Mutual Funds

Mutual funds houses lure agents through contests, incentives

2011-01-11T13:09:00.001+05:30

Faced with net outflows from equity schemes, some leading Indian mutual fund (MF) houses are indirectly funding contests for agents of big distributors that promise upfront incentives for each systematic investment plan (SIP) application.

Since April, equity schemes of MF houses have seen a net outflow of Rs 17,534 crore, data on the Association of Mutual Funds in India website show. More than half this outflow was in the three months ended November 30.

“Mutual funds are forced to pay upfront incentives to top distributors to garner equity assets,” said a sector official, on condition of anonymity. “To avoid the regulatory scanner, the contests run by distributors for their agents are indirectly funded by MF houses. This is done by various ways, like giving an advertisement in the magazine or website run by the distributors.”

A New Delhi-based leading MF distributor is presently running one such contest for its agents. For fresh equity SIPs of Rs 1,000-1,999 and having tenures of three or more years, the distributor is offering Rs 130 per application. For an equity SIP of more than Rs 2,000 and tenures of three or more years, he is giving Rs 300 per application.

In another contest for schemes of an MF house sponsored by a South Korean financial services company, the same distributor is offering Rs 200 per SIP application of Rs 1,000 having a tenure of 24 months to as much as Rs 5,000 per SIP application of Rs 10,000 with a tenure of 60 months.

In one of the terms of the contest, the distributor has mentioned that in case the SIP is discontinued, the incentive will be reversed and recovered from the ongoing brokerage. “However, generally, if the SIP continues for an year, the distributor doesn’t reverse the incentive,” said an official working for an MF distributor.

This per-application incentive is in addition to the upfront and trail commissions of about 1.5 per cent to 1.75 per cent given to the agents.

The Securities and Exchange Board of India had last year banned the entry load on MF schemes. After that, MF houses have to pay all upfront incentives and commissions to distributors from their own pockets. Before the ban, fund houses used to charge about 2.25 per cent load on equity schemes and pass these on as commission to distributors.

NEW NORM - KYC must for MF investors from Jan 1, 2011

2010-12-30T10:41:00.002+05:30

Mutual fund (MF) investors, irrespective of the amount they invest, will have to complete the Know Your Customer (KYC) requirements for all purchases, switches and new systematic investment plan registrations from January 1.

Investors have to submit the KYC form, which is available with fund houses, along with necessary documents at the nearest investor services centre. They have to provide a photocopy of the PAN card, proof of address document and a passport size photograph. Earlier, only resident individual investors making investments above Rs 50,000 were required to complete the KYC formalities.

Fund houses have made arrangements with CDSL Ventures for KYC compliance. On submission of KYC application along with the prescribed documents, a KYC acknowledgement letter will be issued. Investors have to provide the letter for carrying out transactions in MF schemes.

The category of investors who need to comply with the KYC norms also include power of attorney (PoA) holders (for investments done through a PoA), each of the applicants in case of investments in joint names and guardian for investments made on behalf of minors.

Non-individual investors (such as corporates, Hindu undivided families [HUFs], partnerships and trusts) that already have an MF Identification Number (MIN—not valid anymore) and have not provided PAN at the time of obtaining MIN should also complete the KYC formalities mentioned above.

Investors who have already completed KYC formalities should submit a copy of the acknowledgement along with a list of folio numbers. After verification, the status will be updated in records and investors would be able to transact as usual. Applications by investors without valid KYC acknowledgement letter are liable to be rejected from January 1, fund houses said.

Why should we invest in Mutual Funds?

2010-12-04T16:45:00.007+05:30

Investing in the equity market directly is exciting and glamorous. You are in the thick of things and are able to take responsibility for yourself. Though the volatility and the information overload makes it a daunting task. The present subprime quagmire makes it even more daunting.

How about investing through Mutual finds? Doesn't it have its own loading and administrative charges and the fund managers making merry on your hard earned money? And can't we see the best performing mutual funds and follow their portfolio? The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. NAV of mutual funds are required to be published in newspapers.

