Wednesday, August 20, 2008

Patience - Only way for MF investors...

Those who have invested in equities through mutual funds, unit linked insurance plans and portfolio management services are wondering what to do next...

Here is a look at how mutual fund investors are faring, and why there are fears that there could be a panic sell-out.

Meet Pranav Kotlikar - …a 27-year old banker who had never looked at the stock markets till his friends began cashing in on the bull run of the last three years…

while Pranav did not byte the equity bullet totally, he began moving most of his monthly savings into mutual funds in 2006… the returns were spectacular, and Pranav felt on top of the world but six months into this year, Pranav is more than a little lost…

Pranav: "I stayed on after the market slide…I wish I had not done that.. I've lost almost Rs 2 lakh…"

Pranav is just one of the over four crore individuals who put their money in mutual funds trusting it to be a safe haven for their savings. And who could blame them? If you went to any bank branch or met any financial planner over the last two years, chances are you would have opted for one of the following as a sure shot way of saving for a happy and early retirement

Mutual funds, especially systematic investment plans

Unit linked insurance policies, childrens plans and pension plans

Portfolio management services

Until January this year, all of the above would have made you feel secure. Mutual funds gave returns of anywhere between 40-50%. Assets under management grew five-fold in just 3-4 years, and investor base grew by a staggering 57% in 2007…

Then things turned, and with the 30% slide in the markets, the picture is different....

Today, the NAVs of 80% equity funds have returned to their one-year lows. Diversified equity returns have shrunk into negative territory, and is now at a minus 8.2%.

Dhirendra Kumar of Value Reserach says: I am surprised there is no panic... Now, it will start as people start losing their capital..."

These are tough times, and those who have seen bull runs and slides still insist that there is nothing like patience. Systematic investments could ensure that people like Pranav cover money no matter which way the markets go…

http://www.utvi.com/stock-market/mutual-funds-news/5701/patience---only-way-for-mf-investors---.html

Sebi should enhance networth for MFs

To ensure that only serious players with a long-term view enter the mutual funds space, market regulator Sebi should enhance the networth limit for companies seeking MF license to Rs 10 crore from the present Rs 2 crore, a report said.

"With the high cost of operations in the initial years and a relatively longer gestation period, there is a case for re-consideration of Rs 10 crore net worth criteria set from the present Rs two crore for obtaining a mutual fund license," Confederation of Indian Industry and PriceWaterHouseCoopers said in their joint report.

This would ensure that only major players who are committed to the mutual fund industry are capable of sustaining over a long-term would be able to operate in the industry, the report said.

With more players entering the industry, the fee rates are likely to drop in the period ahead and may prompt the fund houses to seriously consider outsourcing, it said.

Moving ahead, MF players would also have to bridge the demand-supply gap of human-assets needs and the companies should tie-up with educational institutions to offer programmes dedicated to the financial services industry, the report said.

Similarly, there was a case for re-consideration of cap on the maximum amount of expenses that can be charged to a scheme, it said.

"Charging additional expenses would enable the fund houses to invest more on expanding the investor network and improvise on delivering quality services to the investors," it said

How To Start Investing - Part I

Many times I am asked the following : 
“I want to invest. How do I get started?”

At first I thought this would be easy, but after some thought and discussion I needed to think about this some more. There is a lot of bad advice out there, and people require a heads up on a lot of things they will encounter from other ‘investors‘, not to mention the media. I will give my best attempt to address them in this multi-part article. I’m not the best writer, and I notice that at many times, not all of my thoughts and ideas are fully captured in my articles. After I complete this series, I will probably improve upon them over time.

BEFORE BEGINNING

The answer is not that straight forward. Before you begin I have some important recommendations:

