Investors like theme funds. These are funds that construct portfolios based on certain innovative or next-generation growth sectors.
Alternative energy and water, for instance, are theme investments. Theme funds are available in the country, though not in plenty. Should investors carry such funds in their portfolio?
Theme vs Sector
Theme investment refers to identifying trends or themes that are likely to drive a certain group of assets. A popular theme investment is water.
A fund having such a mandate will invest in companies in the business of Water Treatment Chemicals, Pump Equipment, Water Utilities, Water Purification and Water Pipeline Construction.
Two popular theme funds offered in India are Services Sector Funds and Infrastructure Funds.
A Services Sector Fund invests in companies engaged in financial services, technology, hotels and entertainment.
The Infrastructure Fund would have exposure to companies in non-ferrous metals, cement, construction and capital goods.
A theme fund, hence, takes exposure to more than one sector. Besides, it can engage in style rotation.
A service sector fund may be overweight on, say, large-cap financial services stocks in one month and shift to mid-cap technology stocks the next month.
These factors — style rotation and multi-sector exposure – have to be considered before an investor buys such theme funds within the core-satellite framework.
The core portfolio typically carries exposure to a broad-based benchmark index such as the S&P CNX 500. It can alternatively carry exposure to a large-cap style index fund such as those benchmarked to the S&P CNX Nifty or the BSE Sensex.
Theme funds and sector funds have to be, hence, carried only in the satellite portfolio — a portfolio that is constructed to generate excess returns over the benchmark. In the article dated November 15, we discussed why sector funds are optimal for the satellite portfolio. The same argument cannot, however, be used for theme funds. Why?
Take a core-satellite portfolio that contains Nifty Index fund inside the equity core and service sector fund as part of the satellite portfolio. A significant proportion of the holdings in the service sector fund will overlap with the Nifty fund due to its multi-sector exposure, leading to unintentional overweight on stocks. Infosys, HDFC, SBI and TCS, for instance.
Theme funds in emerging industries such as water or alternative energy would, however, be optimal within the satellite portfolio, as the overlap exposure will be minimal.
The overlap between core and satellite portfolios may not be of concern if an investor can rebalance the satellite portfolio periodically. Such rebalancing could, however, suffer from exit loads. Besides, not all investors are geared to timing the market. That is why theme funds currently available in the market may not be an optimal choice for the satellite portfolio set-up to meet retirement objectives.
Such funds can, however, be used to meet short-term objectives, where the fund's theme closely matches the investor's liability structure.
Suppose an investor wants to supplement her health-care insurance with an investment portfolio.
A health-care fund that carries exposure to pharma companies, hospitals and health-care service providers would be optimal. The logic is that inflation in health-care costs would be well captured by the companies in the health-care sector.
Similarly, an investor who wants to construct a portfolio to buy a house can use the infrastructure fund to meet her liability.
Conclusion
Theme funds may be optimal within an equity satellite if overlap with the equity core is minimal.
At present, such funds can be primarily used as investments to meet liabilities such as buying a house. More varieties of such funds would enable investors' custom-tailor their portfolios to meet short-term liabilities.
Saturday, November 28, 2009
How to choose ‘international' funds
I am holding the following mutual funds: Birla Sunlife International Equity Plan A. ICICI Pru Indo Asia Equity, Tata Indo Global Infrastructure. All these funds were bought during their NFOs in October/November 2007.Kindly advice if I should continue to hold, or switch to another mutual fund.
You have not stated if these are the only mutual funds you hold. Given the lack of information on your other existing holdings if any, the funds we suggest may duplicate your portfolio. Do keep this fact in mind while acting on our suggestions.
Your fund holding suggest the following: one, you appear to have placed much faith the ‘New Fund Offer' (NFO) route, given that all the three funds have been invested through NFOs. Two, you seem to favour international funds, given that all of them have a mandate to invest at least a part of the assets overseas.
Even if you do hold other diversified mutual funds, it is not necessary for you to hold too many international funds; given that their primary objective is to diversify your holding. All the three funds that you hold have a limited track record, with the Tata fund being close-ended for three years.
How to choose
Before we move on to rejig your portfolio, here are a few points that may come in handy when you go shopping for international funds.
One, does the fund house have experience in international investing? Typically, international fund houses such as Franklin Templeton or Fidelity tend to have their international research teams that would aid them in investing money overseas. A few others such as ICICI or Principal invest (using the feeder route) in to their joint venture partner's funds available overseas.
Two, do you have conviction in the markets that these funds are mandated to invest? For example, there are funds that would invest only in Asia-Pacific markets, some others that seek to invest in Latin American markets and few others in say international energy or mining companies. As an investor, you should have conviction as to the potential that these markets/themes hold.
Three, while those that invest directly in international stocks would provide the monthly portfolio of stocks, there are which sue the feeder the feeder route, which will not give the details of the parent fund's portfolio. As an investor, would you be comfortable with the lack of information or willing to look up for the parent fund's fact sheet yourself.
Four, would the theme offered by the international fund, hold better potential in India. For instance, it may make sense to invest in a gold mining/alternative energy theme overseas, given the limited investment universe for such themes in India. On the other hand, a theme such as infrastructure may hold large potential locally than in developed countries.
Five, you should be willing to adopt an active profit booking strategy in international funds, especially those related to emerging markets.
Portfolio
Now coming to your portfolio, we suggest you exit Tata Indo-Global Infrastructure once the lock-in period is over. While the fund would only invest up to 35 per cent in international stocks, you would be better-off reaping gains from the local infrastructure theme.
Birla Sunlife International Equity Plan A invests 100 per cent in overseas stocks and has a diversified portfolio. While its one-year returns is far from encouraging, it has picked up pace in the last 6 months. Hold the fund and observe performance over the next two quarters. Compare the fund with other international schemes.
Templeton India Equity Income would be a good value-oriented international fund to hold. Its track record over the last three years is also inspiring. You can exit ICIC Pru Indo Asian Equity and instead move to the above fund.
Do not hold over 10 per cent of your mutual fund portfolio in international funds. If you still hold conviction in the gold-run, you can consider investing in gold mining funds such as AIG World Gold or DSP BR World Gold. The latter has not fully benefited from the the kind of re-rating/rally that gold has experienced in recent times.
They are however, high-risk investments, given that both gold price trends as well as stock market movements would influence them.
International funds must be viewed as a diversification option for your portfolio.
You have not stated if these are the only mutual funds you hold. Given the lack of information on your other existing holdings if any, the funds we suggest may duplicate your portfolio. Do keep this fact in mind while acting on our suggestions.
Your fund holding suggest the following: one, you appear to have placed much faith the ‘New Fund Offer' (NFO) route, given that all the three funds have been invested through NFOs. Two, you seem to favour international funds, given that all of them have a mandate to invest at least a part of the assets overseas.
Even if you do hold other diversified mutual funds, it is not necessary for you to hold too many international funds; given that their primary objective is to diversify your holding. All the three funds that you hold have a limited track record, with the Tata fund being close-ended for three years.
How to choose
Before we move on to rejig your portfolio, here are a few points that may come in handy when you go shopping for international funds.
One, does the fund house have experience in international investing? Typically, international fund houses such as Franklin Templeton or Fidelity tend to have their international research teams that would aid them in investing money overseas. A few others such as ICICI or Principal invest (using the feeder route) in to their joint venture partner's funds available overseas.
Two, do you have conviction in the markets that these funds are mandated to invest? For example, there are funds that would invest only in Asia-Pacific markets, some others that seek to invest in Latin American markets and few others in say international energy or mining companies. As an investor, you should have conviction as to the potential that these markets/themes hold.
Three, while those that invest directly in international stocks would provide the monthly portfolio of stocks, there are which sue the feeder the feeder route, which will not give the details of the parent fund's portfolio. As an investor, would you be comfortable with the lack of information or willing to look up for the parent fund's fact sheet yourself.
Four, would the theme offered by the international fund, hold better potential in India. For instance, it may make sense to invest in a gold mining/alternative energy theme overseas, given the limited investment universe for such themes in India. On the other hand, a theme such as infrastructure may hold large potential locally than in developed countries.
Five, you should be willing to adopt an active profit booking strategy in international funds, especially those related to emerging markets.
Portfolio
Now coming to your portfolio, we suggest you exit Tata Indo-Global Infrastructure once the lock-in period is over. While the fund would only invest up to 35 per cent in international stocks, you would be better-off reaping gains from the local infrastructure theme.
Birla Sunlife International Equity Plan A invests 100 per cent in overseas stocks and has a diversified portfolio. While its one-year returns is far from encouraging, it has picked up pace in the last 6 months. Hold the fund and observe performance over the next two quarters. Compare the fund with other international schemes.
Templeton India Equity Income would be a good value-oriented international fund to hold. Its track record over the last three years is also inspiring. You can exit ICIC Pru Indo Asian Equity and instead move to the above fund.
Do not hold over 10 per cent of your mutual fund portfolio in international funds. If you still hold conviction in the gold-run, you can consider investing in gold mining funds such as AIG World Gold or DSP BR World Gold. The latter has not fully benefited from the the kind of re-rating/rally that gold has experienced in recent times.
They are however, high-risk investments, given that both gold price trends as well as stock market movements would influence them.
International funds must be viewed as a diversification option for your portfolio.
Unitech: High-risk, high-return deposit
The fixed deposit scheme of Unitech is suitable for investors who can stomach some risk. The sharp downturn witnessed in the real estate sector, fund crisis faced by many players in the sector and the slow pick-up in demand for real estate place the business of Unitech in the high-risk category. Unitech's large size, established brand name and improved financials have, however, been steadily aiding recovery.
The attractive interest rates of as much as 12 per cent per annum for a three-year period can be construed as a premium payout for the risk involved.
Investment strategies
Investors can adopt a two-pronged strategy to reduce their risk term/exposure.
Short tenure: One, investors can restrict the term of their fixed deposit to six months to one year, locking their money for a short period and yet enjoying an interest rate of 11 per cent – a return not presently available in bank fixed deposits and most credit worthy financial institutions.
A six-month deposit is, however, available only under the cumulative option (where interest is paid on maturity) and would entail a minimum investment of Rs 25,000.
Interest payout: Investors can consider the two-year interest payout option (called Scheme A), available on a quarterly basis, at 11.5 per cent per annum. This would allow cash out on the interest, even as the principal continues to earn returns.
Net of tax, assuming a 10 per cent tax slab, you would earn an interest of 10.3 per cent if you opt for a two-year term under Scheme A.
A payout option, would however, require you to invest a minimum sum of Rs 25,000. Banks currently offer a maximum of 7.5 per cent for up to 2 years.
Cumulative option
While the above two investment strategies would be our preferred mode of investments, individuals who can assume higher risk can consider taking the two-year cumulative option where interest would be compounded and paid out only on maturity. Without doubt, the cumulative option is certain to offer superior yields as you earn “interest on interest”. Besides, the company has made the cumulative scheme attractive by compounding interest on a monthly basis.
For instance, if you consider the two-year cumulative scheme, Rs 10,000 would grow to Rs 12,572 at the end of two years, at an interest rate of 11.5 per cent. This would work to a yield of 12 per cent over the term. However, net of tax (assumed at 10 per cent), the yield would be about 11 per cent.
Investors can refrain from the three-year term as bank interest rates may themselves see a revival. The latter would then provide a safer and attractive option.
The company
Unitech is among the few real estate developers with a pan-India presence. The company's present projects measure to 21.5 million sq.ft. across nine cities, that include large projects in Gurgaon, Noida, Mumbai, Chennai and Kolkata. After being hit by the 2008 real estate crash, Unitech was also faced with a situation of mounting debt by late 2008. While it took resorted to a debt restructuring programme initially, the company thereafter offered residential projects at discounts to market prices and launched a number of affordable homes in order to revive working capital flows. Simultaneously in 2009, it successfully raised about Rs 4500 crore of equity in two tranches through qualified institutional placements.
These measures have enabled the company to bring back its net debt to equity ratio to a healthy 0.6 times in September, from a worrying 1.8 times in March. A good portion of the QIP funds have been used to repay debt, with the rest being ploughed for construction work.
The company has sold 50 per cent of the total area launched, a good part being residential projects. It has raised about Rs 550 crore through these sales so far; the rest of the payments, being mostly linked to construction, would only flow in a staggered manner. The company's interest obligations appear adequately covered by profits, despite decline in earnings over the past year and a half.
Additional interest: The fixed deposit scheme offers an additional 0.5 per cent per annum for its employees, shareholders (minimum holding of 100 shares), property owners as well as senior citizens above 60 years.
DUBAI DEBT SCARE AND INVESTMENTS
Is Dubai World's debt repayment problem merely a delayed aftershock of last year's credit crisis or a fresh tremor likely to shake up the financial system? Opinion may be divided on this; but the event is certainly reason for stock market investors to turn more cautious. For this may be just the excuse the market is waiting for, to launch into a much-needed correction.
The initial stock market reaction to the Dubai World crisis has been to batter down companies which have their fortunes directly tied to Dubai or its troubled investment arm.
The stock of Spicejet, in which a subsidiary of Dubai World owns a 13.4 per cent stake, has been marked down and so have the stocks of Bank of Baroda and SBI, which have admitted to retail and corporate loan exposures in Dubai. History, however, suggests that investors need not worry too much about how these individual stocks may fare because of the crisis. The Dubai entities do not have a significant portfolio exposures to Indian stocks. Even if they hold indirect stakes, the past two years have seen numerous instances of troubled financial giants liquidating their stakes in Indian companies.
Despite recurring investor worries about `Bear Stearns' stocks, `Lehman' stocks, `Merrill Lynch' stocks and recently `Galleon' stocks, the impact of the holders' troubles on stock prices has been quite shortlived.
Stocks with good fundamentals have rebounded to pre-crisis levels, finding ready buyers at lower prices. Stocks with little claim to fundamentals have remained battered.
Given that Indian banks emerged relatively unscathed from the much larger credit crisis of last year, investors in banking stocks may have little to fear from the Dubai scare.
SYSTEMIC RISK
It is the broader market ramifications of this event that stock investors need to worry about. Some financial experts are betting on this crisis being quickly contained through a bail-out of Dubai World by other UAE nations. But if this scenario does not play out, it is feared that this may trigger a fresh bout of risk aversion on the part of lenders around the world. Going by what followed last year's credit crisis, this could lead to a sharp spike in the borrowing costs for businesses (and countries) with inferior credit ratings and a drying up of the now-ample liquidity.
This certainly cannot augur well for the many Indian companies which are now relying heavily on foreign funds to repair their debt-leavened balance sheets. This stock market rally has been led mainly by highly leveraged companies from the commodity and realty space, making such a scenario worrisome.
PROFIT-TAKING TIME?
A phase of risk aversion, once it starts, can also have a big impact on the overall liquidity flows into the emerging markets, India included. Remember that it was returning risk appetite on the part of global investors which laid the foundation for this entire stock market rally.
It is rising risk-taking which has prompted global investors to abandon the safer developed markets and money market funds, and to pour money into all manner of risky assets - commodities, emerging market bonds and emerging market stocks - over the past eight months. The returns from these assets have by now exceeded everybody's wildest expectations.
The temptation to take money off the table and lock into those sizeable profits, is, therefore, bound to be quite high. The Dubai scare has also cropped up at a time when the global markets are being assailed by fresh doubts about the sustainability of the ongoing economic recovery. Will governments be able to exit from their big-ticket stimulus spending?
Will the "recovery" sustain once the props of stimulus are removed? Is consumer confidence robust enough to carry the baton from here on? If the answer to any of these questions turns out to be a "No", then the current stock market rally, which is built on optimism, would certainly be due for a pause.
Indian investors also need to weigh a few additional factors on the scale. At over 21 times trailing earnings, the BSE Sensex is already quite close to the inflexion point at which previous bull markets (of 2007- 08 and 1999-00) halted. With topline growth proving elusive for many companies, even in the recent September quarter, doubts are beginning to emerge on whether Corporate India can deliver on these high expectations.
But, most important, irrespective of how its own corporate or economic fundamentals look, India has always proved to be a high Beta market in the global scheme of things. It races ahead of most other markets when the going is good, but takes a merciless battering when liquidity flows suffer the mildest blip. That may be reason enough for Indian stock market investors to take some money off the table now.
Expert views:
Do not invest till the dust settles. If invested then gradually pull out as it may replicate the 2007 - 08 losses seen and suffered by small time investors.
The impact of the Dubai debt scare will be clear when the markets open on Monday 30th Nov . At this point no realty company or bank with interests in Dubai Markets are clearly expressing the extent of damage and even if they do have losses it will not be completely made public.
PNB is one such bank which has clearly mentioned that they don have much investments in Dubai but this might be just a cover up .The Finance Minister as usual speaks of insulation and things which are irrelevant as in the past.
So investors must wait and watch as the Dollar has regained its lost ground and Oil and Gold prices will head South triggering an all round market crash if not substantial but definitely a large scale down in Markets.
The initial stock market reaction to the Dubai World crisis has been to batter down companies which have their fortunes directly tied to Dubai or its troubled investment arm.
The stock of Spicejet, in which a subsidiary of Dubai World owns a 13.4 per cent stake, has been marked down and so have the stocks of Bank of Baroda and SBI, which have admitted to retail and corporate loan exposures in Dubai. History, however, suggests that investors need not worry too much about how these individual stocks may fare because of the crisis. The Dubai entities do not have a significant portfolio exposures to Indian stocks. Even if they hold indirect stakes, the past two years have seen numerous instances of troubled financial giants liquidating their stakes in Indian companies.
