Look before you leap

After doing some research and investigation, I have come to realise that portfolio management is essential for every individual investor to create wealth. With a long-term investment horizon and balanced medium- to high-risk, I would like to seek an appropriate asset allocation strategy in my mutual fund portfolio. How should I do this allocation on a monthly basis? Can you suggest some other investment avenues apart from mutual funds?

Profile of the Investor Name: Sundara Kumar Age: 26 years Risk Appetite: Balanced Medium to High Investing Amount: Rs 22,500 per month
It's impressive to see that you have a pre-planned set of strategies before you set out. You are definitely headed towards the right direction in building a diversified portfolio.
So, first, we will highlight various investment avenues available for an investor. After that, we will discuss the model mutual fund portfolio we have designed for you. We will also highlight the appropriate allocation an investor like you should have in each of the various mutual fund categories available.
Investment in equities: If you want to directly invest in stocks, it would require some amount of knowledge of the market along with an in-depth understanding of the stock you wish to buy. You need to understand the fundamentals of the company, industry, sector and economy as a whole. The time and energy spent does not stop with the buying of the stock. You would also have to track it.

A more convenient option would be to consider the mutual fund route. Here you have plenty of schemes to choose from across the entire equity spectrum. There are diversified equity funds that invest across all sectors. And there are sector-specific funds that invest only in a single sector, such as banking or telecom. These funds, by their very nature, are more risky than diversified equity funds.
But a word of caution here. You must have a time horizon of at least five years when you consider an investment in equity. This holds for whichever route you take, directly into stocks or via an equity fund. And, don't park all your savings in equity. However, over the long term, do have some amount of exposure to debt.
Investment in debt: Here too, you can resort to the mutual fund route. There are long-term debt funds if you want to hold your money for two-three years or more, and short-term debt funds for shorter time-frames. There are also ultra short-term funds where you can park your money for very short periods.

Other than mutual funds, there are plenty of other options too. Fixed deposits in a bank or post office, the Public Provident Fund (PPF), National Savings Certificate (NSC), bonds issued by the Reserve Bank of India (RBI) or the National
Bank for Agriculture and Rural Development (Nabard).
Here is what you have to keep in mind when looking at such investments.
How safe is it? If it is a nationalised bank or post office where your fixed deposit is, it is safe. If it is backed by the government, as in the case of RBI bonds, Nabard bonds, PPF, NSC and Kisan Vikas Patra, then too it is risk-free.
What are the tax implications? If you invest in a five-year bank deposit or PPF, then you get a tax deduction under Section 80C.
What is the return? Is the rate of interest taxed? The interest earned on PPF is tax-free but in other cases, it is taxed. You must look at the tax implication because this will lower your overall return.
What is the tenure of the investment? PPF is the longest with a 15-year, lock-in period. NSC, on the other hand, is for just six years.
Making the right choice: As you can see, there are two asset classes: equity and debt. The former will include stocks and equity mutual funds. While debt would include all the fixed-return instruments in the market as well as debt mutual funds.

Both these assets are a must in every portfolio. But the exact allocation to each would depend on a number of factors such as the age of the investor, his income, his expenses, whether or not he is servicing loans, and his time frame (when he needs the money).

Morgan Stanley's India stock fund to turn open-end

The Indian fund arm of Morgan Stanley will convert its only listed close-end equity fund into an open-end scheme in January as it has received regulatory approval, the firm said in a statement on Friday.
Morgan Stanley Growth Fund MGST.BO, launched in 1994, had assets under management of about 19 billion rupees at the end of October, data from fund tracker ICRA Online showed.
The fund closed at 27.56 rupees on the Bombay Stock Exchange on Friday as compared to its net asset value of 29.34 rupees on Wednesday.

