The benchmark MF is preparing to launch Shariah based ETF. The shariah Index has got 60% of scrips in the Nifty. It has got all features of Nifty itself in all other respects according experts.
The base for screeing whether a scrip is Shariah compliant or not is baesed on the published audited final accounts statements: Profit and Loss account and Balance sheet.
Thereafter the company's use of interest on money in the management affairs is examined. A purification ratio will be worked out to give indication to the Shariah investor how much of the return earned has impure earnings.
How to determine the use of interest on money in the busineess? the following ratios come handy.
1. Debt/Equity ratio not less than 33%
2. Accounts receivable/Market Value equity not less than 49%
3. {Cash+Interest earning deposits}/Market value Equity not less than 33%
4. Share of prohibited business actiovities in the Total businesss not more than 5%
The purification ratio is worked out as follows:
Purification ratio=Dividend*{Income from prohobited business/Total income} .
Some of the Businesses that are prohibeted by Shariah are:
1. Pork
2. Alcohol
3. Gambling
4. Interest Earning related
5. Advertisement/Media(subject to conditions)
6. Tobacco
7. gold/silver derivative trading
8. porography related
The Shariah Index is basd January 1, 2007. The Index is serviced by Ms. India Index Services and Products limited which is jointly promoted by CRISIL and NSE.
The industry welcomed the move was witnessed when Benchmark AMC launched Shariah BeES by 04 February 2009 followed by Taurus Mutual Fund & Parsoli Corporation launched nation's first Shariah compliant Mutual fund scheme by 19 February 2009.
The first one is an ETF where as the next one is an opened end equity fund. The shariah advisory board constituted by the Fund will give guidances as to stock selection using the sector screens and business performance screens and the applicable purification ratios.
Start Early, Proceed Systematically, Look Long Term
Let Your Money Work For You
All You Wanted to know about money
Tuesday, September 23, 2008
Wednesday, July 23, 2008
Product Re-Positioning among the ULIPs of MFs
The arrival of private insurance players by the dawn of the 21st century, found an unusual spurt in launch of Unit Linked Insurance Plans(ULIPs). Since 2000, Ulips comprise over 80 per cent of the annual life insurance policy sales in the country. Today when we hear about ULIP we generally relate to the Insurance companies only. We do not seem to know that there are MFs who offer similar products (ofcourse at a lower target amounts) launched much earlier than the first private insurance company's ULIP. This prompted me to look into the MF world of ULIPs and how they tried to remain in the customer's visibility.
UTI-ULIP 1971 was the first mutual fund scheme that had SIPs that are linked with life insurance coverage and accident insurance coverage at the same time gave a very low entry load and operating expenses. The tax benefits under Sec 80 also added to its glamour. there were private companies like M/s Investlinks Consultancy services Pvt Ltd, Trichur that promoted monthly SIPs through salary savings in 1980s. As time progressed, the UTI-ULIP 1971 revised the target amounts, although the essential features remained the same. In July 2008 , they have revised the target amounts to Rs. 15 lakhs. But now there is a difference:
UTI-ULIP 1971 was the first mutual fund scheme that had SIPs that are linked with life insurance coverage and accident insurance coverage at the same time gave a very low entry load and operating expenses. The tax benefits under Sec 80 also added to its glamour. there were private companies like M/s Investlinks Consultancy services Pvt Ltd, Trichur that promoted monthly SIPs through salary savings in 1980s. As time progressed, the UTI-ULIP 1971 revised the target amounts, although the essential features remained the same. In July 2008 , they have revised the target amounts to Rs. 15 lakhs. But now there is a difference:
- Monthly SIP system has come with low installment of minimum Rs 500 and with multilples of 100 above the minimum level,
- Provision for remitting the insurance premium on time by reducing units from the accumulated units is introduced,
- Accident insurance coverage remains at Rs.50,000
- Top up facility is available(one can remit more without having increased sum assured)
- The lowest target amount is 60,000 in 10 year plan and above it, in multiples of 12,000
- The lowest target amount is 90,000 in 15 year plan and above it, in multiples of 15,000
- The entry is limited for 12-48.5 in 10 year plan and 12-42.5 in the 15 year plan
- The Sec 80 c of IT Act 1961 provide for saving upto Rs.1 lakhs in the specified schemes and ULIP is one of such. One can have rebate available on the policy in the name of spouse and upto two children
In 2001, when Principal Child Benefit (Super Saver) Future Guard plan was launched with a SIP for 7, 10 and 15 year, the LIC MF ULIS (earstwhile Dhanarakhsha 1998) was the only scheme that was comparable to UTI-ULIP 1971. In fact, the Future Gurad had only 50,000 accident insurance coverage as the frill.
In 2005, DSP ML Super SIP was introduced with insurance coverage for long term investors. The super SIP did not qualify for taxrebate. The onslaught of the Insurance companies increased by 2007 and Kotak answered back with introduction of insurance cover as frill under the name Kotak Star Kid in Kotak 30, Kotal Opportunities fund and Kotak Tax Saver schemes. The Entry load was 3.25% in such cases. However, the nominee had to be a kid in this case!!!
In the same year HSBC Asset Management Co introduced systematic investment plan (SIP) in any one of its equity schemes will get a critical illness cover of up to Rs 10 lakh. Illnesses that qualify for the cover are cancer, stroke, bypass surgery, accidental death and accidental permanent disability amount limited to Rs. 72,000 and age of entry limited to 20-50
But when UTI ULIP 1971 has been redesigned, the Reliance has introduced SIP Insure in its 10 schemes with maximum insurance amount of Rs. 10 lakhs:
Reliance Growth Fund - Retail Plan
Reliance Vision Fund - Retail Plan
Reliance Equity Opportunities Fund - Retail Plan
Reliance Equity Fund - Retail Plan
Reliance Equity Advantage Fund- Retail Plan
Reliance Regular Savings Fund – Equity option
Reliance Regular Savings Fund – Balanced option
Reliance Banking Fund
Reliance Pharma Fund
Reliance Media & Entertainment Fund
Reliance Diversified Power Sector Fund – Retail Plan
Investors in 20-46 age group are permitted. Minimum SIP amount is 2000 and in multiples of Rs. 1 thereafter. The death claim amount is invested in the scheme and not paid out to the nominee. If nominee so chooses to take out the claims, an exit load of 2% charged. There is no specific insurance charges to be paid by the customer or accounted from the unitholder's fund .
The Birla Sun Life MF has responded with Century SIP offering maximum insurance coverage up to Rs.20 lakhs. The term of the SIP is 55 minus the age of the investor.
- Year 1 – Insurance coverage till 10 times of Monthly SIP Installment
- Year 2 – Insurance coverage till 50 times of Monthly SIP Installment
- Year 3 onwards – Insurance coverage till 100 times of Monthly SIP
Here again, the cover is subject to a maximum limit of Rs 20 lakh, and is not payable if the SIP is discontinued before 3 years, or the investor defaults on payments of SIPs on two consecutive occasions. The insurance cover is free like in Reliance.
SIP and insure has been deliberately coined by the MF industry clearly away from the clutter of ULIP world. Given the same asset allocation and term, a SIP in MF scheme should do better than ULIP from any insurance company because of front end deductions in the latter. After all insurance is for coverage and it has a price; It is not an alternative for saving and investment.
Lost in the woods, the ULIPs from Mutual Funds of 20th Century, on the onslaught of the Private Insurance Companies offering all flavours of ULIPs, emerged as SIP Insure in the 21st Century. Well carved out niche for average investor seeking low-cost insurance, reasonable cover and a good investment vehicle with or without tax benefits.
Sunday, July 20, 2008
Saving for Children: THE MF route
Indians have a strong family bonding than any modern community. Saving for children is one of its visible signs. Securing future of the children, some times takes the tax route through the Sec 80 of the Income tax Act 1961. Insurance companies have done their bit eversince the segment was open for private entry ever since year 2000. The PPF, NSC, PO FD, PO RD, Bbank RD and Bank FD are additional sources for saving for children. Among all these, the MF route is substantially longer and one need not specify the time limit for saving if properly allocating funds depending upon the age of the child. Unlike the insurance shemes that take huge upfront cut, the MFs provide substantial investment growth opportunities - The effects of compounding is properly harnessed in the MF for an early start, systematically in the same market conditions with similar asset allocations.
Saving through the Mutual Funds have been there from the days of CGGF-1981 from the erstwhile UTI. The reforms in the capital markets, especially the shift from the fixed interest regime made such products unviable and finally faced closed down by 2003. But by that time, market related saving schemes from the private MFs have stabilised in tge market along with the CCP-1993 from the UTI MF. Today, CCP-1993 is the largest fund among the children's segment with over Rs.2369 crores as at June 30, 2008.
In fact UTI offers two schemes for children: the CCP-1993, a balanced scheme with maximum 40% allocation to equity and another CCP Advantage Fund 2004 that has a majority equity allocation. The upper age limit is capped at 15 years for entry into CCP. The AUM of advantage Plan stood at Rs.23.42 crores by June 30, 2008.
Tata Young Citizens Fund 1995 had an AUM of Rs. 141.07 crores in june 30, 2008.
Templeton India CAP-Education Fund 1998 provides for withdrawal maximum 4 times befor the child attain 18 years of age. But in their Gift Fund option brought in 2005, one can withdraw partially or fully after 18 years of age only.
HDFC Children's Gift Fund was introduced in February 2001. The Savings option is emphasizing a bond flaour wheras the Investment option is concetrating on equity flaour. The AUM of Investment option crossed Rs.124 crores in June 2008, whereas the Savings option, AUM, hardly inching above Rs 51 crores during the same period.
ICICI Pru Child Care Study plan of August 2001 has clearly mandated it for children of age 13-17 years with majority asset allocation for bonds. The gift plan, but, concentrates on equity asset allocation and mandated it for children upto 13 years of age. The AUM of of Study plan was 27.5 crores whereas that of Investment plan stood at Rs 114.81 crores in June 30, 2008
Principal Child Benefit Super Saver (Career Builder) Paln was also launched in August2001. 7, 10 and 15 years lock-in are available in this plan and anytime entry is possible. However in the Future Guard plan, the annual SIPs only is permitted. It has got additioonal life cover of the beneficiary child upto 50,000.
LIC MF Children Gift Fund launched in October 2001, has got AUM of Rs. 7.88 crores. Highly skewed equity allocation exists as on June 2008.
Magnum Children's Benefit Plan was launched in January 2002. Its asset allocation is skewed to bonds. AUM Rs 20.07 Crores
BOB MF Children Fund 2004 has got Gift plan and also study plan. The smallest in size is yet to cross Rs1 crore in AUM.
What is the logic in having a specific children oriented scheme when the child grow in age, the re-purchase goal is nearing excercise. So how can one have a moving target focussed with respect to fund management?
Looking from the angle of customer, I would put it like this: When your child is above 15 years of age, his need for money is sure to arise in 1-3 years. Depend upon the Fixed Maturity Plans or CPOSs instead of any of the above detailed products.
But if you are looking for Saving for children in 12-15 years age, you may be lured to put the 'plain children schemes'; DO NOT GO full throttle: Put 60% of your funds in an Equity scheme of above list and the balance in Fixed Maturity Plans or CPOS. Here you may even look at the traditional products in comparison to the MF products and take a learned decision as far as the goal amount required, especially the debt allocation. The 60% equity allocation will help you top up your gains or limit your lossses. The danger is that an astute sales person, may lure you to believe that a standard portfolio will give you the same result: which is untrue. Your goal horizon, is your own; it is not the same as that of the Fund that he is promoting.
If your child is in 10-12 age bracket, the goal is 8-10 years away. You can go for any of the balanced schemes given above or any of the diversified funds or index funds upto 80% of your asset allocation. The balance 20% shold be in MMMF/Liquid MFs to provide liquidity support to your portfolio. suppose the market is in a bear phase. You can use the funds to buy more additional equity investments for your baby.
When you invest for 5-10 years of age, you can buy equity 'children funds' . If it is a rising market like 2005-2008, equity will increase your wealth, but adequate care has to be made to shift to balanced fund when fluctuations like post Jan 2008 occur. The created wealth in the market become usable only when you repurchase and transfer it into another asset.
When investing for kids up to 5 years of age, you can gor equity schemes or balanced schemes depending upon the market cycle at the time of your entry. Some people are of the opinon that one should not be investing for children below 5 years. However, compounding principl esaya that earlier the better; larger the better. So have a SIP.
The wisdom says that balanced funds perform better in asset allocation strategy over longer periods of time than equity as the latter has more expenses eating into the fund corpus.
Saving through the Mutual Funds have been there from the days of CGGF-1981 from the erstwhile UTI. The reforms in the capital markets, especially the shift from the fixed interest regime made such products unviable and finally faced closed down by 2003. But by that time, market related saving schemes from the private MFs have stabilised in tge market along with the CCP-1993 from the UTI MF. Today, CCP-1993 is the largest fund among the children's segment with over Rs.2369 crores as at June 30, 2008.
In fact UTI offers two schemes for children: the CCP-1993, a balanced scheme with maximum 40% allocation to equity and another CCP Advantage Fund 2004 that has a majority equity allocation. The upper age limit is capped at 15 years for entry into CCP. The AUM of advantage Plan stood at Rs.23.42 crores by June 30, 2008.
Tata Young Citizens Fund 1995 had an AUM of Rs. 141.07 crores in june 30, 2008.
Templeton India CAP-Education Fund 1998 provides for withdrawal maximum 4 times befor the child attain 18 years of age. But in their Gift Fund option brought in 2005, one can withdraw partially or fully after 18 years of age only.
HDFC Children's Gift Fund was introduced in February 2001. The Savings option is emphasizing a bond flaour wheras the Investment option is concetrating on equity flaour. The AUM of Investment option crossed Rs.124 crores in June 2008, whereas the Savings option, AUM, hardly inching above Rs 51 crores during the same period.
ICICI Pru Child Care Study plan of August 2001 has clearly mandated it for children of age 13-17 years with majority asset allocation for bonds. The gift plan, but, concentrates on equity asset allocation and mandated it for children upto 13 years of age. The AUM of of Study plan was 27.5 crores whereas that of Investment plan stood at Rs 114.81 crores in June 30, 2008
Principal Child Benefit Super Saver (Career Builder) Paln was also launched in August2001. 7, 10 and 15 years lock-in are available in this plan and anytime entry is possible. However in the Future Guard plan, the annual SIPs only is permitted. It has got additioonal life cover of the beneficiary child upto 50,000.
