chinese funds, which saw their main stock index rise 97 per cent last year, secured a place in the world's top-100 funds. "This is just the beginning...We are not at all surprised by the performance of Indian funds as they are based on the strong foundation of our Indian economy," Vineet K Vohra, chief executive officer of ING Investment Management (India), said. "It clearly shows India's strong story as an investment destination for an enormous opportunity," he added. Globally, equity funds that have a track record of at least one year and are covered by Lipper, showed an average return of 2.52 per cent, but the 306 Indian funds among them delivered an average 55.64 per cent gain, Lipper data showed. Dhruva said more than three-fourth of the Indian equity funds managed better returns than India's benchmark index in 2007 but those investing more in sectors such as steel, capital goods, realty and financial services stood out. India's actively managed diversified equity funds returned 55.97 per cent in 2007, on an average, their best in four years.

Mutual Funds see opportunity in stock market fall

2008-02-27T20:07:00.001+05:30

Equity fund managers, who trimmed stock exposure to a four-month low in January, now plan to deploy cash back mainly in energy and financial sectors, according to a poll conducted by a news agency from Feb 19 to Feb 25. Seven of the 10 participants in the Reuters Asset Allocation Poll said the benchmark index was not likely to show negative return in the next three months, making battered stocks a good bet at current levels. "Valuations are looking quite attractive after the recent decline in the stock market," said R Rajagopal, who oversees about Rs 3000 crore as chief investment officer for DBS Cholamandalam Asset Management Ltd. "The corporate results of third quarter have also been robust enough to indicate that the growth rate would be in the range of 20-25 per cent," he added.

AUM's IN MF INDUSTRY Tend to dip

2008-02-19T08:10:00.006+05:30

Assets under management (AUMs) of mutual funds have declined by Rs 827.2 crore or 0.15 per cent as on January 31, in comparison with AUMs in December 31, 2007, after a severe liquidity crunch in the markets forced banks and corporate bodies to withdraw money from liquid funds

Profit Bookings seen in Gold ETF

2008-02-19T08:10:00.005+05:30

As gold prices keep hitting newer highs, investors enjoy a gala time booking profits. The yellow metal has been trading at an all-time high during the past one month. This has prompted investors in Gold Exchange Traded Funds (ETF) to liquidate their position to book profit.

Indian Funds chase Finance stocks ,eye economies

2008-02-19T08:10:00.004+05:30

Indias financial stocks and funds are fast emerging as the preferred choice of asset managers and investors who believe rising income in the worlds second fastest growing major economy will boost demand for financial products. Diversified equity funds have nearly tripled allocation to finance stocks in the past year to about Rs247 billion, making it their second favourite sector after engineering

DIVIDENDS UPCOMING

2008-02-19T08:10:00.003+05:30

Dividend Update
1.DSPML T.I.G.E.R. Fund 50% 22 feb
2. HDFC Premier Multicap 20% 21 feb
3. HDFC Prudence 50% 21 feb

Steep valuations keep MFs out of IPO zone

2008-02-19T08:10:00.000+05:30

Discretion is the better part of valour, said the Bard. And so it seems to be with mutual funds, which have adopted this mantra in the wake of an uncertain market and steep valuations while investing in public issues. Significantly, most funds have not been investing - or are barely investing for listing gains - in public issues over the past eight months. Quality issues too reflect this approach. For instance, 11 funds had invested only Rs 189 crore in the DLF public issue, which opened for subscription in June 2007. Likewise, corroborating the date of public issue, listing or portfolio declaration, there is evidence that over 170 funds invested only Rs 114 crore in the public issue of Power Grid Corporation. Power Grid was listed on October 5. The mutual fund portfolio (of September 2007) declared in October, only reflects shares in the allotment phase. There is no data on how many funds sold their holdings during debut. The same is the case with the public issue of Omaxe (with net mutual fund investment of only Rs 11 crore), Central Bank of India (Rs 37 crore), Mundra Port (Rs 391 crore) and Motilal Oswal Financial Services (Rs 72 crore). “Generally speaking when valuations are high, mutual funds investing into public issues look for plain listing gains. Several issues launched in the second half of 2007 were overpriced. It doesn’t make sense to hold over-valued stocks over a longer term; the strategy, therefore, is to dump on listing and buy back once prices have deflated,” said a leading fund manager on conditions of anonymity.

One should not forget the fact that until a year ago, fund houses were eager on shoring up shares of every IPO that hit the market. A lot many number of domestic banks were also investing heavily in public issues then. However, this stopped when the market corrected steeply in March 2007. According to experts, a combination of two factors could have had a bearing on mutual fund investments in IPOs. Crisil’s fund services & fixed income research head Krishnan Sitaraman said, “Firstly, in IPOs where oversubscription levels are higher, mutual funds will not get a larger number of shares because they would typically not be borrowing while applying for shares. On the other hand, retail investors and HNIs are applying for IPOs in large numbers, thanks to rising IPO financing.” “Secondly, in 2007, thanks to a very buoyant bull market and strong performance of existing listed stocks, there was no real need for funds to invest in IPOs. A major portion of their tried-and-tested stocks were doing well on the bourses, with some even posting returns in excess of 100% for the year

MFs crash but still promise long term gain

2008-02-12T21:00:00.000+05:30

The bearish trend in the stock market for the last three weeks has hit the investors hard. Even those who have invested through mutual funds have lost substantial wealth. However, experts and mutual fund managers say that this has created a good opportunity to invest in the market. CEO of a mutual fund run by a foreign bank said in the next one to three years, Indian stock market will give a return of more that 25% compounded annually. He advised that investor should postpone the idea of liquidating their investments in the stock markets to invest some other assets class. He said the returns from the investment in the equity market would be more than other areas. As shown in chart, in the long term, equity is still the best instrument to invest. However, he cautioned that one should not enter the market with the short term view in the current market scenario. The 30-share sensitive index has fallen by over 25% in the last one month from 20,827 on January 11 to 16,631 on Monday. This, a senior fund manager said, has brought down the share prices of many good performing companies to very attractive level. He said that prices of medium and small companies have become even more attractive. He said the present fall in the market is mainly because of the apprehension of a slowdown in the US economy. But, many foreign fund managers feel that in a scenario of a US slowdown, Indian companies will emerge as an attractive option to invest. A senior foreign fund manager said very few Indian companies are dependent on the export revenue besides the IT companies, which will benefit from slowdown as the outsourcing by US companies will further increase to cut

Upcoming Dividends

2008-02-12T20:49:00.000+05:30

Diversified Equity Funds Dividends Record Date
1. Franklin Prima Plus 60% 13 feb 08
2. ICICI DYNAMIC 20% 15th feb
5. HDFC PRUDENCE 50% 21 Feb

TAX SAVERS Div DATE
1.SBI Magnum Tax Gain 110% 15 feb

Inflation Update for this week

2008-02-08T23:32:00.000+05:30

Inflation based on the wholesale price index (WPI) for the week ended January 26th, 2008 increased to 4.11% as compared to 3.93% a week ago.The Index for all commodities for the week increased to 217.60 as compared to 217.10 in the previous week. The increase in the WPI index is because of increase in the prices of primary articles and manufactured products.
The wholesale price-based inflation was 6.69% during the corresponding week last year.

Morgan Stanley launches second domestic fund in India

2008-02-08T20:32:00.001+05:30

Morgan Stanley mutual fund on Thursday launched its second domestic fund in the country - Morgan Stanley Across capitalisations Equity (ACE) Fund. The open-ended scheme aims to generate long-term capital growth, by investing in an actively managed portfolio of equity and equity-related securities and equity derivatives, Morgan Stanley India Country head and CEO Narayan Ramachandran told reporters here. "Given the unprecedented growth in the economy, there is a lot of scope for mutual funds in this market. There is now significant retail interest in mutual funds and Morgan Stanley hopes to become one of the preferred mutual fund choices for investors over time," Narayan said. This would be the domestic second fund of the USD 600-billion investment management group in India after the Morgan Stanley Growth Fund (MSGF), which was launched in 1994. The company plans to re-open MSGF, whose maturity period got expired in February, 2009, Narayan said. "We have already sought the regulatory approval for re-opening the fund and the approval is expected to come in the next three months," he said. With a view to enhance its share in the Indian fund space the company is also set to launch two liquidity funds in the first half of this year, Narayanan said, adding, "the company has already received approval for one of these two". ACE fund offer priced at Rs 10 per unit, will open for purchase from February 11 to March 10.

BEST MUTUAL FUNDS

2008-02-06T11:11:00.000+05:30

KOTAK OPPORTUNITIES FUND : Its 1yr return comes to 60% ,3yr returns comes to returns comes to 54% and its returns since inception comes close to 58%
STANCHART PREMIER : Its 1yr returns come close 118% and returns since inception comes to about 73%
JM BASIC : Its 1 yr returns comes closely to about 107% and its since inception comes close to of about 58%
SUNDARAM BNP PARIBAS CAPEX OPPS : Its 1 yr returns come to have about 54% and returns since inception comes close to about 44%

Stay Away From ULIPs

2008-02-05T20:32:00.000+05:30

Our views on mixing insurance and investment can be summed in two words: DON'T EVER! The lure of Unit Linked Insurance Plans (ULIPs) is in its convenience - it combines insurance with investment. But what may appear as convenient may not make sound investment sense. A common misconception is that the entire amount you pay is invested by the insurance company. Not so. From the premium paid, the insurer deducts charges towards life insurance (mortality charges), administration expenses and fund management fees. So only the balance amount is invested. Also, ULIPs have very high first year charges towards acquisition (including agents commissions). In order to evaluate the return generated by a ULIP, you need to take into consideration only that portion of the premium that is invested in a fund. This information is not easy to come by. You will not know which stocks the fund manager has invested in, which sectors he is betting on, how concentrated his portfolio is and how it appears at any point in time. Neither are you aware of his stock picking capability and how strong his research team is (if he has one). You must be able to compare the returns with similar products in the market. Also, with a ULIP, you have to block your money for long periods of time. So you sacrifice on transparency and liquidity. For the tax benefit, opt for an ELSS. Here too you get benefit under Section 80C and the investment is locked only for three-years. If you have already invested in a ULIP, you might as well stick it out. Because all the charges, which could be as high as 60 per cent in the first year, begin to taper from the fourth year onwards. So you will have to stick on for at least 10 - 15 years to make sure you get a decent return on your investment. The high costs, difficulty in evaluation, lack of transparency and low liquidity don't make a ULIP a sound avenue to put one's money. Its the agents who benefit most since commissions can go up to 25 per cent. Insurance should never be an investment.

StanChart expects to seal MF business sale soon

2008-02-05T19:42:00.000+05:30

Standard Chartered Bank on Wednesday said it expects to complete the sale of its Indian mutual fund business soon, though it declined to put a date to deal. "We have seen a lot of interest from buyers and we are in discussions with them...we expect to complete the deal soon," bank's India Chief Executive Neeraj Swaroop told reporters here. Last month, the foreign banking major had abandoned a deal worth over Rs 460 crore with UBS AG as the latter failed to receive regulatory approval from the Reserve Bank of India before the sale purchase agreement expired. Standard Chartered had announced that as the contract with UBS had expired, it would look for new buyers for its asset management company. Swaroop, however, dispelled rumours that Standard Chartered was in discussions with RBI to see the deal through. "We will follow all RBI regulations for the deal," he said.

Market may remain volatile on international, domestic cues: Analysts

2008-02-05T06:52:00.006+05:30

Market may continue to be volatile in the week ahead as market movements are likely to be driven by global cues as well as domestic factors such as government proposal for a minimum of 25 per cent public holding for listed firms, analysts say. The markets might witness an upheaval following the government proposal for a mandatory public holding of a minimum 25 per cent for listed firms. Close to 300 companies, including blue chips like Reliance Petroleum, TCS, Wipro and DLF as well as PSUs such as NTPC, MMTC, NMDC, Indian Oil and SAIL face the prospect of getting delisted if the government's proposal is implemented. According to the proposed amendments, the promoters, the company and the management would be liable for conforming to this requirement, failing which necessary enforcement action, including delisting, may be taken. The government has sought comments on the proposals by February 28. Analysts also believe market sentiments would continue to remain affected by situations in the global markets. "Uncertainty is likely to persist till any clarity on the international issues is reached ... markets are likely to remain volatile as they are totally aligned to the global situations," brokerage firm SMC Global Vice-President Rakesh Jain said. Although all triggers for the markets have been discounted for, Microsoft's bid for Yahoo gave a positive nudge to the US market on Friday, which could also have a similar effect on the domestic market, Jain added. Microsoft, world’s largest software maker, on Friday offered to acquire leading internet firm Yahoo! Inc for about 44.6 billion dollars with an aim to leverage its position in the online services market. Analysts believe the valuation for Yahoo is substantial considering the recession fears in the US economy. The news also helped markets in the US to surge on Friday. The benchmark Sensex remained flat during the last week despite the Reserve Bank keeping all rates unchanged in the quarterly review of monetary policy, while the US Federal Reserve reduced short-term interest rates last week for the second time in eight days in an effort to stimulate the flagging US economy. The Fed cut rates by 0.5 per cent, bringing its key lending rate to just 3 per cent. On last Tuesday, the US central bank had slashed rates by 0.75 per cent. The Sensex ended at 18,233.42 after gaining over 500 points on Friday last week, its first substantial gain in the entire last week. Besides, analysts believe the only trigger for the market in the near-term could be the forthcoming Union Budget, to be presented at the fag end of February 2008. The budget is also a key factor which would help in near term gains for the market, Jain said. Besides, the foreign institutional investors have been pulling out heavily from Indian market from the start of this year. In January, FIIs have made net sales worth Rs 13,035 crore (about $3.2 billion), while they made net sales worth over Rs 1,700 crore in the past week alone. The wholesale price-based index rose to 3.93 per cent for the week ended January 19, against 3.83 in the previous week mainly due to increase in prices of manufactured items, some food articles and petroleum products.