Despite recurring investor worries about `Bear Stearns' stocks, `Lehman' stocks, `Merrill Lynch' stocks and recently `Galleon' stocks, the impact of the holders' troubles on stock prices has been quite shortlived.
Stocks with good fundamentals have rebounded to pre-crisis levels, finding ready buyers at lower prices. Stocks with little claim to fundamentals have remained battered.
Given that Indian banks emerged relatively unscathed from the much larger credit crisis of last year, investors in banking stocks may have little to fear from the Dubai scare.
SYSTEMIC RISK
It is the broader market ramifications of this event that stock investors need to worry about. Some financial experts are betting on this crisis being quickly contained through a bail-out of Dubai World by other UAE nations. But if this scenario does not play out, it is feared that this may trigger a fresh bout of risk aversion on the part of lenders around the world. Going by what followed last year's credit crisis, this could lead to a sharp spike in the borrowing costs for businesses (and countries) with inferior credit ratings and a drying up of the now-ample liquidity.
This certainly cannot augur well for the many Indian companies which are now relying heavily on foreign funds to repair their debt-leavened balance sheets. This stock market rally has been led mainly by highly leveraged companies from the commodity and realty space, making such a scenario worrisome.
PROFIT-TAKING TIME?
A phase of risk aversion, once it starts, can also have a big impact on the overall liquidity flows into the emerging markets, India included. Remember that it was returning risk appetite on the part of global investors which laid the foundation for this entire stock market rally.
It is rising risk-taking which has prompted global investors to abandon the safer developed markets and money market funds, and to pour money into all manner of risky assets - commodities, emerging market bonds and emerging market stocks - over the past eight months. The returns from these assets have by now exceeded everybody's wildest expectations.
The temptation to take money off the table and lock into those sizeable profits, is, therefore, bound to be quite high. The Dubai scare has also cropped up at a time when the global markets are being assailed by fresh doubts about the sustainability of the ongoing economic recovery. Will governments be able to exit from their big-ticket stimulus spending?
Will the "recovery" sustain once the props of stimulus are removed? Is consumer confidence robust enough to carry the baton from here on? If the answer to any of these questions turns out to be a "No", then the current stock market rally, which is built on optimism, would certainly be due for a pause.
Indian investors also need to weigh a few additional factors on the scale. At over 21 times trailing earnings, the BSE Sensex is already quite close to the inflexion point at which previous bull markets (of 2007- 08 and 1999-00) halted. With topline growth proving elusive for many companies, even in the recent September quarter, doubts are beginning to emerge on whether Corporate India can deliver on these high expectations.
But, most important, irrespective of how its own corporate or economic fundamentals look, India has always proved to be a high Beta market in the global scheme of things. It races ahead of most other markets when the going is good, but takes a merciless battering when liquidity flows suffer the mildest blip. That may be reason enough for Indian stock market investors to take some money off the table now.
Expert views:
Do not invest till the dust settles. If invested then gradually pull out as it may replicate the 2007 - 08 losses seen and suffered by small time investors.
The impact of the Dubai debt scare will be clear when the markets open on Monday 30th Nov . At this point no realty company or bank with interests in Dubai Markets are clearly expressing the extent of damage and even if they do have losses it will not be completely made public.
PNB is one such bank which has clearly mentioned that they don have much investments in Dubai but this might be just a cover up .The Finance Minister as usual speaks of insulation and things which are irrelevant as in the past.
So investors must wait and watch as the Dollar has regained its lost ground and Oil and Gold prices will head South triggering an all round market crash if not substantial but definitely a large scale down in Markets.
Thursday, November 26, 2009
NCD AS INVESTMENT AVENUES
Bank FDs interest rates falling month after month, investors need to look beyond bank deposits for better returns. A few companies have sold their debentures to retail investors which have been subsequently listed in stock exchanges.
Non-convertible-debentures (NCDs) of Tata Capital, Shriram Transport and L&T Finance are some MCD's on the block.
Exit is not easy when locked with NCDs . NCDs are listed on exchanges, and hence, theoretically offer daily exit, but the volumes here are limited. On many days, there are none at all.
Risk Vs return
NCDs are meant for conservative investors who don’t wish to take the risk of ups and downs of the stock market. Getting lured by the high interest rate alone is not advisable
“Investors should do a proper analysis of the strengths and weaknesses of a company before subscribing to its debentures,” says Ritesh Jain, who heads fixed income at Morgan Stanley Investment Management. He feels it may not be smart to blindly follow others, as “credit quality” of the paper is the most important aspect of investment in a company’s debt
One also needs to find out why the issuing company is raising the funds — whether it is for meeting its working capital requirements, paying off other loans or starting a new venture. If the funds raised are to be used to repay another loan, one needs to take a call.
From Taxation viewpoint“Interest from NCDs is taxed as per the slab rate applicable, which means an NCD yielding a 10.5% return could offer a post-tax return of around 6.5-7%,” says financial planner Gaurav Mashruwala. Therefore, those in the highest tax bracket need to take a call on whether they want to stay invested in a (relatively) illiquid debenture or a liquid (mutual) fund.
Non-convertible-debentures (NCDs) of Tata Capital, Shriram Transport and L&T Finance are some MCD's on the block.
Exit is not easy when locked with NCDs . NCDs are listed on exchanges, and hence, theoretically offer daily exit, but the volumes here are limited. On many days, there are none at all.
Risk Vs return
NCDs are meant for conservative investors who don’t wish to take the risk of ups and downs of the stock market. Getting lured by the high interest rate alone is not advisable
“Investors should do a proper analysis of the strengths and weaknesses of a company before subscribing to its debentures,” says Ritesh Jain, who heads fixed income at Morgan Stanley Investment Management. He feels it may not be smart to blindly follow others, as “credit quality” of the paper is the most important aspect of investment in a company’s debt
One also needs to find out why the issuing company is raising the funds — whether it is for meeting its working capital requirements, paying off other loans or starting a new venture. If the funds raised are to be used to repay another loan, one needs to take a call.
From Taxation viewpoint“Interest from NCDs is taxed as per the slab rate applicable, which means an NCD yielding a 10.5% return could offer a post-tax return of around 6.5-7%,” says financial planner Gaurav Mashruwala. Therefore, those in the highest tax bracket need to take a call on whether they want to stay invested in a (relatively) illiquid debenture or a liquid (mutual) fund.
Wednesday, November 25, 2009
WHY NOT TO BUY ULIPS - READ ON
Insurance and investment should be kept separate.
In ULIP since the amount is invested as well as used for cover, there is no way of determining the actual position either if it is a good investment or a good cover over a long term, besides the change in conditions, hidden clauses, etc. It is best to buy only pure insurance for specific needs and keep investments separate.
Partha Datta says
My thoughts...dont venture into ULIPs....you will lose so much money on your initial charges, that you would rue later. Indeed if you make 10% CAGR on your money for 10 years, you actually just make a tad above 8% because of charges etc. Only benefits according to me are an impressive number of switches allowed from debt to equity and vice-versa and of course the tax exemption for your accumulated funds at end of period. But then again, if you are talking about 8% CAGR and tax exemption, won't just PPF be a good bet?
Ajay Narang says
Financial goals are different and therefore the instruments to meet these goals can't be one... So comparison of MF and ULIPs is absurd. One imp factor everyone forgets while comparing these two is what a ULIP can provide a MF can't i.e. risk cover.. I can bet a ULIP scores much better when compared with Term Assurance MF when taken for a term 10 years or above... And obviously Life Insurance is never bought less than 10 Years
Niraj Kumar says
Based on my personal investment experience so far ULIP is better than MFs. If you look at total charges in Mfs fund irrespective of what anybody has to say 5-6% of investor money even MFs charges and most of the time then even underperform the sensex. This is also true for so called popular funds which advertise claiming their outperformance. If you look at indian market from last 10 years money should have grown anyway around 6 times because overall market has grown that much. Then big Mfs houses also indulge in manipulating market during peak time or when sip is due to cheat common investor. Also in long run you can not rely on fund managers because in his personal interest he can invest your money in poor companies in return of his personal gain.
kiran kumar says
ULIP is not a base investment instrument by itself. It combines the features of Insurance and Mutual fund. Subscribing into ULIP cannot be considered a way of diversification without alternatives. One can always purchase insurance, tax saving deposits and ELSS mutual funds in appropriate ratio to achive same kind of diversification and tax benefits. This will also avoid the investor being bound to one ULIP provider even after the terms and conditions change
In ULIP since the amount is invested as well as used for cover, there is no way of determining the actual position either if it is a good investment or a good cover over a long term, besides the change in conditions, hidden clauses, etc. It is best to buy only pure insurance for specific needs and keep investments separate.
Partha Datta says
My thoughts...dont venture into ULIPs....you will lose so much money on your initial charges, that you would rue later. Indeed if you make 10% CAGR on your money for 10 years, you actually just make a tad above 8% because of charges etc. Only benefits according to me are an impressive number of switches allowed from debt to equity and vice-versa and of course the tax exemption for your accumulated funds at end of period. But then again, if you are talking about 8% CAGR and tax exemption, won't just PPF be a good bet?
Ajay Narang says
Financial goals are different and therefore the instruments to meet these goals can't be one... So comparison of MF and ULIPs is absurd. One imp factor everyone forgets while comparing these two is what a ULIP can provide a MF can't i.e. risk cover.. I can bet a ULIP scores much better when compared with Term Assurance MF when taken for a term 10 years or above... And obviously Life Insurance is never bought less than 10 Years
Niraj Kumar says
Based on my personal investment experience so far ULIP is better than MFs. If you look at total charges in Mfs fund irrespective of what anybody has to say 5-6% of investor money even MFs charges and most of the time then even underperform the sensex. This is also true for so called popular funds which advertise claiming their outperformance. If you look at indian market from last 10 years money should have grown anyway around 6 times because overall market has grown that much. Then big Mfs houses also indulge in manipulating market during peak time or when sip is due to cheat common investor. Also in long run you can not rely on fund managers because in his personal interest he can invest your money in poor companies in return of his personal gain.
kiran kumar says
ULIP is not a base investment instrument by itself. It combines the features of Insurance and Mutual fund. Subscribing into ULIP cannot be considered a way of diversification without alternatives. One can always purchase insurance, tax saving deposits and ELSS mutual funds in appropriate ratio to achive same kind of diversification and tax benefits. This will also avoid the investor being bound to one ULIP provider even after the terms and conditions change
SONALI DEBDATTA OF CONQUEST INVESTMENTS KOLKATTA REPLIES TO QUERIES
pragna asked, can i invest in tata aig insurance ulip
Sonali Debdatta answers, hi, I am not in favor of ULIPs. ULIPs combine insurance with investments. For insurance term plans are the best and for investments, mutual funds
Pavan asked, Hi Sonali Debdatta, I've a LIC insurance plan (endowment). I would like to take a term insurance plan as well. In case of my death will I be covered by both the policies?
Sonali Debdatta answers, hi, yes you will be covered by both the policies
sushil j asked, What is different bet tax saving MF and non-tax saving MF ?
Sonali Debdatta answers, hi, between the 2, non tax saving MF are better.
SURESHKUMAR asked, SIR, PLEASE SUGGEST SOME RISK FREE INVESTMENTS FOR RETIRED PERSONS, THANKS
Sonali Debdatta answers, hi, the best investment in current scenario is bank FDs. If you are a senior citizen (60 years and above) then you can invest your money in 9% Senior Citizen Savings Scheme. You can invest up to Rs 15 lakhs in this scheme
KKKKK asked, Which is the best MIP offered by mutual funds?
Sonali Debdatta answers, hi, In my view HDFC MIP - Long Term is among the better performing ones. It has a consistent track record of over 5 years and has given annualized return of over 12% since inception.
sat asked, hi, what is the alternate, when we don't have PF facility & which pension plan is good for free lancers...pl suggest for both....
Sonali Debdatta answers, hi, Pension plans generate regular income for you when you retire. In my view pension plans are not the ideal investments for retirement planning. I would rather encourage investors to build a corpus of investments comprising of equity funds, gold ETFs and bank FDs. The corpus should be large enough to meet your post retirement expenses.
ramka1 asked, I get to my hand 60K/month after all cuttings. I have 1.75L/year as annual premium in ICICI MF plans (smartkid, premier life gold). LIC premium of 1L/year. But still i would like to invest wisely and i'm a moderate risk taker. Please suggest. All my money lying in bank FDs.
Sonali Debdatta answers, hi, you have not provided me information about your objectives and age. Hence, difficult to give you any specific suggestion. But broadly you should have a well diversified portfolio comprising of equity, debt and gold. Do not mix insurance and investments. Insurance should be only used to cover the risk in case of any eventuality. Invest a portion of your money in equity funds and Gold ETFs
ayush asked, Hi Sonali Debdatta, could you please suggest a few good Tax-Saving Funds?
Sonali Debdatta answers, hi, among the better performing tax funds you can choose from HDFC Tax Saver, Fidelity Tax Advantage and Franklin India Taxshield.
Bharath asked, I'm Paying EMI of Rs. 25,000 per month at floating interest of 8% at present (loan for 10 years). If i have a cash of 2 lakhs, should i repay the loan or should invest that amount elsewhere?
Sonali Debdatta answers, hi, I have always advise investors to carry minimum loans in their balance sheets. I would encourage you to prepay your loan and reduce your EMI. This will improve your cash flow and leave more savings at your disposal which can be channelized in to equity funds to build corpus to meet your various goals.
AnilKumar asked, Hi, How about investing in Gold for short term in the current market?. will it bring good return?
Sonali Debdatta answers, hi, I would not recommend investment in gold with a short term view. Typically you should have 10-15% allocation to gold in your portfolio. Though gold is likely to do well in the next few years, do not invest from the trading point of view. It should act like more of a insurance as against investment
value_Investor asked, Is PMS is better than Mutual funds investment?
Sonali Debdatta answers, hi, compared to PMS, mutual funds are more tax efficient and low on transaction cost. In most of the case the PMS fee structure includes profit sharing which is not the case with MFs. I would not recommend PMS. MFs are any day better than PMS.
bakka asked, I want to invest in smaller quantum say lac or so, where shall I invest & what will be assured return?
Sonali Debdatta answers, hi, today the only investment instrument that offers assured returns are FDs from banks and companies. As far as company fixed deposits are concerned do not get carried away by higher rate of interest offered by them. Higher returns come from high risk, hence be sure to study the financials of the company before giving any money to them. Bank FDs carry less risk compared to corporate FDs
kannan_kamal asked, Hi Sonali Debdatta, My salary is 24 k, I have invested in post office 40 k, bank 35 K, mutual fund 70 k, insurance premium 10.5 k yearly, all tax purpose, do u have any suggestions for me?
Sonali Debdatta answers, hi, all your investments are in tax planning schemes. Though your portfolio of tax schemes looks ok to me, I would recommend that you start diversifying your portfolio into non-tax saving schemes. You should add open-ended diversified equity funds (not the ELSS) to your portfolio. This will ensure that you have a wide variety of schemes to choose from. Investing with a view to saving tax may not be the right idea.
vinita asked, I would also like to know how to keep investing small amounts like 20-25k off and on.
Sonali Debdatta answers, hi, in my view the best way to deploy the amount of Rs 20-25k on a regular basis is to buy units of mutual funds. Depending on your risk appetite and investment horizon you can opt for either equity, balance or MIPs
gaurav asked, Should I invest in debt mutual fund. Can you suggest some good debt mutual funds
Sonali Debdatta answers, hi, given the current scenario long term debt funds are not likely to do well. Hence, settle for short term debt funds like liquid plus and short term funds. HDFC Cash Management Fund - Treasury Advantage Plan is a good liquid plus fund to invest in
ps asked, I am 38 years old having one child and my wife. There is no pension system in our Company. Pl. advice how to save for my retirement purposes?
Sonali Debdatta answers, hi, you need to make a retirement plan made for yourself. Start with your current expenditure on day to day living and account for your lifestyle expenditure like dining outside, travel, vacation etc. Factor in the inflation (at least 7%) and work out the corpus required. Then work backward to calculate the amount you need to save every month to reach the target amount. I would advice that you take help of an investment planner to help you with your retirement planning
nanda.hr@rediffmaill.com asked, Hi Sonali Debdatta, I am planning to invest in mutual fund the amount would be between 30k-50k ,but i don't anything about MF can u let me on this and which mf are good for long term
Sonali Debdatta answers, hi, since you are beginning to invest in mutual funds, I would recommend that you start investing in well managed diversified equity funds which have a track record of 5 years to show for. Stay away from sectoral or thematic funds. Invest for long term i.e. 5 years and above and that too via the SIPs. I have mentioned the name of few schemes earlier in the chat. You can consider those for start the SIPs.
dpjoshi asked, I m working with MNC age 40year age,14lac package ,I have house loan of 10 lac ,PPf account, Insurance investment of 2lac, Pension plan, Children policy too. Advice me for good investment for short term(2Year)
Sonali Debdatta answers, hi, for investment horizon of 2 years the best option would be Monthly Income Plans (MIPs) offered by mutual funds. MIPs typically invest 20% in equity and balance in debt. While equity provides the appreciation, debt provides regular income and stability to the portfolio. You can expect average return of 9% from MIPs. Please be informed that returns are market linked and not assured unlike a FD
BVENKATM asked, WHICH IS THE BEST PROTECTION PLAN FOR 30 YRS HAVING SUM ASSURED 20 LAKHS
Sonali Debdatta answers, hi, the best form of insurance is term plan. It allows you take higher sum assured for lowest premium. In my view a sum assured of Rs 20 lakhs is inadequate.
krishna asked, how to invest in gold and silver. which share do we need to buy? help from anyone
Sonali Debdatta answers, hi, for investing in Gold, Gold ETFs are the best. You can buy the units of Gold ETFs through the stock exchange. It is similar to buying stocks. You will have to register with a member broker of BSE /NSE who will help you in buying the stocks and Gold ETFs. As far as silver is concerned you can buy futures or go for physical form.
sp asked, Sir, my & wife salary in hand at every month is 90k, after all expenses i have in hand 50k left which i want to invest .. my age is 35, also i have home loan is 9 lacs and car loan is 3L, so could u plz tell me that I have to prepay our loan amount or invest in MF for long term.
