Tuesday, April 26, 2011

Is it Time to Dump Your Fund?

What are the things to watch out for that could ring alarm bells that tell you it's the right time to exit a fund?

Your advisor might have told you which mutual fund schemes to buy and how much you should earmark out of your overall investment portfolio for each of the schemes. But did he come back calling at any time to tell you which of the schemes are not performing well, or about the ones where the future does not look bright?

Most often, intermediaries don't bother to revert with the tip on when to prune your holding in a fund scheme or exit it fully. Maybe your advisor is avoiding you because he himself convinced you to buy the scheme, which doesn't look like a great investment now. So, an investor is left with the fait accompli of having to take the 'sell' call, whenever required, on his own. And in a dynamic and volatile environment it may not be an easy call to take.


The triggers could be of a wide range. According to market experts, investors can look at whether the fund has been a consistent laggard, the developments within the fund house, the change in the character of the fund and its composition. A decision to exit the fund can also be taken based on the altered life-goals of a person. So, what are the things to watch out for that could ring those alarm bells that tell you it's the right time to exit a fund?

Not always the past

Wealth management experts say the decision to enter or exit a mutual fund can hardly be based just on a fund's performance in the recent past. "It involves greater science than just looking at the fund's returns," says Vishal Kapoor, general manager, wealth management India, Standard Chartered Bank.

Past performance, more often than not, is not sustainable. For instance, infrastructure funds, at the helm during the bull run of 2007, fell flat after the financial crisis that began in late 2008 with many languishing in the bottom quartile today. UTI Infrastructure Fund, for instance has returned a negative 10% return in the last one year, compared to 72% gains it delivered in 2007. As an investor, it is important to know that different sectors outperform at different times. FMCG and pharmaceuticals, for instance, are known to be defensives and do well during recessionary phases. On the other hand, sectors such as capital goods and commodities do well during bull runs.

"Although returns are the easiest way to gauge the performance of a fund, it shouldn't be considered in isolation, says Fahima Shaikh, assistant manager, products, IIFL. So, how do you decide whether your mutual fund portfolio needs refurbishing? The fund's consistency in returns, the fund's strategy and how it co-relates with your investment objective is what you should study," says Kapoor.

In a race to the bottom?

According to Kapoor, if your fund has consistently been among the bottom 25%, in terms of performance, in its category, for a year, it may be worthwhile to exit the fund. Analysts say, a fund's performance should always be compared to a benchmark such as the Sensex and to other funds in its category. This kind of comparative analysis gives a clear picture about the standing of the fund within its universe. For instance, when compared to the returns given by the Indian markets in the last one year, equity funds focused on international markets outperformed by a large margin. They delivered a return of 20% compared to 8% by the Sensex.

The performance of Birla Sun Life's Commodities Precious Metal Fund when compared to its benchmark, the Dow Jones Precious Metals Index shows that for the period, January 2010 to January 2011, it has given a return of 25%, lower than the index which returned 36%. Although the fund has done better than Indian equities, the investor could look at better performing funds in the precious metals category.

On the other hand, in the last one year (March 2010-February 2011) we have seen some of the worst performing funds from the JM Mutual Fund stable. JM Basic Fund -which will soon have two more funds from the same group merged into it-has delivered a negative return of 26% compared to 9% delivered by the BSE-200. The fund mainly invests in basic industries like power, industrial goods, metals etc, with the BSE-200 as its benchmark and falls in the same league as multi-sector funds such as Birla Sun Life Basic Industries Fund. The fund's consistency has somewhat been in doubt through various periods. During the bull runs of 2007 and 2009, the fund has been among the best performers but during the recent downturns it was one of the biggest losers.

HSBC Progressive Themes fund, too, is a laggard among its peers as far as returns of the last six months to two years are concerned. It gave a negative return of 13.22% in the last one year. Its peers include large and mid-cap funds such as DSP Opportunities Fund, which, according to Valueresearchonline, gave a return of 12% in the last one year.

Risk vs return

Analysts often use the Sharpe ratio which helps you gauge how much of the extraordinary returns generated by a fund are a result of extra risk taken by the fund manager. A higher ratio indicates that the investor is earning a good return despite low risk. Joseph Thomas, head, investment advisory and financial planning, Aditya Birla Money, however, prefers to measure a fund's consistency by looking at rolling returns, among other parameters.

For those not familiar with the term, 5-year rolling returns of a fund for a particular year are the average annualised returns of the last 5 years ending with the year for which returns are being calculated. Thomas also recommends schemes with a beta level of less than 1, the beta level representing the risk of a portfolio in comparison to the stock market risk.