LIC MF Children Gift Fund launched in October 2001, has got AUM of Rs. 7.88 crores. Highly skewed equity allocation exists as on June 2008.
Magnum Children's Benefit Plan was launched in January 2002. Its asset allocation is skewed to bonds. AUM Rs 20.07 Crores
BOB MF Children Fund 2004 has got Gift plan and also study plan. The smallest in size is yet to cross Rs1 crore in AUM.
What is the logic in having a specific children oriented scheme when the child grow in age, the re-purchase goal is nearing excercise. So how can one have a moving target focussed with respect to fund management?
Looking from the angle of customer, I would put it like this: When your child is above 15 years of age, his need for money is sure to arise in 1-3 years. Depend upon the Fixed Maturity Plans or CPOSs instead of any of the above detailed products.
But if you are looking for Saving for children in 12-15 years age, you may be lured to put the 'plain children schemes'; DO NOT GO full throttle: Put 60% of your funds in an Equity scheme of above list and the balance in Fixed Maturity Plans or CPOS. Here you may even look at the traditional products in comparison to the MF products and take a learned decision as far as the goal amount required, especially the debt allocation. The 60% equity allocation will help you top up your gains or limit your lossses. The danger is that an astute sales person, may lure you to believe that a standard portfolio will give you the same result: which is untrue. Your goal horizon, is your own; it is not the same as that of the Fund that he is promoting.
If your child is in 10-12 age bracket, the goal is 8-10 years away. You can go for any of the balanced schemes given above or any of the diversified funds or index funds upto 80% of your asset allocation. The balance 20% shold be in MMMF/Liquid MFs to provide liquidity support to your portfolio. suppose the market is in a bear phase. You can use the funds to buy more additional equity investments for your baby.
When you invest for 5-10 years of age, you can buy equity 'children funds' . If it is a rising market like 2005-2008, equity will increase your wealth, but adequate care has to be made to shift to balanced fund when fluctuations like post Jan 2008 occur. The created wealth in the market become usable only when you repurchase and transfer it into another asset.
When investing for kids up to 5 years of age, you can gor equity schemes or balanced schemes depending upon the market cycle at the time of your entry. Some people are of the opinon that one should not be investing for children below 5 years. However, compounding principl esaya that earlier the better; larger the better. So have a SIP.
The wisdom says that balanced funds perform better in asset allocation strategy over longer periods of time than equity as the latter has more expenses eating into the fund corpus.
Thursday, July 3, 2008
Alive & Kicking: The Indian MF industry
If you are counting the age of the industry from 2003 when UTI acquired full equal status with rest of its counterparts, it is hardly a 5 year old one, fully alive and kicking!!
After Edelweiss Mutual Fund , the domestic real estate player DLF has formed JV with Prudential Financial Inc, USA to launch DLF Pramerica Asset Managers Private Ltd.
Bharti AXA Mutual Fund, entered the fray at the dawn of 2008 following Mirae Asset Mutual Fund
The Axis Bank which came out of UTI fold, already got permission to launch its own AMC recently.
The regulator is also keeping pace with rules:
disclosures are tightened making it mandatory to disclose half yearly how much money is in term deposits as collateral for taking derivative positions by the scheme along with portfolio particulars.
MFs are permitted to do short selling as also Borrowing & Lending in the Govt Securities market.
Those interested to know more about MFs can do so freely by accessing the new initiative of Fidelity, for qualifying as MF advisors and pass the AMFI test.
India is a happening place indeed..
After Edelweiss Mutual Fund , the domestic real estate player DLF has formed JV with Prudential Financial Inc, USA to launch DLF Pramerica Asset Managers Private Ltd.
Bharti AXA Mutual Fund, entered the fray at the dawn of 2008 following Mirae Asset Mutual Fund
The Axis Bank which came out of UTI fold, already got permission to launch its own AMC recently.
The regulator is also keeping pace with rules:
disclosures are tightened making it mandatory to disclose half yearly how much money is in term deposits as collateral for taking derivative positions by the scheme along with portfolio particulars.
MFs are permitted to do short selling as also Borrowing & Lending in the Govt Securities market.
Those interested to know more about MFs can do so freely by accessing the new initiative of Fidelity, for qualifying as MF advisors and pass the AMFI test.
India is a happening place indeed..
Saturday, June 21, 2008
Why sectoral funds?
Indian Capital Markets is facing fluctuations of high levels from the latter half of January 2008. Is there a case for sectoral funds? How relevant are them?
The sector specific fund is defined as one having 80% portfolio allocation in the specified segment of the economy. Some sectors in the economy moves faster than the rest and some move along with the market. The co-movement of the segment with the market is captured by the beta measure. Those that move with the market are termed aggressive and those that moves slower than the market are called defensive sectors. Market beta is considered to be 1 universally. One has to define the market index as a broad market index. One Remember, beta measure does not tell you anything about cause and effect of a particular situation. That means, post-mortem analysis needs to be done to find why the co-movement happened in the given manner.Nevertheless, beta help us to understand whether the secotor in which we are invested, is moving in what way in relation to the market. According to our profile of risk taking, we can be in sector that suits our nature. If we are an aggressive investor, loving to live risk, we invest in aggressive sectors. if we are risk averse, we take position in the defensive segments when the market falls. By changing our position in the appropriate sectors, one can profit from the market situation.Those who are unable to digest the sector transfer philosophy, can gain market returns by investing in the index funds on a broad market index like BSE sensex or Nifty.
Sectoral funds are avialble in all these and more. The latest entry are of Natural resources Funds, International Funds. We also have sector specific funds like Media and entertainment. What are sectoral betas in Indian Markets?
1. Technology 0.87
2. Pharma 1.00
3. Energy 1.05
4. Banking 0.76
5. MNC 0.76
6. FMCG 0.69
7. Automobile 0.84
8. Services 0.93
9. Infrastructure 1.10
(These beta measures are estimated using beta measures of funds present in the sector weighted by the Assets Under Management as on 31 May 2008)
The sector specific fund is defined as one having 80% portfolio allocation in the specified segment of the economy. Some sectors in the economy moves faster than the rest and some move along with the market. The co-movement of the segment with the market is captured by the beta measure. Those that move with the market are termed aggressive and those that moves slower than the market are called defensive sectors. Market beta is considered to be 1 universally. One has to define the market index as a broad market index. One Remember, beta measure does not tell you anything about cause and effect of a particular situation. That means, post-mortem analysis needs to be done to find why the co-movement happened in the given manner.Nevertheless, beta help us to understand whether the secotor in which we are invested, is moving in what way in relation to the market. According to our profile of risk taking, we can be in sector that suits our nature. If we are an aggressive investor, loving to live risk, we invest in aggressive sectors. if we are risk averse, we take position in the defensive segments when the market falls. By changing our position in the appropriate sectors, one can profit from the market situation.Those who are unable to digest the sector transfer philosophy, can gain market returns by investing in the index funds on a broad market index like BSE sensex or Nifty.
Sectoral funds are avialble in all these and more. The latest entry are of Natural resources Funds, International Funds. We also have sector specific funds like Media and entertainment. What are sectoral betas in Indian Markets?
1. Technology 0.87
2. Pharma 1.00
3. Energy 1.05
4. Banking 0.76
5. MNC 0.76
6. FMCG 0.69
7. Automobile 0.84
8. Services 0.93
9. Infrastructure 1.10
(These beta measures are estimated using beta measures of funds present in the sector weighted by the Assets Under Management as on 31 May 2008)
To sail through a troubled market, use Dividend Yield funds
What is Dividend yield? It stands for the result you get by dividing the rupee dividend by the purchase price of the equity share.Dividend Yield Fund is a mutual fund created with dividend paying equity shares holding maximum percentage share in its portfolio. It is a diversified equity fund with only restriction that the portfolio is skewed towards dividend paying companies.These kind of equity shares are also called value shares in the capital market, as they result in substantial value unlocking only in the event of a discovery, sale of assets, merger/acquistion etc..
During the last one year as on 12.06.2008, the BSE Sensex returned 7.9% and for three years 30.7% respectively; The Dividend Yield Funds gave 10.22% to 18.58% with exception of Escorts Hi Yield Fund and Birla Dividend Yield Plus.
During the period under study, the diversified equity funds exhibited a standard deviation of 26.4 to 35, the dividend yield funds showed a range of 25-26 . That is why, generally it is said that dividend yield funds are best suitable for risk averse equity investors.
When the BSE Sensex was subject to high fluctuations during 2003-2005, the dividend yield funds led by Birla Dividend Yield plus gave very good returns. But when the market entered the phase of secular rise after 2005 till January 2008, they withered in rate return per annum. However, they regained their status now again from Jan 2008. Thus Dividend Yield as a strategy is giving good returns only in troubled situations. So if any one is planning their funds in 50:50 for all seasons, then a suggestion could be to split between the P/E funds and Di Yi Funds. When one half is failing, the other half will support. But who can tell us when the market will turn good and when the market will turn bad? Only the market knows at best..
ABN AMRO dividend yield fund got merged with their opportunities fund w e f 10 Feb 2008 probably because of the secularly growing market from 2006 through Jan 2008.
Birla Dividend Yield Plus (Feb 2003)
Tata Dividend Yield fund(Oct 2004)
UTI Dividend Yield Fund(May 2005)
ING Dividend Yield fund(Oct 2005)
Principal Dividend Yield Fund(Sept 2004)
ABN AMRO Dividend Yield Fund(Aug 2005)
Escorts High Yield Fund(Dec 2006)
Templeton India Equity Income Fund(Apr 2006)
After 2006, No funds entered this area till date.
During the last one year as on 12.06.2008, the BSE Sensex returned 7.9% and for three years 30.7% respectively; The Dividend Yield Funds gave 10.22% to 18.58% with exception of Escorts Hi Yield Fund and Birla Dividend Yield Plus.
During the period under study, the diversified equity funds exhibited a standard deviation of 26.4 to 35, the dividend yield funds showed a range of 25-26 . That is why, generally it is said that dividend yield funds are best suitable for risk averse equity investors.
When the BSE Sensex was subject to high fluctuations during 2003-2005, the dividend yield funds led by Birla Dividend Yield plus gave very good returns. But when the market entered the phase of secular rise after 2005 till January 2008, they withered in rate return per annum. However, they regained their status now again from Jan 2008. Thus Dividend Yield as a strategy is giving good returns only in troubled situations. So if any one is planning their funds in 50:50 for all seasons, then a suggestion could be to split between the P/E funds and Di Yi Funds. When one half is failing, the other half will support. But who can tell us when the market will turn good and when the market will turn bad? Only the market knows at best..
ABN AMRO dividend yield fund got merged with their opportunities fund w e f 10 Feb 2008 probably because of the secularly growing market from 2006 through Jan 2008.
Birla Dividend Yield Plus (Feb 2003)
Tata Dividend Yield fund(Oct 2004)
UTI Dividend Yield Fund(May 2005)
ING Dividend Yield fund(Oct 2005)
Principal Dividend Yield Fund(Sept 2004)
ABN AMRO Dividend Yield Fund(Aug 2005)
Escorts High Yield Fund(Dec 2006)
Templeton India Equity Income Fund(Apr 2006)
After 2006, No funds entered this area till date.
SAI and SID : the twins of Offer Document!!
23 May 2008 gave a big push to the MF industry by announcing the split of repeated informations and scheme specific informations submitted to the SEBI through the Offer Document (OD)by the MFs on launching the schemes.The MF Regulations 1996 envisaged an Offer Document but the clarity was brought in 1998 with standardised Offer Document and Key Information Memmorandum that made a distinguishion between information provided by the MF and the information collected from the Investor respectively.After 10 years, SEBI has moved one step forward in splitting the OD into SAI and SID. SAI stands for Statement of Additional Information that deals with relatiovely stable information like Sponsor, Trustee, Banks, Auditirs, Fund Manager, Chief Operating Officer, Compliance Officer, etc.. about fund constituents, rights and duties of the investor, tax and legal matters and the MF risk clause.SID consists of all that is required to be known about the specific scheme. Type of scheme :Equity, Debt or Call Money ; Portfolio related information like the proportionof these asset classes, Whether large Cap/Mid cap or small cap; Managed in aggressive or passive or defensive style etc.. ; It also provides information as to minimum and maximum investments etc..KIM continues to retain all its previous characteristics: Informations from the investor and all that instructions for filing it in proper manner and place. His Name, Address.... Payment detailsChanges in ODPreviously OD was revised every two years. Addendum got circulated with OD and KIM. In the new system, Addendum shall be attached to existing SID and KIM till stocks are exhausted. Within 7 days of the change, SEBI needs to informed on the same . SID to be updated within 3 months from the end of the financial year.Same applies to KIM also. Additionally, public notice is to be given in one nation-wide English news paper and a vernacular Newspaper published from the place where the HQ of the MF is situated.This move help MFs to reduce recurring expenses of printing oft repeated items any time a scheme is launched. It is also expected to add speed in reaching the market with new products as certain market flavours remain very short on the scene.Customer is the King even in MFs!
3 Year Magic of ELSS: India
Equity Linked Savings Schemes(ELSS) as a class was ushered in by budget for fiscal 1990-91 with provision to deduct a maximum of Rs 10,000 invested in a specifically designed Mutual Fund scheme from Income taxable under Sec 80CCB of Income Tax act 1961.The PSU Mutual Funds led by Unit Trust of India offered MEP 91, Canpep 91 from Canabank MF, Dhan 80 CCB (1) -Cum from LIC MF and Magnum Equity Linked Scheme '91 from SBI MF and PNB ELSS 91 from PNB MF were the pioneers in ELSS world.
MFs were to invest predominantly into equity normally 80% of its portfolio. In that respect, they as a class reflect diversified equity funds. Such schemes allowed deduction of investment amount maximum of Rs.10,000 under Sec 80 CCB of Income Tax Act 1961; after the lock-in period of 3 years, the investor can repurchase at whatever NAV of the scheme although the scheme had a maturity period of 10 years. When such repurchases were effected, the initial amount invested was considered as income of that year and taxed. The capital gains portion were also appropriately dealt with. Even if there was a capital loss, mandatory tax amount was deducted at source. That made investors learn that MF products could be risky.Fiscal 1991-92 also had the same features. Any dividends there upon continued to be for exemption under 80L of Income Tax Act 1961.
But from next fiscal, the story was re-written all over again by the govt moving the ELSS to Sec 88, thereby enabling tax rebate 20%. Investors having income more than Rs 5 lakhs were not permitted in this route. The UTI kept their winning sales series name Master Equity Plan and launched MEP93.