- Hold Your Money - Hold your money until you’ve assessed if you need the money in the near future or not. If you need it, you will want to put it in a short term secured financial instrument (such as a GIC or term deposit) or high savings interest account because it may be money you cannot lose, or it may be difficult to re-accumulate in a short period of time. In addition, after you learn more, you may find a more suitable short term place for your money that you wouldn’t have been able to evaluate adequately.
- Learn First - You will most likely have an idea of what an investment means to you, and what you want to invest in. Most people think stocks & mutual funds, but there are others which include real estate as well. The investment world contains much more than just those investment vehicles too. Learn about the other investment vehicles. An investment plan will most likely be made, and your choices may change afterwards.
- Patience - Many people don’t want to wait, and jump in right away without knowing anything. Many people will also recommend that you don’t wait, stating that now is the best time. Others will tell you to buy “safe” or “low risk” unsecured investments, to make money while you are learning, instead of actually learning first. Real risk comes from not knowing what you are doing and not being able to properly assess your personal financial situation in relation to the investments.
- Patience is required until further knowledge is accumulated on the subject matter. You will be better able to make investment decisions, whether it be stocks, or even what real estate to put your money in. You may then also have an idea of how (if at all) you may want to split money among different investments. Don’t be worried about lost opportunities to make money while you are learning. When you are more knowledgeable, you will have plenty of time to make money, and will be able to see the opportunities you wouldn’t otherwise be able to see. Also, if you use up your capital on bad investment decisions, then you have a lot less to use on good ones.
- Continue Learning - Investment, styles & techniques are imprecise & highly debated. Many should be tools that you are able to use in various situations & stages. You’ll find investing very much an imprecise art, and perspectives on investing philosophies/methods will be like religions to people. No matter what one investor says, it may always be invalid to another. Some examples include groups who believe totally and/or partially in market efficiency, market psychology, fundamentals, technical analysis, etc. Keep an open mind, and most importantly continue to educate yourself with financial knowledge.
- Logic, Not Emotion - When investing you must keep your emotions out of the picture, in order to make logical decisions and assessments. Most people fail because of this. This is probably the largest make or break factor of any investor. Even if you have the knowledge, emotion distorts an individual’s thinking, resulting in action that is not based on the knowledge.

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BEGINNING - THINGS TO CONSIDER

Decide whether you want to Do-It-Yourself, or rely heavily on a Financial Advisor. I’ll use the letters DIY & FA in the rest of this article.

DIY or FA? There are advantages & disadvantages that each person needs to consider carefully. The paths will be very different, but you can always change your mind later as well. My preferred choice is Do-It-Yourself.

.

Do-It-Yourself:
- Results vary from individual to individual - DIY as a consequence, is highly dependent on the individual investor’s attitude & mindset, as well as knowledge & experience. All of which can be accumulated/learned.
- Time, effort, commitment - Learning, analysis, research, planning (but it doesn’t necessarily mean difficult work, or spending hours on end each day). As with anything, there are things that you will need to do. DIY requires more of a commitment.
- Individual goals - Super wealthy, affluent, financially free, retire early, etc. In the majority of cases many of these goals may be achieveable only through DIY.
- The role of your FA - An information resource, financial resource (instruments, financing/capital, etc). Will be less hands on.
- Control - You are the decision maker, manager of risk, and the most knowledgable in terms of what investmestments will be the most suitable at each moment in time. Basically you’re the captin of the ship.
- Trust - Can you trust yourself to have & keep the necessary temperment? Learn what is necessary? Take steps to invest properly? Does your family trust you for this task? You also need to trust the information, and ability of the FA to do what you need them to do.
- Investments - Virtually an unlimited range of investment vehicles and business opporunities.

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Financial Advisor:
- Results will vary from advisor to advisor - Is dependent on the advisor’s attitude & mindset, their knowledge, their ability to adequately assess what is suitable for you, and your own knowledge of yourself.
- Time, effort, commitment - Learning enough about yourself so that the advisor can assist you. Finding a knowledgeable & competent advisor. Keeping up to date with general economic news. Also, requires commitment, but less than DIY.
- Individual goals - Retire early, retiring at 65, etc. Can an advisor help you reach your goals?
- The role of your FA - Decision maker, information resource, financial products & instruments. Will be more hands on.
- Control - Less control, as you will most likely not have an adequate amount of knowledge. Relying more on the advisor. Less of a decision maker. You still give final consent.
- Trust - You must trust your advisor a lot more, as you will be relying on them almost completely.
- Investments - Most likely limited to GICs, mutual funds, stocks.

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Contrary to what the general public is lead to believe by banks & investment firms, people need to understand that investing is not just the act of purchasing an investment (GICs, mutual funds, stocks, real estate, etc). Investing is much more, and there are important steps to follow whether you DIY or rely on a FA. If you are not willing to do all the steps, you may be financially better off by putting money into secured GICs, high interest savings accounts, & paying off the mortgage. The alternative is losing money from unknowledgeable decision making or bad advice. We have seen countless individuals across the globe who lost their life savings from blind investing in stocks, mutual funds, and other products recommended by their local bank, investment firm, and financial advisor. People have also lost money in real estate as well through improper investing and speculation.

