Monday, September 5, 2011

Domestic mutual funds turn big buyers in Aug

According to a report by Morningstar, domestic mutual funds made a net investment of Rs 2,524 crore in equities in August 2011, the highest in over three years.
However, domestic equity funds saw the worst monthly return performance since January 2011. Among sector funds, banking and technology funds were the worst performers with these categories falling more than 12 per cent during the month.
Of the mid- and small-cap equity funds, about a quarter of them underperformed the category benchmark index. These funds, which are benchmarked to the CNX Midcap index, saw a sharp decline in August.
With gold prices touching an all-time high in August, gold ETFs registered the highest ever monthly return of 15.2 per cent on an average. With the softening of bond yields, gilt funds and longer tenure bond funds outperformed in August.

Source: http://www.thehindubusinessline.com/markets/stock-markets/article2426600.ece

Use SIPs to fight market volatility

Have you been caught off guard by markets that collapse like a house of cards one day and shine brightly in the next session? If you are sitting on the sidelines, wondering about the right time to jump in, fund houses offer options that take the guesswork out of equity investing. The SIP is the oldest and most widely used weapon against market volatility in the small investor's armoury. "By investing in random time slots, the investor is able to get a good average price," says Srikanth Meenakshi, director at Fundsindia.com.

In the past few years, fund houses have fine-tuned the SIP mode of investment and made it more sophisticated. You can now invest in weekly, even daily, SIPs. You can tweak the investment amount or even choose the index level at which you want to invest. Let us look at the various innovations in the SIP and how you can use them to your advantage in today's volatile markets.

Systematic transfer plan

If you have a lump-sum amount to invest, experts advise that you put it in a debt fund and then start a systematic transfer plan (STP) into an equity fund. STPs can be of different intervals-weekly, monthly or quarterly. "The STP is a richer version of the SIP and follows the same concept of value averaging. Markets will always be volatile. The only way to manage it is through time diversification and asset allocation," says Kalpen Parekh, deputy CEO, IDFC Mutual Fund.

To start an STP, the investor must have a certain minimum amount in the debt fund. HDFC Mutual Fund, for instance, requires that the source scheme should have at least Rs 12,000. Also, the transfers are done on designated days of a month. This option suits investors who have lump-sum money, such as bonuses or sale proceeds from assets.

Flexible SIPs

One of the biggest innovations in the SIP, this allows the investor to change the SIP amount depending on the market level. ICICI Prudential's Flex STP plan, for instance, transfers a higher amount when the markets are down and reverts to the pre-set STP amount when they rise again. So, the investor is putting in more money when stock prices are low and holding back when the index is up. This adds that extra zing to his efforts at rupee cost averaging.

However, only a few mutual fund houses, such as Reliance Mutual Fund, HDFC Mutual Fund and ICICI Prudential, offer the option of flexible SIPs and STPs. But there are intermediaries who can help investors in other mutual funds. One can invest through Fundsindia.com and can call the distributor or send an e-mail for raising the investment amount. "Under the Flexi SIP Investment, the investor can increase the amount with the click of a mouse or a simple phone call, or let our system work through pre-set parameters. Instead of investing, say, Rs 5,000 a month, he can go with Rs 7,000 or Rs 10,000 if the markets are down. In this manner, he will get a much lower cost of entry," says Meenakshi.

Trigger option

Mutual funds also have trigger options to help you invest or book profits at certain index levels. When the index drops to a level predetermined by the investor, the fund transfers money from the debt scheme to the equity plan. Under the HDFC Flexi Index plan, the investor can choose 3-5 index levels and specify how much amount in the debt plan should be transferred to the equity scheme at each level. "For instance, he can choose 15% to be invested when the markets drop to 16,000, the next 15% to be invested when it drops further, and likewise at varied index levels," says Surajit Misra, executive vice-president and national head, Bajaj Capital.

Similarly, when the markets rise beyond a level specified by the investor, the equity units can be sold and money transferred to the debt scheme. More than six fund houses offer these facilities mostly for their large-cap and mid-cap funds. Here, you can invest a smaller quantum of money at select market levels or NAV levels.

Weekly & daily SIPs

The SIP investor should not pay heed to the daily ups and downs in the market. Yet, if you are worried that the markets will rise when your SIP is due and decline subsequently, you could consider spreading your investments across the month. "If the investor wants to put in Rs 20,000 every month, he can split it into four different SIPs on different days of the month," says Paul D'Souza, proprietor of Cuzinns Investment Services.

Some funds also give the option of weekly and daily SIPs and STPs. However, experts believe the daily mode is not a good option because it serves no meaningful purpose. Even fund houses are having second thoughts about this facility, which increases their back-office work by over 20 times compared with that in the monthly SIP. "Under daily SIP, the cost of operation will be high for the mutual fund house. It is operationally inconvenient," says Misra.

Even financial planners have seen their clients bearing the brunt of daily investments from their chartered accountants. "In case of daily SIPs, the chartered accountant faces a problem as he will have to feed in 300-500 transactions while calculating capital gains at the time of filing your returns when you book profits," says D'Souza.