Sonali Debdatta answers, hi, i would recommend that you start investing in mutual funds via SIPs. Keep repaying your loan through EMIs. As and when you have lump sum income like bonus etc use it to prepay your loan this will reduce your EMI and make more money available for SIPs.
Sonali Debdatta asked, Hi Sonali Debdatta, I make 90K per month and I'm 25. Could you pls suggest how should I plan my investments if I want to retire at 45 ?
Sonali Debdatta answers, hi, given your time to retirement of 20 years, you should invest 60-70% of your monthly savings into equity funds. Start SIPs in 4-5 well managed diversified equity funds (avoid sector specific funds)with a good track record of at least 5 years. Take help of an investment planner to make a retirement plan for yourself which will tell you how much you need to invest every month to ensure that you have adequate corpus by age of 45 years which will ensure that you lead a comfortable retired life
Sudhir asked, sir, my salary in hand at every month is 18000k, after all expenses i have in hand 6000 left which i want to invest .. my age is 35, also i have bank balance of Rs2.5 Lakhs..pl.i got 2 sons one 6yrs & other 2yrs
Sonali Debdatta answers, hi, in my view you should get a comprehensive investment plan made for your self which help you meet your various objectives like children's higher education, marriage and your retirement. It will help you invest your monthly savings in the right investments so that you can meet your goals on time
manav asked, Sir, let me know if there are any short term investment plans
Sonali Debdatta answers, hi, if your investment horizon is less than 12 months then you can consider liquid plus and short term funds. The returns can be in the range of 4.5% to 5%
SANDEEP asked, Is it possible to make money in stocks? or sip is better?
Sonali Debdatta answers, hi, it is very difficult to make case for or against any stocks and SIPs. Both are different ways of investing. Investing directly into stocks requires access to timely and reliable information on the companies whose stock one wants to invest in. Also, it requires constant monitoring of the performance of the company. If an investor was to have a portfolio of 15-20 stocks then it can be a full time job. Unless, the investor has the required amount of time and necessary information he should invest in diversified equity funds preferably through SIPs. Investments in MFs are managed by full time professional fund managers and hence the investor is saved from the botheration of tracking companies. SIPs also ensure that investor does not fall into the trap of market timing. It is important for investor to understand that results of SIP investing are visible over 3-5 years
sd asked, Could you please suggest some good funds (non-ELSS) for investing through SIP. Maybe for a period of 5-10 years?
Sonali Debdatta answers, hi, you can consider funds like HDFC Top 200, Franklin India Flexicap and DSP BR Top 100 for SIPs for 5-10 years
vm asked, I have invested recently in HDFC top 200 using SIP as dividend re-investment. In view of long term investment at least 10 years,,,, Is dividend re-investment better option than Growth?
Sonali Debdatta answers, Hi, there is no difference between the growth and div-reinvestment in the current scenario. In the growth option the NAV continues to grow and the units remain constant whereas in the div-reinv option a part of the appreciation is converted into dividend and the dividend amount payable to the investor is reinvested on the day following the dividend record date. The NAV per unit. drops by the amount of dividend per unit after the record date. Currently dividends are tax free and long term capital gains on equity oriented mutual funds are exempt. Until few years ago, dividends were tax free while long term capital gains were taxable. Hence, investors preferred dividend reinvestment, as the appreciation in NAV was reduced to the extent of dividend thereby reducing the overall tax liability in case an investor
Saturday, November 21, 2009
Why gold prices are at dazzling highs
If you had set your heart on new jewellery and were waiting for gold prices to dip ‘just a little’ before you made that purchase, gold’s recent price moves may have had you grinding your teeth in frustration!
After setting a record at Rs 16,000 per 10 gm in late September, gold prices have continued to nonchalantly race ahead to breach the Rs 17,300-mark recently. So, why are gold prices on fire, even after the festive season demand is well and truly over?
Well, recent gold price moves have nothing to do with Diwali or even Indian buyers, but with factors such as a weak US dollar, central bank buying and the metal’s newly acquired sheen as an investment option.
Hitched to global prices
Gold prices in India do perk up a bit during Diwali or Akshaya Trithiya, when retail buyers throng the jewellery shops. However, do remember that India imports the bulk of its gold requirements.
Hence, only two factors actually hold sway over where Indian gold prices are headed in the long term — global gold price trends and the rupee-dollar exchange rate.
Take 2009. Gold prices in the Mumbai market (for standard gold, ten grams) have shot up from about Rs 13,520 at the start of the year to over Rs 17,300 now — a 28 per cent gain.
Domestic prices have merely followed global gold prices, which rose from $827/ounce to $1,139/ounce (a 38 per cent gain) over the same period. Price gains in India have, in fact, not kept up with global trends, mainly because of the rupee strengthening by about 8 per cent against the dollar for the year. Gold in global markets is usually priced in dollars.
A stronger rupee makes every tonne of gold cheaper to import into the country; translating into more moderate domestic prices for gold.
Safe haven
So the question we should actually be asking is: Why did global gold prices shoot up this year? For one, after being buffeted by the economic crisis last year, many investors were wary of traditional assets such as stocks or bonds and were desperately seeking a safe haven.
Gold, globally accepted and easily convertible into cash, seemed to fit the bill perfectly. Since then, stocks and bonds have staged a rebound. But lingering doubts about whether the “global recovery” was going to last have ensured that gold prices held on to relatively high levels.
Some of gold’s gains this year also have to do with the commodities pack seeing a surge in investor interest this year. Gold, donning its commodity hat, has benefited from this rising investor fancy for hard assets such as industrial metals, which could see demand improve as Asian economies such as India and China recover from last year’s slump.
Much like other metals, the mining supply of gold hasn’t seen much improvement over the past five years, leading to relatively tight global supply of the yellow metal.
Diminishing dollar
However, the most important reason why gold prices are at a lifetime high today (gold has already sailed past its previous all-time high of $1,030/ounce hit in March 2008) has to do with the sliding value of the US dollar against other leading currencies. Why should the dollar’s behaviour impact gold prices in any way?
For one, the dollar’s weakness against other currencies has the potential to give worldwide demand for gold a leg-up. If a weaker dollar makes it cheaper for Indians to buy gold in rupee terms, it does the same for other large gold consumers whether it is the West Asians or the Chinese.
Two, the US dollar is much more than just paper money in the global scheme of things. The US’ status as global economic power has ensured that its currency — the dollar — has remained an investment of choice for most global investors with surplus cash on their hands.
For many years now, surplus liquidity from all over the world has flowed into dollar-denominated assets — the currency itself, US government bonds and American money market funds. However, the steadily sliding value of the US dollar in recent times, coupled with the country’s economic troubles, has stoked fears that the dollar could be in a terminal decline.
Those fears have prompted a whole host of global investors, the central banks of many nations included, to look for alternative “safe havens” to park their funds in.
Gold, once the standard on which all paper money was based, currently appears to be the haven of choice.
While the People’s Bank of China admitted to progressively adding to its gold reserves in April this year, India’s own Reserve Bank of India has recently bought a whopping 200 tonnes of gold from the International Monetary Fund to buttress its gold reserves.
This move proved to be the tipping point which pushed gold prices beyond their earlier lifetime highs. Investors saw central banks emerging as a new class of gold buyers!
With so many factors at play, it is no surprise that gold has emerged as quite a good investment option in recent years. Gold is now at a new lifetime high, which means that any investor in gold over the past few decades would now be sitting on a positive return.
To clinch the argument, gold has managed an impressive 21 per cent annual return over the past five years and has closed every one of the last eight years with price gains — a record that even stocks would struggle to beat. With returns looking so upbeat, can a horde of investors be far behind?
Improving returns
Gold’s steadily rising price has seen a steady rise in the “investment” demand for gold at the global level. Gold Exchange Traded Funds (ETFs are mutual funds that stock up on gold and then issue units for the same value for investors to trade in), have seen demand for their units shoot through the roof in recent years. That has meant higher gold demand from these funds.
According to World Gold Council estimates, ETF demand for gold in the first half of 2009 stood at over 500 tonnes, three times their annual levels five years ago. ETF demand today accounts for roughly a third of the annual gold demand.
What ETFs have essentially done is to allow normal investors to hold gold “electronically” in paperless form, much like stocks or bonds.
Buying gold a few years ago meant acquiring weighty and cumbersome bars of gold, putting them through purity checks and then hiring a safe deposit locker at stiff rentals, all to just own a zero-dividend paying asset.
The emergence of ETFs has taken away all those negatives associated with buying and storing gold.
With the winning combination of convenience, instant liquidity and great returns…. Is it any surprise that gold prices are at never-before levels?
After setting a record at Rs 16,000 per 10 gm in late September, gold prices have continued to nonchalantly race ahead to breach the Rs 17,300-mark recently. So, why are gold prices on fire, even after the festive season demand is well and truly over?
Well, recent gold price moves have nothing to do with Diwali or even Indian buyers, but with factors such as a weak US dollar, central bank buying and the metal’s newly acquired sheen as an investment option.
Hitched to global prices
Gold prices in India do perk up a bit during Diwali or Akshaya Trithiya, when retail buyers throng the jewellery shops. However, do remember that India imports the bulk of its gold requirements.
Hence, only two factors actually hold sway over where Indian gold prices are headed in the long term — global gold price trends and the rupee-dollar exchange rate.
Take 2009. Gold prices in the Mumbai market (for standard gold, ten grams) have shot up from about Rs 13,520 at the start of the year to over Rs 17,300 now — a 28 per cent gain.
Domestic prices have merely followed global gold prices, which rose from $827/ounce to $1,139/ounce (a 38 per cent gain) over the same period. Price gains in India have, in fact, not kept up with global trends, mainly because of the rupee strengthening by about 8 per cent against the dollar for the year. Gold in global markets is usually priced in dollars.
A stronger rupee makes every tonne of gold cheaper to import into the country; translating into more moderate domestic prices for gold.
Safe haven
So the question we should actually be asking is: Why did global gold prices shoot up this year? For one, after being buffeted by the economic crisis last year, many investors were wary of traditional assets such as stocks or bonds and were desperately seeking a safe haven.
Gold, globally accepted and easily convertible into cash, seemed to fit the bill perfectly. Since then, stocks and bonds have staged a rebound. But lingering doubts about whether the “global recovery” was going to last have ensured that gold prices held on to relatively high levels.
Some of gold’s gains this year also have to do with the commodities pack seeing a surge in investor interest this year. Gold, donning its commodity hat, has benefited from this rising investor fancy for hard assets such as industrial metals, which could see demand improve as Asian economies such as India and China recover from last year’s slump.
Much like other metals, the mining supply of gold hasn’t seen much improvement over the past five years, leading to relatively tight global supply of the yellow metal.
Diminishing dollar
However, the most important reason why gold prices are at a lifetime high today (gold has already sailed past its previous all-time high of $1,030/ounce hit in March 2008) has to do with the sliding value of the US dollar against other leading currencies. Why should the dollar’s behaviour impact gold prices in any way?
For one, the dollar’s weakness against other currencies has the potential to give worldwide demand for gold a leg-up. If a weaker dollar makes it cheaper for Indians to buy gold in rupee terms, it does the same for other large gold consumers whether it is the West Asians or the Chinese.
Two, the US dollar is much more than just paper money in the global scheme of things. The US’ status as global economic power has ensured that its currency — the dollar — has remained an investment of choice for most global investors with surplus cash on their hands.
For many years now, surplus liquidity from all over the world has flowed into dollar-denominated assets — the currency itself, US government bonds and American money market funds. However, the steadily sliding value of the US dollar in recent times, coupled with the country’s economic troubles, has stoked fears that the dollar could be in a terminal decline.
Those fears have prompted a whole host of global investors, the central banks of many nations included, to look for alternative “safe havens” to park their funds in.
Gold, once the standard on which all paper money was based, currently appears to be the haven of choice.
While the People’s Bank of China admitted to progressively adding to its gold reserves in April this year, India’s own Reserve Bank of India has recently bought a whopping 200 tonnes of gold from the International Monetary Fund to buttress its gold reserves.
This move proved to be the tipping point which pushed gold prices beyond their earlier lifetime highs. Investors saw central banks emerging as a new class of gold buyers!
With so many factors at play, it is no surprise that gold has emerged as quite a good investment option in recent years. Gold is now at a new lifetime high, which means that any investor in gold over the past few decades would now be sitting on a positive return.
To clinch the argument, gold has managed an impressive 21 per cent annual return over the past five years and has closed every one of the last eight years with price gains — a record that even stocks would struggle to beat. With returns looking so upbeat, can a horde of investors be far behind?
Improving returns
Gold’s steadily rising price has seen a steady rise in the “investment” demand for gold at the global level. Gold Exchange Traded Funds (ETFs are mutual funds that stock up on gold and then issue units for the same value for investors to trade in), have seen demand for their units shoot through the roof in recent years. That has meant higher gold demand from these funds.
According to World Gold Council estimates, ETF demand for gold in the first half of 2009 stood at over 500 tonnes, three times their annual levels five years ago. ETF demand today accounts for roughly a third of the annual gold demand.
What ETFs have essentially done is to allow normal investors to hold gold “electronically” in paperless form, much like stocks or bonds.
Buying gold a few years ago meant acquiring weighty and cumbersome bars of gold, putting them through purity checks and then hiring a safe deposit locker at stiff rentals, all to just own a zero-dividend paying asset.
The emergence of ETFs has taken away all those negatives associated with buying and storing gold.
With the winning combination of convenience, instant liquidity and great returns…. Is it any surprise that gold prices are at never-before levels?
How many funds should you hold?
How many funds should you hold?
Investors like to hold a number of mutual funds in their portfolios in the name of diversification. A typical portfolio would, hence, have exposure to several diversified funds, style and sector funds. But as one reader asked us: Is holding several mutual funds optimal?
This article discusses concentrated portfolios. It explains what a concentrated portfolio means within the core-satellite framework and shows why it is optimal to have just a handful of funds in a portfolio.
Defining concentration
Our discussion of concentrated portfolios is framed from an investor’s perspective. It, hence, means number of mutual funds or stocks that an investor holds in her portfolio.
It is important to understand that concentration does not refer to the number of funds in a portfolio. Rather, it refers to the exposure that the investor has to each fund.
Investor A may have five funds in a portfolio with one fund constituting 80 per cent of the total portfolio of Rs 25 lakh. Investor B, on the other hand, may have just two funds with equal weights. We can conclude that Investor A has a more concentrated portfolio than Investor B even though the former has more funds in the portfolio.
The question is whether it is optimal for investors to have a number of funds in their portfolio.
Equity core
Within a core-satellite framework, the preferred exposure to equity core is an index fund benchmarked to the broad market index or large-cap style index. Based on the producing offerings in the market, an exposure to an index fund benchmarked to the S&P CNX 500 or S&P CNX 50 or the BSE Sensex would be in order.
Take the funds benchmarked to the Nifty index. All of them carry the same portfolios. So, what then is the rationale in holding three such funds?
Investors would rather buy just one index fund of their choice to construct the equity core. Buying more than one fund amounts to fund diversification not portfolio diversification. And that could be justified only if the investor is concerned about the credit risk of the asset management firm.
Equity satellite
The satellite portfolio is set-up to beat the benchmark index. This portfolio could carry mid-cap, small-cap style funds and sector funds. Carrying direct exposure to equity is also optimal.
Unlike equity core, the equity satellite portfolio carries exposure to active funds. And since no two active funds carry the same stocks, it is, indeed, tempting for investors to hold large number of funds under each style universe.
An investor, for instance, may hold Sundaram BNP Paribas Select Focus Mid-cap Fund, DBS Chola Mid-cap Fund and Birla Sun Life Mid-cap Fund under the mid-cap style universe. But is it necessary to hold several funds in each style universe?
It would be optimal to hold not more than two funds in each style universe. Why two? Taking a single fund exposure to each style universe may be perceived as too risky. Taking exposure to more than two funds will not lead to any substantial benefit, as style funds invest within the same universe of stocks.
With sector funds, the universe of investable stocks is small. It is, hence, optimal to hold just one fund in each sector.
Conclusion
A typical core-satellite portfolio would have one fund in the equity core and not more than three funds in the equity satellite. Many investors have questioned the structure, as it is appears concentrated.
But holding several index funds and style funds does not necessarily lead to diversification. So, rather than be concerned about the number of funds in a portfolio, investors would do better to analyse if adding more funds in the same style universe is beneficial. Often it is not, as peer funds chase the same universes of stocks. Besides, it is easier to monitor a portfolio that has fewer funds.