Asian Pvt Equity Funds Jumped In 2007

2008-02-05T06:52:00.005+05:30

Asia's private equity industry largely shrugged off last year's global credit crunch, with assets under management, fundraising and investment rising at double-digit levels, an industry publication said on Friday. At the same time, the industry saw pockets of weakness, including a fall in fundraising for Japan and South Korea and a decline in private equity investments in Australia. China has also been a frustration for buyout firms looking to deploy their war chests, Asian Venture Capital Journal (AVCJ) data showed. This year, weakness gripping stock markets could help to fuel private equity activity in Asia, said David Pierce, chief executive of Squadron Capital, which manages portfolios of private equity funds for investors. "Valuations may become much more attractive to private equity investors, and so the funds that have been raised may be put to work in a much more rapid manner," he told an AVCJ briefing. Asian private equity funds under management rose by 14 per cent to $190.7 billion last year, AVCJ researchers said. Private equity investments rose 33 per cent to $84.2 billion last year, while funds raised to invest in the region rose more than 23 percent to $50.9 billion. The value of private equity-backed IPOs rose 21.9 per cent, while sales of private equity-owned companies to other firms or investors more than tripled. "The Western industry has had a huge hit with the credit crisis, but in Asia, things have pretty much continued on a smooth pace," said AVCJ Managing Editor Paul Mackintosh. "A lot of Western money that has been encountering a worse and worse market in the US and Europe is now finding its way over here as Asia becomes a much more attractive story comparatively."

MFs defy turbulent times at D-Street; pump in over $5 bn

2008-02-05T06:52:00.004+05:30

Domestic mutual funds appear to have sensed opportunities in the recent stock market turmoil and have pumped in close to Rs 20,000 crore (over $5 billion) since January 11, when the nightmares for the bourses began. Despite some brief recovery in a few trading sessions, including a gain of about 600 points on Friday last week, the stock market benchmark Sensex is still close to 2,400 points or more than 11 per cent below its January 10 level. The total market value of all the listed companies has dropped by close to Rs 12 trillion during this period in a plunge primarily driven by foreign investors and some panic selling by retail investors.

Smart tax-saving strategies without spending a penny

2008-02-05T06:52:00.003+05:30

The new year seems to augur well for the well-informed investors. Entry loads would be waived for direct applications made on January 4, 2008, or later, as per the recent Sebi circular for mutual fund investing. For MF investors, who invest either by way of SIP (Systematic Investment Plan) or as bulk investing, it could mean saving quite a sum of money - around 2% of the investment amount. So consider investing directly in ELSS (equity-linked saving schemes) as it could be a smart and cost-effective way to do so. If you don’t have the money, churn the existing ELSS portfolio - as entry loads are not applicable for direct investing. Shuffle strategy As per tax rules, ELSS schemes are subject to a lock-in period of three years from the day of investing. And since there are no long-term capital gains tax for equity funds sold after a year of purchase, shuffling ELSS schemes practically entails zero costs. How does the shuffle strategy work? Say, for instance, investor A had been investing Rs 50,000 in ELSS every year for the past six years. Since there is a lock-in of three years for ELSS, his/her investment of last two years would not be redeemable. But those investments made more than three years ago could be redeemed and invested back into the fund to gain fresh tax benefits. Section 80 C of the Income Tax Act, allows tax deductions up to Rs 1 lakh of ELSS investment made in any financial year for an individual. “Earlier Section 88 had a condition for claiming rebate that the investment should be made out of the income chargeable to tax. This was subsequently removed to provide relief to the individual tax payers. Current provisions for claiming deduction under Section 80C do not contain this restriction. Therefore, investments could be made out of the current year’s taxable income or even the past accumulated savings/investments to claim the deduction from taxable income by an individual tax payer,” says KPMG executive director Vikas Vasal. While previously, such reinvestments attracted entry loads, the new Sebi rule has done away with such costs for direct investing. In this investment process though, there is a possibility that the investor might make small profit or losses since the NAV might move up or down during the shuffle process. Such shuffles while helping get tax benefits also gives a chance to have a relook at MF portfolio and prune investments if necessary. Switching Strategy There is one more quicker method and that is of switching out proceeds to a liquid fund of the same fund house and switching it back into the fund. Switching refers to the process of transfer of money from one scheme of a fund house to another scheme. While for taxation purposes, such switching is considered as redemption and taxed accordingly, the advantage for investors is in terms of getting NAV of the same day. So for instance, if an investor switches from an equity scheme to a liquid scheme, the same day NAV is applicable. How does it work ? Say for instance, an investor with previous ELSS investments doesn’t have money to make further investment in the current financial year 2008. He could consider switching it to a liquid fund and back into the ELSS fund. There are no loads applicable for doing it if done within a short period (say 10 days or lesser). The call centre officials of Franklin Templeton MF and ICICI Pru MF confirmed the same for their respective schemes. The recent Sebi rules also state that waiver of loads would be applicable for “additional purchases done directly by the investor under the same folio and switch-in to a scheme from other schemes if such a transaction is done directly by the investor.” So, this new year, ensure you pocket the tax breaks that the government has given you - of course without shedding an extra penny.

SEBI to make close-ended MF schemes attractive to investors

2008-02-05T06:52:00.002+05:30

Market regulator SEBI on Wednesday decided to bring down the costs associated with mutual fund investments, by doing away with the initial issue fee for close-ended schemes. "This decision of removing initial issue expense will make close-ended mutual fund schemes less expensive for retail investors", SEBI chairman M Damodaran said while briefing reporters after the board meeting. The SEBI board also cleared the draft proposal for listing of debt securities, eases disclosure norms for existing debt market securities and paved the way for permanent registration of capital market intermediaries. Replying to questions on introduction of short-selling by institutional investors, Damodaran said, "It would be introduced in the first week of February if not on February one." The regulator had already introduced shot-selling by retail investors, allowing them to sell stocks without owning them. Damodaran further said that guidelines for Real Estate Investment Trust (RITES) and real estate mutual funds would be taken up in the next board meeting.

SEBI has invited public comments on the draft guidelines for REITS, which would allow people to invest in real estate in an organised manner. Referring to the issue of reducing cost and time of IPOs, Damodaran said a sub committee of Primary Market Advisory Committee has gone through various issues and submitted its report, which will be considered by PMAC sometime in February. Once the PMAC firms up its recommendations, it would be considered by SEBI with a view to simplifying procedure to cut time and cost for IPOs, he added.

MFs' assets shrink by over Rs 800 cr in January

2008-02-05T06:52:00.001+05:30

Our Stock market meltdown last month led to an erosion of over Rs 800 crore in the total assets of the mutual fund industry by the end of January. Almost all the leading fund houses, except ICICI Prudential, witnessed a drop of Rs 3,000-5,000 crore in their assets led by Reliance MF and UTI MF. The combined assets under management of the 32 fund houses in the country fell to Rs 5,49,114.82 crore in January, against Rs 5,49,942.02 crore at the end of December, 2007, latest data available on the website of Association of Mutual Funds in India show. Assets under Management of the country's largest fund house Reliance MF came down by about Rs 3,500 crore to Rs 77,210.03 crore by the end of the first month of the year from Rs 80,779 crore till December 2007. "The 20 per cent fall in the stock market, drove the shrinking of mutual funds assets for the period. However, the money invested in New Fund Offerings (NFOs), not reflected in the AUM data, could be substantial for the period," Mutual fund tracking firm Value Research CEO Dhirendra Kumar said. However, the second largest fund house in the country ICICI Prudential saw a rise of Rs 7,272.49 crore in its assets, which stood at Rs 64,045.07 crore for January this year. In December, ICICI Prudential's AUM were Rs 56,772.58 crore. State-run UTI MF also witnessed a fall of over Rs 4,000 crore in its assets under management, which stood at Rs 52,656.19 crore at the end of January, compared to Rs 56,854.10 crore in last month of the previous year. Assets of two of the top five fund houses - HDFC MF and Franklin Templeton - stood at Rs 43,762.69 crore and Rs 29,604.33 crore, respectively. HDFC MF recorded a drop of over Rs 4,797 crore, while Franklin Templeton's witnessed a decline of Rs 1,571.21 crore. Meanwhile, the trading pattern of domestic MFs indicate that they have held their nerves in this crisis and purchased shares worth close to Rs 20,000 crore, taking advantage of buying opportunities from falling share prices. In the month of January, MFs were net buyers of equities worth over Rs 5,500 crore, even as they were net sellers to the tune of more than Rs 4,500 crore in the debt market, according to data on SEBI website. The Bombay Stock Exchange's benchmark index Sensex, lost over 2,500 points in January falling to 17,468.71 points on January 31 this year from 20,300.71 on January 1.

MIRAE ASSET MANAGEMENT STEPPING TO INDIAN MUTUAL FUND INDUSTRY

2008-02-05T06:52:00.000+05:30

Mirae Asset has received licence from the Securities and Exchange Board of India to start mutual fund operations in India. Mirae Asset Financial Group of Korea is an independent financial service provider having $130 billion of assets under management as on October 31. Mirae Asset, which set up a wholly owned subsidiary in India last year, will infuse $50 million as seed capital. The company plans to launch its products soon across the equity and fixed income category and will start operations with presence in 23 cities. "Mirae Asset appreciates the confidence shown by the Indian regulatory system in our setup and plans and are all geared up to launch our range of innovative mutual fund schemes in India. The company will be putting a lot of emphasis globally on research and product innovation and would follow the same strategy to provide innovative product solutions across equity and fixed income segments to the Indian investors," said Arindam Ghosh, CEO of Mirae Asset. The company plans to focus on investor education as a strategy to expand the mutual fund category in India. In Korea, it has set up a large education centre named as Mirae Asset Investment Education Research Centre.

Mutual fund intresting websites

2008-01-31T16:07:00.000+05:30

1.http://www.valueresearchonline.com/
2.http://www.moneycontrol.com/

UPCOMING DIVIDENDS/ DECLARED DIVIDENDS

2008-01-31T14:53:00.000+05:30

Diversified Equity Funds Dividends Record Date Dividend Yield(%)

Kotak Opportunities Fund 60% 25th Jan 20.97
DWS Alpha Equity Fund 40% 25th Jan 16.72
DSPML Equity Fund -Reg 70% 25th Jan 11.34
UTI Dividend Yield Fund 8% 23rd Jan 04.90
ICICI Pru Emerging Star 20% 18th Jan 06.84
SBI Magnum Multicap 25% 18th Jan 12.53
UTI Index Select Equity 120% 14th Jan 33.85
Kotak 30 60% 11th Jan 11.44
JM Basic Fund 36% 11th Jan 10.52
HDFC Core & Satelite Fund 30% 10th Jan 10.29
Franklin India Bluechip 70% 9th Jan 12.58
DSPML Technology Fund 100% 4th Jan 27.50

TAX SAVING FUNDS Dividends Record Date Dividend Yield(%)

DWS Tax Saving Fund 10% 31st Jan 6.30
Lotus India Tax Plan 15% 28th Jan 10.64
ICICI Pru Tax Plan 20% 18th Jan 7.17
HDFC LT Advantage Fund 60% 10th Jan 10.42

FACT SHEET ANALYSIS

2008-01-30T20:22:00.036+05:30

http://www.njindiainvest.com/regupload/factsheet.pdf

MUTUAL FUNDS IN INDIA COLLECTS A REVENUE OF 6 Lakh crore

2008-01-30T20:22:00.035+05:30

Indian Mutual Fund Houses Total Assets Under Management is now close to 6 Lakh crore .
RELIANCE MUTUAL FUND tops the list ..its assets under management is close to 1 Lakh crore...Then next comes ICICI pru MF whose assets under management is close 54679 crore
Next comes HDFC Mutual fund assets under management worth 48000 cr.Totally there are 29 mutual fund houses.
Recently SBI mutual fund was awarded as the most trusted mutual fund house .the award was presented to SBI Mutual fund by CNBC 18

ICICI PRU INFRASTRUCURE : An analysis

2008-01-30T20:22:00.034+05:30

ICICI Prudential Infrastructure has protected the downside well while growing at a fast pace. In fact the fund emerged as the fourth best diversified equity fund in 2006
Given the success of ICICI Prudential in the fund management space, it shouldn't come as a surprise to find the AMC's flagship infrastructure fund in the list of the best-performing infrastructure funds. In fact the fund emerged as the fourth best diversified equity fund in 2006. As infrastructure funds go, the fund is structured to exclude technology, FMCG and pharmaceutical companies. But beyond this similarity, there exist discernible characteristics in the fund's portfolio that set it apart from other infrastructure based funds. Get this: the fund's average exposure to basic and engineering stocks over the past one year has been only 8.7 per cent! As of the July end portfolio, the fund held only 3 per cent of its assets in one engineering company. Compare this to the fact that the average infrastructure fund holds at least 20 per cent of its assets in the basic and engineering sector. Another stark difference is that the fund is underweight on construction stocks relative to its peers - something that not many infrastructure funds would tinker with.Another unique proposition offered in the investment style is that the fund manager is a self confessed and value investor. While essentially the fund is growth oriented, it has a substantial representation of value picks. The fund has managed to strike an equilibrium between making contra bets and limiting its downside by maintaining smaller holdings. And this equilibrium has worked in the fund's favour, for it displays better resilience in a bear market relative to its counterparts. It is encouraging to see that in a short span of two years the fund's NAV has not plunged into a downward spiral in a falling market. A relatively less volatile performance coupled with an optimally diversified portfolio, make the fund a good pick in the infrastructure space

RELIANCE DIVERSIFIED POWER : An Analysis

2008-01-30T20:22:00.033+05:30

The Reliance Diversified Power has the numbers to boast, but as any specialized fund, this fund has the chances of falling as well. Investors are advised to take a careful look before jumping in…
You can't blame the fund manager for creating a portfolio that encompasses financial service companies. Power generation is monopolised by the public sector and there are simply not enough sound power companies available. But in all fairness, the stocks in the portfolio are either pure power plays or those that have a significant stake in this sector.You may disagree with the investment mandate, but you can't argue with the numbers. The fund delivered an astounding 81.37 per cent in 2005 and 58.78 per cent in 2006. As on November 2, the year-to-date (103.97 per cent) and one-year return (130.38 per cent) was impressive. But don't get too swayed by the performance. This is a sector fund at the end of the day and most scrips in this sector are trading at a significant premium to their earnings. In a bear phase, they could get severely thrashed. Going by the returns of the June 2006 quarter, this is quite a possibility.Besides the usual risk that accompanies a sector specific fund, this one likes to take big wagers. At close to Rs 2,300 crore, the assets under management (AUM) are significant but spread across only 18-20 stocks. Until recently, it was not unusual to find single scrips hogging 13-15 per cent of the fund's AUM. Recently, there has been a decline on this front. The allocation to the top five has reduced to 31 per cent from an earlier high of 41 per cent in January. If the fund manager is restricted by the investment universe, he has ample flexibility on other fronts. His mandate actually permits him to invest the entire portfolio in not only equity, but also entirely in fixed income securities (of power companies and those related to the power sector). So this equity offering can well turn into a debt fund. With the mandate to even go 100 per cent in cash and equivalents, the cash holdings are significant if the fund manager does not find good investment opportunities. As of September 30, 25 per cent of the fund's portfolio was held in cash. The high PE multiples could be a reason, but it could also be attributed to the deluge of inflows which have more than trebled the fund's AUM in the past one year. What's interesting is that the high cash holding has not dented the fund's performance. The fund manager is not restricted by market capitalisation either. The portfolio can tilt towards any market capitalisation, so don't get influenced by its current mid-cap slant. The power sector has huge potential given the gigantic fiscal outlays and supply gaps in the sector. And the ever expanding directory of listed power generation companies will translate into more investment opportunities and better valuations as well. But bear in mind that the sector is well courted by managers of diversified equity funds. So check your overall exposure to this sector before you consider an investment.

