Add MF to 'core' portfolio

A smart investor finds it easy to invest when the market is either flat or falling.

The time she spends in the market is very much in her control. In fact, she can use the current market to build a good mutual fund portfolio.

In such a market, some try out the ‘core and satellite’ approach, a time-tested method of portfolio construction. In this, the investor creates a core-holding that is expected to offer returns in sync with the market and the rest is put into some alternative investments having a low correlation with the core investment.

“Financial goals, time horizon and risk appetite should decide the allocation to a core and satellite portfolio,” says Sumeet Vaid, founder & MD of Ffreedom Financial Planners. Generally, the core component should account for 60-80% of the portfolio. In the classical sense, the broader market is represented by index funds. But, given the high scope for outperformance over the index by the diversified equity funds, one can invest in quality diversified equity funds. “An average MF investor lacks the time and expertise to decide on a sector which will do well.

Given the dynamic scenario in various sectors, it makes sense to have a diversified equity fund as part of the core holdings, as the fund manager can take an informed decision that benefits the investors,” says Nikhil Naik, managing director of Naik Wealth, a Mumbai- based investment advisory firm.

Depending on the risk appetite, you can choose between index funds and diversified equity funds. A risk-averse investor may go in for index funds whereas one with a propensity for risk could opt for diversified equity funds. A point to note is that no mutual fund scheme here should get more than 20% of your money. While deciding on the schemes, you may consider past returns, fund pedigree, fund management team and the fund management style, among other factors. The core portfolio offers you returns in sync with the broader market returns.

On the other hand, the ‘satellite’ holdings are expected to add quality and returns to your overall portfolio. Here you need to incorporate investment opportunities that are ‘not strictly correlated’ with your core holdings. Mutual funds that invest in alternate assets or geographical locations make eminent sense for this portion of the portfolio. One can also consider different investment styles. Sector funds, though selectively, also make it to the satellite portfolio of investors. No investment in the satellite portfolio should occupy more than 10% of the entire portfolio.

Consider a case where you have invested in Indian equities. That must not be the best-performing market in the world. There are other growth stories worldwide, beyond India and China. One can consider ING Latin America Fund, an equity mutual fund scheme that invests in a fund dedicated to invest in Latin American markets. This may make a meaningful diversification, given the low correlation with our markets in the long run. However, considering there are geopolictical risks associated with investments into these markets, one should limit the exposure in funds which invest into these markets.

If you are a professional working in a particular sector and are well-versed with the dynamics of the business, you may be better off taking a sectoral plunge. A project manager with an IT company may consider an IT fund. Within the category, the investor must find a solution that better suits his view.

Investment in Franklin Infotech Fund will offer an exposure to the sector, but will remain focused on large-cap IT, with more than half the assets invested in Infosys Technologies. On the other hand, DSPBR Technology.com fund will offer a more diversified portfolio. Both have their own risk-and-reward matrices and can bring a big change in your overall portfolio returns if a careful entry and exit can be timed as a satellite holding in your portfolio.

“Passionate investors prefer to include schemes that invest on quantitative parameters. ‘Ethical’ or ‘socially responsible’ offerings also make it to some investors’ radar,” says a financial planner with a Mumbai-based bank. A fund that invests on dividend yield parameters is also considered by some investors with low-risk appetite.

While building a portfolio, you should invest in systematic investment plans (SIPs) and the amount should be decided taking into account accumulated money with you and the anticipated monthly investible money inflows. “Timely rebalancing of the portfolio is important to ensure success of such a strategy,” says Sumeet Vaid.

Source: http://economictimes.indiatimes.com/articleshow/5217468.cms?flstry=1

IDFC Real Estate Equity Fund files offer document with Sebi

IDFC Mutual Fund has filed an offer document with Securities and Exchange Board of India (SEBI) to launch IDFC Real Estate Equity Fund, an open ended equity fund. The new fund offer (NFO) price for the scheme is Rs.10 per unit.

The investment objective of the scheme is to seek to generate long-term capital growth from a portfolio of predominantly equity and equity related instruments of companies engaged in real estate and related activities.

The scheme offers dividend and growth option. Reinvestment facility is also available under the dividend option.

Under normal circumstances the scheme would invest 65-100% of asset in equities & equity related securities of companies engaged in real estate and real estate related activities. The scheme may also invest 0-35% in debt and money market instruments.