Here are some points to ponder:

* We should allocate our time to investment decisions in proportion to our income generation goals.
* Convenience and hassle free investing should be a major factor.
* Fund managers are into it full time. If we able to identify fund managers who have consistently performed over last 3-5 years, nothing like it.
* The fund manager also has the muscle power of crores of Rupees and is able to take entry and exit decisions impartially.
* MFs continuosly churn their portfolio. When MFs buy and sell stocks, they don't have to pay capital gains as you do when you churn.
* We are likely to panic over market crashes. MFs can take advantage of a crash!
* With Systematic Investment plans (SIP), you can start investing with as low as Rs 500 per month.

The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) www.amfiindia.com and thus the investors can access NAVs of all mutual funds at one place.

The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes.

Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format. The mutual funds are also required to send annual report or abridged annual report to the unitholders at the end of the year.

Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis.

Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds.

Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc. On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme.

Debt Mutual Funds for NRIs

2010-12-04T16:45:00.004+05:30

The NRI Conundrum and How Debt Mutual Funds Can Be A Viable Option

For any one individual to invest in India directly, he needs to show that he is a person of Indian origin. If they are holding an Indian passport, that serves the purpose. Else, they need to apply for a OCI, Overseas Citizen of India card, or a PIO, Person of Indian Origin card. Here they need to show that they were born in India, or any of their previous 2 generations, parents and or grandparents, were born in India. The process takes anywhere from 3 weeks to 2 months at present. Simultaneously, they need to apply for a PAN, Permanent Account Number card which can be done online. They will need to provide documentary evidence of identity proof and address proof, both overseas, and in India.

Mutual Funds vs. Direct Stock

For buying or selling shares, there is a need to have a broking or trading account, a demat account, to store the shares in, and of course a bank account that is linked. For NRIs the cost of transacting in direct stocks is higher than that for resident Indians. NRIs must use their equity accounts to build a long term portfolio as active trading turns out to be expensive. Further, restrictions on derivatives also exist. It may be prudent for them to consider mutual funds as a simpler way to start investing in India.

You Do not Have to be in Equities only

While every NRI seems to be focusing on equities, they seem to miss out a simple trick of improving their returns without enhancing risks considerably. The long term trend for the Indian rupee is expected to be stronger. The investor is sitting with GBP 10,000 in his bank in the UK earning less than 2 percent pa.

Debt Mutual Funds

Since most bonds do not allow NRI investments, the investment can be made through debt mutual funds. The investor also has the flexibility of aiming for a higher return with addition of corporate bonds to his portfolio, having the liquidity to withdraw whenever there is a spike in returns and also taking advantage of currency movements to make additional returns on currency. Of course, all this requires understanding of debt markets, currency markets and also tax implications, both in India and abroad. So do not try this on your own without expert advice.

7 Tax Saving Strategies for Salaried Individuals

2010-11-20T15:53:00.007+05:30

At the end of every financial year, many tax payers frantically make investments to minimize taxes, without adequate knowledge of the various available options. The Income Tax Act offers many more incentives and allowances, apart from the popular 80C, which could reduce tax liability substantially for the salaried individuals. Here are seven smart tips to help you save more and reduce taxes.

1. Salary Restructuring
Restructuring your salary may not always be possible. But if your company permits, or if you are on good terms with your HR department, restructuring a few components could reduce your tax liability.
* Opt for food coupons instead of lunch allowances, as they are exempt from tax up to Rs 60,000 p.a.
* Include medical allowance, transport allowance, education allowance, uniform expenses (if any), and telephone expenses as part of salary. Produce bills of actual expenses incurred for these allowances to reduce tax.
* Opt for the company car instead of using your own car, to reduce high prerequisite taxation.