Source: http://in.reuters.com/article/fundsNews/idINBOM38838620081128

Templeton's 'Buy India' Call

As the Asian markets await full details on the plot behind Wednesday’s terrorism in India’s principal business city of Mumbai (aka Bombay), 5-year credit default swap spreads for 5-year government-owned State Bank of India widened to around 465 basis points, the cost of buying one US dollar breached the critical 50-rupee threshold and Indian equity futures quotes were dominated by selling interest in the Far East (the Indian stock markets were closed today).
In leading a recent charge to return to India, particularly after a 55%-plus drop Indian equity indexes, major mutual fund managers like Mark Mobius of Templeton Asset Management and Devan Kaloo of Aberdeen Asset Managers have been insisting that India’s democratic traditions are strong enough to withstand terrorism. But the crisis in Mumbai today cannot simply be explained away by the proposition that periodic acts of terrorism have only a limited and temporary impact on the Indian corporate spectrum.
On the contrary, the entire post-independence Indian social fabric is being gradually undermined by terrorism, separatist insurgencies, farm protests and far-left communist movements. It may be argued that India’s failure, over five decades, to make profound structural changes within its economy has now placed the country on the verge of a significant, and highly unsavoury, political transition in 2009.
The 2008 price lows in India-specific Exchange-traded funds (EPI, IFN, IIF, INP and PIN) are being widely touted as attractive buying opportunities given India’s 8% GDP outlook. And India ETFs did indeed hold up well in New York trading on Wednesday. But even before the Mumbai terrorist attacks, default risk perceptions on India have been rising; 5-year CDS coverage for sovereign risk is being priced at 310 basis points, and in the 800-900 bps range for ICICI and other Indian banks. The US$/Indian rupee “hawala” rate, the rate at which tens of millions of dollars worth of rupees are transferred in and out of India via non-banking channels on a daily basis, is edging towards 53.25. And US$/Indian rupee 5-year currency swaps are being priced at a whopping 42%-factor in favour of the dollar.
In the briefest of terms, the fundamental incompatibility between pockets of wealth on one hand and rampant poverty on the other has been held in check by 50 years of political promises backed by a series of 5-year national plans. Today, depending upon whom you ask, between 65 and 80 percent of Indians live below the poverty line, if the poverty line is calculated against a basket of living essentials. So, while the failure to remedy agrarian poverty has finally created powerful protest movements, urban unrest (and discontent) is being effectively translated into vote banks by religious extremists. On all present indications, a well-knit coalition of religious radicals will be in control of the New Delhi parliament within the space of a few short months.
History tells us that a government under the control and direction of religious extremists is not necessarily unfriendly to private capital (e.g. Iran and Sudan). But, in the case of India, the ascendancy of right-wing Hindu entities will be no smooth business-friendly transition by any means, since it will be met by a sharp spike in separatist activity, by more militancy in the countryside and, most importantly, by a steady spate of deadly terrorism from indigenous or foreign Islamic radicals.
What all this means for consumer demand and corporate profits in the midst of a worsening global recession is certainly not an open question, as some analysts would like to believe. The fact is that bullish calls by Templeton and Aberdeen do not incorporate inherent political risk; for the record, medium-term or long-term political risk insurance contracts (as distinct from CDS-type insurance) for India are unavailable below 5.50% (per annum) today.
This writer’s call on India remains unchanged: sell on healthy India-ETF rallies from current levels, and short the Indian rupee.

Source: http://seekingalpha.com/article/108326-mumbai-terrorism-clouds-templeton-s-buy-india-call

FUND VIEW-Fidelity likes emerging markets on valuations

Fidelity International favours emerging markets as recent sharp declines in their stock markets and tumbling commodities prices have produced cheap valuations, an executive of the mutual fund giant said on Thursday.
Shares of emerging markets, including China, India, Russia, eastern Europe and south Africa, dropped more than 56 percent in the 12 months to October, according to Fidelity International.
"The global economy is in a challenging downturn, but emerging markets still offer very attractive investment opportunities," Mark Hammond, product director for the U.S., global and emerging markets, told investors in Taiwan.
"We see growth in China and other emerging countries. Oil demand from China and India will rise in the future, the major driver to keep the global economy going," he said.
Among the stocks Hammond likes is Russia's Gazprom (GAZP.MM: Quote, Profile, Research), the world's largest gas producer. Its stock is trading at around 2.7 times forecast 2009 earnings after losing about two-thirds of its value since early this year, the U.S. money manager said.
Another one was South African supermarket chain operator Shoprite Holdings (SHPJ.J: Quote, Profile, Research), which is expected to post "explosive revenue growth" outside of its home market, the asset manager said.
Fidelity International is an affiliate of Boston-based Fidelity Investments, the world's biggest mutual fund company.

Source: http://in.reuters.com/article/domesticNews/idINTP33896720081127

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Axis Bank to open its Asset Management Company

Private lender, Axis Bank is soon going to foray into mutual fund business. The bank plans to commence this new venture in the coming six to eight months period.