NEW FUND OFFERS AVAILABLE

2008-01-30T20:22:00.032+05:30

1. RELIANCE NATURAL RESOURCES FUND - An open ended scheme whose is traded at 10 rs..the fund invests in Power sector ,energy,water, hydroelectric power, gold mines ,crude oil , commodities ,banks ,etc all not directly but via companies......Verdict : (Very good for Investment) NFO closes on 30th JAN but is extended till feb 3

2. HDFC INFRASTRUCTURE FUND : A close ended fund opens at jan 15th and closes at feb 21..Its investment portfolio is allocated in leading infra majors like suzlon energy ,mudra ports ,GMR infra ,etc INDICIES :NSE 100

3. STANDARD CHARTERED SME FUND : opens at jan 15th closes at feb 15 ..a close ended equity fund ..this fund is a replica its existing(Interval fund) Stanchart premeier...invests in midcap and small companies like kalapatru power ,mudra port ,LAKSHMI Energy ,SUZLON,ADANI, Arvind mills ,SESAGOA...etc

4.UTI TAX ADVANTAGE FUND opens at dec 27th and Closes at March 31st an ELSS scheme having a 80 c EXEMPTION UPTO 1 Lakh

5. SBI TAX ADVANTAGE FUND opens at dec 20th and closes at march 23rd an ELSS scheme

6. LOTUS AGILE TAX FUND... AGILE refers to Alpha Generated Industrial Leaders. this fund quant product its a computer generated portfolio analysis .where the fund is generated by a software tool which randomly picks top 11 stocks out of 3000 stocks in NSE companys and out of that allocates 9% to the top 11 stocks ( 11 diff sector) and bal 1% to debt fund .Its an ELSS scheme with 3 yrs locking and its exempt upto 1,00,000 Rs

BEST ELSS SCHEMES

2008-01-30T20:22:00.031+05:30

1. HDFC TAX SAVER..... its 3 yr return comes to around 43.4% and its NAV as on today is 180
2. SBI MAGNUM TAXGAIN its 3 yr return comes to around 57% and its NAV as on today63.4
3. ICICI pru TaX plan its 3yr return comes to around 56 % and its NAV is 110

SOME OF THE BEST PERFORMING EQUITY FUNDS IN INDIA

2008-01-30T20:22:00.030+05:30

FUND since inception 1yr return 3Yr return 5yr
EQUITY

1. DSPML TIGER 55.4% 45.7 % 54.3% .......

2. ING DOMESTIC OPPs 46.7% 31.4% 42.5% .......

3. KOTAK OPPS 56.38% 57.39% 54.3% .......

4. MAGNUM CONTRA 35.03 % 32.5% 53.79% 66.7

5. MAGNUM GLOBAL 17.67% 21.4% 54.6% 65.6

6. RELIANCE GROWTH 34.7% 41.6% 52.41% 67.6

7. UTI INFRASTRUCTURE 48.2% 38.67% 54.11% .......

HEDGE FUNDS

2008-01-30T20:22:00.028+05:30

HEDGE FUNDS

Hedge funds have been in the news in recent times, as their numbers have grown significantly along with the assets under management. This is now estimated to be a $ 1.1 trillion industry. The large bonuses and earnings that the hedge fund managers take home have caught the attention of people across the world. The word fund seems to suggest that they are in the same category as mutual funds but there is quite a bit of difference between these two entities.

The concept of pooling together of money of people is a common factor across both hedge funds and mutual funds along with the fact that there are specialist or professional fund managers to manage this money. However after that there is a lot of difference in the entire working process of these two types of funds.

Hedge funds are those entities where there are a small number of investor’s usually high net worth people who have contributed large sums of money to the fund. All hedge funds are not the same and hence it is important to look at their investment strategies. They use a variety of investment strategies like aggressive growth, market neutral, distressed securities, emerging markets, market timing etc. Here the emphasis is on following the strategy and earning an absolute return and hence there is a large amount of freedom in the way and the manner in which the fund manager can invest the fund. In a mutual fund the primary aim of the fund manager is to beat the benchmark and outperform the market. Most hedge funds are specialized and their strategies will work only with a certain amount of funds due to which there is often a limit on the size of the funds that they use.

Due to this factor of the fund itself these are often short term players in the various markets across the world as for them being quick off the mark is a very important component in earning the required return. These hedge funds work across a wide area of markets where they often go short on various assets in order to achieve their aims.

Hedge funds also take up large positions in the derivatives market plus they use a large number of instruments that might often be not permitted for use by the mutual funds in their investment process. There is also very little control over the hedge funds because many believe that unlike mutual funds where there is money of small investors whose interests have to be protected the investors in hedge funds know exactly what they are doing and hence they do not need any special kind of protection. Thus strict guidelines with respect to operation of these entities are not present like in the case of mutual funds.

MUTUAL FUNDS ACROSS GLOBE

2008-01-30T20:22:00.027+05:30

MUTUAL FUNDS ACROSS THE WORLD

Mutual funds are a big force across the world. In developed countries a lot of investors just take the mutual fund route because it is very difficult for investors to operate in the markets in these countries on their own. This is due to the fact that there are large institutional players in the market and they leave little room for the smaller investors who then prefer to make their investments through the mutual fund route.

Another factor that is often witnessed across many markets across the world is that a large part of the assets in these markets is concentrated in equity oriented funds. This means that debt is a lower proportion of the total funds under management and investor prefer taking an equity exposure through this route.

Data for the position of mutual funds across the world is available from the Investment Company Institute (ICI) and this has been analysed to check out how the various countries stand out in terms of the schemes and the assets under management.

The US is the biggest market for mutual funds and a large part of the investor base in the country puts its money into these instruments. Stock oriented mutual funds are the largest section of the total mutual fund industry in the country and they account for over 50% of the total assets under management.

While there is some individual data available for certain countries till recent periods overall figures for the world are available only till the beginning of calendar 2005. The available figures show that at that point of time out of the total mutual fund assets across the world 50% of the figure was constituted by assets held by funds in the US with another 35% coming in from Europe and 11% from Africa and Asia Pacific.

Another interesting figure is that unlike India where there is a large corporate presence in the mutual fund industry the situation is completely different in the US. Individual investors, which means small investors or people who invest in their own names directly or indirectly hold nearly 90% of the total assets of mutual funds in the US. If one looks at the figure for some individual categories of funds then the figure is even higher than 90% for stock funds that invest in equities, bond funds that invest in debt and hybrid funds which use a mixture of both the assets in their portfolio. This is because a large number of people increasingly use these funds to meet their various long term prospect of planning for various types like retirement, education etc

If we look at the actual figures of various mutual funds across the world then the attention has to be focused on the largest market the US where the assets under management have been growing with each passing year. In 1998 for example the total asset base of US funds was $5,525 billion which just four years later at 2002 had gone up to $ 6,390 billion, The journey continued its upward movement and by the end of 2004 the US asset base had grown to $ 8,106 billion It has to be noted that the intervening period was classified by the dot com crash as well as the September 11 attacks on the world trade center in the US which caused a severe dent in the confidence of investors across the world in equities. The important thing is that even though equity funds or stock funds as they are called have a large asset base in the country there is adequate development of other types of mutual funds also whereby there is adequate scope in terms of other assets available for investment where investors can switch their funds as per the need.

As far as other markets in North and South America are concerned there are two other countries that stand out. Canada for example has witnessed its assets grow to $ 249 billion in 2002 from $ 213 billion four years ago. This also picked up pace in the next two years and at the end of 2004 stood at $ 413 billion. This figure matches that of several other developed countries across the world. Another emerging market in the form of Brazil had however a mixed trend as the assets for the mutual funds here actually dipped in the period 1998-2002 period as it went from $ 118 billion to $ 96 billion. The recovery after that was spectacular as in the next two years the figure shot up to $ 220 billion. The fall was mainly the result of a sharp decline in just one year of 2002 when the assets went down to below the $ 100 billion mark from $ 148 billion a year ago.

Europe is one place where there is a wider distribution of mutual fund assets in terms of the number of countries where the route is quite popular with investors. Significantly it will be surprising for several people to learn that two of the biggest markets here in terms of assets under management are France and Luxembourg. Both of these markets had assets under management in excess of $ 800 billion at the end of 2002 with France marginally ahead. Two years later the situation was similar with both the entities just below $ 1,400 billion but this time around it was Luxembourg, which was marginally ahead.

In 2002 there was Italy with $ 378 billion under management that was ahead of both UK and Germany. By 2004 the situation remained the same as Italy had notched up $ 511 billion of assets under management In 2002 UK had around $ 288 billion under management while the figure for Germany was just over $ 209 billion which became $ 492 billion and $ 295 billion two years later. On the other hand the figures for Ireland surged from $ 250 billion to $ 467 billion during 2002-04.

In Asia Pacific too there was quite some surprises in the year 2002. Just four years earlier Japan had the largest assets under management in this area with a figure of $ 376 billion as assets under management with Australia second at $ 295 billion. However in the intervening time the situation witnessed rapid changes with Australia nosing ahead with $356 billion under management while Japan had actually witnessed a fall to $ 303 billion. As Japan failed to rise above its economic problems the gap became even wider and by the end of 2004 Australia had $ 635 billion under management while the figure for Japan stagnated at $ 399 billion Hong Kong and South Korea were the other two countries with a figure of around $ 150 billion under management in 2002. Here Hong Kong saw a surge in the next two year to $ 343 billion while Korea went to $ 177 billion. At this point of time India was quite small with the figure just touching $ 20 billion which is quite insignificant and this figure then went up to $ 32 billion by the end of 2004. Among other countries South Africa was in the position with a similar figure of around $ 20 billion under management in 2002 but two years later had moved up smartly to $ 54 billion.

When one shifts to the number of schemes that are in operation in a country then there are small changes that one will witness as against the situation of assets under management. In the Americas it is the US that has the largest number of schemes with the figure in the country standing at 8,244 at the end of 2002 while Canada had the second largest assets in the area when it came to the number of schemes Brazil was higher because there were 2,755 schemes in Brazil as compared to 1,956 in Canada at that point of time. Two years later at the end of 2004 US had just 8,044 scheme slightly lower than the figure earlier while the figures for Brazil and Canada were 2,859 and 1,915 respectively.

However in the year 2002 there was stiff competition for US as far as the number of schemes was concerned because in Europe France had a total of 7,773 schemes while Luxembourg had 6,874 schemes present. The battle became even close two years later a France had 7,908 schemes while Luxembourg had 6,855. In 2004 there was another country, which was also high on this score and this was Spain with a figure of 2,559 schemes.

In Asia it is Korea and Japan, which have had the largest number of schemes. In 1998 for example Korea had the largest number of schemes across the world with a figure of 13,442 but by 2002 this had come down to 5,873 and stood at 6,636 at the end of 2004. Japan too has witnessed a fall in the number of scheme from 1998 to 2004 with the figure going from 4,534 to 2,552. India meanwhile is slowly on the uptrend with the figure going from 87 in 1998 to 394 by the end of 2004.

FUTURE OF THE MUTUAL FUND INDUSTRY IN INDIA

2008-01-30T20:22:00.026+05:30

FUTURE OF THE MUTUAL FUND INDUSTRY IN INDIA

Mutual funds have made rapid strides in the Indian market over the last few years. This has been witnessed both in terms of the growth in the assets of the mutual fund industry as well as the rise in the number of unit holders. This is a welcome development as investors now have an increasing choice to invest their money in different avenues through the mutual f und route.

However all this is a very small part as compared to the true potential of the mutual fund industry in the country. There is a long way to go for the mutual fund industry but there are signs all around that the next few years promises to be full of new developments. The first reason that gives such an indication is the fact that mutual fund houses are now striving to get bigger in size so that they can service their clients better and make this a more profitable business for themselves. Thus they are aggressively looking at raising funds from the unit holders across the country plus many are also looking to consolidate. There are also reports that several new foreign fund houses are planning to enter the business in India.

The implication of this for the investor is that one there will be an increasing presence of mutual funds in different areas as well as geographical reach due to which they can expect better services and new innovations from the mutual funds. The entry of additional players will also give the individuals exposure to different styles of fund management because as the number of players in the industry increases the distinction in the way in which funds are managed becomes a distinguishing factor for investors.

As far as the investor is concerned the first important change that they will witness is that additional schemes will keep continue to hit the market for quite some more time. This will mean even further dissection of the way in which the schemes are managed as well as the areas in which the funds are invested. Due to this investors will get the full choice of options for them to ensure adequate asset allocation. It is also likely that various funds will seek to complement their portfolio with a wide variety of schemes as they try to mobilize additional investments from the public. This translates into the fact that every small need of the investor will have a solution provided by the mutual fund industry.

Things are getting a bit difficult on the issue of launching of new schemes as the market regulator the Securities and Exchange Board of India (SEBI) has been frowning upon the fact that mutual funds are launching schemes similar to what they already have in their offering thus not providing anything extra for their investors. However the coming period is likely to witness the entry of several different funds investing into different asset classes.

Among the first two expected in the market are gold funds and real estate funds. The first thing that investors have to do under the circumstances is to understand what these funds are and what they stand for. This will ensure that there is a correct expectation from the new funds that are being launched in the market. Many times in the past investors have burnt their fingers trying to gain from new innovations in the market without getting their basics right and then they understand the situation only after a poor real life experience. Investor should look at the asset classes and then think how their investment into these areas would fare directly as against the investment through a mutual fund. Again one should be careful and not compare equity oriented funds with say a real estate fund because the nature of the assets of the scheme are completely different. In some cases even liquidity of the holdings can be a problem and hence the scheme will have to function in a separate manner either in terms of a specific lock in or in terms of the declaration or even change in the NAV of the fund.

Apart from such schemes that look at new kind of assets there is also the expectation that schemes that are targeted at specific type of investors will make their mark in the Indian context. This could include something like capital guaranteed scheme where the capital of the investor is protected and this can be used by several risk free investors who are currently worried about the risk that he schemes carry and are hence not yet investing through the mutual funds.