The underlying character of the product changed, but the name continued. This created irritations as investors in MEP91 expected same treatment in MEP 92 and 93 when they simultaneously repurchased these schemes after the lock-in-period. The Closed end schemes got notified every year as an asset class eligible for Tax rebate.
The total Collections in 1991-92 were Rs1995.50 crores which touched Rs. 100.60 crores in 1996-97 from all ELSS sold.The learning made law makers and MF industry wiser by 1998 to amend ELSS 1992 permitting MFs to launch Open ended variety. It had the following advantages:No launch expenses every year.All around the year they can sell &The investor can SIP the investment spread according to his salary. No year end pressures on the investor &No sales overdrive in February -March by MFs
UTI launched its ETSP as an Open ended Scheme. The section provided 10,000 for ELSS, 30,000 for Infrastructure bonds and an overall limit of 70,000 for other listed items under Sec 88.
In 2003, UTI MF clubbed all five of their MEPs into a separate scheme called MEPUS from MEP93 to MEP97 into one single scheme giving option to unitholders for exit. 95% conversions were procured and no fresh investor allowed in. This was a strategic decision by UTI MF as the mandatory lock-in-period has been over, they could enhance fund management by this kind of a consolidated move.
The stock market fluctuations affect the market value of ELSS investments. As on 31 March 2004, the AUM stood at Rs 1669 crores as against Rs. 3036 crores of 31 March 2000.
From 1 April 2005, sec 80 L which gave exemption for divdidends from units ceased to exist. And the ELSS got shunted to Sec 80 C from Sec 88 making it as a closed end affair. This was freeing the individual to decide where he wants to invest and how much, instead of Govt. deciding where the tax payer's money should be invested; But there was panic in the industry as the notification mentioned the effective date as the date of notification rather than 1 April in the case of ELSS. This meant that schemes in force from 1 April 2005 to date of notificateion ie.. 03 November 2005 may not be covered under the scheme. This was subsequently clarified that they also would be covered under the new scheme.By December 20, 2005 another clarification also came from Govt. that a MF can have one epen end scheme with prior approval of SEBI and in such cases the 'year' would be calculated from the date of purchase. This give the much awaited flexibitlity of SIP under an ELSS throughout the year.It provided clear cut instructions about eligible investments, limits on aggregate investments in each class of assets and stipulated a maximum time of 6 months from the date of closure of sales to achieve the eligible investment criteria. UTI turned in another series of ELSS called UTI Long Term Advantage Fund
The fiscal 2007-2008 saw clubbing of 5 year bank deposits also into the Sec 80C overall limit of 1,00,000 brought in fierce competition to some extent freezing the movement of funds from banks to mutual funds.The fiscal 2008-2009 ushered in payments for reverse mortgage into the same kitty of 1,00,000 increasing the choices further in this class.In the overall limit of Rs 1 ,00,000 ELSS clearely scores on maturity period over the 15 year PPF, 6 year NSC and 5 year bank deposits. One do not loose any growth prospects, if not re-purchased on the completion of 3 years lock-in-period in an OES. You can thus plan your entry as well as exit. Although they have fixed rates of interest and that are assured over the period, in the case of ELSS the returns are market related.The risk in the case of bank deposits are determined by the capital adequacy of the bank.
The AUM of ELSS has increased 3.8 times from 1727 crores in 2004-2005 to Rs 6589 crores in 2005-2006. Further to Rs.10,211 crores by 2006-2007 and Rs. 16020 crores as at 31 March 2008. That is almost 9.3 times growth in a span of 4 years.SBI MF, Franklin India MF, HDFC MF, UTI MF are formidable presence in this class. Reliance MF has made history in terms of AUM, but the performance is under testing as yet to complete 3 years. So far only three funds have crossed 1000 crores in AUM from this class apart from Reliance: They are SBI Magnum Tax Gain and HDFC Tax saver.
The product differentiation available under ELSS beyond the plain vanilla schemes are indexing and using quantitative methodology.Franklin India Index Tax Fund has not gained in AUM as other schemes of the fund. Lotus india AGILE Fund follows quant route to generate returns. Thematic funds emerged in the ELSS with Tata Infrastructure Tax Savings Fund. Growth & Income Distribution options have become the clear cut alternatives when the market started going down in 2009. The trend setter is Canara Robecco Mutual fund.
Frills are also avaialable with ELSS; DWS Tax Savings Fund and Reliance Tax Saver provide life insurance cover where as Birla Sun Life Tax Relief Fund and HSBC Tax Saver Fund give critical illness cover; Baroda Pioneer Equity Linked Savings Scheme offesr accidental death insurance cover.
Baroda Pioneer and HSBC recover premium as part of annual recurring expenses. DWS, Birla and Reliance meet it of own pocket, Birla and DWS insist on a medical certificate or a declaration of health.
What is important for the customer? overdiversofication, sectoral skewness?, frills? After all it is a Tax Saving Investment.
MFs were to invest predominantly into equity normally 80% of its portfolio. In that respect, they as a class reflect diversified equity funds. Such schemes allowed deduction of investment amount maximum of Rs.10,000 under Sec 80 CCB of Income Tax Act 1961; after the lock-in period of 3 years, the investor can repurchase at whatever NAV of the scheme although the scheme had a maturity period of 10 years. When such repurchases were effected, the initial amount invested was considered as income of that year and taxed. The capital gains portion were also appropriately dealt with. Even if there was a capital loss, mandatory tax amount was deducted at source. That made investors learn that MF products could be risky.Fiscal 1991-92 also had the same features. Any dividends there upon continued to be for exemption under 80L of Income Tax Act 1961.
But from next fiscal, the story was re-written all over again by the govt moving the ELSS to Sec 88, thereby enabling tax rebate 20%. Investors having income more than Rs 5 lakhs were not permitted in this route. The UTI kept their winning sales series name Master Equity Plan and launched MEP93.
The underlying character of the product changed, but the name continued. This created irritations as investors in MEP91 expected same treatment in MEP 92 and 93 when they simultaneously repurchased these schemes after the lock-in-period. The Closed end schemes got notified every year as an asset class eligible for Tax rebate.
The total Collections in 1991-92 were Rs1995.50 crores which touched Rs. 100.60 crores in 1996-97 from all ELSS sold.The learning made law makers and MF industry wiser by 1998 to amend ELSS 1992 permitting MFs to launch Open ended variety. It had the following advantages:No launch expenses every year.All around the year they can sell &The investor can SIP the investment spread according to his salary. No year end pressures on the investor &No sales overdrive in February -March by MFs
UTI launched its ETSP as an Open ended Scheme. The section provided 10,000 for ELSS, 30,000 for Infrastructure bonds and an overall limit of 70,000 for other listed items under Sec 88.
In 2003, UTI MF clubbed all five of their MEPs into a separate scheme called MEPUS from MEP93 to MEP97 into one single scheme giving option to unitholders for exit. 95% conversions were procured and no fresh investor allowed in. This was a strategic decision by UTI MF as the mandatory lock-in-period has been over, they could enhance fund management by this kind of a consolidated move.
The stock market fluctuations affect the market value of ELSS investments. As on 31 March 2004, the AUM stood at Rs 1669 crores as against Rs. 3036 crores of 31 March 2000.
From 1 April 2005, sec 80 L which gave exemption for divdidends from units ceased to exist. And the ELSS got shunted to Sec 80 C from Sec 88 making it as a closed end affair. This was freeing the individual to decide where he wants to invest and how much, instead of Govt. deciding where the tax payer's money should be invested; But there was panic in the industry as the notification mentioned the effective date as the date of notification rather than 1 April in the case of ELSS. This meant that schemes in force from 1 April 2005 to date of notificateion ie.. 03 November 2005 may not be covered under the scheme. This was subsequently clarified that they also would be covered under the new scheme.By December 20, 2005 another clarification also came from Govt. that a MF can have one epen end scheme with prior approval of SEBI and in such cases the 'year' would be calculated from the date of purchase. This give the much awaited flexibitlity of SIP under an ELSS throughout the year.It provided clear cut instructions about eligible investments, limits on aggregate investments in each class of assets and stipulated a maximum time of 6 months from the date of closure of sales to achieve the eligible investment criteria. UTI turned in another series of ELSS called UTI Long Term Advantage Fund
The fiscal 2007-2008 saw clubbing of 5 year bank deposits also into the Sec 80C overall limit of 1,00,000 brought in fierce competition to some extent freezing the movement of funds from banks to mutual funds.The fiscal 2008-2009 ushered in payments for reverse mortgage into the same kitty of 1,00,000 increasing the choices further in this class.In the overall limit of Rs 1 ,00,000 ELSS clearely scores on maturity period over the 15 year PPF, 6 year NSC and 5 year bank deposits. One do not loose any growth prospects, if not re-purchased on the completion of 3 years lock-in-period in an OES. You can thus plan your entry as well as exit. Although they have fixed rates of interest and that are assured over the period, in the case of ELSS the returns are market related.The risk in the case of bank deposits are determined by the capital adequacy of the bank.
The AUM of ELSS has increased 3.8 times from 1727 crores in 2004-2005 to Rs 6589 crores in 2005-2006. Further to Rs.10,211 crores by 2006-2007 and Rs. 16020 crores as at 31 March 2008. That is almost 9.3 times growth in a span of 4 years.SBI MF, Franklin India MF, HDFC MF, UTI MF are formidable presence in this class. Reliance MF has made history in terms of AUM, but the performance is under testing as yet to complete 3 years. So far only three funds have crossed 1000 crores in AUM from this class apart from Reliance: They are SBI Magnum Tax Gain and HDFC Tax saver.
The product differentiation available under ELSS beyond the plain vanilla schemes are indexing and using quantitative methodology.Franklin India Index Tax Fund has not gained in AUM as other schemes of the fund. Lotus india AGILE Fund follows quant route to generate returns. Thematic funds emerged in the ELSS with Tata Infrastructure Tax Savings Fund. Growth & Income Distribution options have become the clear cut alternatives when the market started going down in 2009. The trend setter is Canara Robecco Mutual fund.
Frills are also avaialable with ELSS; DWS Tax Savings Fund and Reliance Tax Saver provide life insurance cover where as Birla Sun Life Tax Relief Fund and HSBC Tax Saver Fund give critical illness cover; Baroda Pioneer Equity Linked Savings Scheme offesr accidental death insurance cover.
Baroda Pioneer and HSBC recover premium as part of annual recurring expenses. DWS, Birla and Reliance meet it of own pocket, Birla and DWS insist on a medical certificate or a declaration of health.
What is important for the customer? overdiversofication, sectoral skewness?, frills? After all it is a Tax Saving Investment.
Product differentiation in Debt Funds: India
From mere Assured Returns of 1970-1990s, the debt funds found themselves emerging as MIPs without assured returns led by Birla Mutual Fund, ICICI Pru etc.. during the early years of opening up of the industry to private players. MIPs offered a certain periodic cash flows at predetermined frequencies(Monthly, quarterly, half yearly and annally).Money Market Instruments like Certificate of Participation, Certificate of deposits and Interbank Participation Certificates got introduced in 1988-89. Side by side another class evolved the Money Market Mutual Funds (April 1992) . Private Sector was allowed to launch MMMFs by 1995-1996. UTI News, October 1996 has a mention that MMMFs as a class has gained popularity and tehy would also like to introduce the same shortly. But the first AMFI newsletter October 1998 has not captured this as a separate class, though the ELSS has been recognized. But there is a mention that cheque writing facility has been granted for MMMFs in the Newsletter dated April 1999 that such cheques would not have the characteristics of the negotiable instrument.By1999, bond funds drifted silently to the maturity matching versions of MIPs called serial plans. Kotak Mahindra Mutual fund was th efirst to have this in their fold, soon copied by others like Dundee, Sun F&C and Prudential ICICI with maximum maturity of 3 years, such schemes subsequently got legalised as Fixed Maturity Plans(FMPs). They gave safety of bank FDs and ease of Current Accounts simultaneusly. Probably the parenthood (Bank , FI sponsored MFs) had a bearing on designing new products. Cash rich Institutions and Companies in fact were holding major chunk in such schemes. SEBI intervened to wipe off solitary member schemes by 2003.Income Distribution Tax on schemes with less than 50% exposure to equity was imposed in 1999 @ 11% and then hiked to 22% in 2000-2001. By 2005-2006, the FMPs were fully established. Even today the FMPs score over conventional FDs on several aspects.In 1998 RBI cleared the way for Gilt Funds that primarily invested in govt paper and Kotak Mahindra Mutual Fund took the credit for pioneering it in 1999 .Today we have both short term and long term gilt funds.In February 2002, SEBI permitted MFs to invest 4% of their Net Assets in high quality, convertible currency, Govt/Non-Govt instruments subject to maximum of $50 million. This opened a new world of opportunities. Franklin India International Fund (Dec 2002) is an example.There is Debt Funds that specialise in Corporate Debt paper. ING Select Debt Fund (Sep 2004) is such one.Debt Funds in General can be classified into 3 groups:
1. Passive Funds (Income and gilt funds) do well in the falling markets
2. Active Debt Funds (also called Dynamic funds) do well in a volatile market and
3. Accrual Funds(Other wise called Floating Rate Funds, Liquid funds) do well in a rising market
They give best results in the respective market condition. But Indian markets saw Standard Chartered All Seasons Bond A (Aug 2004) is a Fund of Funds that has been designed to perform in all the three market conditions.When derivatives were opened for MFs, Arbitrage Funds found their way into the market. The first such fund was offered by M/s. Benchmark AMC. The Benchmark Derivative Fund with a self imposed AUM of 100 crores was launched in Dec 2004. The corpus limit lifted by 26 April 2005.Debt Funds started declaring dividend(income distribution) at chosen intervals otherthan the traditional monthly, quarterly and annual versions climbing the waves of tax-free dividend(income distributions). The liquid versions with floating interest rates linked to PLR of a chosen bank, MIBOR or LIBOR, CRISIL Balanced Index etc.. started filled the vaccum.By Mid 2005, we find a lot of interval funds coming to the market. The CPOSs got christened by SEBI in August 2006.As more and more interval funds started coming, the fund houses recognized that they can save on OD filing fees and attended procedures of FMPs. The first of its kind came from HDFC Quarterly Interval Plan A(March 2007). Investor anyway gets the benefit of enhanced returns resulting from the hedging strategies. Also the subscription and redemption intervals are fixed. Investors were aware of the additional risk of the market expectation that the fund manager undertakes in creating that extra. So FMPs continued to exist with 1 month, 90 days, 180 days, 366 days 550 days etc.. helping investors to reduce Interest Rate Risk.When SEBI noticed that the FMP funds were primarily finding deployment in Bank FDs in an urge to improve AUM, 15% cap was installed on such temperoray fund allocation by MFs.The old fashioned MIPs without Assured Returns shrink in AUM. Total AUM of the 31 MIPs stood at 2923.57 crores as at 31 March 2008. Except the HDFC MF, no other fund house got a MIP of decent size by 31 March 2008.2008 saw the Equity Index Linked editions of FMPs with ICICI Pru taking the lead.