Investments in derivatives - upto 100% of the net assets.

Investments in foreign debt instruments - up to 35% of the net assets of the scheme.

Investments in ADRs and GDRs issued by Companies in India / equity of listed overseas companies as permitted by SEBI regulations - upto 50% of the net assets of the scheme.

Investments in securitized debt - 35% of the net assets of the scheme.

The minimum application amount is Rs 5000 per application and in multiples of Re.1 thereafter.

During the New Fund Offer period the scheme, seeks to raise a minimum subscription of Rs.1 crore.

Exit load: 1% if redeemed within 365 days from the date of allotment/investment.

The scheme will be benchmarked against BSE 200 Index (50%) + BSE Realty Index (50%).

The fund manager for the scheme: Kenneth Andrade

Source: http://profit.ndtv.com/2009/11/10180811/IDFC-Real-Estate-Equity-Fund-f.html

UTI MF Announces Change in Fund Managers

UTI Mutual Fund has announced change in Fund Managers for various schemes.

Accordingly Amandeep Chopra will be the Fund Manager for UTI-Unit Linked Insurance Plan, UTI-Mahila Unit Scheme, UTI-MIS Advantage Plan.

For UTI-Balanced Fund, UTI Scheme for Charitable & Religious Trusts & Registered Societies, UTI-Monthly Income Scheme, UTI-Retirement Benefit Pension Fund, UTI-Capital Protection Oriented Scheme, - Amandeep Chopra will be Fund Manager for Debt Portion and V. Srivatsa for equity portion.

For UTI-Children Career Balanced Plan, Amandeep Chopra will be Fund Manager for Debt Portion and Anoop Bhaskar for equity portion.

Anoop Bhaskar will be the new Fund Manager for UTI-CCP Advantage Fund.

Deb Bhattacharya, Fund Manager ceases to be the key personnel with effect from 24 September 2009.

Source: http://profit.ndtv.com/2009/11/10100410/UTI-MF-Announces-Change-in-Fun.html

Reliance MF leads Crisil MF rankings

Reliance Mutual Fund has emerged as the most successful fund house in the country for the quarter ended September 2009, riding on strong performance by both equity and debt oriented schemes, according to Crisil FundServices.

Crisil's Composite Performance Rankings (CPR) for July-September 2009 period saw Reliance MF emerging as the fund house with most number of CPR 1 ranks, repeating its first quarter performance.

Crisil CPR is the relative performance ranking of mutual fund schemes within the peer group.

"A number of Reliance MF's equity oriented funds have performed creditably on risk adjusted returns. On the other hand, its debt oriented funds have done well on portfolio attributes like asset quality, asset size and liquidity," Crisil FundServices Director Krishnan Sitaraman said.

Reliance MF achieved ten CPR 1 ranks (the same as in the previous quarter), while HDFC MF showed an improvement by bagging seven CPR 1 ranks compared with six in previous quarter.

ICICI Prudential MF and UTI MF followed with six CPR 1 ranks each, while Birla Sun Life MF and DSP BlackRock MF were other strong performers bagging five CPR 1 ranks each.

The rankings are assigned every quarter with 21 different peer groups such as large-cap equity funds, mid and small-cap equity funds, balanced funds and liquid funds.

Crisil-CPR is assigned on a scale from 1 to 5 with the top rank of CPR 1 indicating very good performance.

Source: http://www.bloombergutv.com/stock-market/mutual-funds-news/36941/reliance-mf-leads-crisil-mf-rankings.html

Axis Mutual Fund launches its first equity fund

Axis Bank-promoted Axis Mutual Fund has launched its first equity fund, Axis Equity Fund, a diversified equity fund benchmarked to the S&P CNX Nifty.

"We aim to offer total investment solutions to consumers and not just individual products. Our research has shown that there is a huge demand for simplicity and trust in financial services," Axis AMC's managing director & CEO, Rajiv Anand, said in a statement here today.

"We have chosen to launch a simple but effective product in the category of diversified equity funds. Industry data indicates that in the last five years (as on October 30, 2009) all the 85 diversified equity funds have given positive returns with the worst giving 12% per annum and the best 34% per annum. With a simple product and a reputed brand name like Axis, we have an appealing solution for the consumer," Anand said.