Another category of scheme can be no load funds where investors would be charged zero entry loads if they go and invest directly with the fund. This is done in order to ensure that the investor who does not use the services of the distributor does not end up paying for it in the form of entry loads or exit loads or even extra charges on the fund. Currently there is no way in which the fund can distinguish between their investors on this count and hence everyone ends up bearing the same kind of expenses on their investment.

There is also likely to be differentiation created by various funds depending upon the charges that they end up billing the investors on their fund. Lower charges means that indirectly there is a boost to the earnings of the investor in the scheme and as the industry matures and more and more variations come into play all these factors will start getting important as a means to differentiate one fund from the other.

The real challenge for the industry will however remain the issue of increasing the coverage of the schemes in the country. This will actually determine how popular mutual funds turn out to be in the final analysis because the real growth in the industry will come only when the industry penetrates down to the retail level in small towns and villages of the country. Mutual fund representatives agree that this is the area that will determine future growth but progress has been slow on this front.

Mutual funds started out as an urban option available to investors in specific areas and for a large period of time a large part of the corpus of the schemes came from the top cities of the country. Slowly this has penetrated downwards into smaller cities and towns but still a lot more needs to be done in this area in order to realise the true potential of the Indian investing class. The challenge will also be to ensure that it is the retail investor and not large ticket corporate investors who make up a large part of the overall investor base of the mutual funds. Attracting corporate investors are an easy way of increasing funds under management for mutual funds especially on the debt side as they can put in large sums of money that boosts the asset base of the mutual funds. However this is not stable money and as is witnessed in various liquid schemes the money can move out too very quickly. While this money is required for certain type of schemes its importance in the overall scheme of things this is balanced by stable flows.

Another challenge that will be increasingly taken up by mutual funds is that of educating the investor. Even investors who put their money into mutual funds are not very sure of the actual functioning of these funds. Some of the common perceptions of the industry are that mutual funds are linked to the equity markets. This is not wholly true as only equity schemes are linked to the equity market while the movement of the other assets will dictate schemes investing in these asset classes.

Similarly many people expect mutual funds to behave like stocks which is rise by 5 or 10 times or double suddenly in a matter of weeks. Such expectations have to be tempered because of the fact that the performance of the mutual funds depends on the performance of the assets that it holds. Thus unless the assets of the scheme double there is no way in which the NAV of the scheme will double. Similarly demand and supply factor can have an impact on the traded price of scrips but the same in not true in case of demand for a mutual fund because here this factor is not a price-determining factor for the mutual fund.

The movement of mutual funds down to the smaller cities and towns also means that there will have to be good and consistent performance for the mutual funds because they have to build the necessary confidence in the minds of the investors especially when they are still new and the investors are just testing them out as an investment avenue

Another area of concern as well as a challenge would be to distinguish various types of schemes. The number of schemes is increasing very rapidly and it is becoming increasingly difficult to track them. At the same time the name of these schemes are so confusing that one is not able to know what they actually stand for. In many cases it is only after a bit of study and research that one will be able to understand the situation. One has to be a bit alert because in many cases while the mutual fund will not mention this fact to the investor the conditions in the scheme or the various features will ensure that it works in a certain way.

DEVELOPMENTS IN MF INDUSTRY

2008-01-30T20:22:00.025+05:30

DEVELOPMENT IN THE MUTUAL FUND INDUSTRY IN THE COUNTRY

There have been a lot of changes in the mutual fund industry in the country in the last few years. The industry has gone from being one dominated by debt funds to having more of a balance of debt and equity schemes and at the same time there has also been a change in the fund rankings in terms of the assets under management as several funds have managed to acquire large assets through new launches as well as inflows in to existing schemes.

In the initial period of the mutual fund industry in India, which started in the sixties there was one entity, which dominated the entire sector and this was the Unit Trust of India. The term UTI was used interchangeably with mutual funds as investor’s thought of it as a safe and secure option to park their funds into. The next wave of action saw the entry of the mutual fund arms of several public sector banks like Bank of Baroda MF, Canbank MF, IndBank MF etc. They were followed in the nineties by the private sector mutual fund players and this is when the industry started witnessing a major change in all aspects of its operation.

In the last few years quite a few of these old things have changed in the mutual fund industry in the country as several other players have established themselves and grown in size. The crisis that hit UTI in terms of the US 64 issue as the well as the high assured returns for several other schemes led to the restructuring of the institution wherein assets of the US 64 scheme and other assured return schemes went to the undertaking called UTI 1 while the other schemes fell under UTI 2, which was called UTI Mutual fund. Even after this break up the fund had the largest assets under management for a few years till recently when private sector Prudential ICICI MF has managed to edge ahead in some months.

At the same time various public sector bank arms that went into the mutual fund arena except for a few have failed to emerge as very big players in the competitive space while the private sector funds have established their position of preeminence in the mutual funds industry.

The biggest transformation however has come in the last few years and this has been on account of the change in the composition of the assets under management of the various mutual funds. Till around three years ago the biggest type of schemes with assets under management were income schemes and this along with liquid schemes and other debt schemes comprised of around 80% of the total assets of the industry. This meant that just a small part of the industry comprised of equity assets.

As the fall in the interest rates in the economy stopped the investor interest in income funds also began to dry up and the consequence of this was that investors began shifting their money to different class of schemes. In the immediate aftermath of the change in the overall scenario the funds first went towards liquid schemes and this category became the one with the largest assets under management in the industry but the prominence of debt oriented schemes in the overall industry remained.

Beginning 2003 the continuous run in the equity markets changed the entire scenario for the industry. For the first two years investors were still cautious as there was widespread doubts as to whether the gains will sustained whether the investor will be able to gain from the investments. In the last one year however there has been extreme optimism by investors towards equity-oriented schemes whereby thousands of crores has flowed into equity schemes.

There are two different ways in which one has to evaluate the whole situation. The first is the net inflow into equity-oriented schemes whereby investors make purchases into existing equity oriented schemes less the redemptions from the scheme and there is also the second route whereby they pour money into new fund offerings. The entire situation exploded in 2005-06 and net collections zoomed as investors kept pumping in more and more money into these equity schemes. At the same time the new fund offerings started to flow in from all sides and these received a tremendous response from investors. At one point of time a collection of over Rs 2,000 crore in a new fund offering of a mutual fund became a common feature in the market.

At the same time the equity markets were on an upswing so at that time the portfolio of the fund also began appreciating thus increasing the total assets base for equity oriented funds. The situation changed to such an extent that equity oriented funds kept getting a bigger share of the total mutual fund assets and this figure even crossed the 50% mark for a period of time thus signaling a change in the industry. Further in 2005-06 a record number of schemes showed a return of over 100% in a year as the equity markets hit record highs.

This period was also one where the big bang equity schemes made their mark. This meant that there were several equity schemes where the assets under management were more than Rs 1,000 crore. Such a situation was never witnessed earlier in the mutual fund industry in India where the funds were always on the lookout to get more funds for their schemes. Suddenly this appreciation in assets plus the new inflow meant that some mutual funds had to actually close their schemes to new applications for a certain period of time till things cooled down a bit.

All these events are clearly witnessed in the various figures for the industry that are available from Association of Mutual Funds in India (AMFI). The part of the transition of the Indian mutual fund market was clearly being witnessed at the end of March 2005 when the total assets under management in the country had gone to just around Rs 150,000 crore. Out of this Rs 47,000 crore was in Income funds while Rs 54,000 crore was in liquid schemes. This meant that in percentage terms liquid schemes with 36% was just marginally higher than the 32% figure of Income funds. At that point of time inspite of two years having passed since the rally in the equity markets started the assets for growth schemes was around Rs 36,000 crore which meant that the figure in percentage terms was just 25%. The rest of the categories had negligible figures in percentage terms.

A year later the situation was dramatically different because growth scheme corpus had surged to around Rs 93,000 crore giving them a 40% shares in the total assets of the mutual fund industry in the country. As against this the liquid schemes category had Rs 61,500 crore while the figure for Income funds was around Rs 60,000 crore. This gave both these categories a share of around 26-27% while the total assets of the industry were Rs 231,000 crore.

The consequent crash in the two months after this has also changed the situation in terms of interest of investors but mutual funds says that there has been no significant outflow from equity funds. At the end of June 2006 the total assets for growth schemes was just Rs 87,000 crore which means that in absolute terms there has not been a loss especially considering that the value of the investments would have gone down. However it seems to be losing out on the new flow of funds in the sector, which seems to be playing safe at the moment. This was seen as the figure for the liquid schemes has crossed the Rs 108,000 crore which is a massive surge in the last three months and this gives it a share of 41% of the total assets under management that have climbed further to Rs 265,000 crore. Income funds have witnessed a further erosion as the figure here has dropped to Rs 54,000 crore. Another significant change has been seen in equity linked savings schemes category where the assets have gone up from just Rs 1,700 crore just in March 2005 to around Rs 5,922 crore at the end of June 2006.

After looking at all these figures if one just goes back to March 2003 then the dramatic shift in the entire industry becomes very clear and it will also put the entire growth of the industry in proper perspective. At the end of March 2003 the total assets under management was just Rs 79,000 crore. Out of this a massive Rs 47,000, which means nearly 60% of the figure was just in income funds where the investors still preferred the safety of this route and the fact that interest rates were on a downward spiral

Another massive Rs 13,000 crore was in liquid schemes that were being used by coprorates and other large investors to park their short term fund with gilt funds bringing in another Rs 3,900 crore, This meant that equity oriented funds were just a shade under Rs 10,000 of assets under management which meant that around 15% of the total assets were in this route and which shows very clearly that the dominance of the debt sector was complete and total.

There is also a significant distribution of the assets among individual mutual funds because of the fact that there is an increasing effort by various private players to ensure that they get a larger share of the market. Launches of a large number of new schemes and various marketing efforts are paying off well and at the end of June 2006 there were more than 10 mutual funds that had an asset base of more than Rs 10,000 crore. Earlier there was only one way in which the asset base of the mutual fund would rise and that was through attracting bulk investments especially from the corporate sector in debt oriented schemes however funds are now increasingly looking at tapping the retail sector and that too with their equity offerings in order to get stable long term money for their funds.

There have been quite a few launches of several close ended schemes in the market in recent times. For all those who thought that the era of close ended schemes was over with the end of the early part of the development of the mutual fund industry there is a bit of a reality check. With equities becoming increasingly volatile there is a need for fund managers as well as investors to concentrate on the long term so that their money is able to earn better returns rather than just an effort to time the market. In this sense the stability of the fund will also mean that the mutual fund manager will be able to take longer calls on various stocks that they like. The general make up of all these schemes is such that they are close ended for a certain period of time usually three or five years and then they turn out to be open ended which means that they open for further repurchase and sale by investors at any time.

A lot of mutual funds are also launching schemes that are close ended for 5 years but they are not fully equity based. A large part of the portfolio of the scheme remains in debt with a small portion in equity in order to position this as a kicker for the growth in the scheme. This is a strategy whereby there are stable returns on the debt part and the equity part is expected to generate higher returns for the investors.

HOW TO SELECT A MF

2008-01-30T20:22:00.024+05:30

SELECTING A MUTUAL FUND

There are various factors that one has to consider while selecting a particular mutual fund for investment. Before one looks at specific factors there has to be a clear distinction between the type of funds that are present in the market. The overall funds have to be separated in equity funds, debt funds, balanced funds, monthly income schemes or other funds that could be real estate funds or gold funds or some other funds that are newly introduced in the market . Within each of the categories there has to be selection of the relevant factors but here we shall consider some of the features that are important for investors under the areas of debt and equity.

TRACK RECORD OF THE FUND

The fund manager and the way that he manages the fund play a very important role in the overall selection of debt-oriented mutual fund schemes. A lot of active management has to be undertaken in respect of debt schemes where the position for the individual matters quite a lot even when the difference might not seem to be very large. A good fund manager can ensure that the right decisions are taken generating returns for the fund.

The various qualities and parameters used while judging the fund manager will have to be clearly defined and then considered carefully so that the exact ability of the fund manager is evaluated and this is differentiated from market conditions. In this case, the difference in the returns can be quite small as compared to the equity side and hence this kind of careful study is required.

TRACK RECORD OF THE FUND MANAGER

The fund manager is a very important component of the whole investment process. Even though there might be the necessary systems in place in a particular fund house the ultimate buy and sell decisions have to be taken by the fund manager. In this respect the track record of the fund manager and how they have performed through good as well as bad times need to be considered. What is also important is the element of continuity of the fund manager especially with the scheme under management. If there are fund managers who keep moving between funds then it would be very difficult to judge the performance of the fund manager.

INVESTOR NEEDS AND SCHEME TYPES

The needs of the investors have to be considered paramount because they will set the base on which the entire investment is based. Once the needs of the investor are clear one has to see whether the investment in that particular scheme fulfils the need of the investors. For example if there is an investor who wants to take risk that is higher than that of the market then even sectoral schemes might turn out to be a good investment option for the individual

Due to the differing needs of investors there are no schemes that are good or bad or relevant or irrelevant because they might be useful for someone while completely unsuitable for several others. Thus the final suitability will have to be considered in relation to the needs of the investor.

SOME SPECIAL FEATURE

These days there are similar funds belonging to different fund houses and hence making a selection for a particular scheme becomes a very important factor. The scheme that an investor is putting their money into should have something that is different from the other options around so that it has its own place in the investment plan. This means that the scheme should have a distinguishing character that will set it out and make the investment a must.
If the features of a newly launched scheme are completely same as that of schemes that already exist in the market then the investor should go towards the existing schemes because at least there is a track record that one can look at and then make their investment decision. The new feature is something that will add to the overall portfolio of the investor and hence should be present there through a mutual fund investment

PORTFOLIO

Even though this is not the first point mentioned on the check list it is probably the most important point that one has to consider while making a particular investment decision. The portfolio composition in a particular scheme will determine the way it performs in the future as the performance is dependent upon the performance of the assets in the portfolio. No matter what are the scrips in the portfolio one has to check for a few factors that will determine whether there is potential for growth.

The composition of the portfolio in terms of the selection of shares apart the way in which these have been weighted is also an important factor. The composition of the portfolio in terms of the sectoral weights plus the ability for the fund manager to liquidate this in terms of need would also have to be considered carefully.

