The Year That was 2010

Controversey over the regulatory aspects of ULIP that kept both investors and distributors alike in anxiety hold during 2010, but it will be more known for the revamping of MF regulations 1996 in a major way.



SEBI made the "bold" risk clause in print media and then shortened it for convenience of audio/video telecast advertisemaents.


The valuation of debt portfolio walled into two classess with one of them having term less than 91 days and the other with that of more than 91 days. The asset portfolio with debt having more than 91 days will have to be valued at market prices or against the benchmark's yield in a proportionate manner, if the securities are not traded.

The next historic move was introduction of ASBA for NFOs. Simultaneously the NFO period was reduced to 15 days for CES and OES while sparing the ELSSs. The unit premium collected on sale of units henceforth needs to be accounted as Unit Capital and the discounts debited to distributable reserves.

The disclosure needs mandated Commission or Brokerage paid to sponsors, Associates, employees and their relatives be declared in specified format every 6 months. It also needed the MFs to articulate its generic policy regarding Corporate Governance in investee companies and make itemised disclosure on their actions. The proforma for declaring the investor complaints every year in the annual reports was made mandatory including uploading it on the website of the fund. Elaborate disclosure is needed about the use of derivatives in the portfolio; importance is for hedging and made it compulsory not to write options contract.

In line with the removal of entry load, the additional management fees of 1% for no load funds became an unsolicited section which found its logical end

Fund of Funds unitholders got relief when SEBI ensured that any revenue accruing to the scheme should be accounted into scheme accounte and not have revenue sharing arrangements even when they invest in ther own schemes. SEBi allowed the FOFs the option to select one of the two methods of total expense structure earlier given by it.

The consolidation/merger of schemes shall not be further treated as change in fundamental attributes.


The AMFI certification henceforth will be NISM certification for distributors.


PAN, KYC norms are madatory from new year for any amout of investment in MF. SEBI made it legally bound to have the PAN, KYCand PoA(wherever applicable) data with AMC/RTA and not just with distributors. The Stock Broker channel was given freedom to use the digital higway for transacting the MF deals in the same manner as that for stocks.


The transfer of units was upheld as a normal activity than a rare one.


The interval schemes were made to be listed compulsorily.


The trustees need to value the portfolio of Gold ETFs half yearly based on the auditors report commenting on the asset allocation and also affirm whether the statutiry auditirs have done the physical verification of stock.

SEBI made it very clear that the assets of scheme shall be made free from all incumberances.

The new funds that came were Pramerica and Motilal Oswal. The Most 50 launched by Motolal Oswal was the beginning of a new kind of index funds. On the marketing side, there was a tendency to go to basics from ING Vysya, Religare, Axis and Taurus and also add apinch of gold into the MIPs of Fixed Income portfolios. Another notable feature was the launch of sectoral ETFs.

IDBI cameback with an index fund. Shinsie gave the baton to Daiwa where as the Fortis bowed its way to BNP Paribus, DBS Chola to L&T during the year under review.

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Investing in turbulent times

Starting with microfinance problems figuring in Andhra Pradesh, Telecom controversey taking toll of a ministership, Bribary cases in Housing finance companies getting highly placed officers under CBI custody, FDI scam in hospitality space and now mid-cap space getting battered for SEBI barring 4 firms, enough bad news is following one after the other. When markets are plunging, What is the wise action?

Holding cash? or remain investing?

If investing, how much, how long, when, what ?

Contrary to what has been made to believe, IMF has come out openly accepting the chance for a double dip...

have a judicious mix of assets. Shakespeare in Act I, Scene I of Merchant of Venice makes Antonio speak thus:
"

...... I thank my fortune for it,	44
My ventures are not in one bottom trusted,
Nor to one place; nor is my whole estate
Upon the fortune of this present year:
Therefore, my merchandise makes me not sad".

P/E - A theme for Asset Allocation

P/E as a theme for asset allocation is something attempted for a long time ever since capital markets got functioning.

In India there used to be three MFs already offering P/E as a declared asset allocation theme. They are

1. F T india P E ratio Fund
2. ICICI Pru dynamic Equity Fund
3. Tata equity P/E
   

Now the league is joined byPrincipal SMART Equity Fund. Between 16 - 28 P/E of S&P CNX Nifty, it will operate with decreasing Equity component on a graded manner. at 28 P/E level of Index it will have no equity component. This plan intend to use 50% in derivatives and 50% in Stock Lending. This feature makes it risky and therefore careful evaluation of portfolio is essential both while entering and after entering.

Benchmarked against CRISIL balanced Index, intended to hold large cap stocks with same market capitalisation as that of BSE 100 members.

Please remember, P/E is not good strategy in volatile market situations. But having both P/E and D/Y funds will make you have a completed portfolio in the sense of diversification.



happy investing

Greece, Portugal and Now, Ireland....

Recently the US Govt. redeemed $900 billion bonds by infusing fresh money into the system. Now they are operating the way the MARXIST economic policy which they rejected during the cold war days. As protectionism grow in more and more economies, it is time for sitting up drawing a proper financial planning exercise. Japanese savings rate has deteriorated. There are news that Ireland is issuing Govt bonds... All these monies will cause sudden spurt and price rises finally catching up with the consumer.


Though nobody want another October 2008 situation to happen in India, the bursting of govt or private payment capacities affect us wherever it happens in the globe.


