The Best-Performing Investments of 2010

And the winner is: silver.

With a 66% return for investors this year in India, silver has outperformed most asset classes in 2010.

But that doesn't mean you should rush to buy silver coins in the New Year. If anything, the recent steep gains should be cause for skepticism about the potential for further profits.

"Maybe the story is already over, we don't know," says Narendra Kondajji, director of Procyon Financial Planners Pvt. Ltd. in Bangalore.

Besides, Mr. Kondajji says that like other precious metals silver can be hard to sell on short notice, so risk-averse investors should limit their exposure to commodities. "For a common investor, the major option to create wealth is investing in equities," says Mr. Kondajji.

Here's a look at how some popular investments fared in 2010:

Stock Indexes: 16% to 17%

If you had invested in an index of India's leading stocks at the beginning of the year, you would have earned a return of 16% or 17%.

The UTI Master Index Fund, which invests in the 30 stocks that comprise the Bombay Stock Exchange's Sensitive Index or Sensex, was up 16% through Wednesday.

If you had bought the Benchmark Nifty BeES, an exchange-traded fund which tracks the returns of the S&P CNX Nifty Index, you would have earned 16.6%.

Stock Mutual Funds: 14.4%

Most individual investors prefer to buy one of those funds in which money managers attempt to beat the Sensex of Nifty or some other index. How have these done?

The average mutual fund which invests in stocks of large Indian companies was up 14.4% through Monday, according to data from research firm Morningstar India Pvt. Ltd. Of course, this means that some mutual funds did very well, while others did poorly.

One of the best-performing funds in Morningstar's large cap stock fund category was the HDFC Equity fund, which gained 27% in 2010. One of the worst-performing in the year was the Reliance Equity fund, which lost 1.3%.

A spokesman for the fund's money manager, Reliance Capital Asset Management Ltd., declined comment.

Balanced Mutual Funds: 6% to 12%

These are mutual funds which invest in both stocks and bonds. These funds are meant for risk-averse investors because bond prices don't swing as sharply as stock prices. On the other hand, lower risk means that these funds provide lower returns than pure stock funds.

A typical balanced fund which invests around two thirds of its money in stocks and one third in bonds, gained 12% this year, according to Morningstar. Meanwhile, funds which invest only up to 25% in stocks and the rest in bonds were up on average 6%. These funds are often called "Monthly Income Plans."

Bond Mutual Funds: 4% to 5%

Mutual funds which invest in short-term bonds gained an average of 4.5% this year. Medium-term bond funds, which often have the word "income" in their name, gained 5.1%.

Bond funds are used by investors as a substitute for bank fixed deposits, partly because returns on them are not subject to income tax whereas interest on fixed deposits is taxable. However, these funds are more volatile than fixed deposits.

Bank Fixed Deposits: 6.5% to 7%

At the beginning of 2010, one-year fixed deposits typically paid 6.5%. As interest rates have gone up lately, returns in 2011 will be higher. A one-year fixed deposit from ICICI Bank currently pays 7.75%, while the same from Bank of Baroda pays 8%.

Gold: 20%

A gold bar of 99.9% purity gained 23% through Tuesday, according to the Bombay Bullion Association. However, this return doesn't reflect the cost of buying, storing and selling the gold bar.

To avoid the hassle of safe-keeping etc., investors have lately been buying gold ETFs. These trade on a stock exchange like a stock, and are held in an electronic account in the investor's name. The ETF-provider buys physical gold proportionate to your investment and keeps it in a bank vault.

Benchmark's Gold BeEs ETF gained 19.6% for the year through Tuesday.

Prithviraj Kothari, president of the Bombay Bullion Association, expects gold prices to remain strong in 2011, but adds that an increase in interest rates in the U.S. could affect the demand for gold.

Silver: 66%

Silver prices in India rose 66% this year on the back of huge demand from global investors looking to make quick money on commodities. Prices have risen despite oversupply and poor industrial demand.