CONVENIENCE

There might be a lot of things right about a mutual fund but if it does not offer convenience to an investor then it is useless. This means that a scheme where Rs 1 lakh is the minimum amount of investment will not be worth pursuing for someone who wants to invest Rs 10,000. This plus some other conveniences and this factor could change from investor to investor would have to be considered in the decision making process. There are several services that are provided by the funds and these can be matched with the conditions required by the investor to match convenience.

EXPENSE RATIO

Expense ratios eat away at the returns of investors and hence these have to be very carefully watched by the investor and acted upon. There is a cap of the ratio at different rates depending upon the assets of the fund but one must watch out for funds that constantly keep showing a high ratio and those that show a lower ratio because on a compounded basis over a long period of time the returns can turn out to be significantly different.

RISK ADJUSTED RETURNS
Returns for a fund are important because ultimately the investor expects the fund to earn something for her. However just absolute returns might not turn out to be the right prescription for everyone. This is why risk adjusted returns are necessary to see the kind of risk that is being taken for earning a certain rate of return. This will also help in selecting the right type of scheme depending upon their risk profile.

DEBT SCHEMES

Debt schemes invest in a separate asset class and hence there will be some points that will be different for these schemes as compared to their equity counterparts. However some points are also similar in nature and a mixture of all these points will have to be considered before making the final decision.

Fund manager track record
The fund manager and the way that he manages the fund plays a very important role in the overall selection of debt oriented mutual fund schemes. A lot of active management has to be undertaken in respect of debt schemes where the position for the individual matters quite a lot even when the difference might not seem to be very large. A good fund manager can ensure that the right amount of decisions are taken generating returns for the fund

The various qualities and parameters used while judging the fund manager will have to be clearly defined and then considered carefully so that the exact ability of the fund manager is evaluated and this is differentiated from market conditions. In this case the difference in the returns can be quite small as compared to the equity side and hence this kind of careful study is required.

SIZE OF THE FUND

Take a very careful look at the size of debt funds because this can make a huge difference to the way in which they are managed. The lot size for putting through a transaction in the debt market is quite huge and due to this fund with small corpus find themselves on the fringe with these being unable to even gather a diversified portfolio. On the other hand the corpus can also balloon to thousands of crores and even this can be a very tough thing to manage and hence both these extremes should be considered as factors by investors before they make an investment decision with regard to the fund.

When one can match the size of the fund along with the returns and its performance during various phases then the relation between the size and the performance for a specific fund will become quite evident and then this can be used as a factor to decide upon the investment in a scheme.

TENURE AND COMPOSITION OF THE PORTFOLIO

There is a very simple rule as far as debt instruments are concerned which is that the longer the time period of the security to maturity then greater is the impact on the performance of the fund for a given change in the interest rates. Most fund manager use this as a tool to take various positions in the debt market. This feature of the portfolio will also tell you about the risk in the portfolio and the kind of return expected from it

For investors the lessons on t his point are quite clear. The composition of the portfolio in terms of the assets purchased as well as the maturity profile will give an idea about the risk and the kind of expected return from the portfolio. Thus long term schemes can generate high returns when the interest rates are falling but when the rates are on the rise the negative impact can also be quite high for the scheme. On the other hand if one wants top play safe then short term schemes and portfolios would be the ideal choice for investors looking to put money in to a fund.

LOADS

Entry and exit loads are a common part of mutual fund investing and they are quite significant when it comes to equity oriented schemes. In many cases compared to he return that equity schemes generate the load becomes a small part of the investors gain. The situation changes when it comes to debt oriented funds. The best option here is of no loads in these schemes because with the overall returns already being quite low the loads can eat away a significant chunk of the total returns of the scheme.

Most schemes have no entry loads but several of them have an exit load if the investment is withdrawn before a specific period of time. The danger here is that such an exit load can completely disrupt the entire calculation of the investor because of the fact that the overall returns here are not very high and hence even a one percentage figure can make a huge difference to the overall returns of the fund.

MUTUAL FUND TAXATION

2008-01-30T20:22:00.023+05:30

TAXATION OF MUTUAL FUND INVESTMENTS

There are different tax implications for investors when they invest their funds into mutual fund schemes. This depends upon their status, the type of scheme that they have invested in and the nature of the gain that they have earned. These are not very complicated and a lay investor can check out the kind of tax liability that they will encounter. Here we shall take a look at all the factors that come into play while looking at the tax implications for investors.

DIFFERENT TYPES OF SITUATIONS WHERE TAX HAS TO BE PAID

The first question before an investor is to check out what is the benefit that they have received and then classify this benefit under the appropriate head due to which the necessary tax effect will be given. In effect one can say that there are two main types of gains that comes from mutual funds for investors.

The first is the dividend received from the mutual fund. As far as the dividend is concerned there are two options that one can choose in receiving the dividends. The first is the dividend payout option where the dividend is actually received by the investor either through a cheque or a direct credit into their bank account. In this case the situation is very clear, as the payout will be classified as dividend for the purpose of taxation. The second is the dividend reinvestment option where the dividend is not received in cash but is converted into additional units in the scheme. In this option too it is considered that the investor has first received the dividend when the figure is announced and after that there is further purchase of units from the money. The effect that is given here will consider the amount of dividend reinvested as the dividend received for the purpose of tax.

The second benefit that investors get from mutual fund schemes is that of a capital gain or when there is a loss a capital loss. This happens when the sale price of the units is more than the cost price at which the units were bought. There are two types of capital gains. When the units of the scheme are held for a period of not more than 12 months then the gains that arise form the sale are classified as short term capital gains and the appropriate tax is levied. On the other hand when the units are held for a period of more than 12 months then the gains are classified as long term capital gains. In a growth option selected by the investor the gains will be capital gains due to the difference in the cost price on purchase and the sale price. In case of the dividend options while there will be income from dividends there can also be capital gains in the picture because scheme do not always pay out the entire sum that it gains as dividend as there is also an addition to the NAV of the scheme.

EQUITY ORIENTED SCHEME

The gains that arise for the investor shave to be seen with respect to the different types of schemes that are present in the market. The first question is which schemes would be classified as equity oriented schemes. As per the latest modified definition any scheme that has more than 65% of its assets invested in equities of domestic companies will be considered as equity oriented schemes. This means that even balanced scheme with this percentage of assets in equities would be classified under this head.

As far as dividends from equity oriented schemes are concerned there is no tax to be paid by the investor on the amount received hence the entire amount that is received by the investor in their hands will be completely tax free. The good news for the investors is that no dividend distribution tax will be charged on the equity oriented schemes whenever dividend is declared.

For example consider an investor who holds 900 units in equity oriented schemes whose face value is Rs 10 per unit and the NAV of the dividend option is Rs 45 per unit. If this scheme declares a 50% dividend then the dividend to be paid to the investor will be Rs 5 per unit, which comes to Rs 4,500 and this amount, will be tax free in their hands. Further there is no dividend distribution tax to be paid by the scheme too.

When it comes to capital gains too there is a favourable treatment for equity oriented funds. There is however the securities transaction tax payable only at the time of the sale of equity oriented funds. The long term capital gains on such schemes that have paid the STT will be zero while the short term capital gains on such scheme will be at 10%.

For example consider a purchase made by an investor in an equity oriented scheme on January 1, 2005 of 1,000 units at Rs 12 per unit. If he sells the units on March 20, 2006 at Rs 15 per unit (after STT) then there is a gain of Rs 3,000 for the investor as long term capital gain. There will be STT paid at the time of the sale but the gain will not be liable for tax. If the same investment had been sold at Rs 15 in September 2005 then the gains would have been short term capital gains and a payment of 10% plus surcharge plus cess would be required from the investor.

The key point for a scheme to be classified as equity oriented is the 65% holding and hence one will witness that even balanced funds are trying to ensure that their offer documents are in tune with these guidelines so that they are able to get the tax benefit of the equity oriented schemes resulting in a lower tax outgo for the investors.

DEBT ORIENTED SCHEMES

The tax structure for investors in debt oriented schemes is slightly different and hence one has to pay close attention to the various types of gains or losses that have originated in such schemes.

As far as the dividends from debt oriented schemes are concerned the investor does not have to pay any tax on the dividend that is received by them. However there is an indirect expense for the investor in the form of dividend distribution tax that is present on such schemes, Here there are two rates for dividend distribution tax depending upon the category of the investor who is receiving the dividend payout. For investors who are individuals and Hindu undivided families the tax payout is 12.5% plus surcharge plus cess while the figure for categories other than these two the rate is 20% plus surcharge plus cess. Thus individuals will witness an indirect effect because the tax will be charged off to the net asset values of the fund.

When a dividend is declared in a debt fund there are two figures that are being talked about. The first is the gross dividend and the second is the net dividend. The net dividend is the important figure for the investor to consider because this is the payout that they will receive from the fund. So when an investor holds 2,000 units in a debt fund and the fund comes out with a net dividend of Rs 0.5 per unit then the actual payout that will be received by the investor will be Rs 1000. This figure is entirely tax free in the hands of the investor.

Then there are capital gains that would arise from the investment in such schemes. Here where there is a short term capital gains the figure of the gain will be added to the income of the individual and then taxed at the applicable rates. This means that the tax rate figure could jump to as high as 30% as several investors will fall into that particular tax bracket.

Consider the case where an investor bought 3,000 units in a debt oriented fund in April 2005 and then sold it in August at a gain of Re 1 per unit. In this case the short term capital gains is Rs 3,000 for the investor. This sum will be added to the income of the individual in the normal course which means that if the taxable income of the person making the gain is say Rs 3.2 lakh then this will be added to the income and the applicable rate here is 30% plus cess when the tax calculation is made.

On the other hand where there is long term capital gains there is a choice for the investor to make in terms of the rate of the tax that they will pay. The investor can either pay 10% tax without taking the benefit of indexation or pay 20% after taking the benefit of indexation. The benefit of indexation is the method where by the investor raises the cost of the purchase of the investment depending upon the year in which the purchase is made and the year in which the sale is made. There is a cost inflation index that is announced each year by the tax authorities and this is then used for the purpose of raising the cost so that that investor has a lower burden to pay as tax. There is no securities transaction tax in the case of debt oriented schemes.

Take an example of a long term capital gains where an investor has bought 1,000 units in January 2003 at Rs 12 per unit. This was later sold in January 2005 at Rs 14 per unit. In terms of the calculation here two options have to be considered. The first is 10% of the gain, which is Rs 204 ( 10% of Rs 2,000 plus cess). The second figure is the gain after applying the cost inflation index which comes to Rs 227 ( Cost price Rs 12.88 after indexation plus cess). The investor can choose the lower of the two and pay the required tax that is beneficial to him.

LOOKING THROUGH THE OFFER DOCUMENT

2008-01-30T20:22:00.022+05:30

LOOKING THROUGH THE OFFER DOCUMENT

The offer document is the most important part of a mutual fund scheme offering. The offer document is the base upon which then entire structure of a mutual fund is set up and then the scheme is run according to it. There cannot be anything or any activity outside of the offer document that can be undertaken by a mutual fund. The offer document lays down the whole list of things that the fund will undertake and has all the details necessary for the investor to make a decision regarding the purchase of units in the scheme. In effect every investor is supposed to read the offer document before making an investment in the scheme but hardly anyone even refers to the offer document.

The offer document will on the whole contain the following things. Some funds might show them a bit separately but these are the things that one will see in most of the fund offerings in one way or the other.

HIGHLIGHTS

This is the opening part of the offer document where the entire details of the scheme are mentioned upfront so that by a quick glance the investor can get some details of the scheme. In most cases this will include the details about the mutual fund so that investors are able to go through the history of the fund and its track record. Then there are details about the scheme, where it will invest, what will be the liquidity in the scheme along with the load structure and the taxation issues. It is also likely that investors will be informed that they are not being offered any guaranteed or assured returns as these are prohibited under the regulations

DEFINITION

This section contains the definitions of the various terms that will be used in the offer document which can include terms like NAV, registrar, Custodian and even terms like dividend, units, where the meaning of these terms are explained

RISK FACTORS

This is one of the most important parts of the offer documents because it entails what are the risks involved in the scheme. Reading through this will give the investors a clear idea about how a downside can come about in the fund that will affect their investment. Some of the risk factors are standard risk factors, which means that these will be present for most schemes. The ones here would include something like the point that the NAV of the scheme can go up or down depending upon the performance of the scheme. Similarly the point that past performance is no guarantee of the future will be highlighted here along with some other ones, which could include one that says that the name of the scheme does not indicate the quality of the scheme or its future prospects or returns. Many investors make these mistakes but they are clearly warned against this in the offer document itself.

Then there are scheme specific risk factors, which arise due to the fact that the nature of the scheme will give rise to the risk. Thus it will be different when it is an equity scheme and when it is a debt scheme like a gilt scheme. Even within the equity scheme category there will be different risks for a diversified equity fund and even a sectoral scheme. In addition to all this there can be an additional head of special considerations which are additional risks that will be arising on account of the reason that there might be derivative products used in the scheme or even because of securities lending that is used for the purpose of carrying on t he investments in the scheme.

SCHEME SUMMARY

The scheme summary has various details that will be useful for the individual investor. This will include the structure of the fund plus the offer price that will be applicable for the investor both at the time of the initial offer as well as subsequent purchase and sale of units. The investment objective of the scheme will be explained and the various options for investors also listed out. The minimum and maximum application amounts will help the investor in knowing the figures in which investments have to be made both at the time of the initial offer and the subsequent purchase and sale. Initial issue expenses along with the load and the liquidity aspect will also be mentioned here.

FUND DETAILS

There will be an entire section that is devoted to the various details of the fund that for investors would be of academic interest but is still worth knowing. The constitution of the mutual fund will be mentioned along with the sponsor of the fund, the details about the board of trustees, the trusteeship fees and the substantive provisions of the Trust deed. Then comes the part of the investment manager of the funds and the board of directors of the asset management company, the powers and duties of the AMC and the asset management fees. Once this is known it is time to get a little more specific which is in terms of the key employees of the AMC and their related experience and the fund manager for the scheme. The rest of the details will be about the custodian, registrar and transfer agents, fund accountant, auditors and the collecting bankers.

INVESTMENT DETAILS

The next section or part of the offer document will be based on the investment of the scheme. This will start with the investment objectives and polices of the scheme, which consists of the fundamental attributes of the scheme. This covers the type of scheme along with investment objective and the investment pattern. The investment pattern and the ability to change this pattern will determine the way in which the funds of the scheme are invested. This will mean that the allocation across various asset classes permitted by the scheme will be given. There will also be a mention as to when the investment pattern of the scheme can be changed.