The highly volatile stock market frightens the timid and causes panic preventing long term savings. today hardly 1.4% of Household Savings in GDP reach the capital markets. Though the Indian's savings rate has been growing in Financial assets, it has not grown enough. But the way capital markets turns out to be there are no safe heavens any more for investors. The bold takes long term positions in the equity markets and earmark them for retirement planning at early stages of employment.

So PIIGS (Portugal, Italy, Ireland, Greece, Spain) are on rampage.


Take care

Financial Planning & Equity investments

First time ever I heard an equity expert advising investors to go the Mutual Fund way for dealing in investments and not trading. A seasoned investor in equity who has seen several ups & downs of the market emphatically has put it for Financial planners to pause and give it a thought.

At what levels of the portfolio one should graduate into equity investing?

So one needs to start looking at the stages through an Indian investor could possibly grow up. let us start from the lower rungs. The inverted pyramid shrinks something like this.

BPL
APL
Socially Affluent and Financially Viable class( gone by the Govt guidance as Civil Service Servants IAS etc.. and similar positions or having equivalent status in society)
HNI having assets more than Rs 30 laks (avoid personal assets)
Affluent HNI Net assets more than Rs 30 lakhs (avoid personal assets)
Super HNI Net Assets more than Rs. 1 crore

The BPL families are concerned with Roti/Kapada/Makan and live on 20:80 rule to reach APL stage.

What does the APLs do? Begnning stage, some may still be struggling to create funds to acquire livelihood, but most of them are in "I work, i work ...stage and needs to move to a stage where 'my money works' when I stop working.

Question is at what stage i can graduate to invest in equities?

When I am able to identify a surplus money is the answer. this has got other dimensions. what is surplus? quantum and time matters. Am I able to forget this money forever? or at least for 5-10 years? or even more? You can take a risk appetite test from the websites of any Mutual fund or Insurance company these days and figure out what could be your risk level. But still investors loose money. why?

it is here linking the investment with a life need matters. quite often investments are clubbed and needs are camouflaged leading to disappointment.

take care.

Another Dhan Theras

Gold is part of Indian's life as much as Gods are or sometimes more!!
I do not mean money per se. Understand it as GOLD, the yellow metal that is considered as symbol of prosperity.


Today Gold is available in many forms including demat form. Probably you can look at your holdings in Gold among other assets and have a good mixture of all assets so that you are shielded in all weather conditions against inflation, theft and erosion in value due to several other reasons.
Have a Happy diwali!


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Infrastructure Bonds & Financial Planning

Should you really buy into?


The Union Budget 2011 introduced a new section 80CCF under the Income Tax Act, 1961 that provide income tax deduction of Rs. 20,000 in addition to Rs 1 Lakh available under other provisions for claiming tax deductions for investments made in the Long Term Infrastructure Bonds that are notified by the central government.

This is seen as a step to attract individuals and HUFs to invest and participate in the infrastructure projects in India. India aims to spend $500 billion on infrastructure in the five years to end March 2012 and the government has set a target to double investment in the sector to $1 trillion between 2012 and 2017. The deduction can be claimed by individuals or HUFs for the investments made in subscribing the long term infrastructure bonds during the FY 2010-11

Any investment in long term infrastructure bonds upto Rs 20,000 is eligible for tax deduction from the taxable income

. This means for an individual falling under 30% tax bracket will effectively save Rs 6,180 and a lower tax bracket individual of 10% will save tax upto Rs 2,060

These long term infrastructure bonds will be available for tenure of minimum 10 years and the lock-in period of 5 years. It means investors can not exit from the bonds before 5 years and after 5 years they have an option to exit in the secondary market or via buyback offer given by the issuer. the price at which buy back or traded in the secondary market will depend upon the instrument's quality at that time. Investors can also pledge the bonds in some specified banks to obtain the loan against the bonds only after completing the lock-in period.

The Issuers have the choice to fix what rate they offer.

Industrial Finance Corporation of India (IFCI):

IFCI’s bonds have four options to choose from, offering an interest rate of 7.85 percent and 7.95 percent annually, with options such as buyback/non-buyback with cumulative/non-cumulative interest rates.

While Option I and Option II offer 7.85 percent annual return and a buyback facility exercisable after 5 years, Option III and Option IV can get investors 7.95 percent annual returns, with redemption possible after 10 years.

LIC of India (LIC):

These infrastructure bonds offer interest rate of 6% pa which is taxable . However the effective pre-tax yield works out to be 11.36% and post tax yield of 7.85% . Compared to Fixed Deposits, Infrastructure bonds are a better option to combat inflation.

Infrastructure Development Finance Corporation (IDFC):

The issue Opened on 30 September 2010 Closed on Monday, October 18, 2010.Over and above Rs 1 lakh tax rebate available, for other long term securities, the Bonds are tax exempt up to Rs 20,000/- The Bonds have a face value of Rs 5000 and carries interest rate of 8% annually or 7.5% with a buy back option.
The Bonds will be issued in four series with 8% payable annually, cumulative option compounded annually, 7.5% payable annually with a buy back option and 7.5% compounded annually with a buy back option. The IDFC Bonds with a lock in period of 5 years is to be listed in both National Stock Exchange(NSE) and Bombay Stock Exchange (BSE).The Bonds have been rated by ICRA under "LAAA" category, which carries highest safety and stable outlook.

Non-Banking Finance Company (NBFCs) who are classified as an infrastructure finance company by the Reserve Bank of India (RBI) :

L&T Infrastructure Bond Issue, 2010 which opened for public subscription from October 15th and will close on November 2nd 2010

Banks will be allowed to raise tax-free infrastructure bonds after they take government permission to notify the bonds under the infrastructure bond category. The finance ministry has told banks that they would be allowed to issue infrastructure bonds provided the proceeds of the issue is utilised only for infrastructure development.

