If I am in the HNI category, normally there is a chance that i have exhausted my 'primary diversification' requirement and comfortable to look at 'completeness' of the diversification itself.
Technology Sector Funds is just one of the Several class of Sectoral funds available today in India. as they are normally high risk, asset allocation of more than 20-30% of your equity portfolio is not advisable.Theoretically, if you posses all the sectors in the economy in your portfolio of Funds, then you reach the completeness level of diversification. You get benefits from the sector that is having market today. All seasons bring you benefits one by one. But you should have deep pockets to make that kind of allocation to reap reasonable levels of revenue and or capital appreciation.
Sectoral Funds by their objective, are permitted to have skewed portfolios favoring companies in that segment. The Major Technology Sector Funds are:
DSP-BR Technology.com Fund
ICICI Pru Technology Fund
SBI Magnum IT Fund
Franklin Infotech Fund
Birla S L New Millenium Fund
Prospects for the Technology sector:
The firms hardly come out of the USA's subprime crisis, Europe has taken its steam the industry with hardening Re once again. However it is understood that firms are re-working costs, exploring SME world domestically and May 2010 hear about recruitments picking up and companies looking forward to a better tomorrow.
You buy a shirt, when you really like it or when you really need it. With investments, you have to look the way you look at the purchase of your first house itself every time. Not like a consumer product.
Start Early, Proceed Systematically, Look Long Term
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Showing posts with label Asset Allocation. Show all posts
Showing posts with label Asset Allocation. Show all posts
Thursday, May 6, 2010
Sunday, January 17, 2010
Asset Allocation By Institutional Investors: Is it any way different?
Quite often, I have wondered why a Mutual Fund scheme is capable of earning better than an insurance scheme or PF and sometimes overwhelmed by the performance of ULIPs over the rest.
To get an idea about earning capacity of the schemes, one needs to know about regulatory requirements binding the earning capacity of each class of them:
1. Mutual Funds
2. Insurance
3. New Pension Scheme(NPS)
4. Non-Govt PF
5. Banks
Mutual Funds can be creative in their portfolio with different objectives for each scheme and thus varying asset allocation. Thus emerges infinite possibilities of risk-return combinations. Beyond that they are limited by single company and single instrument investment norms, mostly guided by governance norms.
But look at insurance companies, they are not permitted to invest their funds freely as the MFs. THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (INVESTMENT) (AMENDMENT) REGULATIONS, 2001 clips the outer limit for these companies as low as 25% Minimum in GOI securities. Unless it is a GOI securities fund, the MFs need not concentrate on them. Thus by birth itself, Insurance schemes have a clipping on their earning capability.
The NPS, the new kid in the street is akin to MF scheme, but with a Management Mandate of distinctive asset allocation according to age and preference of the customer. Pension cannot be managed as a MF scheme mainly because of the difference in the holding period and purpose for which it is invested. Now there are 6 Pension fund Managers to choose from and 3 asset classes of Equity, Corporate Debt & Govt Debt for you choose the required asset combination. The NPS costs in India are the least compared to other countries.
The default plan allocates the investment mix and change according to the age of the subscriber. At the lowest entry age of 18 years, auto choice entails an investment of 50 per cent in E, 30 per cent in C and 20 per cent in G.
The ratios will remain unchanged till the subscriber turns 36, when the ratio of investment in E and C will decrease annually, while the proportion of G rises.
By the time the subscriber is 55 years, G will account for 80 per cent of the corpus, while the share of E and C will fall to 10 per cent each..
It is better to take control yourself at times.
To get an idea about earning capacity of the schemes, one needs to know about regulatory requirements binding the earning capacity of each class of them:
1. Mutual Funds
2. Insurance
3. New Pension Scheme(NPS)
4. Non-Govt PF
5. Banks
Mutual Funds can be creative in their portfolio with different objectives for each scheme and thus varying asset allocation. Thus emerges infinite possibilities of risk-return combinations. Beyond that they are limited by single company and single instrument investment norms, mostly guided by governance norms.
But look at insurance companies, they are not permitted to invest their funds freely as the MFs. THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (INVESTMENT) (AMENDMENT) REGULATIONS, 2001 clips the outer limit for these companies as low as 25% Minimum in GOI securities. Unless it is a GOI securities fund, the MFs need not concentrate on them. Thus by birth itself, Insurance schemes have a clipping on their earning capability.
The NPS, the new kid in the street is akin to MF scheme, but with a Management Mandate of distinctive asset allocation according to age and preference of the customer. Pension cannot be managed as a MF scheme mainly because of the difference in the holding period and purpose for which it is invested. Now there are 6 Pension fund Managers to choose from and 3 asset classes of Equity, Corporate Debt & Govt Debt for you choose the required asset combination. The NPS costs in India are the least compared to other countries.
The default plan allocates the investment mix and change according to the age of the subscriber. At the lowest entry age of 18 years, auto choice entails an investment of 50 per cent in E, 30 per cent in C and 20 per cent in G.
The ratios will remain unchanged till the subscriber turns 36, when the ratio of investment in E and C will decrease annually, while the proportion of G rises.
By the time the subscriber is 55 years, G will account for 80 per cent of the corpus, while the share of E and C will fall to 10 per cent each..
At present, the equity investment, E consists of index funds that replicate the Sensex or Nifty portfolio. The C segment includes liquid funds, corporate debt instruments, fixed deposits and public sector, municipal and infrastructure bonds. The pure fixed investment instruments, G include state and central government securities.
The Non-Govt PF was permitted to invest upto 15% in Equities. The EPF and approved PFs are yet to accept these norms.
The banks are guided by capital to risk weighted asset ratio of 12 per cent. There is a differential risk weighting for different risk class of assets possessed. Under the current standardised methodology of risk weighting, Triple “AAA” to “AA-” rated assets need to be risk weighted at 20 per cent. However, with the credit rating sinking to “A”, the risk weighting increases to 50 per cent. That being the case, banks cannot give you a rate of return on your deposit, beyond a small band.
Thus when the earning capability itself is bounded by Regualatory Requirements, one needs to select the investment that best suits his purpose than just another product.
It is better to take control yourself at times.
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