Another important point that one has to look out for in the details is the time after which the portfolio of the scheme will be disclosed in full to the investors and the liquidity that the fund will have for the investors to sell their units and convert their investment into cash. There will also be a part about the fees and expenses of the scheme where there will be details about the initial expenses and also the recurring expenses. These areas will mention the upper limit for the expenses and the actual will be known only later but it cannot exceed this figure.

There will also be a clear outline about the investment approach of the fund manager and the way in which they propose to control the risks in the scheme. The procedure that will be followed for the investment decisions will be listed and there will be a mention of the portfolio turnover. In case there are any changes to the fundamental attributes to the scheme it will be detailed as to how this will be possible. The valuation parameters used for various types of investment in the scheme will also be mentioned along with the way in which the NAV of the scheme is calculated.

There are two other important areas that cannot be missed out because this determines the way in which the NAV is reflected. The first is the accounting policies and standards that are followed by the scheme. These have to be clearly laid down which will be followed under all cases and there will also be a note of the guidelines for the identification and the provisioning for non-performing assets in the scheme

THE INVESTOR SECTION

There is another section, which is the most useful area for investors as it deals with details that they are interested in. One has to note that several things in the entire offer document will be repeated and hence that should not be taken as a surprise. In this sector there will be general information on the units and the initial offer. The initial offer period and the initial offer price will be clearly laid out and details about the extension of the initial offer period and the minimum amount of subscription for the scheme.

For investors the minimum amount that they have to pay on application and the allotment and refund guidelines will be given. The option for the investors to choose from will be listed and then those who can invest in the scheme will be specified. The process of application will be laid out along with details of the switch, sale and repurchase of units on an ongoing basis. The details about the account statements will be given and the position of joint applications laid down. Then there will be additional information on transfer and transmission of units, folio details, fractional units and the right of the scheme to limit redemptions. Further suspension of sale or switch of units conditions will also be mentioned along with the position for NRI/OBC and FII investments in the scheme.

EXPENSES

This part covers the load structure and the recurring expenses of the scheme. First the loads charged along with the maximum amounts of the loads that can be charged by the scheme are given. This is accompanies by the expected initial issue expenses and the recurring expenses of the scheme. There will also be exhaustive details of condensed financial information about the schemes already launched by the fund

UNIT HOLDERS RIGHTS

There are several services that are offered to the unit holders for their ease of operations. This will relate to the areas of account statements and even receiving various communications from the fund in the form of emails. It will also be mentioned as to where the NAV of the scheme can be contained and at what time. Further mutual funds now allow online access of the holdings of the investor and for this the personal identification number and the login and password details as to how these are to be obtained will be mentioned. The rights of the unit holders of the scheme will be laid out along with the point as to how the scheme can be wound up and the procedure that has to be followed for winding up.

There is another area where investors will be very interested and this is about the tax effect on the scheme. Here the various tax benefits that are available to the investors will be explained in detail under their various heads

OTHER ITEMS

There is one final area where a lot of miscellaneous details can be found. The mechanism for the redressal of the grievances of the unit holders will be mentioned along with the mention of different information. This will include stuff like the position of the investor complaints received by the fund and the associate transactions that have taken place with the various entities within the fund. Further details about dealings with associate companies will be given and so will the disclosure about the investments made by the schemes of the fund in companies or their subsidiaries that have invested more than a specified figure of the net assets of any scheme.

Details about dividends and their distribution along with the pending litigations, borrowing by the mutual fund and inter scheme transfers will be present. Further there will be a list of documents that will be available for inspection that will be given

READING MUTUAL FUND TABLES

2008-01-30T20:22:00.021+05:30

READING MF TABLES

There are various ways in which the mutual fund details are explained. There are two main sources for getting regular published information on mutual funds in the country and these are newspapers and financial and investment magazines. In addition several websites give this information. In case of several newspapers, which present daily information on mutual funds there is very little analysis but more of basic information.

DAILY FIGURES

In overall terms there are two ways in which the figures are presented. The first is the way in which the daily figures are given. Here there are a maximum of three figures that are available. Before going to that area one must look at the way in which the names of the schemes are presented. In order to look up the specific scheme the name of that particular scheme will have to be found out. After that it is also necessary to locate the option that one has chosen in the scheme. This means that one has to find out whether there is the growth option that has been chosen or is it the dividend option that has to be chosen. There is only one NAV for the dividend option even though there are two choices in the form of dividend payout and dividend reinvestment. There is also a separate NAV figure for the growth option in the scheme.

Once the option within the scheme has been chosen the next part is to look at the NAV of the scheme. This is the actual value of the scheme that is available however this is not the price at which the units will be available for sale or repurchase. For that one has to look at the repurchase and the sale price. The repurchase price is the price at which the fund buys the units from the investor while the sale price is the price at which the fund sells the units to the investor.

There is a good chance that the repurchase or the sale price will be the same as the NAV that has been declared. This will be the case only when there is no load applicable on either the purchase or the sale of the units. Any load on either side will be witnessed through the different value under the respective head. In some cases the investor has to be alert because exit loads are not mentioned upfront but they are applicable where there is a certain action by the investor in a specific manner. For example there are schemes that say that if the investor sells his units before a year then a 1% exit load will be imposed on the investor. This figure will not be seen in the price that is witnessed in the papers but it will still be applicable to the investor when they go out to transact and hence one has to be alert and aware of this part of the transaction.

ADDITIONAL ANALYSIS

When it comes to magazines or even additional analysis as far as the newspapers are concerned there will be the return figures for the schemes. The return figures will be say for a month, three months, six months, year, 3 years and even 5 years. The time period chosen by a particular publication will differ and hence one has to see which is the one chosen by the publication. The general rule that is followed in most cases where such figures are mentioned is that the return figures for the scheme upto a year are absolute while the figures above a year are compounded annually. This is not a rule but a general observation and hence several publications might not follow this rule.

When the figures are absolute it means that this is the actual return that has been earned by the investor if the money had been put in the scheme at the start of the particular period. When the figure is compounded it means that this is the annual rate of earning that grows compounded for the number of years mentioned.

There are several other columns that could be part of the tables that comprise the figures for various mutual funds. A few of such columns and their meanings are covered here. One such figure is the standard deviation of the scheme, which is the extent to which the figure moves from the average of the schemes. This figures shows how volatile is the schemes performance and higher the standard deviation witnessed the higher is the volatility in the scheme.

Another figure that is also commonly used is the beta of the scheme. The beat of the scheme shows by how much the scheme NAV moves in relation to a movement in the overall market. When the beta is positive it means that a rise in the market will be accompanied by a rise in the NAV of the scheme. A figure of 1 means that the NAV moves in exact tandem with the market while a higher figure shows higher reaction and a lower figure a lower movement.

RATIOS

Sharpe ratio is a commonly used figure and this shows the risk adjusted return of a scheme. It is calculated as the return of the scheme less the return from the risk free securities divided by the standard deviation of the scheme. This shows the extra return being generated by the scheme for the risk that is being taken in terms of the standard deviation or volatility in the scheme. This ratio will help analyst to understand the reason for the return in the scheme. The idea behind looking at the Sharpe ratio is to see whether higher or excess returns earned by a particular scheme comes with higher return or not.

Sharpe ratio = Return of the scheme- Risk free rate of return
------------------------------------------------------
Standard deviation of the scheme

There is a variation of the Sharpe ratio, which is the Sortino ratio. Here the return against only the downward price volatility is calculated, which means that in the denominator where there is the standard deviation figure only the figure for the downside is calculated. It measures the excess return to bad volatility where the volatility on the downside is considered as bad volatility. A higher ratio here means that there is low chance of a large loss in the scheme.

Sortino Ratio = Return of the scheme – Risk free rate of return
---------------------------------------------------------
Standard deviation of the scheme on the
Downside

REGULATORY FRAMEWORK FOR WORKING OF MUTUAL FUNDS

2008-01-30T20:22:00.020+05:30

REGULATORY FRAMEWORK FOR WORKING OF MUTUAL FUNDS

Every action of the mutual fund is governed by the various regulations laid down by SEBI and there is a need for mutual funds to follow these guidelines so that investors get the best services along with a fair treatment with respect to their investments. All of the regulations are not relevant for the lay investor and here we shall look at some of them that would be relevant and useful for them in their daily investment process. It is also to be noted that these can change anytime and one has to be alert for some of the changes are taking place on a regular basis.

FORMATION

One of the main regulations relate to the formation of a mutual fund. There are three entities present as far as the functioning of the mutual fund is concerned. The first link in the entire mutual fund setup is the presence of a sponsor. The sponsor is expected to have a sound track record along with a general reputation of fairness and integrity in all business transactions. This includes the requirement of carrying on business in financial services for a specified period of time. In addition there are also financial parameters relating to the net worth of the sponsor and its profits that are calculated after various adjustments as suggested by the guidelines. The whole idea behind the entire exercise both in terms of business reputation as well as financial parameters is that the sponsor should be sound enough so the mutual fund is backed by the right kind of people.

As one goes down to the other conditions of the setting up of the mutual fund there is the actual mutual fund, which has to be in the form of a trust with a trust deed. Thus there has to be a board of trustees who will acts as trustees of the mutual fund. The instrument of trust shall be in the form of a trust deed, duly registered under the provisions of the Indian Registration Act.

The trustees who have been appointed for the mutual fund have to be people of standing, ability as well as integrity. Similarly there is a condition that an asset management company or its officers or employees will not be eligible to act as the trustees of the mutual fund. There is also a requirement for certain proportion of the trustees to be independent persons and who are not associated with the sponsors in many manner. The reason behind such a move is to ensure that there is a clear separation between the management and the administration of the mutual fund.

After this is the process of management of the funds and for this there will be an asset management company and the trustees and the asset management company will enter into an investment management agreement. The asset management company has to manage the mutual fund schemes independently and take several other steps to ensure that the interest of the investors of one of the scheme is not being compromised in any manner whatsoever. It is the responsibility of the trustees to keep a check on the various activities of the asset management company and to see that everything is in order and is being carried out in accordance with the guidelines for mutual funds.

The asset management companies too have the requirement of having a sound track record, general reputation and fairness in transactions along with right qualities for the directors and key personnel of the company

EXPENSE LIMITS

There is also the issue of recurring expenses of a mutual fund. The limits that are prescribed for the fund to charge various expenses state that for the first Rs 100 crore of the average weekly net assets the expense is 2.5%, for the next Rs 300 crore it is 2.25%, for the next Rs 300 crore it is 2% and for the figure over that amount (Rs 700 crore) it is 1.75%. In case of a scheme investing in bonds the limit shall be lesser by at least 0.25% of the weekly average net assets. Any expense over and above the prescribed ceiling will be borne by the asset management company.

CHANGE IN FEATURES

There is also a condition that no change in the fundamental attributes of any scheme or the trust or even fees and expenses or some other change which would modify the scheme and affects the interest of unit holders will be carried out without a written communication being sent to each unit holder. In addition an advertisement has to be given in one English daily newspaper having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. The unit holders also have to be given an option to exit the scheme at this stage without paying any exit load.

INVESTOR SERVICES

Whenever there is an application by an investor for units in a mutual fund scheme then the asset management company shall issue to the applicant unit certificates or a statement of accounts specifying the number of units allotted to the applicant as soon as possible but this cannot be later than six weeks from the date of closure of the initial subscription list or the date of receipt of the request from an investor in an open ended scheme.

While calculating the prices of the units the mutual fund shall ensure that the repurchase price is not lower than 93% of the net asset value and the sale price is not higher than 107% of the net asset value. However the total difference between the repurchase price and the sale price of the units shall not exceed 7% calculated on the sale price. In case of a close ended scheme the repurchase price cannot be lower than 95% of the net asset value.

There has to be a dispatch to the unitholders of the dividend warrants within 30 days of the declaration of dividend in the scheme. In case of redemption proceeds this has to be within 10 working days from the date of redemption or repurchase.

INVESTMENTS

In terms of investments no mutual fund shall invest more than 10% of its NAV in the equity shares or equity related instruments of any company. This limit of 10% will not be applicable for index funds and sector or industry specific schemes. A mutual fund shall also not invest more than 5% of the NAV in the unlisted equity shares of an open ended scheme and 10% of its NAV in case of a close ended scheme. No mutual fund shall under all its schemes own more than 10% of any company’s paid up capital carrying voting rights.

A mutual fund shall not invest more than 15% of its NAV in debt instruments issued by a single issuer, which are rated not below investment grade by a credit rating agency. This can be extended to 20% with the prior approval of the Board of Trustees and the board of the asset management company. These limits are not applicable to government securities and money market instruments. A mutual fund shall not invest more than 10% of its NAV in unrated debt instruments issued by a single issuer and the total investments in such instruments should not exceed 25% of the NAV of the scheme. All such investments have to be made with the prior approval of the Board of Trustees and the board of the asset management company.

In case a company has invested more than 5 % of the net asset value of a scheme, the investment made by that scheme or any other scheme of the mutual fund in that company or its subsidiaries shall be brought to the notice of the trustees by the asset management company and disclosed in the half yearly and annual accounts of the scheme with justification for such investments.

TERMS OFTEN USED IN MUTUAL FUND SECTOR

2008-01-30T20:22:00.019+05:30

TERMS USED IN MUTUAL FUND INVESTING

There are several terms and jargons that are commonly used in the mutual fund industry. An investor will come across most or all of them while investing. Hence, it becomes important to know what these terms actually mean.

LOADS

Loads are an extra charge that investors pay to the mutual fund. This is an additional expense for the investor. Loads are of two kinds - entry loads and exit loads. Mutual funds can charge either of these loads or even both of these loads so one has to check about the features of a particular scheme as the type of loads as well as the amount of load differ from scheme to scheme. A load is usually calculated as a percentage of the NAV.

An entry load is the load that is paid by the investor when they buy units in a mutual fund. The cost for the investor will rise to the extent of the load and they will get a lower number of units than what would have been available had there been no entry load. For example if there is an entry load of 2% in a scheme then an investors who goes out to buy units of the fund when the NAV is Rs 10 will get it at a cost of Rs 10.2.

An exit load is the load that is charged to investors when they withdraw money from a scheme. Here the investors get a price lower than the NAV applicable on the particular date. For example when an investors goes to sell units in a scheme with an exit load of 2% when the NAV is Rs 20 then the investor will get a sale value of Rs 19.6 per unit.