A new class of 'liquidplus' arrived by 2007 budget imposing a Tax of 25% on income distribution of liquid funds. They operate on the short term end of the liquidity spectrum but little away from Money Marklets.
During October 2008, they landed up in trouble with liquidity getting dried up and banks in no mood to fund them. Finally SEBI came up with diluted valuation norms for valuing debt assets of MFs, RBI came out with special liquidity window for the MFs in addition to other liquidity infusing measures.
SEBI also tightened the exit facility in these funds by insisting listing of closed end schemes; specifying the maturity limits for instruments to go into the portfolio and also mandating that no indicative yields or portfolio could be publicised in the debt funds.
The FMP floated by ICICI Prudential was withdrawn due to lack of response; Principal Mutual Fund changed thier scheme name to principal Ultra Short term Fund with mandate to invest in debt securities and money market instruments in the Opened end class.ING responded by merging two or its schemes and making the 'Multi-Manager ' to prevail.
1. Passive Funds (Income and gilt funds) do well in the falling markets
2. Active Debt Funds (also called Dynamic funds) do well in a volatile market and
3. Accrual Funds(Other wise called Floating Rate Funds, Liquid funds) do well in a rising market
They give best results in the respective market condition. But Indian markets saw Standard Chartered All Seasons Bond A (Aug 2004) is a Fund of Funds that has been designed to perform in all the three market conditions.When derivatives were opened for MFs, Arbitrage Funds found their way into the market. The first such fund was offered by M/s. Benchmark AMC. The Benchmark Derivative Fund with a self imposed AUM of 100 crores was launched in Dec 2004. The corpus limit lifted by 26 April 2005.Debt Funds started declaring dividend(income distribution) at chosen intervals otherthan the traditional monthly, quarterly and annual versions climbing the waves of tax-free dividend(income distributions). The liquid versions with floating interest rates linked to PLR of a chosen bank, MIBOR or LIBOR, CRISIL Balanced Index etc.. started filled the vaccum.By Mid 2005, we find a lot of interval funds coming to the market. The CPOSs got christened by SEBI in August 2006.As more and more interval funds started coming, the fund houses recognized that they can save on OD filing fees and attended procedures of FMPs. The first of its kind came from HDFC Quarterly Interval Plan A(March 2007). Investor anyway gets the benefit of enhanced returns resulting from the hedging strategies. Also the subscription and redemption intervals are fixed. Investors were aware of the additional risk of the market expectation that the fund manager undertakes in creating that extra. So FMPs continued to exist with 1 month, 90 days, 180 days, 366 days 550 days etc.. helping investors to reduce Interest Rate Risk.When SEBI noticed that the FMP funds were primarily finding deployment in Bank FDs in an urge to improve AUM, 15% cap was installed on such temperoray fund allocation by MFs.The old fashioned MIPs without Assured Returns shrink in AUM. Total AUM of the 31 MIPs stood at 2923.57 crores as at 31 March 2008. Except the HDFC MF, no other fund house got a MIP of decent size by 31 March 2008.2008 saw the Equity Index Linked editions of FMPs with ICICI Pru taking the lead.
A new class of 'liquidplus' arrived by 2007 budget imposing a Tax of 25% on income distribution of liquid funds. They operate on the short term end of the liquidity spectrum but little away from Money Marklets.
During October 2008, they landed up in trouble with liquidity getting dried up and banks in no mood to fund them. Finally SEBI came up with diluted valuation norms for valuing debt assets of MFs, RBI came out with special liquidity window for the MFs in addition to other liquidity infusing measures.
SEBI also tightened the exit facility in these funds by insisting listing of closed end schemes; specifying the maturity limits for instruments to go into the portfolio and also mandating that no indicative yields or portfolio could be publicised in the debt funds.
The FMP floated by ICICI Prudential was withdrawn due to lack of response; Principal Mutual Fund changed thier scheme name to principal Ultra Short term Fund with mandate to invest in debt securities and money market instruments in the Opened end class.ING responded by merging two or its schemes and making the 'Multi-Manager ' to prevail.
Wealth Management
Requires Good Financial Planning. It is required for Individual, Proprietory Units, SMEs, Corporates and all kind of legal entities. Human beings may get biased in their thinking process tehreby limiting decision making capabilities.A planned, accepted, monitired and properly led financial plan keeps you floating in all weathers. Portfolio Doctor helps in this regard.
Your income during younger years is less compared to your spending needing active management of your credit lines.
Your income falls sharper in the grey age than your expenses needing active management of retirement income and also creating a corpus to generate that recurring expenses.
As you pass through different life stages, you need a support in planning for healthy financial condition free of personal biases.
Get Assistance from Portfolio Doctor
Your income during younger years is less compared to your spending needing active management of your credit lines.
Your income falls sharper in the grey age than your expenses needing active management of retirement income and also creating a corpus to generate that recurring expenses.
As you pass through different life stages, you need a support in planning for healthy financial condition free of personal biases.
Get Assistance from Portfolio Doctor
In the Reality...
SEBI sholw be congratulated for being steadfast in the finalisation of regulations for Real estate MFs that were put for public opinion by December 2007.Indian players are keen to utilise the Real Estate Opportunities is evidenced by the presence of two mutual fund houses already in the periphery of the theme: ICICI Pru Real Estate Securities Fund investing in debt/equity of companies in the real estate segment, a CES and the ING Global Real Estate Fund, a reality fund that takes global equity in its fold, an OES. If one looks at NAV of the both funds as on 25th April 2008, ICICI Pru Real Estate Securities Fund is down at Rs 9.6407 per unit when ING Global Real Estate Fund is Rs. 10.80 shows the effect of international diversification in the context of a falling domestic market in the Real Estate Sector. REITs in India are called REMFs. The committee constituted by SEBI submitted its report way back in 2001 favouring MF mode than Collective Investment Schemes (CIS) mode. The public opinion was heard from December 2007 to January10, 2008 by SEBI. The Trustees could be banks/Financial Institutions/Insurance companies and Body Incorporated. It has to be CES listed on the bourses. The investments have to be rated, valued and appraised and regular NAV declared. The Appraiser, Valuer and Rating Agency needs to be recognized by SEBI. No investment in vacant land/ non-income earning assets is possible. Single project limit for investment put at 15% and for a group 25%.Scheme sould declare NAV daily. Two independent valuers accedted with the recognised credit rating agency are to value the asset after 90 days of purchase and the lowest of it is to be taken for computation of NAV. 35% in real estate and rest in mortgage backed securities/securities of companies engaged in real estate/undertaking real estate development projects/others - all capped at 75%.More than that there is city/Single Security/limits to ward off portfolio concentration. Sponsor/Associates cannot have their real estate assets or that in which they have substatial rights shunted to their own REMF.
Happy investing really!!
Happy investing really!!
Naming Funds: India
Naming a Fund is akin to naming a child?In good olden days, the child used to be named with Tharavadu, Illapperu, Grandfatther's name, Father's Name and the whatever name the child would be called about and finally the Religion salutation. subsequently, Grandfather's name and Illapperu slipped off, then Father's Name, followed by Religion salutation, and latest tail off being Tharavadu. Some names are such that one cannot infer the religion/sex of the person; What to say about names, even dressing up has made it impossible to make difference between boy or girl!!!That being the societal background, how can we expect the Mutual funds to be different?They are creation of Law. They have to follow the nomenclature as given in the SEBI MF Regulation 1996 and its ammendmends from time to time. If one fund has to called an equity Fund, it has to allocate 65% or more of portfolio into equity. If it is a sectoral fund, it can hold up to 80% of its assets in that segment specialised. The Offer Document gives the prospective investor all information required to make an investment decision. It contain in very clear terms the risk clause that says Past performance, Name of the Fund or its constituents do not gurantee any future performance or indicate anything about future.Now look at these Names and guess what it holds for you. TIGER, LION, CUB, ACE, SMILE, COMMO, ATM, PRUDENCE, AGILE, GenNexT, Hi Fi, STAR, DISCOVERY and REAL; Now read on to find out what the OD really meant!DSP ML TIGER FundThe Infrastructure Growth and Economic Reforms got abbreviated into TIGER.ING LION FundLarge-Cap, Intermediate-Cap, Opportunities, New Fund Offering became LION.ING CUB FundCompetitive Upcoming Businesses got known as CUBMorgan Stanley ACE FundAfter 14 years in India with their first equity scheme listed on the bourses, Morgan Stanley broke the silence offering "ACROSS CAPITALISATION EQUITY" Fund.Sundaram BNP Paribus SMILE FundSmall and Medium Indian Leading Equities came to be known as SMILESBI Magnum COMMO FundInvests in equity shares of companies that are into the commodities (metals/non-metals)business;ING ATM FundIt refers to "Against the Market" philosophy followed by the fund in its portfolio management.HDFC Prudence FundIt is a balanced fund following 60:40 asset allocationLotus India AGILE Tax FundAlpha Generated From Industry Leaders got shortened to AGILEBirla Sun Life GenNexT FundInvests in equity of companies whose products are sought after by Indian Youth.J M Hi Fi FundHousing, Infrastructure, Financial services became Hi FiTaurus Starshare Fund, Optimix 5 Star MultiManager Fund and ICICI Prudential Emerging Star Fund wear STAR in their Name.Taurus Starshare is an opened end equity scheme offering long term capital appreciation.Optimix 5 Star MultiManager Fund aims at using MultiManager style in managing the portfolio of Fund of Funds as an open end equity scheme.ICICI Prudential Emerging STAR Fund defines STAR as" Stocks Targeted At Returns"Taurus Discovery Stock Fund and ICICI Prudential Discovery Fund have attached discovery to tehir Names.Taurus Discovery Fund aims at utitising Price Discovery Mechanism for identification and selection of of low priced securities.ICICI Prudential Discovery Fund promises to use lot of research to identify currently underpriced, fundamentally strong shares.Sahara REAL Fund REAL stands for Retailing, Entertainment and Media Leaders; The AMC has not given any link so far on website for this product.
International funds from Indian MFs
Principal Global Opportunities Fund (March 2004):
Minimum Foreign Investment=65%; The first international fund from India changed its strategy in August 2006 to become a feeder fund for Principal's Emerging Markets Fund
Franklin Asian Equity (Dec 2007):
Minimum Foreign Investment=65%;The scheme aims to generate capital appreciation by invest in companies in the Asian region, excluding Japan
Fidelity Internatioanl Opportunities Fund(Apr 2007):
A customised benchmark using the BSE-200 (65%) and MSCI AC Asia Pacific ex-Japan (35%)
DWS Global Thematic Offshore Fund (Aug 2007):
Minimum Foreign Investment=65%;The fund will invest predominantly in units of DWS Strategic Global Themes Fund registered in Singapore or similar mutual funds. The investment philosophy and strategy of the underlying fund will replicate the DWS Global Thematic Fund -registered in the U
DSP ML World Gold Fund(Aug 2007) :
The fund can invest 100% of its corpus internationally;The fund does not buy gold directly but invests in stocks of companies engaged in gold mining and production world over.
Birla Sunlife International Equity Plan A(Oct 2007):
Minimum investment in equity abroad=65%;S&P Global 1200 combines 29 local markets into 7 regional indices and finally into one basket of tradable stocks
ABN AMRO China-Indo Fund(Oct 2007)
Minimum foreign Investment =35%; The funmd looks for companies that may benefit from the anticipated long-term growth of China and India. The fund may also invest in other international equity and equity related securities.
HSBC Emerging Markets Fund ( Feb 2008)
The scheme invests in units of MFs from Brazil, China, Russia, India etc
KOTAK GLOBAL EMERGING MARKET FUND (FOF):
Minimum foreign Investment;provide long-term capital appreciation by investing in one or more overseas mutual fund schemes. The fund invests in T Rowe Price SICAV - Global Emerging Market Equity Fund
TATA INDO GLOBAL INFRASTRUCTURE FUND:
Minimum Foreign Investment=35%;
The fund invests in companies engaged in infrastructure and infrastructure related sectors worldwide
Even among the International theme, one can find the sub-theme as infrastructure or Gold or country specific/Region specific isues;
By Apr 2008, 13 such funds exists and hardly two of them have exceeded the limit prescribed. However, SEBI is taking anticipatory action along with RBI directing funds outside. On Apr 08, the Limit enhanced to USD 7 billion; Single MF limit US$300 million with a binding of 10% NAV of its funds; all other conditions remain same.
This is in addition to the overall limit of US$ 1 billion for MFs to invest in ETFs abroad.
RBI has been aggressively promoting overseas investment by the Indian mutual fund industry by raising its ceiling from $500 million in 1999 through $2 billion to $3 billion in October ’06, and then from $3 billion to $4 billion in April ’07 and then to $5 billion in Jan 2007.
Principal Global Opportunities — the first of the international funds, was launched in March 2004, a good five years after Indian funds were permitted to invest abroad
Minimum Foreign Investment=65%; The first international fund from India changed its strategy in August 2006 to become a feeder fund for Principal's Emerging Markets Fund
Franklin Asian Equity (Dec 2007):
Minimum Foreign Investment=65%;The scheme aims to generate capital appreciation by invest in companies in the Asian region, excluding Japan
Fidelity Internatioanl Opportunities Fund(Apr 2007):
A customised benchmark using the BSE-200 (65%) and MSCI AC Asia Pacific ex-Japan (35%)
DWS Global Thematic Offshore Fund (Aug 2007):
Minimum Foreign Investment=65%;The fund will invest predominantly in units of DWS Strategic Global Themes Fund registered in Singapore or similar mutual funds. The investment philosophy and strategy of the underlying fund will replicate the DWS Global Thematic Fund -registered in the U
DSP ML World Gold Fund(Aug 2007) :
The fund can invest 100% of its corpus internationally;The fund does not buy gold directly but invests in stocks of companies engaged in gold mining and production world over.