Scrutinising the portfolio

"Another factor, often ignored is the portfolio of a fund or its strategy which is vital for assessing a fund's health," says Shaikh. According to her, investors must know how a fund has been constructed and what kind of stocks and sectors the fund is exposed to.

"If the investor is uncomfortable with the portfolio and feels it has deviated from the mandate, then he can decide to switch to other funds," she adds. Sometimes, funds change names or investment mandate to attract more customers or to get rid of a tag that didn't appeal to investors. For instance, JM Auto Sector Fund was re-christened as JM Mid Cap Fund and JM Healthcare Sector Fund became JM Large Cap in May 2009.

Also, during the technology boom of 1999, almost every fund house launched a technology fund or its variant, but when the bubble finally burst, funds had to either rename their schemes or alter the fund philosophy. In 2002, Tata IT Sector Fund, for instance, morphed itself into Tata Select Equity Fund which has a much broader mandate. Though the change has been good for the fund, it could be in sectors that are quite unrelated to what you had in mind. So, do be aware of such changes in a fund's portfolio and keep your investment in such funds on your watch-list.

Know the inside story

Typically, fund houses go through many changes in their lifetime. A change at the helm or a new fund manager may end up being detrimental to the health of your fund. This happens in organisations where the fund manager drives the investment decisions and thus, the returns. Other factors include a change in ownership of the asset management company, exit by existing shareholders or any other news or information which could cast doubts on the sustainability of the business venture, says Thomas.

Last but not the…

If there has been a change in your life goal, you need to re-evaluate your portfolio. This could happen when you have already achieved your goal of buying a house or your child's education. "It may be time to modify your portfolio, say, move to debt as you get closer to retirement," says Gaurav Mashruwala, certified financial planner.

And then there are times when the changing market trends can present alternative investment strategies that could work better for you. Adarsh Shamdasani, a long-term investor in the market, recalls the above-average returns that arbitrage funds posted 3 years ago. "One-year returns were in the range of 8-9% around 2007, with the added benefit of their being tax-free investments," she says. However, it didn't last too long. The reduced arbitrage opportunities in the market and increase in the number of funds chasing limited opportunities has led to a fall in average returns to 6.5%. Today, you are better off investing in a fixed deposit or a Fixed Maturity Plan (FMP), which offers better tax-adjusted returns. An FMP, for instance, is now yielding 9.5-10% for a one-year deposit, almost tax-free after adjusting the tax liability to inflation.

The size of a fund, too, can become a deterrent sometimes. Reliance Growth, for instance, became too big for the fund manager to handle and at one point it stopped accepting any fresh investments.

"When the fund is of a reasonable size, say, worth Rs. 1000-2000 crore, given the liquidity and depth of the Indian markets, it is more easily manageable but too big a size brings in difficulties with respect to meaningful modifications," adds Thomas. So, a constant review of the fund's size is a good idea, he says.

However, it may not pay to be over-cautious. Although constant portfolio review is absolutely necessary, one shouldn't get bogged down by daily tracking of one's investments, whether it is mutual funds or any other asset, says Kapoor of Standard Chartered Bank.

Source: http://www.indiainfoline.com/Research/Articles/Is-it-Time-to-Dump-Your-Fund/25547445

Kotak MF Declares Dividend for Emerging Equity Scheme

Kotak Mutual Fund has announced the declaration of dividend on the face value of Rs. 10 per unit under dividend option of Kotak Emerging Equity Scheme. The record date for dividend has been fixed as 29 April 2011.

The quantum of dividend will be Rs. 0.75 per unit. The scheme recorded NAV of Rs. 11.553 per unit as on 21 April 2011.

Kotak Emerging Equity Scheme is an open ended equity growth scheme which has the investment objective to generate long-term capital appreciation from a portfolio of equity related securities, by investing predominantly in mid and small cap companies.

Source: http://www.indiainfoline.com/Markets/News/Kotak-MF-Declares-Dividend-for-Emerging-Equity-Scheme/3660081733

Equity MF pullouts hit a high in 2010-11

With the markets remaining volatile for the best part of 2010-11, exits made by equity MF investors , who were wary of losing their gains, hit a record high. Redemptions or the money pulled out by investors from equity MF schemes have topped Rs 79,730 crore in fiscal 2011, the highest ever, data with the Securities and Exchange Board of India (Sebi) shows.

Interestingly, redemptions from equity schemes in 2010-11 is even higher than thatof 2007-08 when they took out Rs 79, 353 croreon theback of a sharp rise in the equity markets. Investors booked profits whenever the benchmark indices traded close to their all-time highs in fiscal 2011, analysis shows.

The 27.4% y-o-y rise in redemptions from equity schemes has also led to a sharp fall in folios or investor accounts. Equity MFssaw net outflows (difference between sales and purchases made by investors) of Rs 13,138.1 crore, Sebi data shows.