In both the cases these represent an extra charge that is paid by the investors when they make a buy or sell decision in the units of the fund. In this entire process two more terms come into the picture. The first is the repurchase price which is the price paid by the fund to the investor when it buys units from them. The other term is the sale price, which is the price at which the fund sells the units to the investor

SCHEME OPTIONS

After selecting a particular mutual fund and a specific scheme there is still some more work to be done by the investor because they have to select the options available to them within a scheme. There are three such options available and these are the dividend payout, dividend reinvestment and the growth option

In the dividend payout option the dividend declared by the scheme is paid out in cash to the investor. Investors have to be careful and select this as the option when they want the actual payment to be received in cash. One has to note that the dividend declaration is always on the face value of the units and not on the current value. Thus if the NAV of a scheme is Rs 55 and the fund declared a 60% dividend then the dividend declared is Rs 6 per unit because the percentage figure is considered on the face value of Rs 10 and not the current NAV of the scheme.

The dividend reinvestment option is one where the dividend declared by the scheme is then poured down back into the scheme at the applicable NAV. In reality what happens is that the investor first receives the dividend on paper and then the same figure is converted into additional units. An investor might earn Rs 6.000 as dividend but that is not received in cash but will be converted into additional units. Many investors select the dividend option but tick the dividend reinvestment part resulting in no payout coming to them.

EXPENSE RATIO

There are various expenses that are incurred by the mutual fund in respect to its operations. There are two expense ratios that one will read about. The first is the initial issue expense ratio which is the expense incurred at the time of a new fund offering. The other is the expense ratio that is witnessed during the normal operation of the scheme.

There are limits prescribed for various expenses. According to the regulations issued by the Securities and Exchange Board of India (SEBI) the total initial expenses shall not exceed 6% of the initial resources raised under a close ended scheme and any excess over this figure will have to be borne by the asset management company (AMC). There has been a recent change to the provisions of the charging of the initial issue expenses for an open ended scheme and there cannot be any initial issue expenses over and above the entry load on the scheme. The initial issue expenses will include advertising expenses, agent commission, registrar expenses, marketing expenses, bankers fees, legal fees, printing and distribution expenses etc.

There is a bit of calculation involved in terms of the maximum recurring expenses permitted by SEBI as it depends upon the assets under management. The list of such expenses include investment management and advisory fees, trustee fees, custodian fees, marketing and selling expenses, registrar and transfer agent fees, audit fees, communication costs, cost of providing account statements, dividend, redemption warrants, cost of statutory advertisement and other expenses.
Investors need to watch this final figure as this will be the one that will affect them because their earnings, which are linked to the NAV will be the net figure after the scheme has charged off the expense made. While a better performing scheme might have some higher expense one has to look carefully at the total expense figure and how they shape up over a period of time

NET ASSET VALUE (NAV)

The net asset value more popularly known as the NAV is the most important thing for the investor in a mutual fund because all purchases and sales that they make is related to this figure. The NAV will determine the gains or losses that they will make on the investment. Consider the NAV as being similar to the price of a share as both of them play the same role of determining the value of the investment.

There are however big differences between the NAV and the price of an equity share. The first one is that the NAV depends upon the value of the assets being held by the scheme. Thus the value of the NAV can rise only when the value of the underlying holdings go up. In this case mere demand and supply can have no impact on the NAV of the scheme.

The price of a share on the other hand can be affected by demand and supply even when other fundamental factors are constant. Thus one might see a sharp spike in the price of a share even when there is no other movement all around. This will not happen in a NAV and hence investor who mistakes a mutual fund for a share will learn it the hard way that NAV does not just double or triple based on demand for the fund. However if there is large scale churning by short term investors then this can work to the detriment of long term investors not because NAV will suddenly become half but because the long term investors end up bearing a larger part of the cost.

The NAV is the value of all the investments in the scheme plus the current assets of the scheme less the current liabilities of the scheme. This entire figure is then divided by the number of units outstanding in the scheme to get the NAV per unit. This shows the value of each unit of the scheme and it is used for the purpose of buying and selling units by the fund

An important thing is the value of the NAV at a particular point of time does not matter. All that matters is the future growth potential in the scheme, which is based on the change in the value of the assets held by the scheme. Thus for example a Rs 10 NAV if it rises by 20% will go to Rs 12 while the same portfolio held by a scheme with a NAV of Rs 30 will go to Rs 36. In that sense if there is a decision regarding the purchase of a unit in either of the schemes then the actual NAV does not matter but only the growth there does.

The NAV of the scheme is usually calculated as follows

NAV (Rs) = Market or fair value of schemes Investments + Current assets – Current
Liabilities and provisions
-------------------------------------------------------------------------------------
Number of units outstanding under the scheme

NEW FUND OFFER (NFO)

A new fund offer is a new scheme launched by a mutual fund. It is called a NFO to differentiate it from the IPO of a stock because there was large confusion among investors who were being sold new units of mutual fund schemes like a new share offering.

As can be seen by the meaning of the NAV of the scheme there is no way that a NFO will open at double or triple the value of the offer price because the assets of the scheme will have not grown in value by the same extent during the period from which the new offer closed and the scheme then reopened for investment.
There is a difference also within the way in which a new offering has to be evaluated because there cannot be under pricing or overpricing of the issue which can be the case with a share offering and hence one has to be careful in the way in which one is able to evaluate these offerings that are available for the investor. In such offers unlike other mutual fund schemes there is also no track record to measure the past performance of the scheme

SYSTEMATIC INVESTMENT PLAN (SIP)

Systematic Investment Plan is often called SIP and this is a method of investing used by mutual fund investors. In this method there is an investment of a fixed sum on the same day of each month for a period of say 6 months or 1 year by an investor. This ensures that there is a regular investment each month and the idea is to ensure that the highs and lows are averaged out so that the investor is able to get an average price for the units.

The way a SIP plan works is that the investor has to decide on two factors when the decision is made. The first is the amount of investment that one would like to make and this could be something as low as Rs 1,000 or even higher like Rs 10,000 as this can be selected depending upon the profile of the investment and the extent of funds that are to be invested. The next things to decide is the period of the investment and this will be 6 months or a year, which will enable the actual benefits for the investor to flow in.

The benefit for the investor is that when the prices are high there are a few units that are allotted to him but when the prices drop the same amount of money will ensure that there is automatically a higher allocation of units. This ensures that the investor is able to gain in terms of higher allocation when the price is low. This will also ensure that the investor does not face the risk of the one time investment that would be present had the entire investment be made in a lumpsum at a single time point.

SYSTEMATIC TRANSFER PLAN (STP)

Systematic transfer plan is a variant of the SIP that has been explained above. In a SIP the investor makes a direct investment into a scheme on a regular basis. On the other hand in STP there is a regular transfer of money into a particular scheme but this is a transfer from an existing scheme by an investor.

This is useful for any investor who has funds at his disposal and they still do not want to invest the whole amount at one go. What can be done in such a situation is that the funds are first transferred to a debt oriented scheme and from that scheme there is a movement each month amounting to a specific sum into an equity oriented scheme. This will ensure that two objectives of the investor are met. The first is that the funds of the investor are not lying vacant and earning a low rate of return but they will be earning a slightly higher figure in the debt scheme and at the same time there is the benefit of the systematic investment that is available because the money is transferred each month.

INVESTOR BENEFITS

2008-01-30T20:22:00.018+05:30

BENEFITS OF A MUTUAL FUND

Small investors can enjoy several advantages when they invest through the mutual fund route. Not all mutual fund schemes or investors can boast to give all these benefits to the investors but each one gives you one benefit or the other.

SMALL AMOUNTS

The biggest benefit for small investors is that they can invest using very small amounts of money. In the absence of mutual funds many of these investments would not have been possible at all. For example one can invest regularly each month into an mutual fund scheme with a sum as low as Rs 500 or Rs 1000 each month. A similar amount would have got the investor precious little in terms of actual holdings in the debt market. In case of a bond issue where the face is value is Rs 10,000 they would not even be able to procure 1 bond.

If an investor has say Rs 1,000 with him then quite a few stocks would be out of reach because their values are more than the sum available for investment. On the other hand they can use the same sum to buy the available number of mutual fund units

The use of the small amounts for investment is not restricted to just the initial investment but is applicable at all points of time, This means that at any point of time if there is some amount lying in the account then this can be put to use whereby it will earn a higher amount of return than what would have been the case had it just remained in the savings account. In fact the money here can do things which would not be possible otherwise. This means that the amounts can be utilized as pert he need both in terms of investing and withdrawal

The use of the money in terms of withdrawing it from the scheme does not receive as much attention as the investment part but its role is no less important. Being able to get some of your money back when you need it without disturbing the other part of your entire investment is a greater benefit for investors because it ensures that their entire investment plan does not go for a toss due to some small decision on the side.

DIVERSIFICATION

Even if an investor is able to buy a few assets with the amounts available with them there is little scope for diversification, which results in an increase in risk. Diversification in simple words is nothing but holding a large number of stocks or securities so that the entire holding is not influenced in the same way due to a certain event in the market. An investment in a mutual fund can provide one with the necessary diversification even with the small amounts that one may have.

For example With a sum of Rs 5,000 an investor might be able to get just 1 share of Infosys, 1 share of Bajaj Auto and 1 share of Tata Steel at July 2006 price levels. On the other hand the same amount invested in a mutual fund which is diversified in nature would help the investor get around 20-25 shares which would reduce the risk as compared to the small holdings in an individual capacity

There are different levels of diversification that investors can make use of. The most common one is to ensure that in a particular holding in an asset class all the investments do not bear the same functions or features so that they will not move in a single direction based upon the happening of certain events. However taken further the real benefit of diversification is to ensure that your entire investment portfolio is such that there is adequate breadth as well as variety in it.

An individual can diversify across various asset classes when their portfolio increases. This possible with the help of a mutual fund whereby the money c an be moved to different types of schemes both in the equity as well as the debt side. Similarly one can now also ensure that the money is diversified between investment in various countries as there are international funds where one will hold equities or debt instruments of foreign countries. This gives the investor a benefit of really ensuring that his money is working well.

MANAGEMENT EXPERTISE

Most people do not have the time and resources to manage the funds on a day to day basis. In this sense giving the funds to a mutual fund who would the employ professionals to deal with the investments is like outsourcing the work t people who can do it the best. This ensures that an individual can get the benefit of professionals at a small cost to take care of their investments.
The fund managers that are employed by mutual funds are professionals in the area of investments. What is more important is that they do this job for the entire day which means that unlike an investor who might have several things and areas to look into the job of a fund manager is just to manage the funds in a particular scheme where they give their total attention. This is expected to result in a better performance however this is not always the case. In that sense investors have to be careful while making their investments because just giving their funds to a mutual fund because it ahs expert fund managers will not guarantee any results for the investor. There is a need to study the performance of the various fund managers too and then select schemes managed by those fund managers who are good performers so that one is able to benefit from the performance that they show in their schemes
CHOICE

With the development of the mutual fund industry there is a wide choice available for investors when they go out to invest their money. Options like debt schemes, equity schemes, monthly income plans, sectoral schemes are all present which means that an investor can select the schemes in the right proportion to what they would like to achieve with the investment. They can also select investments across asset classes and recreating the same kind of portfolio on an individual basis along with its monitoring would be a very tough task indeed.

LIQUIDITY

There is adequate liquidity for a mutual fund investors when they want the necessary funds. This means that the fund will be available to the investor when they require it would going through large amounts of paperwork. This might not be the case with regular investments where it might take several days for one to liquidate the necessary amounts.

Using the right combination one can create the required liquidity in the mutual fund portfolio. One of the best cases of liquidity is with respect to equity oriented schemes. In several cases with respect to various shares it is very much possible that an investor will be unable to sell the shares on a particular days the volumes in the scrip have dried up. On the other hand when an investor puts through a sale transaction on a mutual fund then this has to be executed at the prevailing net asset value at the end of the day and the investor will receive his money. There are some restrictions on this which is mentioned in the fine print of the offer document wherein in case there is a major crisis the fund can restrict the redemptions however in normal market conditions there is little to worry for the investor,

In addition the funds have developed a high quality service delivery whereby the funds are available to the investor in the shortest possible time. In case of several liquid schemes the investors also have the option of using instruments like direct cheques and even ATM cards.

CONVENIENCE

There is a lot of convenience that investors experience when they invest into mutual fund schemes. Starting with the amount of the payment to the place where the mutual fund investments are accepted there is an element of convenience that is built into the picture.

Assume a case where an investor wants to invest a fixed sum regularly each month into a scheme. Here they can make use of a systematic investment plan in order to ensure that there is a regular investment going in without much of a problem. On the other hand consider the situation where an investor has landed up with a large sum of money right now and would like to invest this but in a regular manner over the next one year. Mutual funds have the right options to ensure that even this can be done through the use of a systematic transfer plan where the money will lie in a debt mutual fund so there is a small appreciation in the value here and at the same time there is a transfer each month to the intended account of the investor.

Take one other case where the investor would like to say 20% returns and then take his money home. Even this is possible as the mutual funds have a trigger limit option whereby when the investment reaches a certain level a specified action will take place in the fund. This means that even the selling decision can be taken care of by the fund with the investor having little to do

TAX BENEFIT
There are a host of tax benefits that an investor can earn with the help of mutual funds. First dividends are tax free in respect of all mutual funds while in case of equity oriented funds even the long term capital gains earned will be tax free in the hands of the investor. This means that the investment can be quite tax efficient with quite a bit of the payout free from the tax clutches of the investors. In case of equity oriented schemes there is no dividend distribution tax and hence the investors benefit indirectly too and this is another tax benefit for them. While direct investments into assets would also qualify for several of these benefits mutual funds are not worse of than elsewhere

SIMILARITY WITH VARIOUS ASSET CLASSES

A mutual fund holds assets as part of its portfolio and this determines the performance of the scheme. The question that most people ask is how is a mutual fund different or similar to assets that it holds

One basic factor that investors have to consider is that the performance of the asset and the mutual fund investing in the asset will move in a similar direction. Thus if there is a bond fund and the prices of bonds fall then the value of the bond fund will also decline. Similar is the case with equity shares and equity oriented funds.

This means that a mutual fund cannot be divorced from the overall movement in the asset class into which it is invested. Thus one should not expect miracles from mutual funds but the better performing mutual fund will be one which rises faster when the market is going up and at the same time falls slower than the fall in the market. This is the way in which the performance of the fund will have to be considered rather than just look at the absolute figure.

One should look only at asset classes that are of the similar type rather than looking at different asset classes. This means that if you are holding a debt oriented mutual fund then you cannot compare its performance to that of equities because here you will end up comparing two entirely different things. Once this difference is realized one can comfortably look at the various mutual funds and how they have performed

While one would expect similar movement between a fund and its underlying assets there will be some difference in t he way the movement takes place. For example incase of equities the price may shoot up 20% in a day while in case of a mutual fund this will not happen unless the value of he entire assets of the fund rise by a similar percent.