Birla Sunlife International Equity Plan A(Oct 2007):
Minimum investment in equity abroad=65%;S&P Global 1200 combines 29 local markets into 7 regional indices and finally into one basket of tradable stocks
ABN AMRO China-Indo Fund(Oct 2007)
Minimum foreign Investment =35%; The funmd looks for companies that may benefit from the anticipated long-term growth of China and India. The fund may also invest in other international equity and equity related securities.
HSBC Emerging Markets Fund ( Feb 2008)
The scheme invests in units of MFs from Brazil, China, Russia, India etc
KOTAK GLOBAL EMERGING MARKET FUND (FOF):
Minimum foreign Investment;provide long-term capital appreciation by investing in one or more overseas mutual fund schemes. The fund invests in T Rowe Price SICAV - Global Emerging Market Equity Fund
TATA INDO GLOBAL INFRASTRUCTURE FUND:
Minimum Foreign Investment=35%;
The fund invests in companies engaged in infrastructure and infrastructure related sectors worldwide
Even among the International theme, one can find the sub-theme as infrastructure or Gold or country specific/Region specific isues;
By Apr 2008, 13 such funds exists and hardly two of them have exceeded the limit prescribed. However, SEBI is taking anticipatory action along with RBI directing funds outside. On Apr 08, the Limit enhanced to USD 7 billion; Single MF limit US$300 million with a binding of 10% NAV of its funds; all other conditions remain same.
This is in addition to the overall limit of US$ 1 billion for MFs to invest in ETFs abroad.
RBI has been aggressively promoting overseas investment by the Indian mutual fund industry by raising its ceiling from $500 million in 1999 through $2 billion to $3 billion in October ’06, and then from $3 billion to $4 billion in April ’07 and then to $5 billion in Jan 2007.
Principal Global Opportunities — the first of the international funds, was launched in March 2004, a good five years after Indian funds were permitted to invest abroad
Managing Wealth in 21st centuary
21st century labor is of time share base. One gets paid for the hours of work or the quantity produced. That leads to complexity of money management. As you earn, you have to save. The pensions or money for post retirement are one’s own responsibility today. Central Government has been directing individual’s income into some saving instruments under the disguise of Income Tax exemptions/deductions. This is not available for NRI who has only overseas income. Although tax exempt by virtue of NRI money, he also needs to plan his wealth creation as he progress in career & income.
Again lifestyles have changed; income levels and the uncertainties accompanied with the salary also have undergone tremendous change. All these points to the need for planning one’s hard earned money to create wealth to meet life needs. This is not hard core capitalism of ‘Sherlock’ story. One can plan for creating social responsibility outfits in the form of Trust/Non-profit company to further some cherished charitable/religious/social objectives. This is an attempt to provide a beginning point for newly employed regarding wealth creation.
Income Groups are defined as 30,000; 40,000; 60,000 and 80,000 apprx on a monthly basis.
Living expenses consists of charges for utilities like rent(if you are in a rented house), electricity, water, telephone bills, newspaper, land/building taxes, waste clearance, cooking gas, etc.. - Necessities of life.
Lifestyle expenses means costumes/cosmetics/club expenses that goes with the society in which you live. A metro family is spending about Rs 2500 pm on cosmetics alone.
Family is defined as 2-3 children and both parents. You are on a short commission stay for 10 years at abroad. India growth story has created plenty of 15-20,000 pm opportunities. People in 30000-40000 group is assumed to be saving same amount of money pm in absolute terms.
Somebody able to save Rs 10000, 20,000, 30,000, 40,000 as the case may be in India after meeting living expenses, lifestyle expenses emergency expenses and insurance premiums have been taken as examples.
At the lower side of income, I have assumed persons to be more risk averse and as the income level increases risk averseness decreases. The level of returns available from instruments prevailed in the current market situations at the rate of compounded annual growth rate(CAGR) per annum are taken for forward projections. As NRI investments are non-taxed, I have not provided for the same in my calculations. Please note that there is no guarantee that these rates will prevail when you want to invest. Nevertheless it gives you a indication how things can work out in future and you can navigate through a variety of plans. Although Debt Mutual fund MIPs are giving 16-18% recently, the moderate rate of 12% only is applied in the projections taking into consideration of long term future and uncertainties associated with it.
I have not included asset classes like ETF, Commodities, Gold, Land, Collectibles(antiques etc..) also invaluable relationships that make our life on earth most happy and comfortable. Now a days, increased interest in ETFs and Commodities are also seen. With sweeping changes happening in the Indian bonds market and also the new varieties of derivatives getting added in the futures/options markets, investors in India are surely going to face lot of volatilities.
The comparative return from investing in different asset classes in India is as follows:
During 1980-2006 the BSE ensex has given 17.9%; The BSE Sensex has given 18.15% returns on a compounded annual growth basis during 1991-2007.
However to project next 10 years Mutual fund returns, the rate used is 18% pa. The Chitty is an important saving instrument for Malayali. But the fact remains that we do not have a rating system for the Chitty. Therefore I have not included it in my spread of investment universe. However, when you are saving Rs 1000 or Rs 500 KSFE, PORD, Bank RD are all become handy. Be careful about private chitty funds. Unless you have first hand evidences to believe a private chitty do not get involved.
That is on a 10 year spectrum, banks offer 8%pa as maximum. Corporate bonds offer rates from 8% to 16% depending on ratings range from AAA to other end of the investment grade. BSE Sensex, the barometer of equity markets of India has offered as low as -23.75% in 2000 and as high as 72.55% in 2003. The compounded annual average rate for 1997 to 2007 works out to be 18.15%pa. Gold gives about 8-12%pa.
Among 58 diversified equity funds that have completed 5 years, we find that the return ranges from as low as 36.92% to as high as 71.35% in simple terms. Such a vast difference in earnings is created by the themes the funds concentrated. Here you may need assistance from a qualified advisor to select what kind of a theme you should look for. Similarly 11 index funds have offered return from 37.93% to 43.69% in a much narrower band than diversified equity class during the same period. The compounded annual growth rates may be a few points down.
Taking the most pessimistic approach on the most risky equities class, I have projected the growth of your investments in equity @ 18%pa to provide for falls as in year like 2000. Recurring route is the manthra to build up fund corpus to meet life needs like purchase of a car, house, provide for professional college fees, to create a fund for post retirement life etc.. But when you are saving for retirement it is for 30-35 years plan and so better to go for balanced funds. But for other purposes for a time frame of 10-15 years, all equity is also ok. After all the composition of debt: equity depends on your risk profile. To decide about asset allocation, as a rule of thumb, you can use your age as the percentage of your savings that will go into debt. Debt portfolio will include, Post Office RDs, Bank RDs, SIPs in Debt MFs.
The problem with PORDs and Bank RDs is the re-investment risk at maturity. Normally, they provide RD for 5 years only. So after the initial five years you will have to collect your maturity proceeds and re-start another RD or FD for the remaining period depending on the prevailing interest rate. if the interest rate has moved up at the time of re-investment, it is to your benefit, otherwise the maturity amount left after completion of entire plan period of 10 years will be lesser than initially planned out. Again another problem is about the human nature of dealing with money. The moment money reaches you in cash form, you will be tempted to use it for several compelling reasons without investing it for the remaining plan period. As a rule of thumb, one can use debt instruments to plan for short term needs(needs within 3-5 years) and equity for higher term needs.
For an ordinary worker earning about Rs15,000 pm can save say about 25% of his salary into an SIP of an index fund for a little more than 19 years to create a corpus of 1 crore provided, the scheme is earning 20%pa. But if the earnings rate is not steady and falls to 18%pa, then he will have save for a bit more than 20 years to create the same amount.
Risk averse guy who save 10,000 rupess pm with a debt inclination of 40% makes Rs.26.5 lakhs at the end of 10th year. But the one who is lucky to send Rs 20,000 rupess pm, with 30% debt inclination makes it to Rs.58.2 lakhs The hi-end salary group is able to send Rs 30,000pm. Their accumulated corpus at the end of 10 years following a 20% debt style is a bit shorter than a crore of rupees. To enhance your wealth plan your short term life needs with debt and long term (beyond 5-7 years ) with equity.
Read the full article on how to plan Wealth Creation for 21st Century published in COGNIZANCE a Research Journal published from Commerce Dept of St. Alberts College, Ernakulam. As you get a fresh job, youngsters have lot of expenses; lot of dreams to realise. The article helps to plan sensibly. As an indicator you may recall Kautilyas rule of thumb: Operational expenses for tax collection should not be more than 20% of the collection. Use the same anlogy in your case:spend not more than 20% of your pay for maintaining that job(including life style expenses).
Again lifestyles have changed; income levels and the uncertainties accompanied with the salary also have undergone tremendous change. All these points to the need for planning one’s hard earned money to create wealth to meet life needs. This is not hard core capitalism of ‘Sherlock’ story. One can plan for creating social responsibility outfits in the form of Trust/Non-profit company to further some cherished charitable/religious/social objectives. This is an attempt to provide a beginning point for newly employed regarding wealth creation.
Income Groups are defined as 30,000; 40,000; 60,000 and 80,000 apprx on a monthly basis.
Living expenses consists of charges for utilities like rent(if you are in a rented house), electricity, water, telephone bills, newspaper, land/building taxes, waste clearance, cooking gas, etc.. - Necessities of life.
Lifestyle expenses means costumes/cosmetics/club expenses that goes with the society in which you live. A metro family is spending about Rs 2500 pm on cosmetics alone.
Family is defined as 2-3 children and both parents. You are on a short commission stay for 10 years at abroad. India growth story has created plenty of 15-20,000 pm opportunities. People in 30000-40000 group is assumed to be saving same amount of money pm in absolute terms.
Somebody able to save Rs 10000, 20,000, 30,000, 40,000 as the case may be in India after meeting living expenses, lifestyle expenses emergency expenses and insurance premiums have been taken as examples.
At the lower side of income, I have assumed persons to be more risk averse and as the income level increases risk averseness decreases. The level of returns available from instruments prevailed in the current market situations at the rate of compounded annual growth rate(CAGR) per annum are taken for forward projections. As NRI investments are non-taxed, I have not provided for the same in my calculations. Please note that there is no guarantee that these rates will prevail when you want to invest. Nevertheless it gives you a indication how things can work out in future and you can navigate through a variety of plans. Although Debt Mutual fund MIPs are giving 16-18% recently, the moderate rate of 12% only is applied in the projections taking into consideration of long term future and uncertainties associated with it.
I have not included asset classes like ETF, Commodities, Gold, Land, Collectibles(antiques etc..) also invaluable relationships that make our life on earth most happy and comfortable. Now a days, increased interest in ETFs and Commodities are also seen. With sweeping changes happening in the Indian bonds market and also the new varieties of derivatives getting added in the futures/options markets, investors in India are surely going to face lot of volatilities.
The comparative return from investing in different asset classes in India is as follows:
During 1980-2006 the BSE ensex has given 17.9%; The BSE Sensex has given 18.15% returns on a compounded annual growth basis during 1991-2007.
However to project next 10 years Mutual fund returns, the rate used is 18% pa. The Chitty is an important saving instrument for Malayali. But the fact remains that we do not have a rating system for the Chitty. Therefore I have not included it in my spread of investment universe. However, when you are saving Rs 1000 or Rs 500 KSFE, PORD, Bank RD are all become handy. Be careful about private chitty funds. Unless you have first hand evidences to believe a private chitty do not get involved.
That is on a 10 year spectrum, banks offer 8%pa as maximum. Corporate bonds offer rates from 8% to 16% depending on ratings range from AAA to other end of the investment grade. BSE Sensex, the barometer of equity markets of India has offered as low as -23.75% in 2000 and as high as 72.55% in 2003. The compounded annual average rate for 1997 to 2007 works out to be 18.15%pa. Gold gives about 8-12%pa.
Among 58 diversified equity funds that have completed 5 years, we find that the return ranges from as low as 36.92% to as high as 71.35% in simple terms. Such a vast difference in earnings is created by the themes the funds concentrated. Here you may need assistance from a qualified advisor to select what kind of a theme you should look for. Similarly 11 index funds have offered return from 37.93% to 43.69% in a much narrower band than diversified equity class during the same period. The compounded annual growth rates may be a few points down.
Taking the most pessimistic approach on the most risky equities class, I have projected the growth of your investments in equity @ 18%pa to provide for falls as in year like 2000. Recurring route is the manthra to build up fund corpus to meet life needs like purchase of a car, house, provide for professional college fees, to create a fund for post retirement life etc.. But when you are saving for retirement it is for 30-35 years plan and so better to go for balanced funds. But for other purposes for a time frame of 10-15 years, all equity is also ok. After all the composition of debt: equity depends on your risk profile. To decide about asset allocation, as a rule of thumb, you can use your age as the percentage of your savings that will go into debt. Debt portfolio will include, Post Office RDs, Bank RDs, SIPs in Debt MFs.
The problem with PORDs and Bank RDs is the re-investment risk at maturity. Normally, they provide RD for 5 years only. So after the initial five years you will have to collect your maturity proceeds and re-start another RD or FD for the remaining period depending on the prevailing interest rate. if the interest rate has moved up at the time of re-investment, it is to your benefit, otherwise the maturity amount left after completion of entire plan period of 10 years will be lesser than initially planned out. Again another problem is about the human nature of dealing with money. The moment money reaches you in cash form, you will be tempted to use it for several compelling reasons without investing it for the remaining plan period. As a rule of thumb, one can use debt instruments to plan for short term needs(needs within 3-5 years) and equity for higher term needs.
For an ordinary worker earning about Rs15,000 pm can save say about 25% of his salary into an SIP of an index fund for a little more than 19 years to create a corpus of 1 crore provided, the scheme is earning 20%pa. But if the earnings rate is not steady and falls to 18%pa, then he will have save for a bit more than 20 years to create the same amount.
Risk averse guy who save 10,000 rupess pm with a debt inclination of 40% makes Rs.26.5 lakhs at the end of 10th year. But the one who is lucky to send Rs 20,000 rupess pm, with 30% debt inclination makes it to Rs.58.2 lakhs The hi-end salary group is able to send Rs 30,000pm. Their accumulated corpus at the end of 10 years following a 20% debt style is a bit shorter than a crore of rupees. To enhance your wealth plan your short term life needs with debt and long term (beyond 5-7 years ) with equity.