So many more will come.

If you are looking for building up the corpus for your retirement, you should go for equity for 20-30 years. if you already have a corpus build up, then park a part of it in these bonds to give stability to the corpus. But they are not a good option, to increase wealth.

Retirement Planning: How prepared are you?

Take a test.

Answer the following:

1. How old are you?
2. Name important Life Needs that you want to fulfill during your life time.
3. When do you think you will be retiring from active work life?
4. How much is your current savings?
5. How much will you be able to save every month or quarter or year?
6. Allocate savings against your life goals: Never club goals, remember horses for courses
7. what is the level of your total assets and liabilities : figure out Net assets
8. What is your current income?
9. Multiply item 1 and item 8
10. Divide by Number 10

If your answer at step No: 10 is more than your Net assets, be happy and find out how to protect it and enhance it.

If your anwer at step No: 10 is less than your Net Assets, be alert and find ways to accelerate growth.

Those who just started to have their first job, there is a great opportunity in waiting.
Those who have mid career needs to re-work the chemistry of life
Those who are nearing retirement needs to find protective investments that will sustain them through the empty nest stage.
The New Pension Scheme offers a lot of opportunities for the first two. There are start-up issues in the NPS, though.The DTC will come as a surprise on you, if you do not plan your investments through the life stages Balyam, Kaumaram, Yauvanam, Vardhakyam and Vanaprastham, leaving the impact painful in the middle and unmanageable in the last two stages.

The last but not the least class, has several fixed income options available today.

Senior Citizen Savings Scheme (SCSS) is a fixed-income product that offers 9 per cent return per annum compounded quarterly. It matures after five years and can be extended by another three years. It, however, comes with a couple of riders: an individual cannot invest more than Rs 15 lakh in it and the investor needs to be at least 60 years old at the time of investment. POMIS or fixed deposits of Banks are also there in addition to MIPs from Mutual Funds.


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When the Market moves with Cricket.....

India won the series... Once again Sachin Tendulkar did the trick for India..The rest of Team solidly behind, India showed its resilence capacity.

Capital Markets also carried the same sentiments.

The statistics says that domestic funds are net sellers and FIIs are net buyers for quite some time. The huge IPO from Coal India Limited is expected to drain some liquidity from the markets in addition to what the RBI has done recently.

How should one approach the Mutual Funds in this kind of a scenario?

Those in SIP, should continue same. Any time is good for starting investing. Make a small investment and feel for yourself how it grows.. watch its progress related to a life need. That is basic human tendency one should recognize. Human beings require a target to go steadfast with the investments. Those who are in diversified equity funds with small cap portfolio may book some profit.

Another human tendency is to look at losses more seriously than the profits. Loss even if it is minor, it is painful. But a small profit makes him happy. Observe one's own behavior and try to logically look at your investment.

Another human tendency to be careful is to go by herd. Every body got profits,I did not get any.I am in the energy sector. I am left out of the rally. so let me switchover. one should embrace sectoral funds, if only have adequate knowledge about the sector. Otherwise always go with an index fund or diversified equity fund. Those who go for sectoral funds should have sufficient funds deployed in every possible sector not to get left out of a rally. So full diversification is possible for HNIs and not APL or BPL in sectoral investment strategy.


Another human trait is about being happy with a show of money. One gets a erroneous satisfaction when money is seen. But when it is divided among the different life needs, one will find that the available funds are not sufficient.To fight it out, one should follow the old idiom: horses for courses. Have separate investments for each identifiable life need.

Mutual Funds in Your Portfolio?

Why should you invest into Mutual Funds?

People seems to forget the basics once the markets started going up & up.

Irrespective of market movements, Mutual Funds help you remain in same risk class. This is important in your journey through Balyam, Kaumaram, Youvanam, Vardhakyam and Vanaprastahm. can you identify a product that will help you continuously invest for more than 15 years in the same account? With same risk level? At your leisure?

Imagine a 35 year old invested into Mastershare-1986 in the year 1986. By September 2010, he has made compounded annual rate of return appx 18%. Now having completed 24 years in the scheme and approaching his retirement now, he needs to review his holdings.

He needs to take stock of his income and expenses. He needs to look at his assets and liabilities. And take a decision whether he should remain further in the Mastershare -86, an equity scheme. If his profile permit, he can. Otherwise he needs to re-structure his portfolio to include MIPs from PO, Bank Fd, Company FD, MIPs from Mutual Funds etc.. Remember all these long 24 years, the Mastershare allowed him to remain in same risk level....that is the beauty added by such long term products; that is why you should look at your savings routes.

Simultaneously he should look at tax reduction, liquidity and health needs so that Vardhakyam is happily spent.

Setting up charity for furthering his wishes could be thought of at this stage. One should also have Estate planning, if not done.

Happy investing..

When the Bulls are in charge...

As the markets started going up riding on FII cash flows, what is in for the Financial Planning?

Comparatively more rate of return in a longer period is given by Equity. It accompanies High Risk also. Risk reduction is important to ensure the achievement of goals in life, be it Setting up a business, Getting married and establishing family, Children's Education, Their marriage, Protection against Loss of Life and Assets, Creating Income Earning assets for for Retired Life, Asset Distribution( Charity & Estate Planning) etc.