2. Utilizing Section 80C

Section 80C offers a maximum deduction of up to Rs. 1, 00,000. Utilize this section to the fullest by investing in any of the available investment options. A few of the options are as follows.
* Public Provident Fund
* Life Insurance Premium
* National Savings Certificate
* Equity Linked Savings Scheme
* 5 year fixed deposits with banks and post office.
* Tuition fees paid for children’s education, up to a maximum of 2 children.

3. Options beyond 80C
If you have exhausted your limit of one lakh under section 80C, here are a few more options.
* Section 80D – Deduction of Rs. 15,000 for medical insurance of self, spouse and dependent children and Rs. 20,000 for medical insurance of parents above 65 years.
* Section 80CCF- Deduction of Rs 20,000, in addition to the Rs 1 lakh under 80C, for investments in notified infrastructure bonds.
* Section 80G- Donations to specified funds or charitable institutions.

4. House Rent Allowance
Are you paying rent, yet not receiving any HRA from your company? The least of the following could be claimed under Section 80GG.
* 25% of the total income or,
* Rs 2,000 per month or,
* Excess of rent paid over 10% of total income
* This deduction will however not be allowed, if you, your spouse or minor child owns a residential accommodation in the location where you reside or perform office duties.
* If HRA forms part of your salary, then the minimum of the following three is available as exemption.
* The actual HRA received from your employer
* The actual rent paid by you for the house, minus 10% of your salary (this includes basic + dearness allowance, if any)
* 50% of your basic salary (for a metro) or 40% of your basic salary (for non-metro).

5. Tax Saving from Home Loans
Use your home loan efficiently to save more tax. The principal component of your loan, is included under Section 80c, offering a deduction up to Rs. 1, 00,000. The interest portion offers a deduction up to Rs. 1, 50,000 separately under Section 24.

6. Leave Travel Allowance
Use your Leave Travel Allowance for your holidays, which is available twice in a block of four years. In case you have been unable to claim the benefit in a particular 4 year block, you could now carry forward one journey to the succeeding block and claim it in the first calendar year of that block. Thus, you may be eligible for three exemptions in that block.

7. Tax on Bonus
A bonus from your employer is fully taxable in the year in which you receive it. However request your employer for the following.
* If you anticipate tax rates to be reduced or slabs to be modified in the subsequent year, see if you could push the bonus payment to the subsequent year.
* Produce your tax investment details well before, to prevent your employer from deducting tax on bonus before handing it over.

A Final Word
Keep in mind the below points, to avoid the hassles of last minute tax planning.
* Give your employer details loans and tax saving investments before hand, to prevent any excess deduction.
* Check the Form 16 received at the end of each year from your employer thoroughly.
* It is important to start your tax planning well before 31st March, and to file your returns before the 31st of July each year.

Best Tax Saving Investments

2010-11-20T15:53:00.005+05:30

It’s already December and most companies will require the 80C investment proofs by the end of January 2010. Do not leave this task for the last moment. Earlier you start the better it is. Investment decisions should never be made in a hurry.

The investment avenues to maximize tax benefits available under Sec 80C & 80D.

Invest in ELSS schemes: It is one of the best investments to make if you can afford to take the risk. It is also one of the options where the lock in is least. There are a lot of ELSS (Equity Linked Savings Scheme) which offer a good avenue to invest to save tax as well as avail growth. SIP (Systematic Investment Plan) is a good way to invest in this asset class as it averages your cost over the year. Get your Insurance check up done: Do not take an insurance policy just to avail tax benefits. Get your insurance check done; calculate what your dependants need to stay financially fit even if you are not around. Life Insurance is for your loved ones’ goals and happiness. If you cannot afford a huge cover, take a term policy. It is one of those investments that will give you peace of mind and it is light on the pocket.

Add to the PPF account: PPF is one of the best debt products. The investment is Exempt from taxes, the interest is Exempt and so is the maturity amount. You can only invest up to Rs.70,000 in a financial year
Home loan Principal: The principal component being paid in the EMI of your home loan is also eligible under this Section. Don’t forget to get a break up from your bank.