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THE STEPS

The steps for either are straight forward, but extremely important. No step can be skipped or fast tracked. Most are valid for both DIY or FA, but one focuses on certain aspects more than the other. The steps should also be revisited continually:

Steps For DIY:
1. Make sure your personal finances in order first.
2. Educate yourself on the subject area & increase your knowledge on a continual basis.
3. Make sure you have the right attitude & mind set.
4. Know yourself, your needs, & your goals. (Gives you direction - learning, control, etc.)
5. Build your advisory team.

Steps For FA:
1. Make sure your personal finances are in order first.
2. Educate yourself on the economy & general economic trends.
3. Know how to find a competent, knowledgeable, and honest financial advisor.
4. Know yourself, your needs, & your goals (so that the advisor can best assist you).
5. Build your advisory team.



In Part II, I will elaborate on each step and its importance.

Rupee inches closer to 44 mark


Surging demand for dollars pushes currency down to 43.71 to a dollar.

Hit by an acute dollar shortage in the foregn exchange market today, the spot rupee lost 19-20 paise to reach an intraday low of 43.86 against the greenback in the first half of the trading session. Towards the end, the spot rupee recovered to close at 43.70-71 to a dollar.

According to dealers, foreign institutional investors (FIIs) continued to pull out of the equity market even as the BSE Sensex gained 135 points on Wednesday.

Dealers said while foreign investors were exiting the Indian markets for better returns in the West Asian and overseas markets, domestic players like insurance companies and mutual funds continued to remain major buyers in the domestic equity market.

According to dealers, while foreign banks on behalf of their FII clients continued to buy dollars, the supply was ensured from exporters, who were selling their dollar receivables for the near term (one to three months) to take advantage of the depreciating spot rupee.

The Reserve Bank of India (RBI) also remained one of the major sources of dollar supply. It sold the greenback in the spot market with an underlying agreement to buy it back in the forward market from banks besides the outright sale of dollars. This measure is to ensure depletion of foreign exchange reserves since the sale of dollars today will be replenished by dollar sales by exporters or other players in the forex market at a future date, said a dealer.

Dealers also attributed a strengthening dollar overseas to the weakness in the rupee weakening. The dollar has been gaining due to a weakness across global currencies. “If the rupee continues to depreciate in this manner, the spot rupee may touch and even breach the 44 mark to a dollar in the beginning of the next week,” said a dealer.

Besides FIIs, oil companies also continued to buy dollars, fearing a fast depreciation of the rupee.

The premium on the forward dollars declined today as both exporters and RBI were selling dollars in the forward market, thereby pushing up the rupee premia. FIIs and oil companies, on the other hand, were buying dollars from the spot market. The annualised premia for six-month and one-year forward dollars closed lower at 3.12 per cent and 2.70 per cent today as against 3.45 per cent and 2.93 per cent on Monday respectively.

Time to increase your Gold Portfolio

UTI Gold ETF has given significantly higher return than UTI contra or any other equity diversified scheme. Return in UTI Gold in last one year was 42 per cent approx whereas UTI contra return was -2.32 per cent (negative). This was primarily due to rising gold prices internationally in last one year. However in long run say in 5-7 years, return in diversified equity fund may outperform gold fund.

It is advisable to put 50 per cent in any Gold Fund and remaining 50 per cent in a good diversified equity fund

What are the different Gold Funds in India?

There are five different Gold based ETF’s available for trading as well as investments on the NSE. Below, we list them one by one:

Benchmark Gold BeES:
Thiswas the first off the block Gold ETF available in India for trading and investment. This comes from the Mutual Fund house called “Benchmark Asset Management Company”, which is the primary front runner in the Indian Markets for introducing the ETF Funds trading in India. The Benchmark Gold BeES ETF has managed to give consistent returns to the investors and matches the returns of all the other Gold based ETFs. ICICIDirect Trading Symbol: GOLDEX

UTI-Gold Exchange Traded Fund:
Closely following Benchmark was the UTI-Gold ETF and is one of the best performers in the Gold based ETF segment. It has the long standing trusted name of UTI Asset Management Company and has been a hot favourite for investors looking for investing in Gold based ETF or Exchange Traded Funds. ICICIDirect Trading Symbol: UTGOLD

Kotak GOLD ETF:
It was in June 2007, when Kotak Mutual Fund house decided to launch the Kotak GOLD ETF, and this fund has also lived up to the investors expectations. ICICIDirect Trading Symbol: KOTGOL

