Mutual funds are the best option to fulfil your child's aspirations

Over the past two decades, there has been a structural shift in the concept of a family. A large proportion of joint families has gradually transformed into multiple nuclear families. This shift has been due to many factors like opportunities across India and the world, the rising purchasing power and, hence, affordability, higher influence of the western cultures, etc.

Despite this shift, the Indian parents' thought process about fulfilling their child's dreams has remained the same. The emotional bonding with children still remains far stronger than in most of the western and east Asian countries.

As a child grows, day-to-day needs and pleasures evolve into bigger event-based expenses. These events could be education, business, marriage or assisting your children with buying a house. To achieve these aspirations, meticulous and scientific planning is required to make sure that you don't have to make compromises in providing for your child. The future is uncertain, especially in terms of the economy. But what we do today for the sake of our children's future will count a lot later.

When the prices of a kilo of some vegetables have crossed Rs 100, one is tempted to ask a simple question: "How will I invest in various investment avenues to balance my risks and returns with my small savings every month?" The answer is simple - mutual funds.

There are no other products that can give you an easier, more efficient, operationally convenient and, most importantly, an option for small size investments. When you give your child a mutual fund you will not only be giving them a gift that continues to grow or accumulate over the years but you will also be helping them to teach about finances and the benefits of investing their money.

Mutual funds invest in a variety of shares of blue-chip corporates with marginal risk, high-return fixedincome instruments, real-estate, bonds and the most favoured asset class now - gold. No one can predict how the stock markets will behave in a given year, much less predict where the stock market will be a few years down the line. This doesn't mean that we are powerless. We have a tool called asset allocation to counter the uncertainties of the markets.

Asset allocation refers to how one divides his or her money among different asset classes and can be seen as a map to reach the financial destination in a stipulated time to fulfil your child's dream. Mutual funds are diversified in nature and asset allocation is inherent in them, which makes them a great investment avenue for our regular savings.

Mutual funds are both professionally managed and easy to liquidate. You can start investing in them with as little as Rs 500 or start a micro SIP of as low as Rs 100. By increasing the allocation to riskier asset classes like equities, we can increase the expected returns.

The avenues of variable returns, mutual funds and Ulips for example, may not give you fixed returns like bank deposits, but over a long tenure, these products have out-performed deposits or fixed return products. In the last 10 years on an average, fixed deposits have given 7.2% CAGR, while equity indices (Sensex) have given over 16% and gold has given over 18.5% CAGR returns.

This makes it imperative for all investors to diversify across all types of investments with the help of proper asset allocation. Now let's elaborate this with the help of an example. Suppose, in future, the returns from the three asset classes are similar to the ones mentioned above, then over the next 10 years, a one-third allocation to each asset class will give a 14% return.

Every investor has his/her own objectives, constraints, time horizon and unique circumstances that need to be considered when trying to create an asset allocation model: a younger investor can take lesser exposure towards bonds while an older investor needs to increase the percentage of fixed income products, with an automatic decrease in percentage of equities.

Hence, with the increasing cost of education and the huge expenses involved in marriages, it becomes imperative and prudent to start saving early and investing regularly for your children's dream to safeguard their future. We have to ensure and plan accordingly that the desired funds for our children's future goals are available with us when they are required.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/mutual-funds-are-the-best-option-to-fulfil-your-childs-aspirations/articleshow/10320416.cms?curpg=2

Overseas mutual funds' returns decline 7% in past 12 months despite rupee depreciation

Domestic mutual funds, which invest in overseas equities, have failed to live up to the expectations of investors who desired higher returns and effective portfolio diversification. Despite a favourable rupee movement, international funds have delivered poor returns as a result of declining global markets and softening commodity prices.

International funds, as a category, have returned minus 7% over the past 12 months. Though, this genre of funds has performed better than domestic equity schemes, it has ceased to be high-return funds, as was the case some months ago. Funds, like HSBC Emerging Markets Fund, ING Latin America Equity, Mirae Asset China Advantage, JP Morgan Greater China Equity, Sundaram Global Advantage and Franklin Asian Equity, among several other funds, have fallen 11-22% over the past one year.

"Concerns of a global meltdown, including a hard-landing in China and policy-tightening across countries, have prompted commodity prices to fall. Almost all emerging markets have also corrected 10-20% since the beginning of this year. These factors have impacted returns on international funds," said Gopal Agrawal, chief investment officer of Mirae Asset Global Investments, which manages a global commodity fund and a China advantage fund.

According to fund researchers, international funds would have fared even badly had the rupee not weakened by about 12% since August this year. In general terms, funds that invest in foreign currency-valued assets benefit when local denominations weaken. For instance, an investor who redeems a one dollar worth of investments - made when the rupee was 44 to a dollar - will now get about 49, excluding capital appreciation, when converted to the rupee.

"Weakening of the rupee has not helped international funds. The reason for this is that currencies in countries, like Australia, Brazil and Indonesia, have weakened in tandem with the Indian rupee. There's not much of arbitrage opportunities on the currency side," Mr Agrawal said.