Barclays Capital expects that given the excess supply of silver, prices could be curbed in 2011. So, this might not be the best time to load up on it.

Mr. Kondajji, the financial planner, notes that for individual investors in India, this is a hard asset to buy because it's not available in an ETF format. He advises clients to "not go beyond 10%" for their overall allocation to commodities, including gold and silver.

Real estate: 5% to 30%

It's tough to measure the performance of real estate because prices vary by cities and neighborhoods.

Still, here's an estimate of how residential real estate prices have moved this year in three major Indian cities.

The smallest returns came in Bangalore, where apartment prices gained 5% to 10%, according to Gulam Zia, national director for research and advisory services at Knight Frank India Pvt. Ltd., a real estate consulting firm.

In Delhi, Mr. Zia estimates that prices went up between 10% and 20% but for some luxury apartments they gained as much as 25%.

Mumbai was the best-performer, with gains of 20% to 30% this year. However, Mr. Zia adds that toward the end of the year sales volumes of new apartments dropped and he expects prices to drop as much as 10% to 20% in the first few months of 2011.

"Buyers in Mumbai should wait for the next quarter or two," says Mr. Zia. He expects some decline in Delhi prices as well.

Given the large amounts of money required to buy real estate, and the lack of liquidity, only the very rich should consider dabbling in this for investment.

Source: http://online.wsj.com/article/SB10001424052748703909904576052793218751106.html?mod=googlenews_wsj

Expect 10-12% returns in 2011

Focus will shift to midcaps/smallcaps and firms with lower leverage, believe analysts.

Premium valuations, global uncertainty and higher inflation will lead to moderate returns of 10-12 per cent in 2011 for the broader markets, say money managers.

Unlike the 80-plus per cent returns in 2009 and 17 per cent in 2010, investors will need, for the year ahead, to temper their expectations from the broader markets and focus more on mid-caps and small-caps, available at attractive valuations. Expensive valuations and uncertainty could lead to significant volatility, with the Sensex likely to swing between 16,000 and 23,000.

• Outlook for the markets in 2011

Sensex to trade in range 16K-23K

First half could be more volatile

Broader markets expensively valued, focus to shift to mid and small caps

Expect modest returns of about 10%

• Events to watch out for

Euro zone issues, Chinese tightening

US economic recovery

Surging crude oil prices, higher interest rates, inflation leading to possible earnings downgrades

Budget, government finances

• Investing strategy

Invest in companies offering revenues and earnings visibility, and trading at lower valuations

Stick to companies not dependent on external borrowing and having manageable debt

Stock specific approach will pay better dividends

Debt instruments a better bet than holding cash

• Sectors to buy

Mid-cap IT companies

Banking, Infrastructure

Capital Goods

Textiles

• What to avoid

Telecom

Real Estate

FMCG

• Top picks

Indian Hotels

Coal India

BHEL

L&T

Power Grid

ICICI Bank

Tulip Telecom

Renuka Sugar

Euro, inflation key concerns
Several factors, domestic and global, could lead to volatility. “Increasingly, global events will influence Indian equity markets. The problematic euro zone economies, uncertainty over the US economic recovery and an expected slowing in the Chinese economy are the biggest worries,” says Trideeb Pathak, senior director, equities, IDFC Mutual Fund. Experts cite North Korea as another flash point investors need to watch. Local concerns due to rising commodity prices, inflation and an expected rise in interest rates could lead to a jump in input cost and erode operating and net margins, especially of capital-intensive and interest rate-sensitive sectors.

Expect earnings’ downgrades
Analysts say there is a high probability of earnings’ downgrades. It could happen later next year, as the actual impact of inflation and interest rates starts kicking in. The recent rise in crude oil and metal prices could also have a ripple effect on companies and consumers, leading to pressure on demand. Estimated earnings of the Sensex for 2011-12, now Rs 1,240-1,250 per share, could come down. And, valuations which look reasonable could turn expensive.