Similarly in case of a daily purchase of shares by an invest to these are made in the market and here the shares are bought from another investor however in case of a mutual fund the units in an open ended scheme are bought and sold to the fund itself and hence the total units outstanding will keep changing every day. In that sense the most important thing to consider in case of a mutual fund is its NAV rather than several other figures that one would normally look at.

FUND OF FUNDS

2008-01-30T20:22:00.017+05:30

FUND OF FUNDS

Fund of funds is another type of scheme available in the market. This schemes invests its funds into another mutual fund scheme and is hence known as fund of funds. The target objective of the scheme is met through the selection of several other schemes in the portfolio with the desired weights. Several funds invest their corpus into schemes of their own fund house while another variety of fund of fund schemes invest the amount into schemes from other fund houses too.

FMP

2008-01-30T20:22:00.016+05:30

FIXED MATURITY PLANS

Fixed maturity plans known as FMP are plans that are in operation for a short period of time but they act like a quasi fixed deposit for the investors. This is because the fund manager selects the securities in the portfolio in such a manner that it matures on the same date as that of the scheme. This results in the situation where the investor will get a return near the yield of the investments when they were purchased because of reduced risk in the investment.

There is a reduced risk in this kind of an investment because of the fact that when the debt instruments in the scheme are held till maturity the intervening movement of interest rates in the market will not impact the investor in terms of the final returns because of the fact that the price of the debt instrument will converge to its face value at the time of maturity .

MONTHLY INCOME SCHEMES

2008-01-30T20:22:00.015+05:30

MONTHLY INCOME SCHEMES

Monthly income schemes are debt oriented schemes with a small dose of equity holdings. These schemes invest a large part of their corpus ranging from around 80 to 95% in debt while the remaining 5 to 20% is in equities. There are a large number of such schemes in the market with different levels of equity.
The average level of equity holdings of these schemes is around 10% but in the last few years several variations with a higher level of equity have entered the market. Investors should know that the higher level of equity can raise the earnings of the scheme above that witnessed in pure debt schemes but it will also raise the risk level whereby even the higher debt constituent will not be able to dictate the overall performance of the scheme

GILT Scheme

2008-01-30T20:22:00.014+05:30

GILT SCHEMES

Gilt schemes are those schemes that invest their assets into only government securities. The gilt schemes can be short term or long term schemes depending upon the composition of the portfolio of the scheme. These schemes have no credit risk, which means that there is no possibility of the investments of the scheme turning out to be worthless because the issuer has gone bankrupt as in this case the issuing authority is the government itself.

This does not mean that there is no risk for the investor in such schemes because there is interest rate risk which means that in case interest rate rises there will be a fall in the value of the holdings and a consequent fall in NAV for the investors because the value of the holdings will depend upon the conditions in the debt markets and the movements therein.

What are floating Rate funds

2008-01-30T20:22:00.013+05:30

FLOATING RATE FUNDS

One of the basic features of debt schemes is that the value of the debt holdings will fall in value as the interest rates rise in the economy and they will rise when the rates fall. This makes investors in debt schemes susceptible to losses when conditions are adverse in the bond market. Floating rate funds are those schemes which invest their corpus into floating rate securities which means that the interest rate on these funds are reset at regular intervals. This makes them better positioned to tackle tough times in the debt market as their earnings and rates will change depending upon the resetting of the rates for the securities held. Again these schemes can be either short term or long term schemes.

SHORT TERM SCHEME

2008-01-30T20:22:00.012+05:30

SHORT TERM SCHEMES

Short term schemes are debt oriented schemes and are meant for investors who want to park their money for a few months. Thus these are meant for those who do not want to invest for a just a few days and neither for a very long period amounting to a few years. Thus it is for middle of the road investors who do not fall into either the very short or the long term category. The portfolio of short term schemes consists of short term securities including gilts, certificates of deposits and in several cases even bank deposits

The returns from such schemes is not very high but similarly the risk is also considerably lower and this is useful for several investors who would like to put their money away for a short period of time and earn high returns during this period.

LIQUID SCHEMES

2008-01-30T20:22:00.011+05:30

LIQUID SCHEMES

Liquid schemes are meant for very short term investors where the investor horizon ranges from a couple of days to around a week or slightly more. The liquid schemes invest the money into overnight call money market and extremely short term options so that there is very risk for investors in terms of a capita loss in these schemes.

Ideally when the investment is made in this manner liquid schemes should not show any fall in their value but the returns will vary depending upon the rates prevalent during the time period of investment. Thus liquid schemes are meant to be the safest type of schemes where the risk for the investor is minimum and returns are consequently lower.

INCOME SCHEMES

2008-01-30T20:22:00.010+05:30

INCOME SCHEMES

Income schemes invest their assets into debt instruments that are either of medium to long term in duration. This means that the scheme will invest the money into debt instruments that mature after a few years and these can stretch to several years.

In terms of the choice available for the fund manager there are bonds, debentures, government securities and other debt instruments. Typically most of these schemes hold a mixture of bonds, debentures, gilts and even short term securities in their portfolio and they keep changing the mix depending upon the fund managers outlook for the future.

These schemes are steady in the growth that they witness and hence one should expect returns aligned to the performance of the debt market, which means that under steady conditions it should give reasonable returns and the risk to capital is accordingly lower. However the returns of the scheme turn negative when rates rise and positive when t he rates fall in line with the behaviour of the debt instruments.

INDEX FUNDS

2008-01-30T20:22:00.009+05:30

INDEX FUNDS
Index funds are known as passive schemes because here the fund manager does not have to take active investment decisions regarding selection of companies for investment. The corpus of these schemes is invested in such a manner that it mimics an index that is being tracked by the fund. Thus for example a scheme tracking the Sensex will have its portfolio in the exact proportion that the 30 sensex scrips are in and hence the performance should mirror the behaviour of the index being tracked. At regular periods of time the portfolio is rebalanced so that any deviation is corrected. These are meant for investors who would like to ensure that their returns match that of a specified index

EQUITY LINKED SAVINGS SCHEME

2008-01-30T20:22:00.008+05:30

EQUITY-LINKED SAVINGS SCHEMES

Equity-linked savings schemes are also known as ELSS or tax savings schemes. These are like diversified equity schemes in terms of their portfolio composition but they give investors a tax benefit that other schemes do not. Investment up to Rs 1 lakh into these schemes qualify for a deduction under Section 80C of the Income Tax Act along with several other specified investment options.

Investors looking at earning a higher return on their investments and save on the tax at the same time opt for such schemes. Unlike normal equity schemes, ELSS carry a three year lock in.

SECTORAL SCHEMES

2008-01-30T20:22:00.007+05:30

SECTORAL SCHEMES

These are a variant of equity oriented schemes where the risk for the investor is higher than the diversified equity schemes. The funds of such schemes are invested into the shares of a particular sector only or it could be in companies that comply with a particular theme only.

A good example of such schemes are those which invest in the shares of information technology companies or companies from the fast moving consumer goods (FMCG) sector. There is a possibility of a higher return from such schemes because even if the whole market is not doing well a particular sector might be on the growth path. At the same time this has a higher risk because it is possible that nothing happens to a particular sector while the overall market is rising or it could be that just a specific sector is doing badly due to specific reasons. Further with other investment options closed the entire portfolio of the scheme will be subject to a similar kind of risk leading to very little diversification in the portfolio.

Equity linked savings scheme
Equity linked savings schemes are also known as ELSS or tax savings schemes. These are like diversified equity schemes in terms of their portfolio composition but they give investors a tax benefit that other schemes do not. Investment upto Rs 1 lakh into these schemes qualify for a deduction under Section 80C of the Income Tax Act along with several other specified investment options.

Investors who put money into such schemes are looking at earning a higher return on their investments and at the same time save on the tax. Unlike normal equity schemes there is also a three year lock in for such schemes.

EQUITY SCHEMES

2008-01-30T20:22:00.006+05:30

EQUITY SCHEMES

Equity schemes invest the amounts that they collect from investors into stocks of various companies listed on the stock exchanges as well as those that are unlisted. These schemes are also called growth schemes because the idea behind such investments is to earn a high return through the rise in the value of the investment.

The wide range of stocks available in the market and the different nature of styles of management of the schemes will result in a different profile for various schemes within this area. For example a scheme which invests in large cap stocks will be different from a scheme that will invest its funds into mid cap companies.

In addition there are schemes, which are diversified across various sectors without any bias towards market cap of the stocks it holds. In terms of other styles one can see funds that select stocks based on their dividend yield and these are called dividend yield funds.

There is a chance of a high gain in such schemes and in the last three years the returns on many schemes have even crossed more than 100% in a single year. Many investors however forget that there is a downside to the whole investment as a fall in the equity market can result in a fall in the value of the scheme leading to a capital loss for the investors.

What should the investor do before looking at the scheme?

2008-01-30T20:22:00.005+05:30

The investor should look at the nature of the scheme and then match it against their specific requirement to see whether this fits in with their goals. For example an investor might require funds after three and a half years but if it is a close ended scheme for five years then it will be worthless for the investor. This feature can be used to plan the liquidity for the portfolio of the investor. In addition specific types of schemes can also be matched with their features to ensure that both are similar.
The other way of classifying scheme is through the composition of their assets and the type of securities held by the schemes. This is available both in the offer document of the scheme as well as other places where the investment is specified in terms of portfolio declaration

What is an Interval fund?

2008-01-30T20:22:00.004+05:30

INTERVAL FUNDS

There is another category of funds whose characteristics fall between open ended and close ended funds and these are known as interval funds. These funds are not completely close ended or completely open ended in the sense that they are not of a fixed duration and they do allow investors to make purchases once the initial offer period is over but they will not be available for purchase and sale everyday. There will be a specific time period like a few days every three months or every six months when investors can buy and/or sell these units back to the funds. Thus they provide liquidity without compromising on the restricted nature of the fund.

TYPES OF MUTUAL FUNDS

2008-01-30T20:22:00.003+05:30

TYPES OF MUTUAL FUNDS

Mutual funds can be classified into three broad categories depending on their basic characteristics. The way in which the features of the scheme are considered will also impact their classification.

OPEN ENDED FUNDS

Open ended mutual funds have an infinite life which means that there is no ending date of the scheme. This scheme can continue to go on forever and due to this factor the scheme allows investors to come in and go out of the fund when they wish subject to some specific conditions for a few funds. For example a large number of schemes in the Indian market are open ended schemes that invest in equities where they can continue to operate for years on end. The real benefit of these schemes is that an investor can put additional money into the scheme or take their money out when they feel like it rather than this being decided as a specific date by the fund or some other entity.

CLOSE ENDED SCHEMES

Close ended mutual fund schemes are those schemes that will come to an end after a specific period of time. In the strict sense when the time period comes to an end the assets of the scheme are sold off and these are distributed to the unit holders after deducting the necessary expenses for the entire process. Due to this factor close ended schemes will allow entry to an investor only at the time of the initial offering and there would be no entry for additional investors after this. Many schemes also have a restriction on the time of the exit from the scheme.

This does not mean that new investors cannot come into the fund. As a measure of liquidity often equity close ended funds are listed on the stock exchange whereby investors can buy the units of the scheme from another investor. However the total units issued by the scheme remains the same as the fund will not issue any additional units. This route has mostly witnessed the price of the units on the exchange quoting at a discount to the net asset value of the scheme. In such a scheme the fund manager knows precisely what is the amount that is available to them to invest and they can take long term investment decisions accordingly.
Many close ended schemes are of this nature for a particular duration but they turn open ended after the specified time period like 3 or 5 years whereby the nature of the scheme changes. Further in some kind of investments there is a necessity that the funds remain invested for a certain period of time and hence in that sense close ended schemes become necessary

What is Mutual Funds

2008-01-30T20:22:00.002+05:30

WHAT ARE MUTUAL FUNDS ?

Mutual funds are investment vehicles that are finding a greater acceptance among investors across the country. Their scope is expanding with investors getting a larger bouquet of schemes to choose from. However, to make an informed choice, the investor needs to understand the characteristics of the fund, which determine the kind of returns it generates and the risk that will arise during the course of the investment.

A mutual fund is a vehicle that invests in various assets on behalf of its unit holders. Under the scheme, a large number of investors come together and pool their money. This sum is then invested by professional fund managers according to the investment objective of the scheme. The investors, who put their money into a scheme, get units and are known as unit holders. Since the denomination of the holding of the investor is units, there is no need for them to be rounded off. Therefore, one will find holdings in decimal places.

Thus the mutual fund entity allows small and individual investors to get the benefits of a diversified portfolio. It also gives the unit holders access to several investments that might have been out of their reach for want of funds. The value of the investment is known as the net asset value (NAV) of the scheme. The NAV is calculated on the value of the holdings of the scheme. Investors can redeem and buy additional units depending upon the specific nature of the fund and these transactions take place at values related to the NAV of the scheme.

Profile

2008-01-30T20:22:00.000+05:30

Name : ARVIND VISHWANATH

AGE : 24 (9/11/1983)

OCCUPATION : Financial services consultant (AMFI CERTIFIED CONSULTANT)

QUALIFICATION : M.COM (Finance & Control) , AMFI Certification

Pursuing Certified Financial Planning

Falling markets! What to do?

2008-01-30T03:22:00.001+05:30

What should you do in a falling market? So, what`s a stock market investor`s best response to dropping stock prices?

First, forget about rationalizing and explaining (or listening to other people explain) why stocks are falling. It`s a pointless exercise at best, and misleading at worst.
Second, file the painful experience away as a worthwhile reminder of the riskiness of stocks, and draw on that memory during the next market boom when optimistic market seers tell you that stocks are really not risky (Remember Sensex 25,000).
If you believe, based on your preferred market measure, that stocks have overcorrected, don`t wait for the correction to end. Investors who wait for final and complete confirmation that the market turned around invariably miss the bulk of the turnaround. I was investing in 1997 through 2006, it had nothing to do with the equity markets. It was a conviction that long-term monies should be in equities. So, if I have long-term money, it goes into equity, other wise it goes into a money market mutual fund.
Recognize that even if you are right about the market overcompensating for past mistakes, there will be months of pain before the gain. Being a contrarian is easy on paper but much tougher in practice.
Markets will go up and go down, you cannot change that. You can change the way you look at it. When you have money you will invest, when you need money you will sell. There is no call to action based on, what the market will do? So that does not matter.
Finally, console yourself with the recognition that the professional portfolio managers and the market experts you