Investors like to hold a number of mutual funds in their portfolios in the name of diversification. A typical portfolio would, hence, have exposure to several diversified funds, style and sector funds. But as one reader asked us: Is holding several mutual funds optimal?
This article discusses concentrated portfolios. It explains what a concentrated portfolio means within the core-satellite framework and shows why it is optimal to have just a handful of funds in a portfolio.
Defining concentration
Our discussion of concentrated portfolios is framed from an investor’s perspective. It, hence, means number of mutual funds or stocks that an investor holds in her portfolio.
It is important to understand that concentration does not refer to the number of funds in a portfolio. Rather, it refers to the exposure that the investor has to each fund.
Investor A may have five funds in a portfolio with one fund constituting 80 per cent of the total portfolio of Rs 25 lakh. Investor B, on the other hand, may have just two funds with equal weights. We can conclude that Investor A has a more concentrated portfolio than Investor B even though the former has more funds in the portfolio.
The question is whether it is optimal for investors to have a number of funds in their portfolio.
Equity core
Within a core-satellite framework, the preferred exposure to equity core is an index fund benchmarked to the broad market index or large-cap style index. Based on the producing offerings in the market, an exposure to an index fund benchmarked to the S&P CNX 500 or S&P CNX 50 or the BSE Sensex would be in order.
Take the funds benchmarked to the Nifty index. All of them carry the same portfolios. So, what then is the rationale in holding three such funds?
Investors would rather buy just one index fund of their choice to construct the equity core. Buying more than one fund amounts to fund diversification not portfolio diversification. And that could be justified only if the investor is concerned about the credit risk of the asset management firm.
Equity satellite
The satellite portfolio is set-up to beat the benchmark index. This portfolio could carry mid-cap, small-cap style funds and sector funds. Carrying direct exposure to equity is also optimal.
Unlike equity core, the equity satellite portfolio carries exposure to active funds. And since no two active funds carry the same stocks, it is, indeed, tempting for investors to hold large number of funds under each style universe.
An investor, for instance, may hold Sundaram BNP Paribas Select Focus Mid-cap Fund, DBS Chola Mid-cap Fund and Birla Sun Life Mid-cap Fund under the mid-cap style universe. But is it necessary to hold several funds in each style universe?
It would be optimal to hold not more than two funds in each style universe. Why two? Taking a single fund exposure to each style universe may be perceived as too risky. Taking exposure to more than two funds will not lead to any substantial benefit, as style funds invest within the same universe of stocks.
With sector funds, the universe of investable stocks is small. It is, hence, optimal to hold just one fund in each sector.
Conclusion
A typical core-satellite portfolio would have one fund in the equity core and not more than three funds in the equity satellite. Many investors have questioned the structure, as it is appears concentrated.
But holding several index funds and style funds does not necessarily lead to diversification. So, rather than be concerned about the number of funds in a portfolio, investors would do better to analyse if adding more funds in the same style universe is beneficial. Often it is not, as peer funds chase the same universes of stocks. Besides, it is easier to monitor a portfolio that has fewer funds.
Funds for senior citizens
We are senior citizens. We do not need any income from mutual funds for our day-to-day living. We are conservative investors with average risk taking ability and with an expectation of minimum 10-12 per cent yearly tax free returns from this investment. We can remain invested for 5 years or more. We do not practice aggressive churning of portfolio. Most of the above funds are 1-5 years old in our portfolio. We have few other tax saving funds (Sundaram, Birla, DSP) but they are locked-in. Please suggest changes, if any, to our portfolio.
Our mutual fund holdings are as follows - Tata Infrastructure, Reliance Equity, ICICI Taxsaver, Sundaram Select Midcap, Franklin Blueship, Franklin Prima Plus, Franklin Flexicap, DSP ML Balanced, DSP BR Opportunities, DSP BR Top 100, DSP BR Equity, DSP BR T.I.G.E.R, HDFC Taxsaver, HDFC Prudence, HDFC Top 200, HDFC Infra, HDFC Growth, HSBC Equity, HSBC Midcap.
Ramesh Agarwal
Given that you have clearly stated you risk appetite and your return expectations, you can consider exiting some of the equity funds in your portfolio and instead switch to debt mutual funds.
While most of the funds that you hold have a good track record of performance we would like you to sell some of them for the following reasons: One, a few carry a higher risk profile than acceptable for you. Two, some of them would duplicate your portfolio – by investing in similar themes/stocks. Three, you would be better off with a more compact portfolio as too much diversification would also require you to actively track funds and churn them if need be.
In light of the above, we suggest some changes to your portfolio. Reliance Equity has been an underperformer. You can consider exiting it. You can also consider moving out of DSPBR Top 100 and HSBC Equity. HDFC Top 200 and DSPBR Equity should suffice in their place. Sell Franklin India Prima Plus and Franklin India Flexicap; these may not suit your risk-return ratio. Avoid entry into sector funds which are close-ended. HDFC infrastructure is one such scheme. Exit this after the lock-in as DSP BR T.I.G.E.R should be able to provide you an exposure to infrastructure and capital goods investing.
If your tax saving funds — HDFC Taxsaver and ICICI Pru Tax Plan have become open-ended, you can consider en-cashing them. The mid-cap exposure that these funds typically assume would be available to you in other mid-cap funds that you hold — Sundaram BNP Paribas Select Midcap and Birla Midcap . Besides, if you had held the above tax-saving funds for just over 3 years, they would have turned in single-digit returns, lower than your 10-12 per cent expectation. In general, given your risk profile; do not invest in tax saving funds for the sake of gaining tax deductions. Safer options such as post office senior citizens’ scheme offer tax deduction under Section 80C and provide regular payout, albeit at 9 per cent.
Here are a few other you can consider adding to your portfolio: HDFC Prudence, UTI Mahila Unit Scheme (can be invested by your spouse), FT India Life Stage FoF 50 Plus and HDFC MIP Long Term. Note that debt funds are not free of tax. While dividends are exempt, the capital appreciation both short and long term would suffer capital gains tax.
Low interest rates in Fixed Deposits
I am 62 years old. I parked the majority of my savings in bank fixed deposits. The interest rate of FDs are now very low. Please suggest alternative avenues of investments such as mutual funds so as to earn an average return of 12 per cent. I can stay invested for a long term of five years.
Krishnan U
We assume you are not dependent on mutual fund investments for your monthly income. Fixed deposit rates maybe expected to go up again in 2010. So do not lock into any long-term investments now. Mutual funds would provide you sufficient liquidity, if you wish to switch to FDs at a later date.
You can consider investing in diversified equity funds such as HDFC Top 200 and Quantum Long Term Equity, HDFC Prudence (balanced fund) and debt fund HSBC MIP Savings. Please note that mutual funds do not guarantee any returns the way fixed deposits do. However, if you hold these funds over the long term, the portfolio return (not necessarily individual funds) is likely to meet your expectation.
Our mutual fund holdings are as follows - Tata Infrastructure, Reliance Equity, ICICI Taxsaver, Sundaram Select Midcap, Franklin Blueship, Franklin Prima Plus, Franklin Flexicap, DSP ML Balanced, DSP BR Opportunities, DSP BR Top 100, DSP BR Equity, DSP BR T.I.G.E.R, HDFC Taxsaver, HDFC Prudence, HDFC Top 200, HDFC Infra, HDFC Growth, HSBC Equity, HSBC Midcap.
Ramesh Agarwal
Given that you have clearly stated you risk appetite and your return expectations, you can consider exiting some of the equity funds in your portfolio and instead switch to debt mutual funds.
While most of the funds that you hold have a good track record of performance we would like you to sell some of them for the following reasons: One, a few carry a higher risk profile than acceptable for you. Two, some of them would duplicate your portfolio – by investing in similar themes/stocks. Three, you would be better off with a more compact portfolio as too much diversification would also require you to actively track funds and churn them if need be.
In light of the above, we suggest some changes to your portfolio. Reliance Equity has been an underperformer. You can consider exiting it. You can also consider moving out of DSPBR Top 100 and HSBC Equity. HDFC Top 200 and DSPBR Equity should suffice in their place. Sell Franklin India Prima Plus and Franklin India Flexicap; these may not suit your risk-return ratio. Avoid entry into sector funds which are close-ended. HDFC infrastructure is one such scheme. Exit this after the lock-in as DSP BR T.I.G.E.R should be able to provide you an exposure to infrastructure and capital goods investing.
If your tax saving funds — HDFC Taxsaver and ICICI Pru Tax Plan have become open-ended, you can consider en-cashing them. The mid-cap exposure that these funds typically assume would be available to you in other mid-cap funds that you hold — Sundaram BNP Paribas Select Midcap and Birla Midcap . Besides, if you had held the above tax-saving funds for just over 3 years, they would have turned in single-digit returns, lower than your 10-12 per cent expectation. In general, given your risk profile; do not invest in tax saving funds for the sake of gaining tax deductions. Safer options such as post office senior citizens’ scheme offer tax deduction under Section 80C and provide regular payout, albeit at 9 per cent.
Here are a few other you can consider adding to your portfolio: HDFC Prudence, UTI Mahila Unit Scheme (can be invested by your spouse), FT India Life Stage FoF 50 Plus and HDFC MIP Long Term. Note that debt funds are not free of tax. While dividends are exempt, the capital appreciation both short and long term would suffer capital gains tax.
Low interest rates in Fixed Deposits
I am 62 years old. I parked the majority of my savings in bank fixed deposits. The interest rate of FDs are now very low. Please suggest alternative avenues of investments such as mutual funds so as to earn an average return of 12 per cent. I can stay invested for a long term of five years.
Krishnan U
We assume you are not dependent on mutual fund investments for your monthly income. Fixed deposit rates maybe expected to go up again in 2010. So do not lock into any long-term investments now. Mutual funds would provide you sufficient liquidity, if you wish to switch to FDs at a later date.
You can consider investing in diversified equity funds such as HDFC Top 200 and Quantum Long Term Equity, HDFC Prudence (balanced fund) and debt fund HSBC MIP Savings. Please note that mutual funds do not guarantee any returns the way fixed deposits do. However, if you hold these funds over the long term, the portfolio return (not necessarily individual funds) is likely to meet your expectation.
How ULIPs fare as an investment option
Invest your money in ULIP when Sensex is very low and it has lot of charges collected during investment entry load through brokers, during preclose exit load etc., for insurance they cut some money and these ulip covers life for only certain period of time. When sensex is downwards lot of amount is debited as fund charges and commission of agent, banker etc., Instead you can directly invest your money in High growth company and earn handsome after some time
ULIP is waste just because the charges in the intially year are so huge say(20%-to50%) and their on some charges
so the better will be take pure term and invest either in mutual fund or buy nifty bees or jr bees or put it into large cap.
ULIP is waste just because the charges in the intially year are so huge say(20%-to50%) and their on some charges
so the better will be take pure term and invest either in mutual fund or buy nifty bees or jr bees or put it into large cap.
difference between gold fund n gold thru commodity exchange
whats the difference between gold purchased thru gold fund, n what if purchased thru commodity exchange.
can v hold gold bought thru exchange for a year long period n whats the cost of such holding.
Answer:
u talking about trading gold prices, its short term u can lose or gain, its speculation.
if u want to invest for long term 1-3 years hold it till u see it reach peak and then sell then ETF is better.
If u want to hold it longer buy physical gold
can v hold gold bought thru exchange for a year long period n whats the cost of such holding.
Answer:
u talking about trading gold prices, its short term u can lose or gain, its speculation.
if u want to invest for long term 1-3 years hold it till u see it reach peak and then sell then ETF is better.
If u want to hold it longer buy physical gold
Gold is preferred always as an investment
The fluctuations in the price of this yellow metal have been only temporary & short lived just to boost up with redoubled speed to the surprise of all the general users in the public most of whom go for it just out of sentimental & custom reasons AND to the jubilation of all the speculative investors. So far,there has been no long term drop in its price.Earlier notion of holding or hoarding this precious metal being attributed to sentimental Indians,now gets transformed into shrewd investors all over the world mainly for reason of safer investment & easy liquidity.This feeling is getting cemented further more in view of the inflationary tendency,increase in demand & scarcity in supply which,in turn,is due low mining on account of depletion of the stocks.Whatever be the reasons,the propensity to stock the gold as a measure of security for the future is on increase thanks to its ever rising price nature.Perhaps,only for this reason,it has been still a matter of negotiations in all matrimonial matters by all the people from Indian bride's side.There is lot of wisdom in the Sanskrit saying"Naana Gunam Kaanchanam Samaashrayathe"(Every thing ultimately boils down to gold which indirectly could also mean that since gold is the most liquid form which could be converted into ready money very easily & instantly.It was rightly said that, not withstanding any degree of sainthood,every one is a slave to "Kaantha" & "Kanakam"(women & gold)-"yentha varalaina Kaantha Daasule"
Thursday, November 19, 2009
Prashantha Narayana asked : How dividend is calculated?
For example - : Indiabulls securities
Last dividend was announced on 29/06/09 and I was not holding shares at that point of time, I was holding it between September and November. But still they credited the Amount.
How is it possible? How is it calculated for all companies in general.
Answer : Always remember that bonus is paid using the companys cash balance or in the form of stock.
If they pay cash bonus, the total bonus amount has to come out of the cash balance
Here is an example.
Assume the company has 100 rupees in cash balance and decided to pay 10 rupees as bonus.
Once the Rs.10 is paid as bonus, the company is left over with Rs. 90 in cash.
So the companys stock has to adjust to this new reduction in cash balance and has to adjust
down.
From an investors point of view, there will be no net profit as the reduction in stock price
will be compensated by Rs.10 received in bonus.
Similarly if the company paid stock bonus, it means the company is diluting the number
of outstanding share quantity by increasing them. This means that the company's assets
are now available to more number of investors there by reducing the claim of each stock
on the comapany's net assets. Ultimately there is no net profit as such to the investor
For example - : Indiabulls securities
Last dividend was announced on 29/06/09 and I was not holding shares at that point of time, I was holding it between September and November. But still they credited the Amount.
How is it possible? How is it calculated for all companies in general.
Answer : Always remember that bonus is paid using the companys cash balance or in the form of stock.
If they pay cash bonus, the total bonus amount has to come out of the cash balance
Here is an example.
Assume the company has 100 rupees in cash balance and decided to pay 10 rupees as bonus.
Once the Rs.10 is paid as bonus, the company is left over with Rs. 90 in cash.
So the companys stock has to adjust to this new reduction in cash balance and has to adjust
down.
From an investors point of view, there will be no net profit as the reduction in stock price
will be compensated by Rs.10 received in bonus.
Similarly if the company paid stock bonus, it means the company is diluting the number
of outstanding share quantity by increasing them. This means that the company's assets
are now available to more number of investors there by reducing the claim of each stock
on the comapany's net assets. Ultimately there is no net profit as such to the investor
INVESTNG IN SUGAR STOCKS HOLD OR EXIT
Sukumar Sen asked :
I want ur suggestion on Sugar Stock I have Balram Pur Chini @ 145 250 Shares & Dhampur Sugar @142 250 Shares Plz Guide hold /sell
Answer :The central government has put an FPR (Fair price regulation) on sugarcane farmers at a price
of Rs. 128 a quintal. However the actual production cost is much more in some states.
The manufacturing industries gain due to this FPR as they any way sell the final product
for much higher price.
However, there have been demands to increase the FPR price from Rs 128 to any where between
250 and 400. If the government considers this, there might be tight profit margins to industries
and will see a reduction in stock price. My suggestion is to exit out of your positions
and get in when uncertainity is gone
I want ur suggestion on Sugar Stock I have Balram Pur Chini @ 145 250 Shares & Dhampur Sugar @142 250 Shares Plz Guide hold /sell
Answer :The central government has put an FPR (Fair price regulation) on sugarcane farmers at a price
of Rs. 128 a quintal. However the actual production cost is much more in some states.
The manufacturing industries gain due to this FPR as they any way sell the final product
for much higher price.
However, there have been demands to increase the FPR price from Rs 128 to any where between
250 and 400. If the government considers this, there might be tight profit margins to industries
and will see a reduction in stock price. My suggestion is to exit out of your positions
and get in when uncertainity is gone
Tuesday, November 17, 2009
When earnings surprise
Ever wondered what jargons such as “beat the street” and “trail the street” used by analysts and business journalists alike mean?
These terms are used when a company’s actual performance is different from market expectations, leading to what is known as earnings surprise.
Stated simply, earnings surprise occurs when a company’s actual earnings (net profits or earnings per share (EPS) on a per share basis) differ from “consensus” or “street” estimates. Consensus earnings estimates refer to the average or median profits, forecast by analysts tracking the stock.
Better actual earnings than consensus estimates lead to positive earnings surprise, with the company said to have “beaten the street”. On the other hand, actual earnings below consensus estimates result in negative earnings surprise, and the company is said to have “trailed the street”.
Auto major Mahindra & Mahindra was among the street beaters, while oil and gas behemoth, Reliance Industries, was among the companies to disappoint the street in the recent September quarter results.
Why they occur?
Earnings surprise can have their genesis from a variety of reasons. These range from complexities and pitfalls in forecasting earnings to unexpected changes in the market conditions and/or companies’ situation which may not be fully factored in the analyst estimates.
Also, the consensus estimate may be skewed by extreme estimates, when stocks are tracked by only a few analysts.
Effect on stock prices
Earnings surprises can have peculiar effects on stock prices vis-À-vis performance. Companies may post what might otherwise seem as healthy earnings growth. However, counter-intuitively, the stock may still be punished on the bourses, as the growth did not meet higher consensus estimates. Larsen and Toubro, for instance, saw its price dip, despite growing profits by more than 26 per cent in the recent September quarter.