So tame equity to your benefit. Directly investing may prove costly for those who do not have the expertise, money and time to constantly evaluate the equity markets. Mutual Funds are the best to harness here. Equity comes with different risk level. Mutual Funds make portfolios that could be of your taste. Go for SIP than lumpsum investments. Get the power of compounding do the job for you. And as a final caution: MFs remain at same risk-return level all through out their life. Not your life. So when you reach milestones in your life, you have to offload your MF schemes and move to your preferred asset classes for rest of your life. For example a 40 year old bought UTI Mastershare-86 during its launch. In 2010, he is 64 years meaning retired. He has to take a call whether he has to further remain in that scheme or move to MIPs either from MFs or PO or Banks depending upon his life needs.


Real estate gives a certain amount of inertia to your wealth - the much needed anchoring could be in the form of your residence to begin with and later a farm house or additional number of dwelling units that give income as agricultural income or rental income as the case may be.


And if you are a NRI, you can look at many alternatives

For a domestic investor, lot many opportunities are available. Get out of 'avanavan kadampa' - self imposed restrictions or myths of investment. One can build wealth legitimately, systematically and improve from status co.

happy investing India

New to Financial Planning?

Get started.

“Our lives are frittered away by details.........................Simplify, ..............simplify.”

-Henry David Thoreau, the 19th century American writer cum philosopher

So make a very simple plan with one or two major goals identified. Device separate investment products for each one. Remember 'Horses for Courses'!!

Every year we celebrate one or other festival. Birthdays. Anniversaries. So make a day for reviewing your investments: it could be after Onam or Vishu or SAMVAT trade day or linked to your anniversaries...

The idea is to take stock of your incomes, expenses, assets and liabilities. The new IT Tax Return makes you do that. But it is not sufficient. Plan to get Rich. Not just to be self-reliant, but to have your assets work for you than you do it always.. Self reliance is only the beginning.

The wait is over

The sec 80 CCF that gives additional 20,000 deduction over and above Sec 80 C notification dated July 9, 2010, has been published, authorising Industrial Finance Corporation of India, LIC, Infrastructure Development Finance Company Limited and other non-banking finance companies classified as infrastructure finance companies by the Reserve Bank of India. These institutions can raise funds through the issue of these bonds covered by Sec. 80CCF up to 25 per cent of their incremental infrastructure investments.

The tenure will be 10 years with or without coupons can come with call/put options for investors to choose from. There will be a lock-in for 5 years. Even private players can issue such bonds once got notified in this category.

The first of its class is available now

Section 80CCF of the Income-tax Act, 1961 – Deduction – In respect of subscription to long-term infrastructure bonds – Notified long-term infrastructure bond

Notification No. 48/2010[F.No.149/84/2010-SO(TPL)], dated 9-7-2010

In exercise of the powers conferred by section 80CCF of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specifies bonds, subject to the following conditions, as long-term infrastructure bonds for the purposes of the said section namely :-

(a) Name of the bond – The name of the bond shall be “Long-term Infrastructure Bond”.
(b) Issuer of the bond – The bond shall be issued by :-
(i) Industrial Finance Corporation of India;
(ii) Life Insurance Corporation of India;
(iii) Infrastructure Development Finance Company Limited;
(iv) a Non-Banking Finance Company classified as an Infrastructure Finance Company by the Reserve Bank of India;

(c) Limit on issuance – (i) The bond will be issued during financial year 2010-11;

(ii) the volume of issuance during the financial year shall be restricted to twenty-five per cent of the incremental infrastructure investments made by the issuer during the financial year 2009-10;

(iii) ‘Investment’ for the purposes of this limit include loans, bonds, other forms of debt, quasi-equity, preference equity and equity.

(d) Tenure of the bond. – (i) A minimum period of ten years:


(ii) the minimum lock-in period for an investor shall be five years:

(iii) after the lock in, the investor may exit either through the secondary market or through a buyback facility, specified by the issuer in the issue document at the time of issue;

(iv) the bond shall also be allowed as pledge or lien or hypothecation for obtaining loans from Scheduled Commercial Banks, after the said lock-in period;

(e) Permanent Account Number (PAN) to be furnished – It shall be mandatory for the subscribers to furnish there PAN to the issuer;

(f) Yield of the bond – The yield of the bond shall not exceed the yield on government securities of corresponding residual maturity, as reported by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), as on the last working day of the month immediately preceding the month of the issue of the bond;

(g) End-use of proceeds and reporting or monitoring mechanism – (i) The proceeds shall be utilizes towards ‘ infrastructure lending’ as defined by the Reserve Bank of India in the Guidelines : issued by it ;

(ii) the end-use shall be duly reported in the Annual Reports and other reports submitted by the issuer to the Regulatory Authority concerned, and specifically certified by the Statutory Auditor of the issuer;

(iii) the issuer shall also file these along with term sheets to the Infrastructure Division, Department of Economic Affairs, Ministry of Finance within three months from the end of financial year.



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Debt Fund: Is it for You?

Really. Do you need them?

You can tame them to suit your needs. They come in four dimensions and create a web of opportunities: Maturity, Secured or not, Quality and Coupon.

If you segregate GOI bonds and Private issue and then classify, you get further one more dimension.

Today in Indian markets you get call money to dated securities of any term upto 20 years (GOI bonds of course).

The private issuers bring to market secured debt or unsecured debt depending upon the market conditions for raising funds. Secured debt enhances its acceptance to the investor. In case of default the investor has access to the asset to which the loan is linked.