Read the full article on how to plan Wealth Creation for 21st Century published in COGNIZANCE a Research Journal published from Commerce Dept of St. Alberts College, Ernakulam. As you get a fresh job, youngsters have lot of expenses; lot of dreams to realise. The article helps to plan sensibly. As an indicator you may recall Kautilyas rule of thumb: Operational expenses for tax collection should not be more than 20% of the collection. Use the same anlogy in your case:spend not more than 20% of your pay for maintaining that job(including life style expenses).
from the make up room
Since March 11, 2008 more than a dozen Fund Houses have filed their OD on the SEBI website waiting for the Muhoorta for a good launch. It included 6 Equity schemes, 3 Derivative Funds, some Interval Funds and Several FMPs. What was interesting to note was1. Bharati Axa Investment Managers are planning to make thier entry by a big splash offering three products: one each in Equity, Treasury and the Liquid category.2. Both Birla sun Life and HSBC have named their Debt Funds that use derivatives as "Equity Linked" to denote that the portfolio contain floating coupon bonds that has got the coupons linked to some equity index or equity scheme!!! Is n't it a surrogate attempt to sell on the market familiar terms like "ULIP" and "ELSS". 3. The FMPs that are now selling is getting dried up by 24th April 2008; The lining up from 7 fund houses may get opening after the 29th April 2008 credit policy by RBI
Lifestyle funds
an interesting theme got the fancy of MFs: Life Style changes of Indian Youth. What products the Indian Youth buy, make a portfolio of Shares of the companies that produce them!!Kotak Lifestyle Fund (Feb 2006)Birla GenNext FundUTI Lifestle Fund
Gold... hold your breath
Gold Price moves inversely to bond yields 
: An Indian story
: An Indian storyThe graph on the right side shows the US experience during 2002-2008; It gives some ideas about the elationship of Gold price movement with taht of ather asset classes.
The graph on the left hand side shows the Componded annual growth rate of different asset classes during 1980-2006 in the Indian markets.
The graph on rightside shows the movement of Foreign Exhange rate Rs/USD with the price of gold in USD/ounceduring Jul 1999 to Jul 2007 
over half yearly intervals.
over half yearly intervals.The blue and red trend line shows the movement of inflation as reflected in WPI changes and the price of gold(USD terms per ounce) in India From Jul 1999 to Jul 2007 over half yearly periods. Gold provides insulation against inflation and moves inverse relation to the stock market movements; also to Foreign Exchange movements as well
Gold has a glittering past being an acceptable medium of exchange in trade from time immemorial. By early 19th Century, the Gold Specie standard became common among nations for trade settlement. Fine quality gold was the medium for settlement. Later from 1922-1936 we have the system of paper currency settlements that are backed by gold known as gold bullion standard(Brussels). Content of gold remained the same fine quality and quantity. It again went change when in 1946 Brettons Wood Conference when every member country wanted convertibilty of their currency into multiple currencies than gold. So the gold content in the currency got fixed and the without approval of IMF, no one member shall change the parity became the norm.
From the Gold Control Act 1962 that prohibited trade in gold in any form, Govt. of india launched the Gold Bond Scheme through Sate Bank of India for bringing into its reserves physical gold lying with individulas. The scheme was a damp squid and did n't succeed much as people feared harrassment by IT/bank officials. In 1990 Sovereign gold was pledged to come out of BOP crisis. In 1991, keeping pace with liberalization, gold import was allowed. India hold gold as part of its reserves too.
Over the years, gold remained everybody's attraction. As an investment, you have two distinctive products in this class.
1. Gold as ETFs
They are gold units traded on the exchange. One unit of ETF traded will have gold content equal to one-tenth of an ounze of gold(1oz=28.35gm). The monetary value of the ETF unit will depend upon the currency in which you are dealing. It is available on London Stock Exchange, australian Stock Exchange as Gold Bullion Securities and on New York Stock Exchange as Street Tracks Gold share(2004). In India, we have gold ETFs traded on NSE eg: Gold BeES from Benchmark (2007). The price is determined as the AM fixing Price by London Bullion Market Association and translated into Indian Rupees @ foreign exchange applicable as per FEDAI under the FEMA rules.2. Physical Gold either as Coins/Bullion Bars
You can own gold coins/bars in India from banks/Jewllers/Commodity Exchnage s like NCDC/MCX through their brokers.
To understand Gold Funds, it is necessary to undestand what properties gold posses and how gold as an asset class perform. See the strength of relationship among dofferent asset classes from US economy and what returns Indian asset classes earned. Gold is inflation resistant as can be seen from the data from the US market and Indian market. This property makes it a defensive asset in one's portfolio.
From time immemorial, Gold has been a medium of exchange; After the Gold standards give way to SDRs of IMF, the world has changed quite a lot.
The Forces of Exchange rates, Interest Rates and Purchasing Power (manifested in inflation rates ) affect gold prices;
Commodity trading opportunities in Gold in India are available at NCDEX, MCX and NMCE through their approved brokers network. Geojit Financial Services Ltd, JRG Securities Ltd, RiddiSiddi Bullions Ltd are some of the brokers who deal in kilo gold, mini gold contracts. NCDEX has come up with even 8gm contract.
Banks have been permitted to import and sell gold coins/bullion bars
But after all how much gold should you hold in your portfolio?
The answer is 15% to 20% as
European Central Bank (1999) based on internal studies DECIDED TO HOLD 15%.
Germmill & Hillman created a model based on 20 years data suggests 20%
Individulas sholud do a comprehensive planning of their gold purchases as one will have personal effects and investment effects. The investment part is best in coins and bars than in jewellery.
Supply of gold is either from imports/Recycled/production from Kolar mines. One of the leading consumers of gold globally, India uses about 800-900 tonnes of gold. Gold buying inborn to Indians: Celeberations like Diwali (Oct 28, 2008 ), in North or Vishu (April 14) in South cannot go without gold. "Dhantheras"(November 07, 2007), "Akshay tridiya"(May 07, 2008) are considered auspicious to have gold for prosperity. Please note that the exact date may vary according to the year.
According to Hindu mythology, Lord Krishna gifted Draupati "Akshaya patra" , the vessel of unlimited bounty which would give her anything that she ask for when Pandavas were away in the forest. And when you buy gold on the Akshayatrithiya day, prosperity come home .The day is dedicated to Goddess Lakshmi in a very special way.
Badrinath temple opens after 6 months closure on this day. Brindavan does not have Krishna adorned on this day like Lord Narasimha at Simhachalan in Andhra Pradesh. But in Uddupi, Lord Krishna is adored in sandalwood on that day. There is no lack of festivals in this land of diversity, one can find reasons for celeberation all the time.
Poet Dharumi wanted to win the bag of 1000 gold mohras from the King performing Thirivilayadaal... GOLD is in the culture as traits in your genes.
A land of varied cultures, it has festivals all months in the calendar year in one or other part. There are about 450,000 goldsmiths engaged in this segment that is largely unorganised. There are over 15000 players in the gold processing industry of which 80% constitute about $4.15million. Corporatisation is on with branded players entering the field including the over-the-counter coin selling banks.
The essential part of girl's wardrobe(men also). Cultural practices , Religious Practice of permission to women only to wear gold and silk(in certain sects like muslim) is also another reason for craze for gold.Ornaments are part of any community and when it is in gold, one is elite class. Valentines Day is becoming another day for gold purchases.
Corporates uses old Coins as gifts for sales promotion, reward for loyalty( ONGC, Power Grid Corpn, NTPC) issue of commemorative gold coins(LIC golden jubilee year, ), etc..Imagine 85000 employees per PSU undertaking rewarded with 8gm coin;May be an opportunity in 100 years or 75 years or 50 years...
From simple medallions in Sports/Education gold has moved to varied purposes.
A cash benefit given to the employee is valued 100% and taxed;but a gift in kind is taxed at50% purchase value makes it attractive for both employer and employee.
In 1982, the annual Indian gold consumption stood at 65 tonnes has crossed 500 tonnes per year by 2007. 80% of consumption is for jewellery fabrication (more than 22 carat purity level), 15% investment purposes and hardly 5% for industrial uses.
The fashion jewellery of 1 gm market is expanding at rocket speed.
Gold has a glittering past being an acceptable medium of exchange in trade from time immemorial. By early 19th Century, the Gold Specie standard became common among nations for trade settlement. Fine quality gold was the medium for settlement. Later from 1922-1936 we have the system of paper currency settlements that are backed by gold known as gold bullion standard(Brussels). Content of gold remained the same fine quality and quantity. It again went change when in 1946 Brettons Wood Conference when every member country wanted convertibilty of their currency into multiple currencies than gold. So the gold content in the currency got fixed and the without approval of IMF, no one member shall change the parity became the norm.
From the Gold Control Act 1962 that prohibited trade in gold in any form, Govt. of india launched the Gold Bond Scheme through Sate Bank of India for bringing into its reserves physical gold lying with individulas. The scheme was a damp squid and did n't succeed much as people feared harrassment by IT/bank officials. In 1990 Sovereign gold was pledged to come out of BOP crisis. In 1991, keeping pace with liberalization, gold import was allowed. India hold gold as part of its reserves too.
Over the years, gold remained everybody's attraction. As an investment, you have two distinctive products in this class.
1. Gold as ETFs
They are gold units traded on the exchange. One unit of ETF traded will have gold content equal to one-tenth of an ounze of gold(1oz=28.35gm). The monetary value of the ETF unit will depend upon the currency in which you are dealing. It is available on London Stock Exchange, australian Stock Exchange as Gold Bullion Securities and on New York Stock Exchange as Street Tracks Gold share(2004). In India, we have gold ETFs traded on NSE eg: Gold BeES from Benchmark (2007). The price is determined as the AM fixing Price by London Bullion Market Association and translated into Indian Rupees @ foreign exchange applicable as per FEDAI under the FEMA rules.2. Physical Gold either as Coins/Bullion Bars
You can own gold coins/bars in India from banks/Jewllers/Commodity Exchnage s like NCDC/MCX through their brokers.
To understand Gold Funds, it is necessary to undestand what properties gold posses and how gold as an asset class perform. See the strength of relationship among dofferent asset classes from US economy and what returns Indian asset classes earned. Gold is inflation resistant as can be seen from the data from the US market and Indian market. This property makes it a defensive asset in one's portfolio.
From time immemorial, Gold has been a medium of exchange; After the Gold standards give way to SDRs of IMF, the world has changed quite a lot.
The Forces of Exchange rates, Interest Rates and Purchasing Power (manifested in inflation rates ) affect gold prices;
Commodity trading opportunities in Gold in India are available at NCDEX, MCX and NMCE through their approved brokers network. Geojit Financial Services Ltd, JRG Securities Ltd, RiddiSiddi Bullions Ltd are some of the brokers who deal in kilo gold, mini gold contracts. NCDEX has come up with even 8gm contract.
Banks have been permitted to import and sell gold coins/bullion bars
But after all how much gold should you hold in your portfolio?
The answer is 15% to 20% as
European Central Bank (1999) based on internal studies DECIDED TO HOLD 15%.
Germmill & Hillman created a model based on 20 years data suggests 20%
Individulas sholud do a comprehensive planning of their gold purchases as one will have personal effects and investment effects. The investment part is best in coins and bars than in jewellery.
Supply of gold is either from imports/Recycled/production from Kolar mines. One of the leading consumers of gold globally, India uses about 800-900 tonnes of gold. Gold buying inborn to Indians: Celeberations like Diwali (Oct 28, 2008 ), in North or Vishu (April 14) in South cannot go without gold. "Dhantheras"(November 07, 2007), "Akshay tridiya"(May 07, 2008) are considered auspicious to have gold for prosperity. Please note that the exact date may vary according to the year.
According to Hindu mythology, Lord Krishna gifted Draupati "Akshaya patra" , the vessel of unlimited bounty which would give her anything that she ask for when Pandavas were away in the forest. And when you buy gold on the Akshayatrithiya day, prosperity come home .The day is dedicated to Goddess Lakshmi in a very special way.
Badrinath temple opens after 6 months closure on this day. Brindavan does not have Krishna adorned on this day like Lord Narasimha at Simhachalan in Andhra Pradesh. But in Uddupi, Lord Krishna is adored in sandalwood on that day. There is no lack of festivals in this land of diversity, one can find reasons for celeberation all the time.
Poet Dharumi wanted to win the bag of 1000 gold mohras from the King performing Thirivilayadaal... GOLD is in the culture as traits in your genes.
A land of varied cultures, it has festivals all months in the calendar year in one or other part. There are about 450,000 goldsmiths engaged in this segment that is largely unorganised. There are over 15000 players in the gold processing industry of which 80% constitute about $4.15million. Corporatisation is on with branded players entering the field including the over-the-counter coin selling banks.
The essential part of girl's wardrobe(men also). Cultural practices , Religious Practice of permission to women only to wear gold and silk(in certain sects like muslim) is also another reason for craze for gold.Ornaments are part of any community and when it is in gold, one is elite class. Valentines Day is becoming another day for gold purchases.
Corporates uses old Coins as gifts for sales promotion, reward for loyalty( ONGC, Power Grid Corpn, NTPC) issue of commemorative gold coins(LIC golden jubilee year, ), etc..Imagine 85000 employees per PSU undertaking rewarded with 8gm coin;May be an opportunity in 100 years or 75 years or 50 years...
From simple medallions in Sports/Education gold has moved to varied purposes.
A cash benefit given to the employee is valued 100% and taxed;but a gift in kind is taxed at50% purchase value makes it attractive for both employer and employee.
In 1982, the annual Indian gold consumption stood at 65 tonnes has crossed 500 tonnes per year by 2007. 80% of consumption is for jewellery fabrication (more than 22 carat purity level), 15% investment purposes and hardly 5% for industrial uses.
The fashion jewellery of 1 gm market is expanding at rocket speed.
References
Technology sector funds
An early arrival on the tech boom of Indian Capital Markets by the turn of the Century:
DSP ML Technology.Com Fund
Birla New Millenium
ICICI Pru Tech Fund
SBI Magnum IT Fund
Franklin Infotech Fund
Kotak Tech Fund
UTI Software Fund
DSP ML Technology.Com Fund
Birla New Millenium
ICICI Pru Tech Fund
SBI Magnum IT Fund
Franklin Infotech Fund
Kotak Tech Fund
UTI Software Fund
Auto Sector Funds
This is a type of Sector funds that is facing extinction now.JM Auto Sector FundUTI Auto Sector Fund are the only two in this class; But UTI took the mantle of transportation & Logistics recently widening the scope from narrow Auto segment.
Petro thro' power to Energy Sector Funds
This class of Funds emerged initially as Petro funds, then took the mantle of Power and then migrated to Energy label.