Medical Insurance premium: You can now avail up to 15,000 of deduction if you pay your medical premium (your, spouse and dependants). In addition to this, if you are paying medical insurance premiums for your parents, that is eligible for another deduction (of up to 15000; up to 20000 if they are senior citizens).

But before you do this, do check what your contribution has been to the PF account, because that is also eligible under 80C. So, if your annual contribution to PF account is Rs.25,000 invest only the balance (Rs.75,000) for availing the 1 lakh deduction under Sec 80C.

In a nutshell:
- Check your PF contribution
- Check the principal component of the home loan payment
- Invest according to your financial goals
- Evaluate your insurance requirement
- Invest 1 lakh over the year not just the last 15 days

Answers to Some Questions from our Readers

2010-11-20T15:52:00.004+05:30

Q: I have a one-year-old daughter, whose education and marriage I want to start planning for now itself. I want to create a corpus of Rs 60-70 lakh for this over the next 20 years. I have already started one systematic investment plan (SIP) of Rs 3,000 with Reliance Regular Savings Equity Fund. I want to start another SIP of Rs 3,000 I am considering either IDFC Premier Equity Plan A or HDFC Balanced Fund. Which one should I choose?

Ans: The best way is to invest in mutual funds regularly through SIPs. If you regularly invest Rs 6,000 a month in mutual funds that earn an annual return of 15 per cent, you can build a corpus worth Rs 90 lakh over 20 years. Reliance Regular Savings Equity Fund is a foru-star rated multi-cap fund. It fared very well in the long-term. While IDFC Premier Equity Plan A, a five-star, mid- and small-cap fund, HDFC Balanced (four-star rated), is an equity-oriented hybrid one. As your goal is very far, you can think of investing in the mid- and small-cap fund, provided you understand the risk it carries, especially when compared to a balanced fund, wherein only 60 per cent of the fund invests in equities and rest in debt.

Do track your investments once a year to evaluate the progress and if there is any need for change your fund selection, as a fund that is good today may not be so forever. It will also be a good idea to move towards balanced funds closer to the year when you need this corpus, to check the portfolio from any shocks from equity market swings.

Q: I am 35. I am investing Rs 1,000 through SIPs each in DSPBR Top 100, Franklin Templeton Blue Chip Fund, HDFC Top 100, HDFC Equity Fund and HDFC Prudence and Rs 2,000 in IDFC Premier Equity Fund. My goals are my daughter’s education and a retirement corpus. What is your view on my fund selection? Should I change any of these?

Ans: You have a good choice of highly rated funds. All these funds have a track record that demonstrates long-term performance, is in-line with your investment objective. Your portfolio has a large-cap growth style, which is good, with 89 per cent equity exposure and the rest in debt instruments, with investments in 131 stocks. The top stocks in which your fund has allocation are Infosys, ICICI Bank, SBI, Airtel and Reliance Industries.

If you make tangible goals such as needing a corpus of Rs 20 lakh for your daughter's education in 10 years and a corpus of Rs 90 lakh for retirement after 30 years, it will be easy to evaluate the portfolio's performance. You should also take care and track the performance of the funds you have selected at least once a year, to ascertain progress and any deviation. This way, you will be able to exit funds that are not performing and not lose on your financial goals.

Q: I don’t have a demat account. Can I still invest online to buy and sell mutual funds?

Ans: You don’t necessarily need a demat account to start investing in mutual funds. You can start online either through an asset management company or through websites that support buying and selling of funds. These are all simple to use and also offer additional facilities through which you can view and analyse your fund holdings.

Mutual Funds Investment Tips

2010-11-20T15:36:00.001+05:30

Indian financial system is a well organized structure for finance in India. Mutual funds are one of the investment options available to investors. Mutual fund investment is the most preferred investment technique adopted by Indian investors. The reason being the risk associated with it is lesser as compare to other investment options.