Credit rating agencies attribute alpha-numeric symbols to denote the credit worthiness w r t that bond only and depending on the market situation at that time. It is a moving target. As time expires and business take a down turn, down grading can happen and vise versa. For example, the Essar oil bonds were down graded in the later part of 90s. Tata Motors debt was rated investment grade B (2008) which is not very far from junk.

Coupons play the rest of the fiddle on the price in response to market changes of interest rates, inflation and exchange rates.

Bond Funds help you buy into a risk adjusted portfolio of bonds w r t all of the above. You still bear certain risk. A known risk can be managed; Not an unknown one.

The various disclosures SEBI MF Regulation has brought in help in understanding the portfolio and thereby the risk in the combo offered by the Debt Fund.

Though gilt funds are free from default risk, they suffer from market risk. So your NAV may get affected by the changes in exchange rate or inflation rate impacting the prices of the GOI bonds depending on the Maturities and Coupons.

The concept of Duration help you to know how much impact the portfolio will take when interest rate changes by a given percentage. but in life not everything happens in tandem. Certain times, aberrations occur in the market, which your duration equation would n't have captured.

You can use Liquid funds for Emergency use. A MIP for regular income. A short term debt fund for parking temporary needs pending deployment and many more . One needs to look at Portfolio, Duration, Expense ratio, Fund Size and The Management itself among other things.

Other alternative possible is splitting traditional investments and MF products in an appropriate ratio to suit your size of the cake. Generally it is said that you can look at 1/3:1/3:1/3 among Traditionals :MF debt schemes: MF equity schemes or Dividend Yield Equity Shares. Then modify your allocation to suit your cash flow needs.

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1. Greece fixed; what is in for you?
2. Does your Money Work for You?
3. MIPs from MFs
4. After USA, it is the turn of Europe..
5. Planning for Cash, Savings...
   

Energise Your Portfolio

The sunrise sector of Indian industry, the energy sector is offering growth potential of enormous proportions due to sheer lack of supply. The GOI Mission 2012 has 'power for all ' as its caption channeling a lot of investments into this field.

The peculiarities of these investments are:
1. large outlay
2. very long gestation gap 7-8 years
3. large number of contractual tie-ups that complicate the project structures
4. very long life of cash inflows like 60-70 years

These projects once online are like fixed deposits, cash flows keep coming if, good project management exists. And thus provides a goldmine opportunity for young investors to put long term savings for building up a corpus over a period of time say 15-20 years and above.

Currently schemes available are:

1. Reliance Diversified Power(Apr 2004)
   
2. UTI Energy(Jun 1999)
   
3. Sundaram BNP Paribas Select Thematic Energy Opportunities(Dec 2007)
   
4. Escorts Energy((Sept 2008)
   
5. DSP BR World Energy(July 2009)
   
6. DSP BR Natural resources & New Energy(March 2008)
   
7. ICICI Prudential Power(Octo 2001)
   

Saving for Children : Through MF schemes

When to start saving for children?
How long to save?
How much to save?

From birth to attaining age 18 is what the MFs tell you about when to start saving. The answer for how long is included in that answer. But how much to save? it depends on one's capacity to save. But saving is important. So set apart a small amout however small it may be and accumulate it till you are ready to buy a MF scheme for your child. One may rely on traditional saving methods for this phase.

The existing MF schemes exclusively for children are:

1. ICICI Prudential Child Care Plan(2001)
2. Magnum Children Benefit Plan(2002)
3. HDFC Children Gift fund(2001)
4. LIC MF Children fund(2001)
5. Principal Career Builder Plan(1998)
6. Tata Young citizen's fund(1995)
7. Templeton Indai CAP Fund(1998)

a. Education

b. Gift

8. UTI Children Career Plan balanced(1993)

9. UTI CCP Advantage fund(2004)

These schemes have varying exit loads, expense ratios and portfolio profiles. Some of them have age restrictions on entry levels and lock-in -periods.

when you plan, surprises are reduced.

happy investing

Lifestyel Funds

When the pie grow, more and more allocations are possible beyond traditional investment avenues.

New instruments find place and sometimes a re-ordering takes place at these stages.

When does one recognize the growth of the pie?

What size of the pie warrants a re-ordering of investments or revision of portfolio?


The financial Planning experts say when a major life event takes place one needs to re-balance the portfolio of investments.

The portfolio managers say when major economic events throw such opportunities.

Lifestyles Funds, though diversified equity funds, may not be suitable for the uninitiated. But HNIs having exhausted other investment opportunities may look in as an add on.

Between 2005 and 2010, Indian market has seen both years of down and up movements. Three lifestyle funds came in so far:

1. Birla S L India GenNext (July 2005)

2. Kotak Lifestyle Fund(Feb 2006)

3. UTI India lifestyle fund( July 2007)

The first two are opened end where as the latter came as closed end and then became opened end by July 2010.

The one year performance as at July 19, 2010 has been impressive for all of them turning more than 30% rate of return. This compare well with the sensex(18%), Nifty(27.5%) and BSE Mid Cap(41.6%).

In the three year period Kotak showed -1.2% (CAGR ) where as the GenNext put up 7.7%. during the same period the above indices gave 4.9%, 6.1% and 2.8% respectively.

The five year period was impressive with genNext turning in 18.1% as against the indices 19.5%, 19.3% and 15% respectively.

Lifestyles can fall faster than the Indices or stand against the indices but more or less follows the general market trend in any period. Fund Managers use their dicretion to be defensive or aggressive in the adverse times creates the kind of returns put up. The Standard Deviation of the Rtae of return is 31.23, 29 and 17 in the case of GenNext, Kotak and UTI funds respectively.