Likewise, prices of stocks which post losses may still rise, since the losses were not as bad as expected. Case in point: Bharat Petroleum’s stock price rose, post announcement of a lesser-than-expected loss.
Ceteris paribus, stocks that register positive surprise usually witness an increase in prices, while those with negative surprise have their prices beaten down.
This was witnessed in the upward movement of the Mahindra and Mahindra share price, and decline in Reliance Industries’ share price, post-recent results announcement.
It would take uncanny coincidence for company earnings to exactly match analyst estimates. Hence, minor earnings surprises are generally considered in-line with estimates.
Consequently, earnings surprises have meaningful impact on the stock price only when the divergence is significant. Intuitively, the bigger the surprise, the higher the impact on the share price.
‘Cockroach’ effect
Financial market research (Ball and Brown) indicates that stocks with earnings surprises tend to drift away from the market — positive and negative surprise stocks tend to outperform and underperform the market respectively over an extended period after the earnings announcement. This is known as post-earnings announcement drift.
Another important theory about earnings surprises is that they seldom occur in isolation.
Just as cockroaches are joined by more of their ilk in quick succession, earnings surprises tend to exhibit serial correlation, with positive and negative surprises followed by more of the same in the future.
Signalling mechanism
The above behavioural finance-driven phenomena are considered major market anomalies and used in portfolio strategies by seasoned investors and traders. Thus, earnings surprise might serve as a signalling mechanism to help identify stocks which may generate superior returns compared with the market.
These terms are used when a company’s actual performance is different from market expectations, leading to what is known as earnings surprise.
Stated simply, earnings surprise occurs when a company’s actual earnings (net profits or earnings per share (EPS) on a per share basis) differ from “consensus” or “street” estimates. Consensus earnings estimates refer to the average or median profits, forecast by analysts tracking the stock.
Better actual earnings than consensus estimates lead to positive earnings surprise, with the company said to have “beaten the street”. On the other hand, actual earnings below consensus estimates result in negative earnings surprise, and the company is said to have “trailed the street”.
Auto major Mahindra & Mahindra was among the street beaters, while oil and gas behemoth, Reliance Industries, was among the companies to disappoint the street in the recent September quarter results.
Why they occur?
Earnings surprise can have their genesis from a variety of reasons. These range from complexities and pitfalls in forecasting earnings to unexpected changes in the market conditions and/or companies’ situation which may not be fully factored in the analyst estimates.
Also, the consensus estimate may be skewed by extreme estimates, when stocks are tracked by only a few analysts.
Effect on stock prices
Earnings surprises can have peculiar effects on stock prices vis-À-vis performance. Companies may post what might otherwise seem as healthy earnings growth. However, counter-intuitively, the stock may still be punished on the bourses, as the growth did not meet higher consensus estimates. Larsen and Toubro, for instance, saw its price dip, despite growing profits by more than 26 per cent in the recent September quarter.
Likewise, prices of stocks which post losses may still rise, since the losses were not as bad as expected. Case in point: Bharat Petroleum’s stock price rose, post announcement of a lesser-than-expected loss.
Ceteris paribus, stocks that register positive surprise usually witness an increase in prices, while those with negative surprise have their prices beaten down.
This was witnessed in the upward movement of the Mahindra and Mahindra share price, and decline in Reliance Industries’ share price, post-recent results announcement.
It would take uncanny coincidence for company earnings to exactly match analyst estimates. Hence, minor earnings surprises are generally considered in-line with estimates.
Consequently, earnings surprises have meaningful impact on the stock price only when the divergence is significant. Intuitively, the bigger the surprise, the higher the impact on the share price.
‘Cockroach’ effect
Financial market research (Ball and Brown) indicates that stocks with earnings surprises tend to drift away from the market — positive and negative surprise stocks tend to outperform and underperform the market respectively over an extended period after the earnings announcement. This is known as post-earnings announcement drift.
Another important theory about earnings surprises is that they seldom occur in isolation.
Just as cockroaches are joined by more of their ilk in quick succession, earnings surprises tend to exhibit serial correlation, with positive and negative surprises followed by more of the same in the future.
Signalling mechanism
The above behavioural finance-driven phenomena are considered major market anomalies and used in portfolio strategies by seasoned investors and traders. Thus, earnings surprise might serve as a signalling mechanism to help identify stocks which may generate superior returns compared with the market.
Sunday, November 15, 2009
Stock-selection skills
Investing in equities may seem like a simple business, but more often than not, it is more complex than one would imagine. The moot question is that with all of the hundreds of thousands of stocks available in the market for us to choose from, how does one know which stocks to invest in? Should one pick a stock because it is in an industry that interests him or her? Or should investors let their emotions drive their stock picks?
Here, we look into the mind of a value investor to understand how one should go about investing in the equity markets in order to realise gains on a long-term basis.
But before that, you may have to understand what type of investor category you fit in.
Type I
This class of investors does not have the time or the ability to make judgmental calls on the stocks/sectors. There are investors who have very little time to make judgements and invest in equities, based on the above two approaches. Mutual funds, therefore, assume a significant role here, helping this class of investors invest their money and reap returns.
Professional portfolio managers, who manage the mutual funds, therefore assume an important and responsible role. It is a win-win situation for both the client and the fund manager in that the investor benefits from the ability of the manager to pick good stocks by paying a small fee.
Also, there are portfolio management services (PMS) provided by various wealth management companies that manage the client’s fund in equities in a highly efficient manner.
The only difference between mutual fund and PMS is that the units of mutual funds are readily traded on the market and the updated net asset value is available daily for the investor to monitor while, in the case of PMS, exiting the scheme takes more time than the mutual funds.
Type II
These investors do not have the time or the inclination to engage in tracking investment information on a regular basis. For example, the investor here does not have the time to go through the annual reports, keep a track of quarterly numbers, keep a tab on important happenings related to the company. For such investors, it is best to go through the various research reports published by the research and broking houses.
The research-cell analysts have access to key data, management, etc. Hence, they are better placed to present facts and ideas. After going through the fundamental research report, an investor can make up his mind about the sector and stock to be invested in.
Type III
You will fall under the third category if you have both the time and the inclination to monitor your portfolio on a consistent basis. The investor here is interested in going about building his own portfolio commensurate with the risk and returns that he desires. Such an investor purchases investments and continuously monitors activity in the company as well as markets in order to exploit profitable conditions.
What distinguishes such an investor from the other investor classes is his high involvement in the investing activity. The investor possesses the know-how needed to analyse stocks, read and infer annual reports, take cues from various important events, etc. In short, the investor knows how to separate the wheat from the chaff.
It is the last-mentioned type of investor who would have to seriously equip himself with stock-picking skills. Here’s how such investors can select their stocks.
Begin by understanding your own risk profile: The most underestimated but probably the most important of all rules for you as an investor is to understand yourself in terms of your risk-taking capability and objectives. Once your risk profiling is clear, you are all set to look at stocks to invest in.
Choose the stock to research from an industry/sector you are comfortable with. You should choose a company you can keep track of. Often, the annual report of a company itself gives a fairly good overview of the industry along with its future growth outlook. Annual reports also tell you about the major and minor competitors in a particular industry.
Time for some ratio analysis: Ratio analysis serves as a complement to the fundamental analysis. Some of the ratios that can be analysed are price-to-earnings ratio and price-to-book-value ratio. While these are not the only ratios, they do help in understanding what the stock price discounts.
Look for management capability, track record: It is often said that there are no good or bad companies, only good or bad managers. Key executives, therefore, are responsible for the future of the company.
Determine fair value and decide what price you want to pay: Based on the fundamental valuation and ratio analysis, you would be in a position to decide about the worth of the company. If you are a value investor, look at the intrinsic worth of the company. Growth investors can accord higher weight to the earning potential.
Make a decision and stick to the rules: Once you have gone through this process, you may have to make the decision to invest in a particular company. But remember that even after deciding on the stock pick, a minor fluctuation in price can influence or even upset the decision.
So, it is absolutely important to have faith in one’s own values and principles, on which the investment is made. Never let the small fluctuations in the price of the investment deter/encourage the sell/buy argument.
Here, we look into the mind of a value investor to understand how one should go about investing in the equity markets in order to realise gains on a long-term basis.
But before that, you may have to understand what type of investor category you fit in.
Type I
This class of investors does not have the time or the ability to make judgmental calls on the stocks/sectors. There are investors who have very little time to make judgements and invest in equities, based on the above two approaches. Mutual funds, therefore, assume a significant role here, helping this class of investors invest their money and reap returns.
Professional portfolio managers, who manage the mutual funds, therefore assume an important and responsible role. It is a win-win situation for both the client and the fund manager in that the investor benefits from the ability of the manager to pick good stocks by paying a small fee.
Also, there are portfolio management services (PMS) provided by various wealth management companies that manage the client’s fund in equities in a highly efficient manner.
The only difference between mutual fund and PMS is that the units of mutual funds are readily traded on the market and the updated net asset value is available daily for the investor to monitor while, in the case of PMS, exiting the scheme takes more time than the mutual funds.
Type II
These investors do not have the time or the inclination to engage in tracking investment information on a regular basis. For example, the investor here does not have the time to go through the annual reports, keep a track of quarterly numbers, keep a tab on important happenings related to the company. For such investors, it is best to go through the various research reports published by the research and broking houses.
The research-cell analysts have access to key data, management, etc. Hence, they are better placed to present facts and ideas. After going through the fundamental research report, an investor can make up his mind about the sector and stock to be invested in.
Type III
You will fall under the third category if you have both the time and the inclination to monitor your portfolio on a consistent basis. The investor here is interested in going about building his own portfolio commensurate with the risk and returns that he desires. Such an investor purchases investments and continuously monitors activity in the company as well as markets in order to exploit profitable conditions.
What distinguishes such an investor from the other investor classes is his high involvement in the investing activity. The investor possesses the know-how needed to analyse stocks, read and infer annual reports, take cues from various important events, etc. In short, the investor knows how to separate the wheat from the chaff.
It is the last-mentioned type of investor who would have to seriously equip himself with stock-picking skills. Here’s how such investors can select their stocks.
Begin by understanding your own risk profile: The most underestimated but probably the most important of all rules for you as an investor is to understand yourself in terms of your risk-taking capability and objectives. Once your risk profiling is clear, you are all set to look at stocks to invest in.
Choose the stock to research from an industry/sector you are comfortable with. You should choose a company you can keep track of. Often, the annual report of a company itself gives a fairly good overview of the industry along with its future growth outlook. Annual reports also tell you about the major and minor competitors in a particular industry.
Time for some ratio analysis: Ratio analysis serves as a complement to the fundamental analysis. Some of the ratios that can be analysed are price-to-earnings ratio and price-to-book-value ratio. While these are not the only ratios, they do help in understanding what the stock price discounts.
Look for management capability, track record: It is often said that there are no good or bad companies, only good or bad managers. Key executives, therefore, are responsible for the future of the company.
Determine fair value and decide what price you want to pay: Based on the fundamental valuation and ratio analysis, you would be in a position to decide about the worth of the company. If you are a value investor, look at the intrinsic worth of the company. Growth investors can accord higher weight to the earning potential.
Make a decision and stick to the rules: Once you have gone through this process, you may have to make the decision to invest in a particular company. But remember that even after deciding on the stock pick, a minor fluctuation in price can influence or even upset the decision.
So, it is absolutely important to have faith in one’s own values and principles, on which the investment is made. Never let the small fluctuations in the price of the investment deter/encourage the sell/buy argument.
Saturday, November 14, 2009
Opportunities Funds — Mixed performance
The track record of ‘opportunities’ funds may not be that enviable, given that they have not beaten their benchmarks consistently. On a one-year basis, of the 14 funds in this category, only five (or about 40 per cent) beat the returns generated by the S&P CNX 500 (82.4 per cent returns). If the BSE-100 (79.6 per cent) is taken as a reference, half of them pass muster. The story is the same for a three-year time-frame too.
Opportunities funds seek to invest in stocks across market capitalisation and usually have a substantial mid-cap stock (less than Rs 7,500 crore market capitalisation) exposure. On a one- or three-year basis, a strong mid-cap exposure and selection of sectors such as capital goods, auto and banks, in the portfolio has determined the levels of out-performance.
Sectors that led the rally
For example, Mirae Asset India Opportunities Fund clocked a return of 111 per cent over a one-year period. The fund, over the last year, increased exposures to mid-cap stocks, as a percentage of its overall portfolio, from 26 per cent to over 40 per cent. It also invested in the ‘right’ sectors — banks, capital goods and auto ancillaries — that led the recent market rally that started in March.
In the previous market rally in 2007-08, led by mid-cap stocks, again, half the funds out performed the BSE-100 and the S&P CNX 500, with funds such as DBS Chola Opportunities, Kotak Opportunities and Tata Equity Opportunities delivering triple-digit returns.
Containing losses better
However, in the market downturn of 2008-09, two in three funds in this category contained losses better than these indices. The best performer on this count was UTI-Opportunities, which lost 54.7 per cent of its NAV in this period, compared to the 60-63 per cent by which other major indices fell.
Most ‘Opportunities’ have been in existence for less than five years. On a one- and three-year basis, the funds that delivered steady returns are UTI Opportunities, Reliance Equity Opportunities, DSPBR Opportunities and Kotak Opportunities. Of these Reliance Equity and Kotak had mid-cap exposures of over 40 per cent across market cycles.
UTI Opportunities and DSPBR Opportunities have a large-cap stock tilt and have less than 20 per cent invested in mid-cap stocks. These two funds also tend to be cautious during market corrections. In January less than 75 per cent of the funds’ portfolios was invested in equity to tide over market volatility
IS IT THE RIGHT TIME TO INVEST IN GOLD READ ON VIEWS
Gold ETF trading price by S Krishna
why any gold ETF price is not exactly equal to the physical gold price?. For example, Reliance Gold ETF is trading around Rs.1612/- where as gold is trading around Rs.1673/- today.
Invest in gold by Sheetal Kaur
want to maker profit then only invest in certified gold bullion and currency such as Krugerrand or gold dollars and not in jewelery.
Sell it back to a good gold bullion dealer and not to a jeweler
Only then you will get any good return.
Otherwise it is not worth investing in gold.
You can get double by Raina
..of what you get in gold by investing in silver.
Historically every time gold has gone up silver has more than doubled in the same time frame.
Most people don't understand it.Those who do make a higher return without any risk. invest and hold till ur in profit.
RBI's purchase is favor to US not to fellow Indians by Sharmila Prabhu
One tonne of gold equated to a value of US$35 million as of November 4th, 2009
Traditionally US is the Bullion Depository for many countries, i.e. US Dollars ($) Vs GOLD deposits. That is why USD was so powerful money till recent years. Now situation is changing, as many countries stopped trading with USD. Unfortunately this is one of the major HIT for US economy. US have now plenty of GOLD reserves (approx. 10K tones). Unless they sell them back, US may break down economically anytime.
Also you may be aware, discussions have already started in OPEC Countries (Organization of the Petroleum Exporting Countries) that "Should they have to continue to do the OIL TRADE still in USD". There is a proposal already to use few other currencies instead of USD (Canadian Dollar, Sterling, AED, Euro etc). If that becomes effective, then US economy will be in SHIT.
So the current situation for US is in search of new borrowers for their GOLD reserves. We Indians are always so generous to help the US economy, no matter how worst our economy goes…
My Question to you all is: “India becoming one of the countries for GOLD reserve is acceptable, BUT IS IT THE RIGHT TIME FOR RBI TO INVEST SUCH A HUGE MONEY ON BULLION”
My opinion is, we could have done this earlier, not when the GOLD value is in historic rise….
by mohammed ulhaq
You have explained only one side of it, but you should also know one thing that if India holds USD in reserves then at the point when USD becomes equal to Sh.t then we are in deep sh.t. its better to convert USD into exchangable commodity and in long run it can converted to any currency as anybody will be prepared to buy Gold but not USD as currency
sachin petkar says
All money are invest in gold because there is no correction in gold ? Time to time increasing the price of gold ? 2 year 25000/- and after 10 year 45000/-
Vishwas Pendnekar says
Gold price should be in line with Oil price - a barrel of oil and a gram of gold should generally be equal. People buy gold, initially for their need, and then the greed make them to buy more. If people buy only for their need, the price will be reasonable. I am very happy if the price goes up, as I have already nearly 4 kg of gold in jewellery form, bought over the last 20 years.
why any gold ETF price is not exactly equal to the physical gold price?. For example, Reliance Gold ETF is trading around Rs.1612/- where as gold is trading around Rs.1673/- today.
Invest in gold by Sheetal Kaur
want to maker profit then only invest in certified gold bullion and currency such as Krugerrand or gold dollars and not in jewelery.
Sell it back to a good gold bullion dealer and not to a jeweler
Only then you will get any good return.
Otherwise it is not worth investing in gold.
You can get double by Raina
..of what you get in gold by investing in silver.
Historically every time gold has gone up silver has more than doubled in the same time frame.
Most people don't understand it.Those who do make a higher return without any risk. invest and hold till ur in profit.
RBI's purchase is favor to US not to fellow Indians by Sharmila Prabhu
One tonne of gold equated to a value of US$35 million as of November 4th, 2009
Traditionally US is the Bullion Depository for many countries, i.e. US Dollars ($) Vs GOLD deposits. That is why USD was so powerful money till recent years. Now situation is changing, as many countries stopped trading with USD. Unfortunately this is one of the major HIT for US economy. US have now plenty of GOLD reserves (approx. 10K tones). Unless they sell them back, US may break down economically anytime.