There are some tips for mutual fund investors, with these tips he can invest smartly in it. First of all investor has to understand that there are two types of risk certain and uncertain risk. Certain risk is a type of risk which can be controlled by properly managing the portfolio of shares where as mutual fund cannot do this for uncertain risk. Therefore an investor should always study the present market and predict the future market and invest in such a way that there should be negative correlation between the shares chosen, so that when value of one share increases with the market and due to any other reason value of other share decreases then there should be a balance and loss could be minimized.

An investor should always keep in his mind that Mutual Fund Investment is not hundred percent risks free but is insulated from market risk and risk is minimized. Investor should always keep an eye on the fee and associated costs as incorporated by mutual fund investment companies. Because many a times it happens there are many hidden costs which companies take by making fool of their customers. The shares which perform consistently well and those shares which are new and doing average performance should be bought first. And later if investor’s budget allows him then he can take a chance with average going shares but those one which are old and have grip in the stock market. Hence by adopting these techniques an investor can have an efficient portfolio of shares. And will help you in many other ways. Thus makes you a smart investor. And brings you profits.

ETFs provide a real time price discovery for investors

2010-11-13T12:51:00.001+05:30

EXCHANGE-traded funds (ETFs), as the emerging mutual product fund segment in India, have positively redefined the value proposition for investors. Despite an increasing overlap of the ETF concept with exchange traded products, the crucial difference is that, ETFs are mutual funds that are available only through exclusive medium of stock exchanges. Thus in contrast to a regular fund, which can be brought or redeemed off the counter or at the exchange, ETFs are available only through the latter.

The underlying asset of an ETF can be any tradable asset: be it stock, commodity, bonds and currency. Currently, in the Indian context, only stock ETFs and gold ETFs have received the regulator and the investor acceptability.

ETFs provide a real time price discovery for investors and relegate the investment effort to a click of a button. Additionally, the cost of investment is far reduced, and therefore provides an inherent growth advantage vis-à-vis other funds. Additionally, many ETFs also provide a passive exposure to assets that otherwise would be out of reach for most investors. Albeit, even actively managed funds are readily available through ETFs.

ETFs, since they are traded on the stock exchange, are subject to the same cost which are applicable to share trading, i.e,: brokerage, STT, demat cost (if any) etc.

In turn, ETF units are only managed by the funds, (actively or passively) and as such invite a lower ‘expense ratio’ from asset management companies (AMCs). Therefore, the cost of purchasing ETF units is directly dependent on the frequency of entry and exit, as well as the size of acquisition. On the other hand, the entire corpus of a regular mutual fund (most of the time) invites the same cost, irrespective of the size of individual holdings.

The convenience of acquiring, holding and divesting ETFs are also a key feature that make them stand out from the rest. Since ETFs are traded like the stock, the acquisition, valuation and disposal of the investment is real time. Moreover, the price discovery largely tends to be precise, rather than on the end of day basis. This facilitates the investor to utilise the price variations in the underlying asset in a relatively sharp detail and time. Investors can also carry out other features of stock investment in ETFs that is otherwise not feasible in a regular fund. Namely, day trade, short sell, limit order and a potentiality to buy and sell a stock in a single unit.

In the present market context, wherein the market has approached its 2008 peak level, the ease and accessibility of ETFs may come in handy in managing the emerging investment environment.

For instance, increasing liquidity and a largely hawkish interest rate regime have had a variegated effect on the equity markets. The Sensex is trading at around 16X forward PE. This valuation is significantly cheaper than the previous peak of 2008 but still looks stretched from the historical average . Nevertheless, the sharp emergence of Indian equities, and the resultant FII induced liquidity glut, have kept the market momentum going. Also, with the Indian economy maintaining its high growth rate, global flows may continue to find their way into the Indian equities market.

In this backdrop, investors can (subject to the market prognosis) actively allocate corpus between an index ETF and a gold ETF. Additionally, investors can execute their own ‘flexible’ SIP by self-ascertaining the time and scale of investment depending on the market condition.Also, a potent case for investment in gold ETF remains. A volatile geopolitical setup, an increasingly chary global economy and the rising demand for gold jewellery in India and China are some of the reasons that make investment in gold ETFs a lucrative investment opportunity.