This is the knowledge that should guide you when you look at the Lifestyle Funds.

Asset Allocation Plans & Financial Planning

Automatic asset allocation is possible with asset allocation plans and they allow you to remain in the same risk level all through out your investment period. So when you clear the travel through that particular risk period, you have to change into another risk profile. Many people do not understand this process and get sticky about a fund.

Another thing is about the long term nature in which you have to look at these investments. They are not 'get rich quick' kind of lotteries.

Lottery or betting is an entertainment. It is for fun.
But investment is not for entertainment or fun, though it may be an outcome. The investment is longer term than that of a bet or lottery.

Schemes to look at are

1. UTI Variable Investment Plan


2. F T India Dynamic P/E Ratio Fund of Funds


3. ICICI Pru Dynamic equity Plan

The other alternative is The New Pension Scheme

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Price Earning Funds & Financial Planning

Price earnings ratio captures how many times the Earnings per Share is covered by the Market Price for the share. It is a traditional measurement algorithm with no substitute available so far. One compares it with peers and takes a call on whether a share is reasonable priced or not and take buy/sell/hold decisions.


In a rising market P/E Funds give good performance while in a fluctuating or falling markets the Dividend yield funds give best rate of return. Dividend yield is the ratio between the Rupee dividend and price per share.

Somebody looking for full diversification should be holding both class for getting cash flows in all weather conditions.


The P/E funds available are:
a). Tata Equity P/E Fund
b). FT India Dynamic PE Ratio Fund of Funds (FTDPEF)
Equity component in the scheme is directly linked to levels of P/E of the NSE Nifty, one of the most popular indices of equity markets of India.

Weighted Average PE Ratio of NSE Nifty	Equity Component(%)	Debt Component(%)
Upto 12	90-100	0-10
12-16	70-90	10-30
16-20	50-70	30-50
20-24	30-50	50-70
24-28	10-30	70-90
Above 28	0-10	90-100

c).



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MIPs from MFs: The alternative for monthly income

Every time inflation breaks double digit, we look for alternatives sources of income. The post office MIP give you 8%pa; Banks FD schemes give you 6-7.5%pa; The GOI bonds earn something from 5.6% to 8%pa depending upon the term.



The MIPs from the Mutual Funds though do not offer guranteed rate of return, they help manage something more than the inflation at times.



The Fixed Income portfolio thus needs allocation to MIPs to certain extent. But to what extent? Base minimum allocation always remains with the guaranteed instruments. Here the concerns are bare existence and regular payment needs. Once you study the nature of these payments, you will understand some are seasonal payments; some have daily-weekly-monthly-bimonthly-quarterlyor half yearly or even annual payments. This understanding will help you to bifurcate your allocation into sure- not so-sure among these frequencies of the intervals. Slowly you will develop an expertise to allocate investments that will generate cash flows just enough to cover such expenses.

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Greece fixed; what's in for you?

Unlike USA, European Union is not a single Government; Each Govt. will want to protect its economy, jobs and income; though a single Common Market. EU and IMF have tried to fix the Greece debt crisis.

Your personal Financial plan should adequately provide for protection from inflation. The two digit inflation and spiraling food prices, fuel prices in succession is actually dipping into your fixed income portfolio.

Today the Post Office Monthly income earn you 8%; Bank deposits earn you 6.5% to 8%, 1 year GOI bond 5.6%, 10 year GOI bond 8%. Some Mutual Fund investments in MIPs earn you upto16%.

Obviously, Mutual funds come with more risk than the rest.

So you should have a portfolio of fixed income products to steer clear through the difficult times.

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The ULIP Controversy: Super Regulator in the Offing

By forming a Committee consisting of the fighting regulatory bodies, automatically the path to formation of a Super Regulatory Authority is emerging....

In any economy, these kind of overlapping is possible and a mechanism must be available to define roles in regulation and bring transparency in the market place.

Eventually that should lead to controlling conglomertes.

Gold as an investment: the Indian version

Gold prices have again gathered momentum on the backof european carnage started with Greece. As the rest of the members get their jobs done, it will take an year or more for the global economy to look upward again. Though abberations may take place in between, the longer term perspective is growth. Traditional wisdom is catching up the attention of the wealthy in the 21st century. Gold is known as store of value over longer time periods against inflation. 

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3. Gold..... hold your breath

When protection of hard earned money for longer periods become a prioirity, gold is the natural choice for many. The wealthy is no different.

Does your investment get whithered away?

Expenses take away a lot of money out of your investments. This particularly affects the rate of return of your debt funds because they normally earn less compared to their equity counterparts. Look at the table below:

Beginning	Invested (Rs)	Year End	Earning (Rs)	Yr.End (Rs)	Expense Ratio Year End	Expenses (Rs)
1	10,000	10%	1000	11,000	1%	110
2	10,890	9%	980.1	11,870	1%	118.701
3	11,751	12%	1410.168	13,162	1%	131.6157
4	13,030	-1%	-130.3	12,900	1%	128.9965

The 4 year ended investment gave you 6.3% pa and not 27.7% as you may be tempted to believe. The expense ratio applies irrespective of the kind of growth achieved.
Beginning Net Investment (Rs) Simple Rate of Return GM 1 10,890 1.089 NA 2 11,751 1.17514 1.084039 3 13,030 1.302995 1.09223 4 12,771 1.277066 1.063049

You will get a clear idea on this as you follow this link


Even if the market give a negative rate of return, the fund or PMS manager will charge you the expenses as per law. So eventually you may have corpus diluted if the fund is not doing well.