Also you may be aware, discussions have already started in OPEC Countries (Organization of the Petroleum Exporting Countries) that "Should they have to continue to do the OIL TRADE still in USD". There is a proposal already to use few other currencies instead of USD (Canadian Dollar, Sterling, AED, Euro etc). If that becomes effective, then US economy will be in SHIT.
So the current situation for US is in search of new borrowers for their GOLD reserves. We Indians are always so generous to help the US economy, no matter how worst our economy goes…
My Question to you all is: “India becoming one of the countries for GOLD reserve is acceptable, BUT IS IT THE RIGHT TIME FOR RBI TO INVEST SUCH A HUGE MONEY ON BULLION”
My opinion is, we could have done this earlier, not when the GOLD value is in historic rise….
by mohammed ulhaq
You have explained only one side of it, but you should also know one thing that if India holds USD in reserves then at the point when USD becomes equal to Sh.t then we are in deep sh.t. its better to convert USD into exchangable commodity and in long run it can converted to any currency as anybody will be prepared to buy Gold but not USD as currency
sachin petkar says
All money are invest in gold because there is no correction in gold ? Time to time increasing the price of gold ? 2 year 25000/- and after 10 year 45000/-
Vishwas Pendnekar says
Gold price should be in line with Oil price - a barrel of oil and a gram of gold should generally be equal. People buy gold, initially for their need, and then the greed make them to buy more. If people buy only for their need, the price will be reasonable. I am very happy if the price goes up, as I have already nearly 4 kg of gold in jewellery form, bought over the last 20 years.
PREPAYMENT OF HOME LOANS A DISCUSSION
srinivas kamarsu says :
In LICHFL also, there won't be any prepayment penalty if the loan is prepaid from own savings/windfall gains for which documentary evidence is produced by the customer. Kindly incorporate the same in your article. Not only that there is special facility of No Prepayment charges for the selected corporates for payment of 10% of sanctioned amount in an year.In fact ,Prepayment charges can be waived if the same is paid through own savings for which documentary evidence is to be submitted by the applicant.Prepayment charges are to be separately or it will be deducted from the amount paid towards prepayment.
dipak biswas
It is always beneficial to prepay any outstanding loan amount rater than investing money else where. At teh same time you do need some investment for securig your future. Do that but beyond that if you have any surplus money then prepay any loan that have. do it in reverse order of interest rate charged. higher the interest rate the earlier that loan should be closed.
In case of part prepayment of house loans, try to get a reduced term ratehr than reduced EMIs if you can afford those EMIs. that will save you a lot in interest payments.
Shrivallabh Deshpande says Do not Prepay the loan
Home loan across the globe is the cheapest loan.One cannot get any kind of loan which will attract lesser interest rate. Hence prepaying such a loan in particualrly days when the interest rate are at there all time lows is a waste of money. Instead use that money to invest in higher return securities. with todays scenario investing the extra amount in PPF is also more profitable. Moreover in near future if you have to take a personal loan for any reason then saving the money which you were going to prepay may come to your rescue. Yes i do agree that prepaying if interest rates are high should be considered.
jignesh joshi says
Most of the customer taking a loan on floating rate. noraml man do not know how and when the policy changed by RBI and banks. So in any circumtances pre-payment of loan is always better option.Also you can invest EMI amount regularly. it is additional benefit. is it make sense?
In LICHFL also, there won't be any prepayment penalty if the loan is prepaid from own savings/windfall gains for which documentary evidence is produced by the customer. Kindly incorporate the same in your article. Not only that there is special facility of No Prepayment charges for the selected corporates for payment of 10% of sanctioned amount in an year.In fact ,Prepayment charges can be waived if the same is paid through own savings for which documentary evidence is to be submitted by the applicant.Prepayment charges are to be separately or it will be deducted from the amount paid towards prepayment.
dipak biswas
It is always beneficial to prepay any outstanding loan amount rater than investing money else where. At teh same time you do need some investment for securig your future. Do that but beyond that if you have any surplus money then prepay any loan that have. do it in reverse order of interest rate charged. higher the interest rate the earlier that loan should be closed.
In case of part prepayment of house loans, try to get a reduced term ratehr than reduced EMIs if you can afford those EMIs. that will save you a lot in interest payments.
Shrivallabh Deshpande says Do not Prepay the loan
Home loan across the globe is the cheapest loan.One cannot get any kind of loan which will attract lesser interest rate. Hence prepaying such a loan in particualrly days when the interest rate are at there all time lows is a waste of money. Instead use that money to invest in higher return securities. with todays scenario investing the extra amount in PPF is also more profitable. Moreover in near future if you have to take a personal loan for any reason then saving the money which you were going to prepay may come to your rescue. Yes i do agree that prepaying if interest rates are high should be considered.
jignesh joshi says
Most of the customer taking a loan on floating rate. noraml man do not know how and when the policy changed by RBI and banks. So in any circumtances pre-payment of loan is always better option.Also you can invest EMI amount regularly. it is additional benefit. is it make sense?
Retail investors set to get rich pickings of Central PSUs
The Government is likely to offer public sector shares at a discount to individual investors as part of its disinvestment programme.
The next offering could be NTPC. The Government expects to garner at least Rs 8,000 crore through the sale of an additional 5 per cent of its stake in the power major. The mop up target is three times the Rs 2,700-crore that the Government got in 2004 for sale of a 5.24 per cent stake in NTPC.
The other two PSUs identified for disinvestment this fiscal are Satluj Jal Vidyut Nigam Ltd and Rural Electrification Corporation (REC). “We will complete all the three approved transactions — NTPC, Satluj and REC — during the current fiscal,” Mr Sunil Mitra, Secretary, Department of Disinvestment in the Finance Ministry, told reporters here today.
The Cabinet Committee on Economic Affairs (CCEA) had last month approved divestment of a 5 per cent stake in NTPC. After this stake sale, the Government holding in NTPC would come down to 84.5 per cent from the current 89.5 per cent.
In his first interaction with the media after taking charge on August 1, Mr Mitra said that differential pricing to retail investors could be considered for the follow-on-public offerings (FPO) of listed Central public sector enterprises (CPSEs). He highlighted that SEBI, the capital market regulator, has now allowed differential pricing in FPOs. Mr Mitra also did not rule out the introduction of auction process for the qualified institutional buyers (QIB) category.
“Our effort would be to incentivise retail participation in the stake sale process,” he said.
PSUs waiting in wings
Mr Mitra said that the Department of Disinvestment has estimated that about 10 listed CPSEs will need to meet the mandatory listing norm of at least 10 per cent public ownership. Based on the financial performance data available up to 2007-08 from the public enterprise survey board reports, the Disinvestment Department estimates that there are 50 unlisted CPSEs with three-year net profit track record that could be eligible to get listed in the stock exchanges.
On November 5, the Centre asked all listed, profitable CPSEs to meet the mandatory listing norm of at least 10 per cent public ownership.
It also asked all unlisted CPSEs with positive networth, no accumulated losses and a net profit track record in the three preceding consecutive years to get listed.
Meanwhile, Mr Mitra also said that the Department of Disinvestment has initiated talks with various ministries including that of Steel, Coal (for Coal India) to identify the CPSEs for disinvestment.
In the case of Steel Ministry, the disinvestment candidates are likely to be NMDC and SAIL. He also said that talks are on with the Telecom Ministry on the matter of BSNL.
“We are in discussions… No specific disinvestment candidate has been finalised other than the three already identified. As of now, it is only our estimate that 10 CPSEs could qualify for the 10 per cent public ownership norm and 50 unlisted CPSEs could get listed,” Mr Mitra said.
He said that each disinvestment candidate will be considered on a case-by-case basis and that there was no sectoral approach to the disinvestment programme. So far this fiscal, disinvestment has been carried out in two companies — NHPC and Oil India — which fetched the Centre Rs 4,260 crore.
The next offering could be NTPC. The Government expects to garner at least Rs 8,000 crore through the sale of an additional 5 per cent of its stake in the power major. The mop up target is three times the Rs 2,700-crore that the Government got in 2004 for sale of a 5.24 per cent stake in NTPC.
The other two PSUs identified for disinvestment this fiscal are Satluj Jal Vidyut Nigam Ltd and Rural Electrification Corporation (REC). “We will complete all the three approved transactions — NTPC, Satluj and REC — during the current fiscal,” Mr Sunil Mitra, Secretary, Department of Disinvestment in the Finance Ministry, told reporters here today.
The Cabinet Committee on Economic Affairs (CCEA) had last month approved divestment of a 5 per cent stake in NTPC. After this stake sale, the Government holding in NTPC would come down to 84.5 per cent from the current 89.5 per cent.
In his first interaction with the media after taking charge on August 1, Mr Mitra said that differential pricing to retail investors could be considered for the follow-on-public offerings (FPO) of listed Central public sector enterprises (CPSEs). He highlighted that SEBI, the capital market regulator, has now allowed differential pricing in FPOs. Mr Mitra also did not rule out the introduction of auction process for the qualified institutional buyers (QIB) category.
“Our effort would be to incentivise retail participation in the stake sale process,” he said.
PSUs waiting in wings
Mr Mitra said that the Department of Disinvestment has estimated that about 10 listed CPSEs will need to meet the mandatory listing norm of at least 10 per cent public ownership. Based on the financial performance data available up to 2007-08 from the public enterprise survey board reports, the Disinvestment Department estimates that there are 50 unlisted CPSEs with three-year net profit track record that could be eligible to get listed in the stock exchanges.
On November 5, the Centre asked all listed, profitable CPSEs to meet the mandatory listing norm of at least 10 per cent public ownership.
It also asked all unlisted CPSEs with positive networth, no accumulated losses and a net profit track record in the three preceding consecutive years to get listed.
Meanwhile, Mr Mitra also said that the Department of Disinvestment has initiated talks with various ministries including that of Steel, Coal (for Coal India) to identify the CPSEs for disinvestment.
In the case of Steel Ministry, the disinvestment candidates are likely to be NMDC and SAIL. He also said that talks are on with the Telecom Ministry on the matter of BSNL.
“We are in discussions… No specific disinvestment candidate has been finalised other than the three already identified. As of now, it is only our estimate that 10 CPSEs could qualify for the 10 per cent public ownership norm and 50 unlisted CPSEs could get listed,” Mr Mitra said.
He said that each disinvestment candidate will be considered on a case-by-case basis and that there was no sectoral approach to the disinvestment programme. So far this fiscal, disinvestment has been carried out in two companies — NHPC and Oil India — which fetched the Centre Rs 4,260 crore.
Retail investors set to get rich pickings of Central PSUs
The Government is likely to offer public sector shares at a discount to individual investors as part of its disinvestment programme.
The next offering could be NTPC. The Government expects to garner at least Rs 8,000 crore through the sale of an additional 5 per cent of its stake in the power major. The mop up target is three times the Rs 2,700-crore that the Government got in 2004 for sale of a 5.24 per cent stake in NTPC.
The other two PSUs identified for disinvestment this fiscal are Satluj Jal Vidyut Nigam Ltd and Rural Electrification Corporation (REC). “We will complete all the three approved transactions — NTPC, Satluj and REC — during the current fiscal,” Mr Sunil Mitra, Secretary, Department of Disinvestment in the Finance Ministry, told reporters here today.
The Cabinet Committee on Economic Affairs (CCEA) had last month approved divestment of a 5 per cent stake in NTPC. After this stake sale, the Government holding in NTPC would come down to 84.5 per cent from the current 89.5 per cent.
In his first interaction with the media after taking charge on August 1, Mr Mitra said that differential pricing to retail investors could be considered for the follow-on-public offerings (FPO) of listed Central public sector enterprises (CPSEs). He highlighted that SEBI, the capital market regulator, has now allowed differential pricing in FPOs. Mr Mitra also did not rule out the introduction of auction process for the qualified institutional buyers (QIB) category.
“Our effort would be to incentivise retail participation in the stake sale process,” he said.
PSUs waiting in wings
Mr Mitra said that the Department of Disinvestment has estimated that about 10 listed CPSEs will need to meet the mandatory listing norm of at least 10 per cent public ownership. Based on the financial performance data available up to 2007-08 from the public enterprise survey board reports, the Disinvestment Department estimates that there are 50 unlisted CPSEs with three-year net profit track record that could be eligible to get listed in the stock exchanges.
On November 5, the Centre asked all listed, profitable CPSEs to meet the mandatory listing norm of at least 10 per cent public ownership.
It also asked all unlisted CPSEs with positive networth, no accumulated losses and a net profit track record in the three preceding consecutive years to get listed.
Meanwhile, Mr Mitra also said that the Department of Disinvestment has initiated talks with various ministries including that of Steel, Coal (for Coal India) to identify the CPSEs for disinvestment.
In the case of Steel Ministry, the disinvestment candidates are likely to be NMDC and SAIL. He also said that talks are on with the Telecom Ministry on the matter of BSNL.
“We are in discussions… No specific disinvestment candidate has been finalised other than the three already identified. As of now, it is only our estimate that 10 CPSEs could qualify for the 10 per cent public ownership norm and 50 unlisted CPSEs could get listed,” Mr Mitra said.
He said that each disinvestment candidate will be considered on a case-by-case basis and that there was no sectoral approach to the disinvestment programme. So far this fiscal, disinvestment has been carried out in two companies — NHPC and Oil India — which fetched the Centre Rs 4,260 crore.
The next offering could be NTPC. The Government expects to garner at least Rs 8,000 crore through the sale of an additional 5 per cent of its stake in the power major. The mop up target is three times the Rs 2,700-crore that the Government got in 2004 for sale of a 5.24 per cent stake in NTPC.
The other two PSUs identified for disinvestment this fiscal are Satluj Jal Vidyut Nigam Ltd and Rural Electrification Corporation (REC). “We will complete all the three approved transactions — NTPC, Satluj and REC — during the current fiscal,” Mr Sunil Mitra, Secretary, Department of Disinvestment in the Finance Ministry, told reporters here today.
The Cabinet Committee on Economic Affairs (CCEA) had last month approved divestment of a 5 per cent stake in NTPC. After this stake sale, the Government holding in NTPC would come down to 84.5 per cent from the current 89.5 per cent.
In his first interaction with the media after taking charge on August 1, Mr Mitra said that differential pricing to retail investors could be considered for the follow-on-public offerings (FPO) of listed Central public sector enterprises (CPSEs). He highlighted that SEBI, the capital market regulator, has now allowed differential pricing in FPOs. Mr Mitra also did not rule out the introduction of auction process for the qualified institutional buyers (QIB) category.
“Our effort would be to incentivise retail participation in the stake sale process,” he said.
PSUs waiting in wings
Mr Mitra said that the Department of Disinvestment has estimated that about 10 listed CPSEs will need to meet the mandatory listing norm of at least 10 per cent public ownership. Based on the financial performance data available up to 2007-08 from the public enterprise survey board reports, the Disinvestment Department estimates that there are 50 unlisted CPSEs with three-year net profit track record that could be eligible to get listed in the stock exchanges.
On November 5, the Centre asked all listed, profitable CPSEs to meet the mandatory listing norm of at least 10 per cent public ownership.
It also asked all unlisted CPSEs with positive networth, no accumulated losses and a net profit track record in the three preceding consecutive years to get listed.
Meanwhile, Mr Mitra also said that the Department of Disinvestment has initiated talks with various ministries including that of Steel, Coal (for Coal India) to identify the CPSEs for disinvestment.
In the case of Steel Ministry, the disinvestment candidates are likely to be NMDC and SAIL. He also said that talks are on with the Telecom Ministry on the matter of BSNL.
“We are in discussions… No specific disinvestment candidate has been finalised other than the three already identified. As of now, it is only our estimate that 10 CPSEs could qualify for the 10 per cent public ownership norm and 50 unlisted CPSEs could get listed,” Mr Mitra said.
He said that each disinvestment candidate will be considered on a case-by-case basis and that there was no sectoral approach to the disinvestment programme. So far this fiscal, disinvestment has been carried out in two companies — NHPC and Oil India — which fetched the Centre Rs 4,260 crore.
REAL ESTATE PUNE
There is a mixed bag of news for those who have interests in commercial and office space — that segment of real-estate hardest hit by the economic downturn. The good news first: there is a general consensus that are signs of life in what had gone into a quasi-comatose state. The not-so-good news is that both rentals and demand are still years away from the boom times’ best.
For almost a year, beginning with the third quarter of 2008, there was a huge lull in demand for commercial space of any kind, says Parag Borawake, General Manager, Marketing, for Pune-based developer Darode Jog Properties. “Frankly speaking, we also were offering any of our properties for lease as clients laid so many conditions,” he says.
Not sellers market, yet
According to him, evidence of a revival of interest began appearing a couple of months ago. It is still not a sellers market, but it has at least levelled. “We have signed letters of intent to lease out offices and retail space, and will close six to seven deals in the next month or so,” Borawake says, adding that there are also enquiries for built-to-suit spaces.
Pune has a vast oversupply of commercial space in all segments, be it IT, office or retail, avers Ravi Varma, a real-estate broker and President, National Realtors Association. While concurring that customers are returning to the arena, he cautions, however, that it will be a while before the space created over the last few years finds takers.