The bank has received an approval from the Securities and Exchange Board of India (SEBI) to start its independent asset management firm and now it is waiting for the equity markets to stabilize before rolling out the first fund.
Siddharth Rath, the bank's senior vice-president and head of capital markets said, "We received Sebi's in-principle approval last month. The launch of our first fund will depend on the conditions of the markets, and investor confidence. We will have a balanced mix of equity, liquid and debt funds in our portfolio."
"The new company will be a wholly-owned subsidiary of the bank and will carry out asset management business," added Rath.
The bank received a green signal from the Reserve Bank of India for this new foray in the month of June. Until now the bank has been disturbing mutual funds of other asset management companies (AMCs) to its customers.
From the past one year, the asset management industry in the country is facing erosion in total assets under management (AUM). At the end of October 2008, the industry' AMU showed a fall of about 19% to Rs 432,000 crore against 532,000 crore, for the same period a year ago.
As per the SEBI instructions, a company needs to have a minimum capital base of Rs 10 crore to set up its own AMC. "We will invest as much capital as required to form our own fund house. Our initial investment will be Rs 25-30 crore," said Axis Bank Executive Director M M Agarwal.
In order to manage and distribute new funds across the country, the bank plans to employ up to 500 people. Rath confirmed that the bank has already decided on the important designations like CEO, chief investment officer, head of marketing, and other vertical heads. However he did not disclose the identities of these people stating that the business plans are still on the process.
Rath also told that in the starting, the bank plans to market and distribute these funds from its own branches without joining with any other bank. Axis Bank has about 750 branches across the country. With this entry, Axis Bank will become 36th AMC in the industry.
The bank also plans for a joint venture AMC with Banque Privee Edmond de Rothschild Europe. This European firm is a part of the LCF Rothschild Group and through this tie-up Axis Bank will offer the Indian customers with investment advisory services for private banking and wealth management.

Source:http://www.rupeetimes.com/news/personal_loan/axis_bank_to_open_its_asset_management_company_1879.html

Diversified debt mutual funds better deal

Do you think the concept of a diversified portfolio applies only to equity investors? Well, it is time to think different. According to financial experts, investors would do well if they diversify their debt mutual fund (MF) portfolio into liquid, income and gilt schemes.
‘‘There is clear indication that investors have to look at another class of funds other than liquid scheme,'' says Y Jawahar, V-P & head of distribution, Mata Securities. ‘‘A combination of 30-40% liquid scheme, 30% each in income and gilt schemes would serve them better.'
However, he quickly adds that unlike in a liquid scheme investors can't park money with a short-term investment horizon in an income or gilt scheme. ‘‘One should have a time horizon of one year or more to invest in an income or gilt scheme,'' he says. However, investment tenure is not the only factor that should determine the investment decision in these schemes.

One should always have a clear view on interest rate movement and risks associated with each scheme before parking money. For example, gilt funds, as the name denotes, invest mostly in government securities and carry little credit risk. Income schemes, on the other, are riskier as they invest in corporate bonds, which carry more credit risk.
‘‘Investors, who believe interest rates will go down further and don't want to take any credit risk should go for a gilt scheme,'' says Mukesh Dedhia, director, Ghalla & Bhansali Securities. ‘‘If you have a very competent fund manager who can excel during volatility, you can earn very good returns from gilt schemes.'' If you are ready for the plunge, you can hope to earn around 9-10% from a gilt scheme.

If you have a little more stomach for risk, you can opt for an income scheme.
‘‘The spread (interest rate difference) between corporate and government bonds have widened considerably. There is scope for contraction and that could enhance returns from income schemes,'' says Dedhia.
You can expect to pocket returns around 11-13% from an income scheme. Now, would you still be happy to keep the money in a liquid scheme and earn around 7%? Well, consider the above factors and take a call.

Principal Financial looking to acquire AMC in India

Principal Financial Group, a leading US based financial group is looking to acquire an asset management company (AMC) in India as it wants to scale up its fund unit operations in the high-potential market, reports Business Standard.
Investment bankers have already been told to look out for possible acquisitions especially those with large equity assets. The company feels that current market situation is best time to do an acquisition because of lower valuations commanded by the company.
Principal Financial has three way joint venture with Punjab National Bank and Vijaya Bank, managing about Rs 70 billion.
Since January, when the stock markets started losing steam, the Indian mutual fund industry has found itself losing their average assets under management (AAUM) every month. Due to current financial market turmoil a large number of smaller fund houses valuations have taken a serious hit. Earlier Lotus Mutual Fund was acquired by Reliagre Aegon.

Source:http://www.myiris.com/newsCentre/newsPopup.php?fileR=20081126151404196&dir=2008/11/26&secID=livenews