Reliance Diversified Power Sector Fund
J M Basic Industries Fund
UTI Energy Fund
Sundram Energy Opportunities Fund
Reliance Diversified Power Sector Fund
J M Basic Industries Fund
UTI Energy Fund
Sundram Energy Opportunities Fund
FMCG Funds
Not a big class by itself; But to understand how the Indian MFs are creating product differentiation in whatever form they can.ICICI Pru FMCG FundFranklin FMCG FundSBI Magnum FMCG FundMore funds did n't venture into this space, mostly due to non-sustainability of the heme.
The price for Being No:1
Case Study in Banking that help students to understand banking in its Indian LPG scenario. Written in the background of Federal Bank Ltd, Alwaye, Ernakulam, India that boasts from a horading in Vyttilla Junction in Ernakulam District, facing the NH 47: "Many a good things in Banking begin at federal bank", when it faced covert takeover attempts from ICICI Bank Ltd ,Mumbai
You can read the abstract at http://www.asiacase.com/case/southAsia/icfai-MVMonica.html
You can read the abstract at http://www.asiacase.com/case/southAsia/icfai-MVMonica.html
Infrastructural Funds
UTI Infrastructure Fund with benchmark of BSE 100Tata Infrastruture Fund with Benchmark of BSE SenesxICICI Pru Infrastruture Fund with Benchmark of NiftyCan Infrastructure Fund with Benchmark of BSE 100Birla Infrastructure FundPrincipal PNB Infrastructure fundSahara Infrastructure Fixed Pricing FundSahara Infrastructure Variable Pricing Fund andSBI Infrastructure Fund all with Benchmark of Nifty completes the scene. All of them take 2.25% entry load; Achieved 1 year returns close to 33% pa; have expense ration range 1% to 2.18%; the pathbreaker was UTI in April 2004 followed by Tata in Nov 2004. Next came ICICI and CAN in 2005 Principal PNB and Sahara in 2006 and SBI in May 2007The sector is poised to grow as 11th plan contemplates 15% pa growth rate for this industry with 32,000 crore USD investments alone in this sector.Infrastructural Funds is where profit come in longer hauls...
Pharma Sector Funds
Franklin Pharma,UTI Pharma & Health care;Magnum Pharma,Reliance Pharma andJM Health Careare the funds avaialble. First three came in 1999 and the last two in 2004; No fresh entries from 2005 reflects the saturation in the Industry.
Although there are only a handful of funds in this class, pharma is a long term bet.
Although there are only a handful of funds in this class, pharma is a long term bet.
Banking Sector Funds
There is one ETF and Two Mutual Fund Schemes in this class. 2009 being the target RBI has kept for creating level playing field in the banking industry, more action is awaited in this class of mutual fund products.
Reliance Banking Sector Fund entered in 2003 and 2004 saw entry of UTI Banking sector Fund and the ETF called BankBeEs
First two take 2.25% entry load; Expense ratio is 2.5% for UTI and 2.21% for Relinace; Both put together size is less than 200 croes but bankBees assumes above 3300 crores(30April 2007)!!
Reliance Banking Sector Fund entered in 2003 and 2004 saw entry of UTI Banking sector Fund and the ETF called BankBeEs
First two take 2.25% entry load; Expense ratio is 2.5% for UTI and 2.21% for Relinace; Both put together size is less than 200 croes but bankBees assumes above 3300 crores(30April 2007)!!
SWP in Mutual funds
Friday, June 20, 2008
The 'Trigger' that you wanted...
The trigger facility in Mutual Funds help you to pre-determine when you want to get out of the market. Administered carefully, it can be a facilitator to augment wealth; A trigger can be hasty, if your exit date happened to be on a secularly increasing market trend. Same way a trigger may save you in a secularly falling market from breaking to bruises.
A good strategy for risk averse/beginners in the capital market.What is 'Trigger' in Mutual Funds? Read in Business Manorama dated 7th March 2007
A good strategy for risk averse/beginners in the capital market.What is 'Trigger' in Mutual Funds? Read in Business Manorama dated 7th March 2007
Systematic Investment Plan
Systematic Investment Plan is a way of disciplined investment. At pre-determined intervals, you make fixed sum investments in to your preferred scheme. If you are riding a growing market, you make good profits. Ideal for risk averse investors who prefer very long term stay in the markets.
SIPs in Mutual Funds : read full original text Business Manorama dated 30th April 2007
SIPs in Mutual Funds : read full original text Business Manorama dated 30th April 2007
Arbitrague Funds
Arbitrage Funds look for making a bit more than the debt Funds by taking positions in the Cash & Equity markets; With permission of debt derivatives, more opportunities will be created in this segment. They are high Risk class.A derivative is a standardised contract(options or futures) traded on the exchange. Essentially a contract is an agreement with another to exchange a specified asset(physical/financial)at a pre-determened price on a specified future date. Options give the choice to excercise the right or not to the holder depending the market situation on the expiry date. However Futures do not give that kind of choices.
Options may be CALL or PUT . CALL OPTIONS give the right to buy whereas the PUT OPTIONS give the right to sell.
Options and futures are collectively called derivatives as they derive their value from an underlying asset(physical or finnacial).
Commodity derivatives are just getting popularised in India. Futures in the modern form date back to June 2000. Entry of Mutual Fund Products came by later.
Today there are more than two dozen arbitrage funds (Jan 2010) and much more using derivatives to hedge the portfolio or speculate for higher returns taking advanatage of the volatility in the markets. Arbitrage funds try to profit from the price differentials in the cash market and derivative markets. Some of the popular arbitrage funds are :
Benchmark Derivative Fund(Dec 2004)
Kotak Equity Arbitrgae Fund (Sep 2005)
J M Arbitrage Advantage Fund (Jun 2006)
UTI SPrEAD(Jun 2006)
SBI Arbitrage Opportunities Fund (Oct 2006)
Standard chartered Arbitrage fund( Nov 2006)
ICICI Pru Equity & Income Optimiser(Dec 2006)
Lotus India Arbitrage fund (Apr 2007)
Options may be CALL or PUT . CALL OPTIONS give the right to buy whereas the PUT OPTIONS give the right to sell.
Options and futures are collectively called derivatives as they derive their value from an underlying asset(physical or finnacial).
Commodity derivatives are just getting popularised in India. Futures in the modern form date back to June 2000. Entry of Mutual Fund Products came by later.
Today there are more than two dozen arbitrage funds (Jan 2010) and much more using derivatives to hedge the portfolio or speculate for higher returns taking advanatage of the volatility in the markets. Arbitrage funds try to profit from the price differentials in the cash market and derivative markets. Some of the popular arbitrage funds are :
Benchmark Derivative Fund(Dec 2004)
Kotak Equity Arbitrgae Fund (Sep 2005)
J M Arbitrage Advantage Fund (Jun 2006)
UTI SPrEAD(Jun 2006)
SBI Arbitrage Opportunities Fund (Oct 2006)
Standard chartered Arbitrage fund( Nov 2006)
ICICI Pru Equity & Income Optimiser(Dec 2006)
Lotus India Arbitrage fund (Apr 2007)
Direct the flow of Investments, where you really need
This is about a family whose Income/Expenses were examined along with their Assets and Liabilities to plan for the upcomong liabilities in their life. The wealth Management approach is not denying GOD; But uses the talents provided by the almighty to plan in a better manner translating one's life purpose into financial milestones. The services are available for a fee. Interested parties may contact the author.
Liquid/MMMFs:India
they have been prominently in news since budget 2007 due to imposing of DDT. how do they add value to you? Inspite of skyrocketing BSE Sensex, it is this class of funds that flourished, if one goes by size, in the Indian Context.
Benchmarking in MFs: Indian Experiences
Benchmarking tells you against what market index you can compare the performance of your fund. CRISIL, ICICI Securities etc.. produces and maintains market indices for the debt market. in the equities market, we have popular indices like BSE Sensex, Nifty etc..The major problem in the industry is the way each fund manager defines his benchmark and how he really manages the fund. When you hear about a balanced fund, you have a notion that it is 50:50 in equity and debt with plus or minus 10% on either side. But the author could see schemes with 80% equity allocation also claiming to be a balanced fund.
read the full text in Business Manorama dated 9th April 2007. It is from the family of Malayala Manorama and comes every Monday with the main daily
read the full text in Business Manorama dated 9th April 2007. It is from the family of Malayala Manorama and comes every Monday with the main daily
The right of MF investor: India
Knowing your rights as a Mutual Fund Investor irons out several irritants in dealing with any constituent of the Industry.The MF regulation 1996 and the ammendments from time to time has put MF investors right upfront of averything. But it is for the investor to take adequate care before entrusting hard earned money to study the Offer Document undersand the riskprofile of the scheme and match it to one's risk profile and life needs. Receive the Statement of account within 30 days, receive the repurchase cheques within 10 days, Income Distribution warrants within 30 days, portfolio details every half year and a annual review of performance etc.. are to be seen as guidance for Mutual Funds to improve their service technologies than legal requirements. Indian MFs have realised it and reciprocating better disclosure practices; Any failiures needs to be brought to their notice for faster rectification.
read the original text in Business Manorama dated 2nd April 2007
read the original text in Business Manorama dated 2nd April 2007
The Pangs of Growing Up
Any person newly ushered into the Indian Mutual Fund Industry in any capacity, be it an employee of a Mutual Fund or a distributor or part of any constituent in the MF business needs to dirty his hands about what the business of MFs is
Interested? pl take a trip tohttp://www.asiacase.com/case/southAsia/icfai-MVMonica.html
A must read for any student of Portfolio Management & Mutual Funds. Takes you through the turmoils Indian Mutual Fund Industry in its initial decade after private players entry.
Also you would be interested in the Book Review on 'Business Environment' at http://www.indianmba.com/Books/Book41/book41.html Why are we not able to define the crumbling of marxism as a business ideology? Pl share your thoughts.
Interested? pl take a trip tohttp://www.asiacase.com/case/southAsia/icfai-MVMonica.html
A must read for any student of Portfolio Management & Mutual Funds. Takes you through the turmoils Indian Mutual Fund Industry in its initial decade after private players entry.
Also you would be interested in the Book Review on 'Business Environment' at http://www.indianmba.com/Books/Book41/book41.html Why are we not able to define the crumbling of marxism as a business ideology? Pl share your thoughts.
The SRI of MFs : India
SRI stands for Socially Responsible Investments. This shows the superiority of investors. Inside the company, they use their votes in the AGMs to influence the management from within. Outside the company, they even avoid buying scrips of such companies that are known to indulge in non-humanitarian policies/business actions. The same spirit is captured by MFs when they create the portfolios using sieves designed to exclude socially un-welcome businesses.
Today, it is felt that businesses should turn from economic efficiency & current wealth maximisation to healing the wounds of the society/community or the eco-system itself. This made US companies in 1970s to turn to SRI. in the 1980s, US investors tried to boycott those companies that practiced aparthied in South Aafrica. The USA has about $ 40 billion in SRI oriented MFs by 2005. There are about 230 funds in this class among the 19000 funds of USA. Canada has about $ 65.5 billion in such funds by 2004 itself.
America has a specific index also developed for measuring the performance of such funds. it is called Domin Social Index( DSI); Developed by Kinder, Lydenberg and Domin & CO (KLD) . It has 400 scrips taken on market capitalization basis. This is developed in the same manner as the S&P 500 Index
The scrips are selected in a step by step process. In the first stage, the companies are excluded using quantiative parameters. For example, a company is having more than 2% cash flow from tobacco related sources in its sales is dropped. In the second stage qualitaive fators are used. For example, the usefulness of the product or customer friendliness of the product, labour policies of the company etcc . In the last stage normal economic/financial criteria are applied.
In India, ABN AMRO MF has broght the first fund in thi sclass christened " ABN AMRO Sustainable Development Fund". The fund has done an (Environmental/Social/)ESG rating using 100 questions in each subcategory on environment and social contributions by the company. No personal qualitative measures are involved and strictly goes by market capitalisation & published facts. The back-testing was done for 2000-2006 period prior to launch.
This is their 25th product globally.
read the full text in malayalam in Business Manorama dated 26th March 2007.
Today, it is felt that businesses should turn from economic efficiency & current wealth maximisation to healing the wounds of the society/community or the eco-system itself. This made US companies in 1970s to turn to SRI. in the 1980s, US investors tried to boycott those companies that practiced aparthied in South Aafrica. The USA has about $ 40 billion in SRI oriented MFs by 2005. There are about 230 funds in this class among the 19000 funds of USA. Canada has about $ 65.5 billion in such funds by 2004 itself.
America has a specific index also developed for measuring the performance of such funds. it is called Domin Social Index( DSI); Developed by Kinder, Lydenberg and Domin & CO (KLD) . It has 400 scrips taken on market capitalization basis. This is developed in the same manner as the S&P 500 Index
The scrips are selected in a step by step process. In the first stage, the companies are excluded using quantiative parameters. For example, a company is having more than 2% cash flow from tobacco related sources in its sales is dropped. In the second stage qualitaive fators are used. For example, the usefulness of the product or customer friendliness of the product, labour policies of the company etcc . In the last stage normal economic/financial criteria are applied.
In India, ABN AMRO MF has broght the first fund in thi sclass christened " ABN AMRO Sustainable Development Fund". The fund has done an (Environmental/Social/)ESG rating using 100 questions in each subcategory on environment and social contributions by the company. No personal qualitative measures are involved and strictly goes by market capitalisation & published facts. The back-testing was done for 2000-2006 period prior to launch.
This is their 25th product globally.
read the full text in malayalam in Business Manorama dated 26th March 2007.
Fund of Funds : Indian MF Markets
MFs serve in meeting life goals by relating the savings needs & risk appetite through Fund of Funds as a single shot investment. All requirements of differing risk levels (return goes hand in hand as you know) are met by dividing the investment into component schemes at entry.The savings needs of an individual are linked to his life goals as follows:
1. Accumulation phase
2. Consolidation phase
3. Spending phase and
4. Gifting phase
In the accumulation phase one is planning to meet his life goals like acquiring a higher qualification, buying a car, buying a house etc..
In the consolidation phase, he has met one or two of the goals or nearing the achievement of these goals. So he makes a rationalisation of all his investments. Re groupe it according to attainment of goals/new goals set.
Spending Phase is characterised by spending for higher education of the child/marriage of the child etc.. One is almost self sufficient in this phase.
In the gifting stage, he spends for charity or social works as he has lot more left after providing for his current & future well being.Fund of Fund normally builts these aspects normally either by way of age/risk level classifications.
FT India Life Stage fund comprises of 5 options connecting age as a proxy for risk level. Pru ICICI, Birla AMCs has risk level as its bas for classification.
