Benchmark S & P CNX 500 Fund introduces VIP facility

Benchmark Mutual Fund has approved an additional facility, Value Averaging Investment Plan (VIP) in Benchmark S & P CNX 500 Fund with effect from 20 May 2009.

Features of VIP:
Value Averaging Investment Plan (VIP) is based on value averaging which is a technique of adding to an investment portfolio and to endeavour to provide better return than similar methods such as Systematic Investment Plan (SIP). It was developed by former Harvard University professor Michael E. Edleson. Value averaging is a formula based investment technique where a mathematical formula is used to guide the investment of money into the portfolio over a time.
With the method, investors contribute to their portfolios in such a way that the portfolio balance increases by an amount calculated by a formula based technique, regardless of market fluctuations. As a result, when the market declines, the investor contributes more and when the market goes up, the investor contributes less. This is in contrast to SIPs based on Rupee Cost averaging which mandates that a fixed amount of money be invested at each period.

Advantages of VIP:
The three main advantages of VIP are as follows:
1. Higher returns: In most cases, VIP generates higher time weighted and money weighted returns compared to SIP because the investor invests less when markets are high and more when markets are low.
2. Lower acquisition cost: In most cases, VIP offers lower acquisition cost compared to SIP.
3. Meeting financial goals: VIP endeavors to maintain the portfolio value to the planned target amount reduces the risk of not meeting financial goals. It is done by adjusting the investment amount (within a specified range) to react to the return offered by the scheme.

Disadvantages of VIP: Monthly investment amounts are variable in VIP.
Plan Details
A. Investors in VIP will have to mention two amounts explained as under:

1. Nominal amount: This is the amount which the investor will invest at the time of enrolment for VIP. The nominal amount would be used to calculate target portfolio amount and in the circumstances when market rises in straight line giving the target return, this amount would be the actual amount to be invested.
The minimum nominal amount shall be Rs 2000 and in multiples of Re 1 thereafter and there is no maximum cap on this amount.
2. Maximum monthly debit amount:
This amount is the maximum amount which the investor would allow the fund to debit from their account. There is no upper limit for this amount shall be higher than the nominal amount.

B. The rate of return to be considered for VIP is 15% per annum, based on which installments of investments to be invested by the investor would be calculated.
Amount for investment in VIP:
Every month based on the portfolio value, the Fund will derive an amount be invested (subject to maximum monthly debit amount specified by the investor) for the next moth and that amount will be debited from the investor's account. The minimum amount to be debited from the investor's account is nil. Hence, there could be times that when markets have appreciated; there is no debit in the investor's account.

Risk factors pertaining to VIP:
• As the monthly investment amount is variable, it would be difficult for the investors to manage their cash flows.
• If the market moves in one direction i.e. either up or down, VIP may generate less return compared to SIP.
• If the NAV of the scheme continuously decreases, the absolute loss to the investor would be more than what the investor would have incurred by investing in SIP.

Source: http://www.apollosindhoori.com/Default.htm

NFO: Morgan Stanley Short-Term Bond Fund

Morgan Stanley Mutual Fund has launched new fund offer (NFO) period of Morgan Stanley Short-Term Bond Fund. The issue is opened for subscription from 12 May till 20 May 2009. It is an open-ended debt scheme. The face value of the new issue will be Rs 10 per unit.

Features of the Morgan Stanley Short-Term Bond Fund
Investment objective: The investment objective is to generate income from a diversified portfolio of short to medium term debt and money market securities.
Investment options: The scheme will offer two plans regular and institutional plus plan with growth & dividend options. Dividend option will further offer dividend payout and reinvestment facility. Regular plan will be having monthly dividend frequency while institutional plus plan will be having weekly and monthly dividend frequencies.

Minimum application amount: The minimum application amount under regular plan is Rs 5,000 plus in multiples of Re 1 thereafter. Under institutional plus plan, the minimum application amount is Rs 50 lakh plus and in multiples of Re 1 thereafter.
The scheme seeks to collect a minimum corpus of Rs 1 crore during NFO period.
Asset allocation: The scheme will invest 25%-100% in money market instruments and debt securities with maturity/ average maturity / interest rate reset not greater than 1 year. It will invest up to 75% in debt securities including government securities with residual maturity greater than 1 year. Investment in debt instruments including securitised debt shall be up to 100% of the net assets. No investment shall be made in foreign securitised debt.
The scheme may invest in derivative up to 50% of the net assets of the scheme. The scheme may also invest in foreign debt instruments up to 30% of the net assets of the scheme. Not more than 20% of the net assets of the scheme can generally be deployed in securities lending and not more than 5% of the net assets of the scheme can generally be deployed in securities lending to any single counter party.

Load structure: The scheme will not levy any entry nor exit load during NFO.
On an ongoing basis the scheme will not levy entry load but, it will charge 0.25% if redeemed within 15 days.

Benchmark index: The performance of the scheme is being benchmarked to the performance of CRISIL Short-Term Bond Fund Index.

Fund Managers: Ritesh Jain will be the fund manager for the scheme. He will handle the fixed income investments. Sridhar Sivaram, and Amay Hattangadi will be the dedicated fund managers for investment in foreign securities.

Rating: ICRA has assigned the “Credit Risk Rating mfAAA” to Morgan Stanley Short Term Bond Fund which means that Morgan Stanley Short Term Bond Fund carries the lowest credit risk, similar to that associated with long term debt obligations rated in the highest-credit-quality category. This rating should however, not be interpreted as an indication of the performance of the aforesaid Fund or of volatility in its returns.

Source: http://www.apollosindhoori.com/Default.htm