Dilip Bhat, joint managing director of broking firm Prabhudas Lilladher believes measures taken to deal with the global (liquidity concerns due to Europe) and domestic issues (higher commodity prices) could easily clip off some points from India’s economic growth and temper earnings growth, leaving these vulnerable to downgrades.

Hotels, mid-cap IT, infra preferred
The year was good for commodities, information technology, banking and auto, among other sectors. However, this year, money managers prefer some of the beaten-down sectors and those which exhibit good visibility. Also, sectors that generally participate in the second leg of the economic recovery, such as those in the services space, including hotels and tourism, and mid-cap IT companies, could prove good bets.

Infrastructure is another sector that analysts recommend, as most companies here are trading at 10-12 times next year’s earnings, despite strong visibility. Also, analysts expect a pick-up in new orders due to the rush to achieve the targets set for the XI Five-Year Plan, ending March 2012.

On the back of a pick-up in the industrial capex and government spending, the capital goods sector should do well in the year ahead. As the economy grows and the credit growth remains firm, banking, especially the private banks, are also expected to do well. Many also believe the textiles’ space (trading at eight times the estimated earnings for 2010-11) this year could be a better option to invest, as things are turning in favour of the companies, especially those with the domestic presence.

What to avoid
Telecom is among the leading contenders, due to regulatory uncertainty and heightened competition. Others such as real estate are in the list, given a rapid rise in real estate prices, interest rates and leveraged balance sheets. Fast moving consumer goods, which did well in the current rally, could deliver lower returns with the rises in input cost, and higher valuations, at 25 times the 2011-12 estimated earnings.

What should you do?
As the broader markets are expensive and expected to remain volatile, most money managers advise that you stick to high-quality stocks and avoid portfolio leveraging.

Analysts say a stock-specific approach will work in 2011, but investors should not simply chase returns at the cost of quality, which could be tested in the year 2011. The memories of several scams, which broke in the year 2010, are still fresh. With investigations on, investors need to do more due diligence before investing.

If the global uncertainties materialise, they could pose renewed concerns for our markets and lead to a steep correction. In the light of those risks, investors should look at companies which not only offer growth but also trade at reasonable valuations. “I would try to keep the price earnings ratio of the portfolio down to the extent possible,” says Manish Sonthalia, vice president and fund manager, Motilal Oswal AMC.

Money managers such as Trideeb Pathak of IDFC add that it’d be better to stick with companies which do not require much capex immediately and ones not dependent on external borrowings, as interest costs and the impact of global events could skew the picture.

Source: http://www.business-standard.com/india/news/expect-10-12-returns-in-2011/420139/

KYC must for MF investors from Jan 1

Mutual fund (MF) investors, irrespective of the amount they invest, will have to complete the Know Your Customer (KYC) requirements for all purchases, switches and new systematic investment plan registrations from January 1.

Investors have to submit the KYC form, which is available with fund houses, along with necessary documents at the nearest investor services centre. They have to provide a photocopy of the PAN card , proof of address document and a passport size photograph. Earlier, only resident individual investors making investments above Rs 50,000 were required to complete the KYC formalities.

Fund houses have made arrangements with CDSL Ventures for KYC compliance. On submission of KYC application along with the prescribed documents, a KYC acknowledgement letter will be issued. Investors have to provide the letter for carrying out transactions in MF schemes.

The category of investors who need to comply with the KYC norms also include power of attorney (PoA) holders (for investments done through a PoA), each of the applicants in case of investments in joint names and guardian for investments made on behalf of minors.

Non-individual investors (such as corporates, Hindu undivided families [HUFs], partnerships and trusts) that already have an MF Identification Number (MIN—not valid anymore) and have not provided PAN at the time of obtaining MIN should also complete the KYC formalities mentioned above.

Investors who have already completed KYC formalities should submit a copy of the acknowledgement along with a list of folio numbers. After verification, the status will be updated in records and investors would be able to transact as usual. Applications by investors without valid KYC acknowledgement letter are liable to be rejected from January 1, fund houses said.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/kyc-must-for-mf-investors-from-jan-1/articleshow/7188955.cms