Instead, a weekly STP works better because the volatility is getting trapped and calculations are not much of a bother, say experts. "Whether you invest every month or over 365 days, the outcome is not too different. However, there is huge paperwork involved," says Parekh.

Considering this, the handful of fund houses that have been offering the daily SIP option are mulling over discontinuing these. "We have asked our sales team to take a re-look as there are no takers for them. Besides, operationally, these are inconvenient both for the AMC and the investors," says a mutual fund spokesperson.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/use-sips-to-fight-market-volatility/articleshow/9846135.cms?curpg=2

Use SIPs to fight market volatility

A value investment plan (VIP) is a new investment option launched by a few mutual funds. This concept may gain popularity in the times to come. A VIP is supposed to be a better form of the SIP (systematic investment plan).
A VIP too follows the averaging concept. This investments strategy also works on monthly contributions. The differentiating point is the approach to the amount of each monthly contribution as compared to a SIP.
In case of a VIP, you have to set a target growth rate or amount for each month, and then adjust the next month's contribution according to the relative gain or shortfall made on the original portfolio. In this case, you have to invest more when the market prices fall. On the contrary, you have to invest less when the stock prices rise.
Your investment pattern follows the market. You buy more when the prices are low and invest less when the markets are rising - the ideal thing an investor should do. The investment pattern mirrors the market trend. For example, assume you want to add Rs 5,000 per month to your mutual fund portfolio, and on the first of the month you invest Rs 5,000. Next month say the value of your investment is Rs 5,200. So, you will invest Rs 4,800 only next month rather than Rs 5,000. The balance is contributed by selling securities of an equivalent value (Rs 200 in this case).
In the third month, let's say the value of your investment falls to Rs 8,000. You will have to contribute Rs 7,000, so as to make the target amount of Rs 15,000 (Rs 5,000 for three months). This roll-over goes on during the specified period .
With this plans, you invest a higher amount when the markets are going down. Similarly, you invest a lesser amount when the markets are going up. This is precisely what investors should do. An investor cannot predict the direction of the markets. The VIP mode of investing helps synchronise the investment amount with the market movements . In contrast, a SIP mode of investing is based on the principle of rupee cost averaging. The cost of acquisition in VIP is usually lower vis-a-vis a SIP.
Another difference from a SIP is that each month the amount to be invested will vary. In case of a SIP, a fixed amount is invested each month. In case of a VIP, the difference between the target value and the portfolio's actual market value is to be invested.
So, you cannot really plan out the cash flows with precision, because the amount to be invested is based on the market values, which itself is volatile. In case there are prolonged bear market phases, the amount required to be invested will be much higher. The point to be kept in mind is that if a bear phase continues, let's say for 3-4 years, it can be value eroding for an investor. He will continue investing in a falling market.
In case of bull phases, the incremental investments to be made will be smaller. So, in case one expects a cash crunch, it is advisable to fix a lower target rather than go aggressive and fix a higher target. Usually, in the long term, a VIP is expected to give better returns than a SIP. This is mainly because investments are automatically triggered as the markets fall. The basic premise is that money is invested in periodic intervals in a portfolio in such a manner that the portfolio tries to approach a target rate of return.

Source: http://articles.economictimes.indiatimes.com/2011-09-04/news/30112692_1_investment-plan-new-investment-option-investment-pattern

All that you want to know about - Alpha & Beta

Alpha and Beta are terms that come up often in discussions on investments. Yogita Loke explains you the significance of two vital terms

What is Alpha & Beta?
Alpha indicates the excess return of the fund above risk adjusted market return, given its level of risk as measured by Beta. The excess return of the fund over its benchmark index is a fund’s Alpha.

Beta is the measure of the volatility of a security or a portfolio as compared to the market as a whole. It is also known as beta coefficient.

What do both signify to the investors?
An investment with a positive Alpha indicates that the fund has performed better than its benchmark and a negative Alpha indicates that the fund has underperformed its benchmark.
A Beta of one indicates that the volatility of the portfolio will reflect the market volatility exactly. A Beta of less than one indicates that the volatility of portfolio is less than the market volatility while a Beta of more than one signifies that the volatility of portfolio is greater than the market.

For example, if a stock's Beta is 1.2, theoretically it means that the stock is 20 per cent more volatile than the market.

Why these ratios are considered important?

Alpha value is important to your investor because it measures the excess returns a fund has generated in relation to the returns generated by its benchmark. Alpha is used to determine whether the fund manager through his stock selection ability has been able to beat the market.

Beta value gives you an idea of how a fund will move in relation to the market volatility. In simple words, it is a statistical measure that shows how sensitive a fund is to the market movements. If the Sensex moves up by 10 per cent, a fund's Beta number will help your investor to gauge the fund's movement in relation to the sensex.

Source: http://cafemutual.com/News/InnerKnowledge.aspx?srno=57&MainType=Tutorials&id=5

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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)