Periodic review of the fund performance is as important as periodic review of external conditions affecting the investments.



Recently SEBI modified the rules of applying expenses. The change in valuation norms for short term debt will also add to volatility.

Meeting Long Term Financial Goals: The Contra way

What is 'contra'?

The investment style that combines a value style, fundamental analysis and sector rotation.


So your fund manager looks for currently undervalued scrips that are fundamentally strong and have capacity to bounce up next and continuously shifts once the expected price realisation occurs in the holdings

This means you are taking more risk than the normal diversified equity funds.

There are eight such funds available so far in the Indian markets.
1. Religare Contra Fund
2. Tata Contra Fund
3. Kotak Contra Fund
4. UTI Contra Fund
5. SBI Magnum Contra Fund
6. ING Vysya Conta Fund
7. J M Contra Fund
8. L&T contra Fund


To manage your long term goals like planning for kids higher education, marriage, setting up a business, your own retirement etc.. normally have a time horizon of 15 years upwards.

These are the needs you should look to fullfil by following the contra approach.

How to select a Financial Planner

It is like going for your confession. Unless, you are sure to whom you are confessing, whatever you have revealed in confidence may be used against you. Another danger, a not so qualified priest may not be able to give you sufficiently suitable words from gospel to put you at peace with yourself & God. The experience that come with is fine; but one deals only in the traditional products may not be welcome, if you are looking for exhautic bouquet.

So it appears that

1. one should be possessing the minimum prescribed qualification to deal in the products
2. sufficiently enough knowledge about the available products
3. must be capable of synthesising a bouquest of products in the four dimensions :Time(maturity of your needs), Quantity of money, Your vision about life and the philosophy of wealth that you follow

Most often, the last two are left to be desired. The result: vulgar use of money in show of wealth that irritates the not so lucky and downtroden. Follow C K Prahlad, renowned Management Guru. Reflect a bit more and you will agree that One can spread happiness around and still enjoy wealth. It is true not only for organisations but also for individuals.

If you wish to have a Policy Statement to be developed for Personal Financial Planning, professional service is available on request.


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1. WeManPoSt
2. Does Your Money Work for you
3. Family Budget

happy investing

Full Diversification...?

Full Diversification.. Is there such a thing?

The essence of diversification is to ensure incomes or rate of return in all weather conditions. In this sense, what possible ways exist for one to achieve full diversification?

In the current indian markets, you have mostly the following opportunities for ensuring diversification all the time.

1. Sector Rotation : a). Economy sectors like Pharma, Banking, Media,etc..

b). Private Sector & Public Sector

c). Geographical segments like Domestic, China, Asia, USA and latin american regions

2. Contra

3. Dividend Yield & Price Earnings

4. Market Capitalisation: Large cap, Midcap and Small cap

5. Indexing

6. Basic Strategy : Growth-Value-Income spheres and

7. Asset Class based: Equity, Debt, Money Market, Gold, Realty etc..

The next part of the investment decision will be about the money you are willing to invest.

An average indian may be able to start with the last item.. ie.. the asset class diversification. This is the premitive strategy of all.

If you want to go to the next level of 'Growth-Value-income' you will need some more money at disposal. Growth happens over aperiod of time. Value realisation also happens after some time & upon happening of an expected event. Income you need for survival. Imagine all your investments are only in these three classes of assets.

Now the indexing level of diversification: This is based on the three dimensional capital market model of efficient market hypothesis. Since no one can beat the market, you do not go for great research but join the party with some index fund. Index reflects the market performance. Now if you want to have same level of income or rate of return, you may have to make an allocation more than that you have allocated to the Diversification Strategy No:6 or 7

When you want across market capitalisation also you need very substantial funds to keep you at the same level of income or rateof return than what it took eralier cases.

Look at the No: 2 contra: It requires lot of research to zoom in on possible up segments and take positions early with substantial funds to generate a given level of income or rate of return

What if you go for sector Rotation? You have seral alternatives available here. So to have Full divesification you ned substantial funds in each segment. When certain segments perform, other fail.

Thus progressively proceeding from Strategy 7 to 1 You will find that you have an inverted triangle of investible funds to sit with depending upon what investmenmt strategy in diversification you want to follow. So choose a diversification level that goes with your fund capacity, your knowledge level and above all what is its fit with your own life need?

Happy investing

The Banking Sector Funds

There are 6 Open End MF schemes and 4 ETFs in this space as on 17.05.2010. Most of them landed in the fray in 2007 & 2008 expecting the action of level playing field for Indian & Foreign Banks.

The Open End Funds are:

1. ICICI Prudentail Banking & Financial services Fund(Aug 2008)
2. J M Fianancial Services Sector Fund(Nov 2006)
3. Reliance Banking Fund(May 2003)
4. Religare Banking Fund( June 2008)
5. Sahara Banking & Financial Services Opportunities Fund(May 2008)
6. UTI Banking Sector Fund(April 2004)

The ETFs are also open ended but they are available for trade through the Stock Exchanges in the listed category just like you buy & sell shares. This is different from the broker channel for purchase of normal MF units.