Reliance Gold Exchange Traded Fund:
How can Reliance, which is a real big name in India, be left behind? Reliance Gold Exchange Traded Fund or ETF too have a Gold based ETF and this fund too has managed to live up to the expectations of the investors. The returns are similar to those of the other Gold based ETF available in India. ICICIDirect Trading Symbol: RELGOL

Quantum Gold Fund:
A new fund from the Quantum Fund house called the Quantum Gold Fund. Returns similar to the ones by the other Godl based ETFs. ICICIDirect Trading Symbol: QUGOLD

So now the investors looking for investing in Gold that too specifically in Gold based ETF now have a wide variety and choice. The interesting thing is that the returns on all these various Gold based ETF’s have been almost similar. The only thing an investor should be careful about is the expense ratio or fund management charges. Though the are ETF, so the only thing an investor needs to pay is the brokerage, but sometimes the ETF may also levy a fund management fee from the investors.

Are FMPs risk-free investment avenues?

The rising yields in debt markets have resulted in FMPs (fixed maturity plans) emerging as attractive investment options for investors. Also, the testing conditions in equity markets have in no small measure, contributed to the allure of FMPs. 

Simply put, FMPs are debt-oriented investment avenues from the mutual funds segment with a fixed investment tenure; also, they profess to offer a reasonably assured (predetermined) return. This is achieved by locking in a yield (return) at the time of getting invested. Hence an investor who is invested in the FMP until its maturity, is virtually assured of clocking the projected return.

However, it should be understood that FMPs are not the risk-free avenues they are made out to be. For instance, the possibility of the actual return varying from the indicated return cannot be ruled out. Market conditions, inappropriate investments (say a credit default in any of the underlying investments) or even a poor investment style (a mismatch between the maturity profile of the FMP and that of its underlying investments) can be responsible for the same. 

In conclusion, while FMPs would qualify as low risk investment avenues, they are certainly not the risk-free avenues they are made out to be.

Mutual Funds Update from CRISIL India

All CRISIL Mutual Fund indices with the exception of the CRISIL MF~Gilt index posted positive returns in July 2008. The CRISIL Fund~eX (which tracks diversified equity funds) with returns of 5.40 per cent in July was in line with the benchmark S&P CNX Nifty which ended the month at 7.24 per cent over the earlier month.

The hybrid CRISIL Fund~bX (which tracks balanced funds) was up by 3.76 per cent, while the CRISIL MIPEX, (benchmark for monthly income plans) which has a lower equity component, posted returns of 0.97 per cent. Among pure debt indices, the CRISIL Fund~dX (which tracks Long-Term Bond Funds) ended 0.43 per cent up while the CRISIL STBEX (benchmark for Short-Term Bond Funds) gave monthly returns of 0.29 per cent while the CRISIL~LX Index ended up by 0.71 per cent. The CRISIL MF~Gilt Index however gave negative returns of 0.15 per cent.

Banking Sector Funds - the top performers in the equity mutual fund space. In the equity category, banking sector funds performed well with relief rallies in banking stocks driven by valuations becoming attractive after a prolonged southward movement." Reliance Banking Fund posted 13 per cent returns for the month ended July 2008 followed by the UTI Thematic - Banking Sector Fund with 11.50 per cent gains and JM Financial Services Sector Fund with 10.12 per cent returns.

There were six diversified equity oriented schemes which gave over 10 per cent returns during the 1-month ended July 31, 2008. Of these, the top four schemes belonged to LIC Mutual Fund, viz., LICMF Growth Fund (12.3 per cent returns), LICMF Equity Fund (11.47 per cent returns), LICMF Infrastructure Fund (11.29 per cent returns) and LICMF Opportunities Fund (10.8 per cent returns).

The Indian mutual fund industry's average assets under management (AUM) fell for the second consecutive month in July to Rs.5.31 trillion from Rs.5.66 trillion in June 2008 (including fund of funds). The decline by over 6 per cent in mutual fund assets can be attributed to redemptions due to volatile equity markets, tightness in money market, an unfavourable inflation outlook as well as on prospects of interest rates moving northwards after RBI hiked repo rates by a higher-than-expected 50 bps to 9 per cent and raised banks' CRR (cash reserve ratio) by 25 bps to 9 per cent in its latest quarterly monetary policy review.

http://www.ranjanblog.com/2008/08/mutual-funds-update-from-crisil-india.html

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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)