In the last ten months, nearly 1.3 million sq.ft was leased out to the IT sector, indicating that there are signs of revival. But there is still around 3 million sq.ft in various stages of development. So it will take two to three years more for the demand-supply mismatch to be equalised, he says. The rentals too are in the region of Rs 35-40 per sq.ft for the cold shell, against Rs 50-70 depending on the location at the height of the boom.
When it comes to retail space, it is the small stores that are beginning to turn the corner, while large commercial spaces, malls in particular, are still slow in the off-take.
Rentals competitive
Leasing of corporate office space and high street retail is definitely picking up, says real-estate consultant Andrew Pinto, adding that rentals are competitive and lock-in period is down from three-five years to one year. The businesses that are beginning to raise their head are banks, food outlets and retail brands.
According to observers, the most preferred area in Pune for commercial space is Jangli Maharaj Road and Deccan Gymkhana, where the prevailing lease rent is Rs 200 per sq.ft. followed by Mahatma Gandhi Road and Koregoan Park with rents here in the Rs 125-150 per sq.ft range.
Typically, proprietors prefer to sign agreements for 60 months with an MoU permitting extension for another four years.
The agreement usually provides for a raise in the monthly rent by 6-8 per cent at the end of every year, and a refundable deposit of 6-10 months rent that has to be paid upfront before the property is occupied. Most agreements are registered and the stamp duty and registration fee shared equally by the two parties.
In the good times, there was space for a little added bargaining, especially when it came to the lock-in period where the renting party usually had to give an assurance of rent for a minimum three-year period.
This clause is a prominent casualty in these still-a little-recession-hit times.
For almost a year, beginning with the third quarter of 2008, there was a huge lull in demand for commercial space of any kind, says Parag Borawake, General Manager, Marketing, for Pune-based developer Darode Jog Properties. “Frankly speaking, we also were offering any of our properties for lease as clients laid so many conditions,” he says.
Not sellers market, yet
According to him, evidence of a revival of interest began appearing a couple of months ago. It is still not a sellers market, but it has at least levelled. “We have signed letters of intent to lease out offices and retail space, and will close six to seven deals in the next month or so,” Borawake says, adding that there are also enquiries for built-to-suit spaces.
Pune has a vast oversupply of commercial space in all segments, be it IT, office or retail, avers Ravi Varma, a real-estate broker and President, National Realtors Association. While concurring that customers are returning to the arena, he cautions, however, that it will be a while before the space created over the last few years finds takers.
In the last ten months, nearly 1.3 million sq.ft was leased out to the IT sector, indicating that there are signs of revival. But there is still around 3 million sq.ft in various stages of development. So it will take two to three years more for the demand-supply mismatch to be equalised, he says. The rentals too are in the region of Rs 35-40 per sq.ft for the cold shell, against Rs 50-70 depending on the location at the height of the boom.
When it comes to retail space, it is the small stores that are beginning to turn the corner, while large commercial spaces, malls in particular, are still slow in the off-take.
Rentals competitive
Leasing of corporate office space and high street retail is definitely picking up, says real-estate consultant Andrew Pinto, adding that rentals are competitive and lock-in period is down from three-five years to one year. The businesses that are beginning to raise their head are banks, food outlets and retail brands.
According to observers, the most preferred area in Pune for commercial space is Jangli Maharaj Road and Deccan Gymkhana, where the prevailing lease rent is Rs 200 per sq.ft. followed by Mahatma Gandhi Road and Koregoan Park with rents here in the Rs 125-150 per sq.ft range.
Typically, proprietors prefer to sign agreements for 60 months with an MoU permitting extension for another four years.
The agreement usually provides for a raise in the monthly rent by 6-8 per cent at the end of every year, and a refundable deposit of 6-10 months rent that has to be paid upfront before the property is occupied. Most agreements are registered and the stamp duty and registration fee shared equally by the two parties.
In the good times, there was space for a little added bargaining, especially when it came to the lock-in period where the renting party usually had to give an assurance of rent for a minimum three-year period.
This clause is a prominent casualty in these still-a little-recession-hit times.
Friday, November 13, 2009
INVESTMENT IN MF - READ ON
When u buy one mutual fund they invest ur fund in the market if they gain 10/- they will deduct 8/- as fund managing and other charges and 2/- gain u ll get. If ur money is lost in the market...then u ll loose more ex: u lost 5/-.. they will charge 4/- for fund managing and other charges.. so ur money value will become 1/-.
If mutual fund is invested in the market and most of the fund manager does not bother about your requirement and not enough knowledgeable..then why not u? u can become fund manager for ur own fund...u directly invest in the market...instead of giving some one ur money to eat.... "if one fund manager is enough knowledgeable then he/she does not want that employer rather he opens his own investment firm. My advice is instead of giving ur money to some one to invest.. u learn the basic theories of investment and invest ur own... make ur own portfolio.
If mutual fund is invested in the market and most of the fund manager does not bother about your requirement and not enough knowledgeable..then why not u? u can become fund manager for ur own fund...u directly invest in the market...instead of giving some one ur money to eat.... "if one fund manager is enough knowledgeable then he/she does not want that employer rather he opens his own investment firm. My advice is instead of giving ur money to some one to invest.. u learn the basic theories of investment and invest ur own... make ur own portfolio.
Wednesday, November 11, 2009
INVESTING FOR RETIRMENT
how can i plan my savings
vijay sappatti
i am 42 yrs of age , earning 50 K per month , i need to invest for my old age and retirement and also for my kids, suggest me a good plan
First u have to set a target amount that u want to receive on retirement. Assuming about an average 12% return on your investment, investment should be made in diversified Mutual fund and debt instruments in the ratio of 50:50
vijay sappatti
i am 42 yrs of age , earning 50 K per month , i need to invest for my old age and retirement and also for my kids, suggest me a good plan
First u have to set a target amount that u want to receive on retirement. Assuming about an average 12% return on your investment, investment should be made in diversified Mutual fund and debt instruments in the ratio of 50:50
INVESTING YOUNG
Where to invest
Rohit Tripathi
I am only 20 year old and can invest up to 5000 ruppes monthly, I hav a sip of ICICI for 1000 rupees monthly and reliance automatic investment plan for 10000 annualy, please guide where and how to invest for my long term plans?
First and foremost is a Health Insurance of your own. Check if you have?
Second, have a reasonable Life Insurance. Take a term insurance for the longest period (say for upto 80 years) for a big amount. In case something happens to us, our nominee would get a handsome amount to sustain their living.
Next, build up initially some fixed income savings
Then jump into equities with a very long term perspective through MFs. Prefer to stick on to two or three well diversified funds like BSL Frontline Equity, HDFC Top 200, Reliance Regular Savings Equity or DSP Top 100.
Have one Midcap fund like Reliance Growth or Sundaram BNP Select Midcap focus.
The ratio to Large cap to Midcap is 60:40
Ratio to Equities to Fixed Income can be 70:30
Rohit Tripathi
I am only 20 year old and can invest up to 5000 ruppes monthly, I hav a sip of ICICI for 1000 rupees monthly and reliance automatic investment plan for 10000 annualy, please guide where and how to invest for my long term plans?
First and foremost is a Health Insurance of your own. Check if you have?
Second, have a reasonable Life Insurance. Take a term insurance for the longest period (say for upto 80 years) for a big amount. In case something happens to us, our nominee would get a handsome amount to sustain their living.
Next, build up initially some fixed income savings
Then jump into equities with a very long term perspective through MFs. Prefer to stick on to two or three well diversified funds like BSL Frontline Equity, HDFC Top 200, Reliance Regular Savings Equity or DSP Top 100.
Have one Midcap fund like Reliance Growth or Sundaram BNP Select Midcap focus.
The ratio to Large cap to Midcap is 60:40
Ratio to Equities to Fixed Income can be 70:30
NEW TAX REGIME AND INVESTMENTS
This EET system is very harsh on individuals, especially the middle income groups and salaried class who have to fall back on their own investement for their surival in old age. The exceptions may be the Govt/Bank employess who get some kind of pension.
There are two points to be noted here :-
1) While an assessee may get benefit of 10% Tax exemption on investments, the tax paid on withdrawal may be much higher as the total amount withdrawn could be much higher and thereby the assessee willcome under a higher slab of IT.
2) The Govt could increase the Tax rates or simply change the tax slabs, which could again mean that withdrawls could be taxed higher.
Hence, it is probably better to pay tax on income rather than to invest for tax savings. If people stop or reduce savings, it will be the Govt that will be hurt more. Even the Industry will be hurt by reduction of ELSS investments.
One can only wish that wiser counsel prevails and the Govt will make changes to the DTC to retain EEE.
Lastly, for the Govt money is not a problem. There is sufficient money available for development programmes. What is needed is proper usage of allocations and stoppage of all kinds of pilferage and corruption.
DISAGREEMENT WITH THE ABOVE
1) Yes argument abt the tax bracket in investment year being low and being high on withdrawal as the amount is higher is right.
2) Tax rates will not go up from current rates.. they are only going to come down as income levesl go up and commpliance increases.
3) ELSS (Mutual fund and such schemes) will not be affected as they are any way not tax free on withdrawal.(capital gains tax rules will apply) under which long term investment sell does not attract tax in some cases.)
Rules will apply only to ppf, life insurance, pf
There are two points to be noted here :-
1) While an assessee may get benefit of 10% Tax exemption on investments, the tax paid on withdrawal may be much higher as the total amount withdrawn could be much higher and thereby the assessee willcome under a higher slab of IT.
2) The Govt could increase the Tax rates or simply change the tax slabs, which could again mean that withdrawls could be taxed higher.
Hence, it is probably better to pay tax on income rather than to invest for tax savings. If people stop or reduce savings, it will be the Govt that will be hurt more. Even the Industry will be hurt by reduction of ELSS investments.
One can only wish that wiser counsel prevails and the Govt will make changes to the DTC to retain EEE.
Lastly, for the Govt money is not a problem. There is sufficient money available for development programmes. What is needed is proper usage of allocations and stoppage of all kinds of pilferage and corruption.
DISAGREEMENT WITH THE ABOVE
1) Yes argument abt the tax bracket in investment year being low and being high on withdrawal as the amount is higher is right.
2) Tax rates will not go up from current rates.. they are only going to come down as income levesl go up and commpliance increases.
3) ELSS (Mutual fund and such schemes) will not be affected as they are any way not tax free on withdrawal.(capital gains tax rules will apply) under which long term investment sell does not attract tax in some cases.)
Rules will apply only to ppf, life insurance, pf
SMALL MONEY INVESTMENTS - Q A& A BY HARISH JARIWALA of CNZ INVESTMENTS NEW DELHI
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jatinshahs asked, which is more better - Fixed Deposit, PPF of NSC ?
Harish Jariwala answers, hi, PPF and NSC offer tax benefits. If your objective is tax savings then PPF and NSC are better than an FD. However, if your investment objective is not tax saving, then I would invest in bank FD for not more than one year. Currently banks are offerring 7% for one year while NSC offers 8% for 6 years and PPF 8% for 15 years. Given the fact that interest rates are likely to move by the end of March 2010,I would opt for plain vanila bank FD for one year
--------------------------------------------------------------------------------
Subbu asked, Hi, I am 30yrs old - married and just recently blessed with a baby. My current take home is 65K, of which 18K goes for my EMI (Car + Personal Loan). Of the balance, I spend close to 25K on credit card (includes my groceries, fuel, bills etc), 10K on rent. I can save roughly 5K per month. Presently I have an emergency fund with some 50K, and invested in MF for some 30K. I have NSC for 15K and PPF for 20K. How do you think I should proceed from here?
Harish Jariwala answers, hi, the next step is to make a comprehensive investment plan for yourself to meet all the financial goals that you have set for yourself. Typical examples of financial goals include - your retirement, epxenditure on your child's education (graduation and post graduation), buy an asset like house, car ,etc. /the investment plan will guide you in deciding how much of your monthly savings should be invested in which asset i.e equity and debt. Also it will tell you if you will be able to meet all the goals that you have set for yourself. If there is likelihood of any deficit then you can take corrective measure from today itself. You can write to me separately at info@personalfn.com
--------------------------------------------------------------------------------
XYZABC asked, Please suggest 3 MFs to invest via SIP for 10 yrs with a monthly contribution of 10K.
Harish Jariwala answers, hi, HDFC Top 200, Franklin India Bluechip Fund and Sundaram Select Midcap
--------------------------------------------------------------------------------
rajeshlad909 asked, Good Afternoon Sir I like to ask you I did invest in J.M Agri & market is to down so please advise me what to do & if i want to invest in another plan which one is best.
Harish Jariwala answers, hi, exit this funds immediately and invest in funds with proven track record like HDFC Top 200
--------------------------------------------------------------------------------
npe asked, SIP in DSP BR Equity - Dividend Scheme Rs.1000/- PM .. your say...
Harish Jariwala answers, hi, this is a good fund from long term perspective. One can consider adding to his/her mf portfolio
--------------------------------------------------------------------------------
mourya asked, Is investing in liquid and ultra short term fund for short term investment horizon? Please suggest 2 good funds
Harish Jariwala answers, hi, yes, for investment horizon of 3 months and less liquid and ultra short bond funds are the best
--------------------------------------------------------------------------------
vb asked, i want to save soem money for my kid, who is 1 yr old. Should i go for LIC,PPF or MF or SIPS ?
Harish Jariwala answers, hi, if you are plannig to build a portfolio of invesments to fund your child's future expenses on education and marriage, then invest in mutual funds via the SIPs. A small portion can be invested in PPF. I will not recommend any insurance policy to meet your child's any future goals
--------------------------------------------------------------------------------
Niraj asked, I have just started my job career 7 months back, i have very little money to invest. so where should i start from?
Harish Jariwala answers, hi, invest whatever you can save currently in a mix of equity, debt and gold. Keep an eye on your expenditure and regualarly analyse your spending pattern. Always aim at saving more and then channelise your savings into invesmnets like well managed equity funds, Gold ETFs and bank FDs.
--------------------------------------------------------------------------------
ssm asked, how to invest 2000 every month for a 15 year horizon........
Harish Jariwala answers, hi, the best way to invest on a monthly basis is SIPs. SIPS allow you invest without having to bother about timing the markets. It instill a sense of discipline in the investor and allows him invest across market cycles. Typically investors want to time the markets and in the process end up buying at higher levels and miss out on opportunities when the markets are at rock bottom
--------------------------------------------------------------------------------
gurus asked, suggest me some 2-3 well performing ELSS scheme with an investment horizon of oevr 5 yrs
Harish Jariwala answers, hi, you can consider funds like Franklin India Taxshield and Fidelity Tax Advantage among others
--------------------------------------------------------------------------------
sanonline asked, Hi Harish Jariwala.... I have invested Rs 1,00,000 in JM Emerging Fund - Growth Plan in Feb 2008 & still can hold it for next 6 months... what is your suggestion? should I hold or step out?
Harish Jariwala answers, hi, i would recommend that you exit this fund immediately and invest the proceeds in well diversified eequity funds with a proven track record. HDFC Top 200 and Franklin India Bluechip fund are among the funds that you can consider
--------------------------------------------------------------------------------
XYZABC asked, My wife insists me to buy children and pension insurance policies. But I think instead of going for insurance policies, its better to have good term insurance and then invest in MFs with SIP for next 5-10 years. What you will suggest ?
Harish Jariwala answers, hi, i agree with your view - for insurance term plans are the best as they allow you to go for higher sum assured for very low premium. Pension plans and children plans are not very efficient to meet your retirment and children's education goal. I would rather suggest invest in mutual funds via the SIPs. I am sure with a discipline approach you will be able to meet all the financial goals you have set for yourself and your family
--------------------------------------------------------------------------------
guru asked, Good Afternoon, Sir. I have started SIP in Birla Frontline Equity, HDFC Top 200, DSPBR Top 100, and Sundaram Select Focus. Now, I want to invest 20-25k lump sum. Where should i invest?
Harish Jariwala answers, hi, all the funds indicated by you are good. Continue your investments in these
--------------------------------------------------------------------------------
kiranclicks asked, I can afford saving about 3000 per month.. what is the best method to invest ?
Harish Jariwala answers, hi, it is not possible to give you an accurate reply but assuming your investment goal is 10 years away, then you can invest your monthly saving in equity funds. I am assuming that you have already set aside some savings to meet any contingeny.
--------------------------------------------------------------------------------
arindam asked, Sir, it is an offbeat and off-track question. I am new on investing in MF. Is there any possibility that in a fine morning, AMC can siphon off all money showing NAV Rs. 1 or Rs. 2 just like a cheat fund?
Harish Jariwala answers, hi,there are very strict guidelines from SEBI which mutual funds have to follow. Also funds houses have to disclose their portfolio every month to SEBI, Hence it is very difficult for funds to siphone of the investors'money. Yes, it is possible that the funds may invest in wrong stocks and hence lose money which can have an adverse effect on the fund's NAV
--------------------------------------------------------------------------------
gauri asked, is this the right time to invest in gold etf
Harish Jariwala answers, hi, if you are investing in gold with an investment perspective then you may be little disappoited. gold has run up sharply in the last one month and it is quite possible that it may correct from these levels. Hence, stagger your investments. IF you are buying gold to dieversify your portfolio because you currently to not have gold in your portfolio, I would recommend that you start buying in small quantity every month
--------------------------------------------------------------------------------
hasnain ali asked, I want to Invest rs 4000 /- in MF via SIP. time horizon 3-5 years. Pls suggest MF & min. expected returns annualy.