The following are the ETFs :

1. Banking BeES(May 2004)
2. Kotak PSU Bank ETF(November 2007)
3. PSU Bank BeES (October 2007)
4. Reliance BAnking ETF(May 2008)

The propects for Indian Banks appear to be good with the policy supports from RBI & Govt from time to time. The question of level playing field itself got postponed in the wake of happenings in October 2008.The relaxations in provisioning of NPAs have now figured in their annual reports. This has in fact created accumulated NPAs Further the relaxations in provisioning for infrastructural advances will keep at bay the mounting NPAs of real estate segment figuring in the annual reports.

Slippages are costly.Too costly in a down turn. CARE is catious on Indian Banking sector in their Report dated 31 December 2009. But India has a good domestic demand and not fully dependent on Europen demand. So the institutional supports may give a breathing to the sector to pick up without breaking down.

The Sensex fall started early May 2010 is continuing in tandem with the global markets.

The stringent norms of capital adequacy followed by RBI has kept our banking system from being carried away in the October 2008 shakeout. Once tested, let us hope the regulators will look at loopholes to see the system is not crumbling.

For investors with deep pockets, these are good buy; Others who already in the funds may hold on till the results of GOI & RBI gets reflected in the annual reports triggering a value appreciation in these stocks.

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Akshaya Tritiya - a day for long term investments

When the whole world is talking about buying gold on akshaya tritiya, what should an investor do? Get carried away by the sentiments & make a coin purchase or just trade on the ETFs in Gold for fun? Relax. Dedicate this day to look at your personal financial plan... It is very important. Let this day be in diary for review of your Investments periodically. You need to have an appropriate proportion of Gold, Equities, Realty .. all asset classes to keep your journey worthwhile. And make an estate plan so that heirs need not go to court over quarrel about what you created with so much sweat & toil.

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MFs with Equity NFOs in the volatile markets

First of all, let us address the question NFO Vs. Follow on offer in Mutual Funds.

When it is closed end fund, one cannot buy the units again and again from the fund house. But in an open ended fund, we have as many follow on opportunities as we want to invest.

At NFO, one gets units at Face Value. True.In a subsequent purchase one has to pay more. Yes. But what matters end of the day, is the rate of return earned and the holding period involved. That puts to rest controversial sales push to rest in peace.

Now let us look at the themes offered one by one.The currently (as on 14.05.2010) available equity NFOs are:

1. Birla S L India Reforms Fund
2. DSP BR focus 25 Fund
3. Baroda Pioneer Infrastructure Fund
4. IDBI Nifty Index Fund

All are open ended equity schemes with no entry load and an exit load of 1% if, repurchased within an year. The commonality ceases here.

Birla S L India Reforms Fund's investment objective is to generate growth and capital appreciation by building a portfolio of companies that are expected to benefit from the economic reforms, PSU divestment and increased government spending.

Already there are two existing schemes with the same theme:

1. AIG Infrastructure and Economic Reforms Fund(January 2008); Present NAV Rs 8.96(13.05.2010)

2. DSP BR TI G E R Fund(May 2004) Present NAV Rs. 45.35(13.05.2010)

DSP BlackRock Focus 25 Fund, is an open ended equity growth scheme. The primary investment objective of the Scheme is to generate long-term capital growth from a portfolio of equity and equity-related securities including equity derivatives. The portfolio will largely cosist of companies, which are amongst the top 200 companies by market capitalisation. The portfolio will limit exposure to companies beyond the top 200 companies by market capitalization upto 20% of the net asset value. The Scheme will normally hold equity and equity-related securities including equity derivatives, of upto 25 companies. Further, the Scheme will also have at least 95% of the invested amount (excluding investments in debt securities, money market securities and cash & cash equivalents) across the top 25 holdings in the portfolio. The Scheme may also invest in debt and money market securities, for defensive considerations and/or for managing liquidity requirements.

A theme that DSP BR itself has put hands on earlier now boasts of more concentration. That way it is different from its stable!!

1. DSP BR Top 100 Equity Fund(February 2003); NAV Rs.90.84(13.05.2010)
2. Birla S L top 100 Fund(September 2005); NAV Rs 20.31(13.05.2010)
3. HDFC Top 200 Fund(September 1996); NAV Rs 185.87(13.05.2010)
4. LIC MF Top 100 Fund(December 2007);NAV Rs 7.93(13.05.2010)
5. UTI Top 100 Fund(may 2009); NAV Rs 26.40(13.05.2010)

Baroda Pioneer Infrastructure Fund, is an open ended equity scheme. The primary investment objective of the Scheme will be to generate long-term capital appreciation by investing predominantly in equity and equity-related securities of companies engaged in infrastructure and infrastructure

Welcomed by more than a dozen infrastructure funds, can claim to be new in its own stable.

IDBI Nifty Index Fund, is an open-ended passively managed equity scheme tracking the S & P CNX Nifty Index (TRI). The investment objective of the scheme is to invest only in stocks comprising the S&P CNX Nifty Index in the same weights of these stocks as in the index with the objective to replicate the performance of the Total Returns Index of S&P CNX Nifty Index. The scheme may also invest in derivatives instruments such as Futures and Options linked to stocks comprising the Index or linked to the S&P CNX Nifty Index. The scheme will adopt a passive investment strategy and will seek to achieve the investment objective by minimizing the tracking error between the S&P CNX Nifty Index (Total Returns Index) and the scheme.

A theme tested by almost all AMCs is what IDBI is betting on in its second coming. You get the twin benefits of diversification and a ready benchmark to know whether the performance is justified or not?

Any investment, your guiding principal has to be your life needs in quantum of money required and approximate time horizon when it is required super ceded by your risk-return profile.

Happy investing.