Axis Equity Fund will open for subscription on November 11 and close on December 8, the statement said. It will re-open for purchase and redemption on January 7, 2010.

Investors can apply through a lumpsum purchase or through Systematic Investment Plans during the NFO. The minimum lump sum purchase is for Rs5,000.

The scheme is available in two options - growth and dividend, and 1% will be charged as exit load if the investor redeems/ switches out from scheme within one year from the date of allotment.

"Axis Equity Fund is a solution designed for a consumer who is seeking a balance between deciding the best investment option that helps him provide for his family's future and ensuring that he has invested wisely, thus helping him enjoy the present with his family," national sales head, Karan Datta, said.

Axis Mutual Fund had launched two debt schemes in the month of October 2009. It manages Rs1,988 crore in these two schemes as on October 31. Axis Mutual Fund already has offices in over 25 Indian cities.

Source: http://www.dnaindia.com/money/report_axis-mutual-fund-launches-its-first-equity-fund_1309764

Equity MF redemptions in Oct the highest ever -- what gives?

Investors booked profit worth Rs 6,558 crore in equity mutual funds in October, the highest ever for any month.

However, about Rs 4,408 crore flowed back into these mutual funds during the month.Net outflows thus stood at Rs 2,123 crore, also a monthly record.

However, fund managers are far from worried. Most dismiss it as a phenomenon of the equity market movement.

"As we saw, the markets moved up from a bottom of 8000. People booked profits. This keeps happening at various point in time, whenever the markets go up. There was profit booking and new investments into funds have been slow," Sandeep Sikka, chief executive officer of Reliance Mutual Fund said.

Asked if money moved out of non-performing schemes, in search of better returns, Sikka said, "Track records will keep gaining importance. Money will keep moving out of low performing funds to better performing funds."

"It is all about the investors' psychology," Bhanu Katoch, chief executive officer at JM Financial Mutual Fund, said.

"In 2007, the euphoria was so high that people thought the markets would go up. After hitting 21000, when the markets touched 17000, people thought it was the best time to invest and put in a lot of money. But when the markets fell to 13000-14000 levels, people just didn't invest," Katoch said, adding, "There are stages when you get confused and this is just that phase."

Has the lack of push from the financial advisors and mutual fund agents, who now have to claim their commissions directly from investors, had an impact? Fund houses nod in affirmation.

Katoch said, "Advisors are missing in the game and the gross sales have got impacted substantially because of this phenomenon."

He, however, added that the situation will be different a few months down the line. "Most distributors are rethinking their strategy and in-matter of time people will come up with a better mode and will adjust," he said.

Sikka said Reliance MF, the biggest fund house, was seeing retail investors return. And they are making learned decisions, feel advisors.

"Most of them are booking profits and putting the money in debt. If they are seeing a 12-15% return in a short span, they are booking profits and are ready to take a notional loss," Paul D' Souza, who runs the financial advisory Cuzinns Investment Services, said. Larger funds are being preferred over smaller ones, D'Souza claimed. "The larger fund assets under management (AUMs) have gone up and smaller fund AUMs have shrunk. So, people have moved out of smaller size funds into larger funds with better brand. The inflows are happening into infrastructure and mid-cap funds."

Source: http://www.dnaindia.com/money/report_equity-mf-redemptions-in-oct-the-highest-ever-what-gives_1309933

Buy and not hold for long is the new investor philosophy

The average holding period of Nifty shares by investors has fallen to 11 months this year from 16 months in 2006

Naveen Pandey, 35, a Noida-based owner of a bearing making unit, is never far away from his computer workstation during market hours. He logs on to his online broker website and trades every day.

“Earlier, it was a pain calling up brokers and placing orders,” he says. “Now I can monitor market movement closely, listen to what the experts say on the television and make my call.”

Pandey is representative of a new breed of aggressive traders.

In New Delhi, Behl, 29, who prefers to be identified by only his last name and works in one of the top management consulting firms, says he wants to keep his “money rolling”. He calls himself “a trader in some high beta stocks”, or very volatile ones, and keeps track of the market closely even as he helps companies manage operations efficiently.

With small investors aggressively trading in the market, value investing or “buy and hold” seems to be a thing of the past. Indian investors are holding on to their purchases for shorter periods of time.