Harish Jariwala answers, hi, its good to note that your investment horizon is 3-5 years. If you continue to invest in equity funds via the SIPs over the next 5 years I am sure you will buidl wealth for yourself. For equity you can target return of 15% p.a. Anything above this is a bonus! TO build wealth ensure that your invest in the right funds - invest in well managed diversified equity funds (do not invest in sector / thematic funds)with a proven track record of 5 years to show for
--------------------------------------------------------------------------------
vb asked, Hello Sir,I am 26 yrs old & having 3 kinds of loan - house, car & land (personal loan) already, is it safe to have such loans ?
Harish Jariwala answers, hi, I dont believe in loans. Having said that I know that it is necessary at times to borrow money to buy house. I would rathar accumualate money to fund my asset like car. Again, if there is a contingency and you are really short of cash then personal loan can be resorted to but not to fund any consumer durable like refrigerator etc
--------------------------------------------------------------------------------
hi asked, I WANT TO INVEST 1 LACS WHAT IS THE BEST OPTION FOR SHORT TERM 2 MONTHS
Harish Jariwala answers, hi, the best option for 2 months is liquid funds.
--------------------------------------------------------------------------------
modink asked, I have taken term plan of Rs. 30L,SIP in BSL Frontline equity,BSL infra fund @1500/-pm each, HDFC TOP200 2500/-PM, ELSS SBIMTAXGAIN 28500/-, BSLTAXRELIEF41300/-,HDFC Midcap Opportunity Fund Rs.10000/- and Morgan Stanley ACE Fund 10000/-. Whether the portfolio is ok. I want to invest further 5000/-PM Kindly suggest considering the current portfolio.and also name some good liquid funds.
Harish Jariwala answers, hi, priam facie your portfolio doent look very healthy. You have solid funds in HDFC Top 200 and Birla Frontline Equity. Other funds are average. While selecting funds ensure that they are well diversified and have a proven track record of atleast 5 years. I would opt for Sundaram Select Midcap against HDFC Midcap
--------------------------------------------------------------------------------
1234 asked, PLEASE GUIDE; HOW MUCH % OF YOUR MONEY SHOULD BE INVESTED IN WHICH BUCKET (eg: real estate, health insurance, stocks, gold, savings account etc)
Harish Jariwala answers, hi, there is no witttenr rule for deciding an asset allocation for any investor. It will vary on the basis of age, risk profile and investment horizon. As a thum rule 100 minus your age should be in equity and the balance can be allocated to gold and debt. Investmnt in gold should be 10%. Always keep aside 5% of your total portfolio in liquid funds/bank to meet any contingency. Ideally a contingencty fund should be equal to 6 months or more of your regualar and fixed expenses
--------------------------------------------------------------------------------
Saravanan asked, hi putting fixed deposit is really worth or i have to do something else?
Harish Jariwala answers, hi, it always pays to have a balanced portfolio that consists of equity, gold, debt and property. While it may not be possible for every investor to invest in property, it is relatively simpler to invest in equity, debt and gold through the mutual funds. Investing only into fixed desposits means that your expected returns will not keep pace with inflation and hence you risk losing your capital over a period of time. Invest a small portion of your savings in equity so that your portfolio retruns are more than the inflation
--------------------------------------------------------------------------------
vinay asked, Is it advisable to take laon and invest in shares?
Harish Jariwala answers, hi , in my view this is the biggest fundamental mistake any investor can make - to borrow money and invest. The best way is to save some money out of your regular income and invest into a mix of equity, debt and gold based on your investment horizon, risk appetite
--------------------------------------------------------------------------------
sanjeev asked, I want to invest in MF. Please advice the best funds available for lond term 3-4 years view
Harish Jariwala answers, hi, i can give you the names of 2 funds in each category - HDFC Top 200 fund and Franklin India Bluechip Fund, among the balanced funds you can invest in HDFC Prudence Fund and DSP BR Balanced,
--------------------------------------------------------------------------------
vinita asked, hi Harish Jariwala I have been investing MF (SIP) since 2006 in Frankling Blue Chip, SBI Tax Gain, ICICI Pru Infra G, HDFC TOP 100, DSP BR Top 100, Rs.1000 each per month. Alongwith insurance POlicy Rs.18000 Annual (ICICI Pru life 2 Lac), Rs.1024/Month (LIC 1+2 Lac), Term Insurance 5 Lac each for myself and husband. My purpose is Child education, Retirement, repayment of Home Loan, Please suggest whether it is sufficient or need more to invest, also advise this portfolio is OK for long term investment?
Harish Jariwala answers, hi, it will be difficult to give a view on the breif description you have put up.
--------------------------------------------------------------------------------
ravi asked, i am new to share buying thro online and i have opened account with sharekhan recently. Please advice me, how to deal the shares online.
Harish Jariwala answers, hi, I would request yout to get in touch with the product team for help on online share trading. My advice to you would be to stay away from day trading and use the facility only to buy and sell as and when required. Online trading can get too tempting especailly when the markets are in bull phase and everything is moving up
--------------------------------------------------------------------------------
Puneet Kumar asked, Hi I have 1 lac to invest for 6 months, which are the best sector for this time period.
Harish Jariwala answers, hi, my advice would not to risk your money if your investment horizon is 6 months. Invest in a liquid fund or a bank fd instead. For high risk investment like equity my view is that your investment horizon should be atleast 3 years
--------------------------------------------------------------------------------
jatinshahs asked, which is more better - Fixed Deposit, PPF of NSC ?
Harish Jariwala answers, hi, PPF and NSC offer tax benefits. If your objective is tax savings then PPF and NSC are better than an FD. However, if your investment objective is not tax saving, then I would invest in bank FD for not more than one year. Currently banks are offerring 7% for one year while NSC offers 8% for 6 years and PPF 8% for 15 years. Given the fact that interest rates are likely to move by the end of March 2010,I would opt for plain vanila bank FD for one year
--------------------------------------------------------------------------------
Subbu asked, Hi, I am 30yrs old - married and just recently blessed with a baby. My current take home is 65K, of which 18K goes for my EMI (Car + Personal Loan). Of the balance, I spend close to 25K on credit card (includes my groceries, fuel, bills etc), 10K on rent. I can save roughly 5K per month. Presently I have an emergency fund with some 50K, and invested in MF for some 30K. I have NSC for 15K and PPF for 20K. How do you think I should proceed from here?
Harish Jariwala answers, hi, the next step is to make a comprehensive investment plan for yourself to meet all the financial goals that you have set for yourself. Typical examples of financial goals include - your retirement, epxenditure on your child's education (graduation and post graduation), buy an asset like house, car ,etc. /the investment plan will guide you in deciding how much of your monthly savings should be invested in which asset i.e equity and debt. Also it will tell you if you will be able to meet all the goals that you have set for yourself. If there is likelihood of any deficit then you can take corrective measure from today itself. You can write to me separately at info@personalfn.com
--------------------------------------------------------------------------------
XYZABC asked, Please suggest 3 MFs to invest via SIP for 10 yrs with a monthly contribution of 10K.
Harish Jariwala answers, hi, HDFC Top 200, Franklin India Bluechip Fund and Sundaram Select Midcap
--------------------------------------------------------------------------------
rajeshlad909 asked, Good Afternoon Sir I like to ask you I did invest in J.M Agri & market is to down so please advise me what to do & if i want to invest in another plan which one is best.
Harish Jariwala answers, hi, exit this funds immediately and invest in funds with proven track record like HDFC Top 200
--------------------------------------------------------------------------------
npe asked, SIP in DSP BR Equity - Dividend Scheme Rs.1000/- PM .. your say...
Harish Jariwala answers, hi, this is a good fund from long term perspective. One can consider adding to his/her mf portfolio
--------------------------------------------------------------------------------
mourya asked, Is investing in liquid and ultra short term fund for short term investment horizon? Please suggest 2 good funds
Harish Jariwala answers, hi, yes, for investment horizon of 3 months and less liquid and ultra short bond funds are the best
--------------------------------------------------------------------------------
vb asked, i want to save soem money for my kid, who is 1 yr old. Should i go for LIC,PPF or MF or SIPS ?
Harish Jariwala answers, hi, if you are plannig to build a portfolio of invesments to fund your child's future expenses on education and marriage, then invest in mutual funds via the SIPs. A small portion can be invested in PPF. I will not recommend any insurance policy to meet your child's any future goals
--------------------------------------------------------------------------------
Niraj asked, I have just started my job career 7 months back, i have very little money to invest. so where should i start from?
Harish Jariwala answers, hi, invest whatever you can save currently in a mix of equity, debt and gold. Keep an eye on your expenditure and regualarly analyse your spending pattern. Always aim at saving more and then channelise your savings into invesmnets like well managed equity funds, Gold ETFs and bank FDs.
--------------------------------------------------------------------------------
ssm asked, how to invest 2000 every month for a 15 year horizon........
Harish Jariwala answers, hi, the best way to invest on a monthly basis is SIPs. SIPS allow you invest without having to bother about timing the markets. It instill a sense of discipline in the investor and allows him invest across market cycles. Typically investors want to time the markets and in the process end up buying at higher levels and miss out on opportunities when the markets are at rock bottom
--------------------------------------------------------------------------------
gurus asked, suggest me some 2-3 well performing ELSS scheme with an investment horizon of oevr 5 yrs
Harish Jariwala answers, hi, you can consider funds like Franklin India Taxshield and Fidelity Tax Advantage among others
--------------------------------------------------------------------------------
sanonline asked, Hi Harish Jariwala.... I have invested Rs 1,00,000 in JM Emerging Fund - Growth Plan in Feb 2008 & still can hold it for next 6 months... what is your suggestion? should I hold or step out?
Harish Jariwala answers, hi, i would recommend that you exit this fund immediately and invest the proceeds in well diversified eequity funds with a proven track record. HDFC Top 200 and Franklin India Bluechip fund are among the funds that you can consider
--------------------------------------------------------------------------------
XYZABC asked, My wife insists me to buy children and pension insurance policies. But I think instead of going for insurance policies, its better to have good term insurance and then invest in MFs with SIP for next 5-10 years. What you will suggest ?
Harish Jariwala answers, hi, i agree with your view - for insurance term plans are the best as they allow you to go for higher sum assured for very low premium. Pension plans and children plans are not very efficient to meet your retirment and children's education goal. I would rather suggest invest in mutual funds via the SIPs. I am sure with a discipline approach you will be able to meet all the financial goals you have set for yourself and your family
--------------------------------------------------------------------------------
guru asked, Good Afternoon, Sir. I have started SIP in Birla Frontline Equity, HDFC Top 200, DSPBR Top 100, and Sundaram Select Focus. Now, I want to invest 20-25k lump sum. Where should i invest?
Harish Jariwala answers, hi, all the funds indicated by you are good. Continue your investments in these
--------------------------------------------------------------------------------
kiranclicks asked, I can afford saving about 3000 per month.. what is the best method to invest ?
Harish Jariwala answers, hi, it is not possible to give you an accurate reply but assuming your investment goal is 10 years away, then you can invest your monthly saving in equity funds. I am assuming that you have already set aside some savings to meet any contingeny.
--------------------------------------------------------------------------------
arindam asked, Sir, it is an offbeat and off-track question. I am new on investing in MF. Is there any possibility that in a fine morning, AMC can siphon off all money showing NAV Rs. 1 or Rs. 2 just like a cheat fund?
Harish Jariwala answers, hi,there are very strict guidelines from SEBI which mutual funds have to follow. Also funds houses have to disclose their portfolio every month to SEBI, Hence it is very difficult for funds to siphone of the investors'money. Yes, it is possible that the funds may invest in wrong stocks and hence lose money which can have an adverse effect on the fund's NAV
--------------------------------------------------------------------------------
gauri asked, is this the right time to invest in gold etf
Harish Jariwala answers, hi, if you are investing in gold with an investment perspective then you may be little disappoited. gold has run up sharply in the last one month and it is quite possible that it may correct from these levels. Hence, stagger your investments. IF you are buying gold to dieversify your portfolio because you currently to not have gold in your portfolio, I would recommend that you start buying in small quantity every month
--------------------------------------------------------------------------------
hasnain ali asked, I want to Invest rs 4000 /- in MF via SIP. time horizon 3-5 years. Pls suggest MF & min. expected returns annualy.
Harish Jariwala answers, hi, its good to note that your investment horizon is 3-5 years. If you continue to invest in equity funds via the SIPs over the next 5 years I am sure you will buidl wealth for yourself. For equity you can target return of 15% p.a. Anything above this is a bonus! TO build wealth ensure that your invest in the right funds - invest in well managed diversified equity funds (do not invest in sector / thematic funds)with a proven track record of 5 years to show for
--------------------------------------------------------------------------------
vb asked, Hello Sir,I am 26 yrs old & having 3 kinds of loan - house, car & land (personal loan) already, is it safe to have such loans ?
Harish Jariwala answers, hi, I dont believe in loans. Having said that I know that it is necessary at times to borrow money to buy house. I would rathar accumualate money to fund my asset like car. Again, if there is a contingency and you are really short of cash then personal loan can be resorted to but not to fund any consumer durable like refrigerator etc
--------------------------------------------------------------------------------
hi asked, I WANT TO INVEST 1 LACS WHAT IS THE BEST OPTION FOR SHORT TERM 2 MONTHS
Harish Jariwala answers, hi, the best option for 2 months is liquid funds.
--------------------------------------------------------------------------------
modink asked, I have taken term plan of Rs. 30L,SIP in BSL Frontline equity,BSL infra fund @1500/-pm each, HDFC TOP200 2500/-PM, ELSS SBIMTAXGAIN 28500/-, BSLTAXRELIEF41300/-,HDFC Midcap Opportunity Fund Rs.10000/- and Morgan Stanley ACE Fund 10000/-. Whether the portfolio is ok. I want to invest further 5000/-PM Kindly suggest considering the current portfolio.and also name some good liquid funds.
Harish Jariwala answers, hi, priam facie your portfolio doent look very healthy. You have solid funds in HDFC Top 200 and Birla Frontline Equity. Other funds are average. While selecting funds ensure that they are well diversified and have a proven track record of atleast 5 years. I would opt for Sundaram Select Midcap against HDFC Midcap
--------------------------------------------------------------------------------
1234 asked, PLEASE GUIDE; HOW MUCH % OF YOUR MONEY SHOULD BE INVESTED IN WHICH BUCKET (eg: real estate, health insurance, stocks, gold, savings account etc)
Harish Jariwala answers, hi, there is no witttenr rule for deciding an asset allocation for any investor. It will vary on the basis of age, risk profile and investment horizon. As a thum rule 100 minus your age should be in equity and the balance can be allocated to gold and debt. Investmnt in gold should be 10%. Always keep aside 5% of your total portfolio in liquid funds/bank to meet any contingency. Ideally a contingencty fund should be equal to 6 months or more of your regualar and fixed expenses
--------------------------------------------------------------------------------
Saravanan asked, hi putting fixed deposit is really worth or i have to do something else?
Harish Jariwala answers, hi, it always pays to have a balanced portfolio that consists of equity, gold, debt and property. While it may not be possible for every investor to invest in property, it is relatively simpler to invest in equity, debt and gold through the mutual funds. Investing only into fixed desposits means that your expected returns will not keep pace with inflation and hence you risk losing your capital over a period of time. Invest a small portion of your savings in equity so that your portfolio retruns are more than the inflation
--------------------------------------------------------------------------------
vinay asked, Is it advisable to take laon and invest in shares?
Harish Jariwala answers, hi , in my view this is the biggest fundamental mistake any investor can make - to borrow money and invest. The best way is to save some money out of your regular income and invest into a mix of equity, debt and gold based on your investment horizon, risk appetite
--------------------------------------------------------------------------------
sanjeev asked, I want to invest in MF. Please advice the best funds available for lond term 3-4 years view
Harish Jariwala answers, hi, i can give you the names of 2 funds in each category - HDFC Top 200 fund and Franklin India Bluechip Fund, among the balanced funds you can invest in HDFC Prudence Fund and DSP BR Balanced,
--------------------------------------------------------------------------------
vinita asked, hi Harish Jariwala I have been investing MF (SIP) since 2006 in Frankling Blue Chip, SBI Tax Gain, ICICI Pru Infra G, HDFC TOP 100, DSP BR Top 100, Rs.1000 each per month. Alongwith insurance POlicy Rs.18000 Annual (ICICI Pru life 2 Lac), Rs.1024/Month (LIC 1+2 Lac), Term Insurance 5 Lac each for myself and husband. My purpose is Child education, Retirement, repayment of Home Loan, Please suggest whether it is sufficient or need more to invest, also advise this portfolio is OK for long term investment?
Harish Jariwala answers, hi, it will be difficult to give a view on the breif description you have put up.
--------------------------------------------------------------------------------
ravi asked, i am new to share buying thro online and i have opened account with sharekhan recently. Please advice me, how to deal the shares online.
Harish Jariwala answers, hi, I would request yout to get in touch with the product team for help on online share trading. My advice to you would be to stay away from day trading and use the facility only to buy and sell as and when required. Online trading can get too tempting especailly when the markets are in bull phase and everything is moving up
--------------------------------------------------------------------------------
Puneet Kumar asked, Hi I have 1 lac to invest for 6 months, which are the best sector for this time period.
Harish Jariwala answers, hi, my advice would not to risk your money if your investment horizon is 6 months. Invest in a liquid fund or a bank fd instead. For high risk investment like equity my view is that your investment horizon should be atleast 3 years
--------------------------------------------------------------------------------
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