Most EM currencies, like Brazilian real, Russian rouble and Indonesian rupiah have depreciated significantly over the past few months. The currency of Brazil, where most Indian funds have exposure, has weakened from 1.55 per US dollar to 1.9 per USD. Emerging market wonder Indonesian rupiah has fallen from 8500 per USD to 9100 per USD over the past few months.

"Increased global volatility over the past quarter or so had an impact on emerging markets. Indian markets, which were underperforming for the most of the year, managed to hold their ground relatively better during this period," said KN Sivasubramanian, chief investment officer of Franklin Templeton Investments India.

Source:  http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/overseas-mutual-funds-returns-decline-7-in-past-12-months-despite-rupee-depreciation/articleshow/10319413.cms

Govt MFs gain little from global wedlock

Foreign partners also find the going tough.

When US-based T Rowe Price picked up stake in UTI Asset Management in early 2010, the fund house was managing Rs 78,203 crore and was the fourth-largest asset manager by assets. The fund house has since lost Rs 12,924 crore, or 16.5 per cent, of its assets. Today, it has been pushed to the fifth slot on the assets under management (AUM) table.

Similar is the case with LIC Nomura Asset Management. It lost over Rs 2,300 crore, or around a quarter of its assets, in the last three months. As of September, the fund house’s average AUM stood at Rs 7,075 crore, a fraction of the Rs 35,901 crore it had when.

Even as other state-owned fund houses such as Baroda Pioneer, Canara Robeco and Union KBC which had inducted strategic foreign partners, have grown since the entry of these global names, they have an AUM of Rs 7,000 crore or less. In an industry with assets of Rs 7.13 trillion, this accounts for a market share of less than a per cent. Canara Robeco MF has an average AUM of Rs 6,920 crore.

Many foreign players who wanted to gain a foothold in the Rs 7.13-tn Indian asset management industry, preferred to partner with state-owned players.

Foreign partners had shown interest in the fund houses sponsored by state-owned banks due to their untapped distribution muscle. With thousands of branches and significant reach beyond the metros, these were ideally placed to take mutual funds to the masses. This vast network became even more critical, when post 2009, Sebi rules made the agency distribution model expensive and difficult. In the last four years alone, there have been five such deals. However, none has resulted in spectacular success.

Canara Robeco MF has an average AUM of Rs 6,920 crore. In March 2007, when Dutch major Robeco Groep NV picked up 49 per cent, the officials said the firm would look at garnering a market share of five per cent in five years.

Baroda Pioneer, where Italian company Pioneer investments picked up 51 per cent in October 2007, manages Rs 3,398 crore. When the investment was made, the fund house ranked 31 out of 32 fund houses. In the latest listings, it stands at 29 among 42. The JV between Union Bank of India and KBC Asset Management is relatively new and launched its first fund earlier this year. It manages assets worth Rs 893 crore. The only exception to this difficult state of affairs in cross-border marriages is that of State bank of India, the country's largest lender, with French bank Societe Generale, which has a 37 per cent stake. Seven years on, SBI Mutual fund continues to stay in the Top 10 with a corpus of Rs 47,731 crore. Even this joint venture could not live up to its objective of “being the second largest MF in four years”, as stated by then SBI chairman AK Purwar.

A KPMG report on the mutual fund industry says, “Public sector banks, with a large captive customer base, significant reach beyond the top 20 cities in semi-urban and rural areas, and the potential to build retail investor base, have played a very limited role in mutual funds distribution, so far.”

Tapping the potential is easier said than done, note experts. N Prasad, a former chief investment officer, says convincing the person at the point of sale is a difficult task. “The multinational guys may bring in the best chief of sales. He might be excellent in strategies. But, he has to ultimately depend on the officer at the bank branch.”

Prasad says inertia at the point-of-sale level is a difficult problem. “It is not just about incentivising, the person has to be first convinced about what he is selling. This has become more difficult after 2008 and even the die-hard sellers are losing confidence in equities,” he adds.

Many foreign players flocked India, attracted by the equity boom between 2003 and 2007, when the Sensex zoomed from the 3000-level to 20,000. Not many had counted for events following the collapse of Lehman Brothers. The post-Lehman crisis has not only eroded equity valuations and confidence in equity products, but also led to substantial regulatory changes on the debt side as both the Reserve Bank of India and Sebi took measures to prevent a repeat of the liquidity crunch. These measures have led to substantial loss of assets for MFs as corporates and banks pulled out.

The Sensex closed little above at 16,500 today, the level it had first crossed in September 2007— not a great advertisement for funds trying to sell equity schemes as long term investment.

But, some private players that launched in the last few years have managed to grow their assets despite lacklustre equity markets. Religare Asset Management, which launched in 2008, has an AUM of Rs 11,042 crore, while Axis Mutual fund — it launched its first fund last year — already has over Rs 7,500 crore in assets.

Source: http://www.business-standard.com/india/news/govt-mfs-gain-littleglobal-wedlock/452231/