The folios held by investorsin equity MFschemesfell by over 18 lakh to 3.92 crore in 2010-11. Folios in equity schemes have fallen below the 4-crore mark for the first time in three years. Investors pulled out Rs 12,804 crore from equity MF schemes in September last year, about 50% more than the previous high hit in October 2007 when the markets started trading close to their all-time highs.

A lot of investors booked profits when the markets went up ; and the general apathy shown by agents in pushing productstosmall retailinvestors ever since the ban on entry loads came also resulted in high pullouts , industry officials say.

"The real impact of the ban on entry loads (on MF sales ) was felt in fiscal 2011," says Surajit Misra, national head, MFs, Bajaj Capital, a distribution platform for funds . "Retail (investor ) participation has been quite muted ," he says. With no big asset creation happening, the bottom line of fund houses would have taken a knock last fiscal , he says.

New investors are not coming in and big-ticket participants who entered the markets remained only for the short-term , say industry officials .

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/equity-mf-pullouts-hit-a-high-in-2010-11/articleshow/8062999.cms

IDFC MF Declares Dividend for Small & Midcap Equity Fund

IDFC Mutual Fund has announced the declaration of dividend under dividend option of IDFC Small & Midcap Equity Fund. The record date for dividend has been fixed as 29 April 2011.

The quantum of dividend will be Rs 1.50 per unit. The scheme recorded NAV of Rs 15.4885 per unit as on 20 April 2011.

IDFC Small & Midcap Equity Fund is an open ended equity fund which has the investment objective to generate capital appreciation from a diversified portfolio of equity and equity related instruments.

The scheme will predominantly invest in small and midcap equity and equity related instruments. Small and Midcap equity and equity related instruments will be the stocks included in the CNX Midcap index or equity and equity related instruments of such companies which have a market capitalization lower than the highest components of CNX Midcap Index.

The scheme may also invest in stock other than mid cap stocks (i.e. in stocks, which have a market capitalisation of above the market capitalisation range of the defined small midcap stocks) and derivatives. On defensive consideration, the scheme may also invest in debt and money market instruments.

Source: http://www.adityabirlamoney.com/news/470631/10/22,24/Mutual-Funds-Reports/IDFC-MF-Declares-Dividend-for-Small-Midcap-Equity-Fund-

Foreign MFs score better in garnering assets

Foreign players control a little over 10 per cent of the domestic fund market.

Foreign fund houses outperformed their domestic peers in terms of garnering assets in 2010-11.

In a year that saw the industry’s assets decline by over six per cent, foreign players saw a marginal slip of 1.7 per cent. On the other hand, local players were beaten harder as they lost over seven per cent of assets. This is in contrast with the dominant view that foreign players would be at the receiving end, in view of domestic majors commanding an established brand equity.

The top five players in the fund market are domestic and include Reliance MF, HDFC MF, ICICI MF, UTI MF and Birla Sun Life MF. They control close to 60 per cent of the market. However, barring Birla, all the other majors saw a dip in their assets. UTI, ICICI and Reliance were the top losers, with asset erosion of 16 per cent, nine per cent and eight per cent, respectively. LIC MF witnessed a drastic loss of 74 per cent during the year.

“Foreign fund houses are now being recognised by the Indian retail investors. Our brand building is also catching up fast with homegrown players. Going forward, there is better scope as penetration is abysmally low compared to the developed markets,” explains the chief executive officer of a foreign AMC having operations in India.

Currently, foreign players control a little over 10 per cent of the domestic fund market.

In absolute terms, close to Rs 50,000 crore outflowed from domestic fund houses’ kitty in FY11, while foreign players witnessed an erosion of just Rs 1,263 crore.

Major foreign houses in India include BNP Paribas, Franklin Templeton, Fidelity, HSBC, JP Morgan and Morgan Stanley, among others. Officials in foreign AMCs say investors want diversification in other world markets, too. “Since many of us have a global presence, we can help investors here get exposure outside India,” they add.

Puneet Chaddha, chief executive officer, HSBC Asset Management (India), says, “We have launched a Brazil fund and plan to come up with more such offerings soon. There is no doubt that it is good to remain invested in Indian markets. However, opportunities in other global regions should not also be overlooked and Indian investors are interested in such products”.

Arindam Ghosh, CEO of Mirae Assets, agrees. “Indian investors have taken into consideration the performance factor. We provided them diversified products such as a China Fund and it got a good response. Soon, we plan to launch similar products which will help investors diversify in different global territories,” he says.

Interestingly, in the first half of FY11, foreign houses had marched ahead with a rise of as much as 14 per cent in assets, even as domestic players were yet to move into the positive zone.