The Optimix from ING Vysya group has five FOFs with themes:
Income/Growth,
Financial planning,
Active Debt Management,
Good value equity, and
Asset allocation.
It is interesting to note that, schemes like ALL season's Bond Fund of Standard Chartered (Grindlay's SCABF) invests only in first class bond funds only. Kotak dynamic equity Fund also invests in other MF schemes.
Basically, fund of funds invest in MF schemes. It can be from same fund house or outside or in any combination as provided in the OD. A normal fund cannot invest in FOF as also another FOF. SEBI requires to keep the fund expenses to 0.75% of AUM.
The important feature is that the component schemes are managed independently and therefore the risk level is maintained same all throught the life of the investment. Diversification across strategies/styles are captured well by the FOFs.
For the original version please read the Business Manorama dated 19th March 2007
1. Accumulation phase
2. Consolidation phase
3. Spending phase and
4. Gifting phase
In the accumulation phase one is planning to meet his life goals like acquiring a higher qualification, buying a car, buying a house etc..
In the consolidation phase, he has met one or two of the goals or nearing the achievement of these goals. So he makes a rationalisation of all his investments. Re groupe it according to attainment of goals/new goals set.
Spending Phase is characterised by spending for higher education of the child/marriage of the child etc.. One is almost self sufficient in this phase.
In the gifting stage, he spends for charity or social works as he has lot more left after providing for his current & future well being.Fund of Fund normally builts these aspects normally either by way of age/risk level classifications.
FT India Life Stage fund comprises of 5 options connecting age as a proxy for risk level. Pru ICICI, Birla AMCs has risk level as its bas for classification.
The Optimix from ING Vysya group has five FOFs with themes:
Income/Growth,
Financial planning,
Active Debt Management,
Good value equity, and
Asset allocation.
It is interesting to note that, schemes like ALL season's Bond Fund of Standard Chartered (Grindlay's SCABF) invests only in first class bond funds only. Kotak dynamic equity Fund also invests in other MF schemes.
Basically, fund of funds invest in MF schemes. It can be from same fund house or outside or in any combination as provided in the OD. A normal fund cannot invest in FOF as also another FOF. SEBI requires to keep the fund expenses to 0.75% of AUM.
The important feature is that the component schemes are managed independently and therefore the risk level is maintained same all throught the life of the investment. Diversification across strategies/styles are captured well by the FOFs.
For the original version please read the Business Manorama dated 19th March 2007
Asset Allocation Funds
The asset allocation of balanced funds or hybrid funds are rigid where as that of asset allocation funds are flexible. The OD of asset allocation funds infuse flexibility by giving full freedom to the fund manager or define his freedom by linking the asset allocation to some parameters like market P/E ratio. It helps in surging ahead in a volatile market without each time have to refer to the investor's communication/advertisement in local daily about changes in the fund management policy.FT India PE ratio fund, UTI Variable Investment Plan,Pru ICICI Dynamic Equity Plan etc are examples in this respect.
Templeton has defined asset allocation as <12%>.
UTI has put slabs from 7151 to 9900 levels of BSE Sensex progessively declining equity allocation from 90% to 30%. Here UTI could not capture the growth in BSE Sensex beyond 9900 when the level above 9900 continued more than an year.
Read the full vernacular text in business manorama dated 12th March 2007
Templeton has defined asset allocation as <12%>.
UTI has put slabs from 7151 to 9900 levels of BSE Sensex progessively declining equity allocation from 90% to 30%. Here UTI could not capture the growth in BSE Sensex beyond 9900 when the level above 9900 continued more than an year.
Read the full vernacular text in business manorama dated 12th March 2007
WeManPoSt : Wealth Management Policy Statement for you
The professional service of drawing one's Wealth Management Policy Statement (WeManPoSt)is offered.
Pl respond with your email address; NRIs can register for awailing this facility in advance so that convenient schedules on your stay in India can be an added advantage. Generally expected information in the first sitting from the participant:1. Address proof & Identity proof2. income, savings already made, tax, expenses, liabilities, responsibilities in life, family & educational background, any details that have a bearing on income or expenses
Your WeManPoSt will be as good as the disclosures you make. You may have to come prepared to sit for 2-3 hours in a single session platform. Otherwise it can be stretched into 3 sessions of 1 hour or as required by mutual understanding.
The charges are very moderate & collecting to meet the expenses of the office. Registration fees Rs.500; Filing the input form Rs 2500.00 Receipt of WeManPoSt Rs. 2500.00 No other payments. Fees are subject to revision & therefore participants are requested to confirm the current rates while taking the appointment.
Pl respond with your email address; NRIs can register for awailing this facility in advance so that convenient schedules on your stay in India can be an added advantage. Generally expected information in the first sitting from the participant:1. Address proof & Identity proof2. income, savings already made, tax, expenses, liabilities, responsibilities in life, family & educational background, any details that have a bearing on income or expenses
Your WeManPoSt will be as good as the disclosures you make. You may have to come prepared to sit for 2-3 hours in a single session platform. Otherwise it can be stretched into 3 sessions of 1 hour or as required by mutual understanding.
The charges are very moderate & collecting to meet the expenses of the office. Registration fees Rs.500; Filing the input form Rs 2500.00 Receipt of WeManPoSt Rs. 2500.00 No other payments. Fees are subject to revision & therefore participants are requested to confirm the current rates while taking the appointment.
Get Your Wealth Mangement Policy Statement Right!
Giving voice to one's concern's in life; aspirations in life by taking stock of income/expenses; assets/liabilities as a family/business is very important for meeting them in an orderly way.
the 'how' of meeting life goals as financial milestones is an ever increasing need of millions of people in India too.
Have a look at page number 36, Sampadyam, February 2007 a quarterly magazine published from Manorama group, Kottayam, Kerala
the 'how' of meeting life goals as financial milestones is an ever increasing need of millions of people in India too.
Have a look at page number 36, Sampadyam, February 2007 a quarterly magazine published from Manorama group, Kottayam, Kerala
Arbitrague Funds - Indian Mutual Funds Market
World of derivatives opened for Indian Capital markets in June 2000 when Futures trading started. But the MFs had to wait till 2003 to get the guidelines issued. It was also an effort to offer capital protection oriented schemes to the investors as Assured return products were extint.
Read the original malayalam version in Business Manorama dated February 26, 2007 ;
Such Funds offer a bit more than ordinary debt funds; But needs to look at the strategies applied as they carry more risk than the normal debt funds.
Read the original malayalam version in Business Manorama dated February 26, 2007 ;
Such Funds offer a bit more than ordinary debt funds; But needs to look at the strategies applied as they carry more risk than the normal debt funds.
Rating MFs
The funds are classified according to their managerial efficiency and performance based on certain common parameters of quality. This service is given inIndia by CRISIL, ICRA
Pl remember that rating is not perpetual. It is about that period under consideration. It is again only for that product and no other product from the same fund. So always look for the current rating reports only
valueresearchonline give 5star to single star gradingCRISIL give CPR 1 to CPR 5 andICRA give MFR 1 to MFR 5 to denote progressively good performance
Have a glance on the original Malayalam version in Business Mnorama dated February 19, 2007
Pl remember that rating is not perpetual. It is about that period under consideration. It is again only for that product and no other product from the same fund. So always look for the current rating reports only
valueresearchonline give 5star to single star gradingCRISIL give CPR 1 to CPR 5 andICRA give MFR 1 to MFR 5 to denote progressively good performance
Have a glance on the original Malayalam version in Business Mnorama dated February 19, 2007
Myths about investing in MFs
his article deals with the myths about investing in mutual funds.
Myth No:1. It is better to invest in a scheme with Rs.10.00 as NAV (Face Value) than investing in an existing scheme with NAV Rs 14.00let us consider that the the NAV appreciates from Rs. 10 to Rs.11 and the NAV of Rs. 14 to Rs. 15.40; Now the appreciation in both schemes are identical - both has given 10% increase only. Identiacl schemes in the same period gives identical returns. So the crux of the matter is not the NAV per se but whether the schemes are identical in all aspects!! The NAV shows the realized performance. So please do not penalise good performance by fund managers.
Myth No:2. Long term investments give good returns. So one needs to buy & hold only.Even if the investments are made on a long term basis, one needs to periodically, at least once in an year, review the performance of the fund & one's dsireability in holding it further in view of changes in macro-economic factors as also personal life goal shifts. Again, it is the aggressive growth stage of mutual funds as far as India is concerned. So it is possible to have mergers & acquisitions happening in a big way. It could be scheme mergers of the same fund family, or between funds. There is also need for updating the change of address/bank account as th einvestor changes residence/bank etc.. Some times, the fundamental attributes of the scheme is altered by the fund providing information to the investor. So it is in the interest of the investor to annually once see what is happening on his investments, whether he should continue holding or change course.
Myth No:3. (Systematic Investment Plan)SIP is a panacea for anythng & everything.Some people belive that SIP is a cure for all investment needs. SIP is only a beginning. As you earn, you save. But, to translate it into life goals is really amatter of concern. The cash flows at the time of requirement should be sufficient to meet the life goals. The decisons about SIP is concerned withHow much amount?What periodicity?Which fund?Which scheme?What period?What frequency?This is where more thoughts needs to go.
Myth No: 4. Index funds do not give good returns. Fund Managers do not manage it.Index funds give returns equivalent to that of the Index being tracked. If BSE sensex is tracked by the fund as taht in Master Index fund of UTI MF, both should give same returns in the same period. It is achieved by the fund manager by mimicing a portfolio as taht of the index. Ofcourse, the fund manager's skills are to the extent of manging the dividends/bounses received, always maintaining the portfolio composition as that of the index. Therefore operating expenses are kept low. Not much is spent for portfolio selection as well. In totality, one can say that, these low cost funds are best suited for common man looking at taking same risk as that of the market.
Myth No: 5. Dividend Scheme is better than the growth scheme.This is like the bird-in-hand policy. You do not know what will happen in future. So whatever is got, fine. To put it scientifically, one Re. received today is more valuable than same recevied/ receivable later. The capital appreciation translates into money ony when one repurchases the units. A dividend declared is ready money. From the point of view of taxation, capital gains are non-taxed. Dividends are subject to dividend distribution tax for debt funds at the aggregate level but not in the hand of the individual. Nevertheless, take a learned decision.
Nifty Index NAV (Rs per Unit)
Dividend Growth
3900 15 15
4250 18 18
Dividend 3 0
15 18
3900 12 14.4
investor got 12+3=15 14.4
Myth No: 6 Diversification reduces risk. An investment into an equity scheme provides adequate diversification. So I need to invest only in that scheme alone to ensure required diversification. Put differently, how much diversification is adequate diversification?
The books say that if one is holding about 15-20 scrips, it is adequate diversification. Most of the mutual funds have portfolios larger than that. So if one buys into a scheme of a mutual fund, it is correct diversification, going by the books. Now what are the risks that one is open to? the strategy/style/asset allocation of a single fund manager. Therefore, it is advisable to have some 3-4 different funds in your investment portfolio.
Have a look at the original malayalam version in Business Manorama dated February 12, 2007
Myth No:1. It is better to invest in a scheme with Rs.10.00 as NAV (Face Value) than investing in an existing scheme with NAV Rs 14.00let us consider that the the NAV appreciates from Rs. 10 to Rs.11 and the NAV of Rs. 14 to Rs. 15.40; Now the appreciation in both schemes are identical - both has given 10% increase only. Identiacl schemes in the same period gives identical returns. So the crux of the matter is not the NAV per se but whether the schemes are identical in all aspects!! The NAV shows the realized performance. So please do not penalise good performance by fund managers.
Myth No:2. Long term investments give good returns. So one needs to buy & hold only.Even if the investments are made on a long term basis, one needs to periodically, at least once in an year, review the performance of the fund & one's dsireability in holding it further in view of changes in macro-economic factors as also personal life goal shifts. Again, it is the aggressive growth stage of mutual funds as far as India is concerned. So it is possible to have mergers & acquisitions happening in a big way. It could be scheme mergers of the same fund family, or between funds. There is also need for updating the change of address/bank account as th einvestor changes residence/bank etc.. Some times, the fundamental attributes of the scheme is altered by the fund providing information to the investor. So it is in the interest of the investor to annually once see what is happening on his investments, whether he should continue holding or change course.
Myth No:3. (Systematic Investment Plan)SIP is a panacea for anythng & everything.Some people belive that SIP is a cure for all investment needs. SIP is only a beginning. As you earn, you save. But, to translate it into life goals is really amatter of concern. The cash flows at the time of requirement should be sufficient to meet the life goals. The decisons about SIP is concerned withHow much amount?What periodicity?Which fund?Which scheme?What period?What frequency?This is where more thoughts needs to go.
Myth No: 4. Index funds do not give good returns. Fund Managers do not manage it.Index funds give returns equivalent to that of the Index being tracked. If BSE sensex is tracked by the fund as taht in Master Index fund of UTI MF, both should give same returns in the same period. It is achieved by the fund manager by mimicing a portfolio as taht of the index. Ofcourse, the fund manager's skills are to the extent of manging the dividends/bounses received, always maintaining the portfolio composition as that of the index. Therefore operating expenses are kept low. Not much is spent for portfolio selection as well. In totality, one can say that, these low cost funds are best suited for common man looking at taking same risk as that of the market.
Myth No: 5. Dividend Scheme is better than the growth scheme.This is like the bird-in-hand policy. You do not know what will happen in future. So whatever is got, fine. To put it scientifically, one Re. received today is more valuable than same recevied/ receivable later. The capital appreciation translates into money ony when one repurchases the units. A dividend declared is ready money. From the point of view of taxation, capital gains are non-taxed. Dividends are subject to dividend distribution tax for debt funds at the aggregate level but not in the hand of the individual. Nevertheless, take a learned decision.
Nifty Index NAV (Rs per Unit)
Dividend Growth
3900 15 15
4250 18 18
Dividend 3 0
15 18
3900 12 14.4
investor got 12+3=15 14.4
Myth No: 6 Diversification reduces risk. An investment into an equity scheme provides adequate diversification. So I need to invest only in that scheme alone to ensure required diversification. Put differently, how much diversification is adequate diversification?
The books say that if one is holding about 15-20 scrips, it is adequate diversification. Most of the mutual funds have portfolios larger than that. So if one buys into a scheme of a mutual fund, it is correct diversification, going by the books. Now what are the risks that one is open to? the strategy/style/asset allocation of a single fund manager. Therefore, it is advisable to have some 3-4 different funds in your investment portfolio.
Have a look at the original malayalam version in Business Manorama dated February 12, 2007
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