The average holding period of Nifty stocks—the 50 companies that comprise the National Stock Exchange’s key index—by Indian investors has dipped significantly in the past four years, driven by easier access to online trading technologies and market information. A greater proportion of institutional investments, both domestic and foreign, is also leading to a frequent churn in holdings, market observers said.

In 2006, a share of a Nifty company typically changed hands once every 16 months. This calendar year, the average holding period has declined to 11 months.

This approach is quite a contrast from that of billionaire investor Warren Buffett, who famously said that the best time to sell a stock is “never”. This tenet of Buffet, named in a recent Bloomberg poll as the best assessor of financial markets, doesn’t seem to have much currency among Indian investors.

We calculated the average holding period by dividing the total delivered volumes of a stock in a year by the non-promoter holding (since free float numbers weren’t always available) to get the yearly churn. From this number, the monthly holding was derived.

However, this doesn’t take into account promoter trading. Also, it ignores the behaviour of traditional institutions such as the Life Insurance Corp. of India and the erstwhile Unit Trust of India, which tend to buy and hold for long periods. The erstwhile Unit Trust has been split into a mutual fund unit and a special investment unit that caters to investors in specific schemes.

“Value investors account for only 10% of the market,” said Parag Parikh, who runs a financial services firm named after him, and is the author of the book Value Investing and Behavioural Finance.

“As for institutions, they are always timing and trading. (Retail investors) are always looking for tips, they see CNBC and start trading.”

Access to markets and related information has improved in the last 5-10 years. While dematerialization, or conversion of paper shares into electronic form, started in the beginning of this decade, the last five years have seen the emergence of at least half a dozen online brokerages.

Although there are no industry-wide estimates, top online brokers have reported a doubling in the number of subscriptions in the past four years. ICICI Direct, a unit of ICICI Bank Ltd, said its customer base has risen to 1.9 million, while Sharekhan Ltd said its subscribers number 900,000.

What has also helped is that the cost of transactions have come down for investors. Despite recent levies such as the securities transaction tax and service tax on brokerage, the cost of a transaction for a deliverable trade ranges between 0.25% and 0.75% of the value, according to Anup Bagchi, executive director at brokerage ICICI Securities Ltd. This was 2.5-3% before the introduction of online trading. Intra-day transactions, where positions are squared by the end of the trading session, are even cheaper at 0.05%, down from 0.15% five years ago, Bagchi said.

Financial news is available from a variety of sources. There are at least six business news channels in English and Hindi and an equal number of financial newspapers in English.

The churn is also due to the private life insurance and mutual fund industries, whose fee structure incentivises the frequent churning of investor portfolios. The equity holdings of insurance firms amount to Rs2.8 trillion and that of mutual funds, Rs1.7 trillion.

“In a market that is very volatile, that (churning of share holdings) is bound to happen,” said Ved Prakash Chaturvedi, chief executive officer of Tata Asset Management Ltd, which manages some Rs20,000 crore.

Indian stock prices have seen dizzying fluctuations in the past four years. The Sensex, the benchmark equity index, vaulted around 45% in both 2006 and 2007. The next year it plunged 52% before gaining 60% this year to date.

While Mint couldn’t analyse data separately to study the behaviour of institutional investors, anecdotal evidence suggests that they too are increasingly churning shares.

“Many of them (institutions) are alpha-seeking though there is no proof that greater churn yields better returns,” said Jagannadham Thunuguntla, head of equities at Delhi-based SMC Capitals Ltd, which compiled the shareholding data for this story.

The alpha of a stock or a fund refers to its excess return over a benchmark. Classic hedge funds use a so-called long-short strategy to generate alpha, for example, by buying auto company shares while shorting or selling steel company shares in anticipation of metal prices going down.

Also, many fund managers are constrained by redemptions or inflows into their funds that may not coincide with the best time to buy or sell in the market.

“The customer decides when I will buy and when I have to sell,” said Nilesh Shah, deputy chief executive officer of ICICI Prudential Asset Management Co. Ltd, which manages Rs80,524 crore of assets. “When they decide to redeem, I have to necessarily sell even if isn’t the right time to do so.”

Source: http://www.livemint.com/2009/11/09215930/Buy-and-not-hold-for-long-is-t.html