Source: http://www.business-standard.com/india/news/foreign-mfs-score-better-in-garnering-assets-/433486/

Birla Sun Life launches Gold ETF news

Birla Sun Life Asset Management Company (BSLAMC) has launched an open-ended gold exchange traded fund, Gold ETF that is scheduled to close on 9 May.

The ETF to list on BSE and NSE has a 15-day window with a minimum application amount pegged at Rs6000 and multiples of Rs2000 thereafter.

Investors have been offered the option to convert to physical gold provided by certain vendors.

In a bid to cash in on the spurt in gold prices led by the commodities rally, a number of Indian companies and mutual funds have been working on plans to launch new Gold ETFs. HDFC, a leading Indian private sector bank launched a Gold ETF scheme last year.

According to the company, the money raised would be invested in gold of 99.5 per cent purity sourced from refineries approved by the London Bullion Market Association.

After witnessing the strongest growth of 66 per cent in demand for the yellow metal in 2010 at 963.1 T on heavy demand for jewellery, India is now seeing a boom in investment demand in the yellow metal and silver.

India's first gold savings fund, Reliance Gold fund opened for subscription on 14 February and closed on 28 February. In the process it generated a record of Rs4000 crore for a new fund offer (NFO). Reliance received applications in excess of 2 lakhs.

Meanwhile, Kotak Mahindra Asset Management Company, also recently launched its 'Kotak Gold Fund'. The unique open ended fund allows investors to take exposure to gold without holding demat account.

India has 10 funds selling gold-backed securities, with combined assets of Rs44 billion, as on 31 March, according to data from the Association of Mutual Funds in India.

Source: http://www.domain-b.com/finance/insurance/birla_sun_life_insurance/20110425_gold_etf_2.html

Just click away from joining most active Mutual Fund India google group

Google Groups
Subscribe to Mutual Fund india
Email:
Visit this group

Aggrasive Portfolio

  • Principal Emerging Bluechip fund (Stock picker Fund) 11%
  • Reliance Growth Fund (Stock Picker Fund) 11%
  • IDFC Premier Equity Fund (Stock picker Fund) (STP) 11%
  • HDFC Equity Fund (Mid cap Fund) 11%
  • Birla Sun Life Front Line Equity Fund (Large Cap Fund) 10%
  • HDFC TOP 200 Fund (Large Cap Fund) 8%
  • Sundram BNP Paribas Select Midcap Fund (Midcap Fund) 8%
  • Fidelity Special Situation Fund (Stock picker Fund) 8%
  • Principal MIP Fund (15% Equity oriented) 10%
  • IDFC Savings Advantage Fund (Liquid Fund) 6%
  • Kotak Flexi Fund (Liquid Fund) 6%

Moderate Portfolio

  • HDFC TOP 200 Fund (Large Cap Fund) 11%
  • Principal Large Cap Fund (Largecap Equity Fund) 10%
  • Reliance Vision Fund (Large Cap Fund) 10%
  • IDFC Imperial Equity Fund (Large Cap Fund) 10%
  • Reliance Regular Saving Fund (Stock Picker Fund) 10%
  • Birla Sun Life Front Line Equity Fund (Large Cap Fund) 9%
  • HDFC Prudence Fund (Balance Fund) 9%
  • ICICI Prudential Dynamic Plan (Dynamic Fund) 9%
  • Principal MIP Fund (15% Equity oriented) 10%
  • IDFC Savings Advantage Fund (Liquid Fund) 6%
  • Kotak Flexi Fund (Liquid Fund) 6%

Conservative Portfolio

  • ICICI Prudential Index Fund (Index Fund) 16%
  • HDFC Prudence Fund (Balance Fund) 16%
  • Reliance Regular Savings Fund - Balanced Option (Balance Fund) 16%
  • Principal Monthly Income Plan (MIP Fund) 16%
  • HDFC TOP 200 Fund (Large Cap Fund) 8%
  • Principal Large Cap Fund (Largecap Equity Fund) 8%
  • JM Arbitrage Advantage Fund (Arbitrage Fund) 16%
  • IDFC Savings Advantage Fund (Liquid Fund) 14%

Best SIP Fund For 10 Years

  • IDFC Premier Equity Fund (Stock Picker Fund)
  • Principal Emerging Bluechip Fund (Stock Picker Fund)
  • Sundram BNP Paribas Select Midcap Fund (Midcap Fund)
  • JM Emerging Leader Fund (Multicap Fund)
  • Reliance Regular Saving Scheme (Equity Stock Picker)
  • Biral Mid cap Fund (Mid cap Fund)
  • Fidility Special Situation Fund (Stock Picker)
  • DSP Gold Fund (Equity oriented Gold Sector Fund)