Managing Risks in Diversified Investment Ventures

2010-10-25T16:39:00.001+05:30

Do you think risks should not be part of any investment venture? Well, you cannot do away with risks; equity shares and mutual funds are no exception. There are numerous instances of investors who have become millionaires in no time thus giving shape to all their cherished dreams. There are also instances of employed individuals who are regularly making extra money from the Indian share market. You can be a part of the race too. How you manage your risks will determine how much returns you will get from your investment.

To start with, keep your portfolio size little. This is more applicable for beginners who are yet to learn more about the Indian share market. For every series of Indian stocks you invest, knowledge of crucial occasions that might affect their cost is a must. You can have access to all related information online. It is also equally important to account the quarter results of the company the stocks of which you are going to invest. This is because the quarter results may have a big price impact; the price may either go up or down.

Equity shares are not meant to be treasured for life; you can sell them off at the opportune time. The Indian stocks you invest may be limited for the day or several weeks or for the long term. Generally for intraday trading equity shares of small and new companies are most preferred. This is because of the big gains associated if any. Investors go for blue chip companies when it comes to long term investing of equity shares. There is no doubt less risk involved in such a situation compared to the short term trading. You can buy and sell equity shares concerning all the three types of trading. You will have to devote enough time, especially for the short time trading because they involve more risks. The Indian share market is a mixed bag of profits and losses. It is by maintaining a balance that you can sail forward.

There are quite many investors who manage risks by diversified investments. So, it is not only Indian stocks but also mutual funds of India and the commodity market that equally attract them. Even if losses are incurred in one particular venture, profits in the other ventures will help maintaining a balance.

Where can you gain enough information about the mutual funds of India, commodity market, besides the Indian share market? Of course an online brokerage platform! Here, you can have access to all relevant information. You can also avail the advantage of getting tips on all investment ventures from market experts if you become a registered member.

Today, the commodity market has equally gained momentum equivalent to the enthusiasm for investment in equity shares. Mutual funds of India are no exception. Some of the leading financial institutions that offer mutual funds in India include SBI, Tata, Kotak Mahindra, Birla Sun Life, LIC of India, HDFC, to name a few.

Mutual Funds money investment the fastest-doubling process

2010-08-03T11:13:00.002+05:30

Million were invested in mutual funds and others are waiting to invest in this area. Mutual Fund Investment is the tool that covers double your money in the shortest possible time. You can call it “mutual fund, managed and operated by professionals. The money is pooled and received by clients in various bonds, equities and money market instruments, short-term investments and other securities. A portfolio manager, as it is called, it’s their job to help you manage your money for the invaluable assistance, they invest in different areas of interest, all the scenarios based on the current market.

How can use all avenues of investment funds?

Investment and shipping costs are based on an annual basis. In the Indian context, the monetary channel “requirements are strongly influenced by SEBI (Securities and Exchange Board of India) regulated. The costs of action to which you have invested, are under constant scanning of the award. It is always invest in various fields such as “putting all your eggs in one basket.” Playing it Safe on the side with the doubling of your money is the main agenda behind all these systems.

These from a nominal amount. Thus, one can invest at home in India too easy in this area to inflate his bank account. But it is always preferable to concentrate entirely on your ability to invest in managing the risk that the market is very volatile and you can make or break through them. The doors of your shares at the NAV (net asset value of purchase) are still open, but it comes with a price. There are dozens of plans that can be broadly classified into three main branches of the money market, bonds / fixed income and equity / Equity Fund.

about types of investment funds investment

We can say that more opportunities for feedback is always the risk is higher. All these plans have individual clauses and return values. low risk category does Money Market Fund in the top slot. You can invest in some high-quality, short-term securities issued by the government. Yields are significantly lower than the other two systems. But it is safer area. Bond can vary considerably in their individual opportunities and risks. Stock is the most terrible of all. The money is good, and therefore the risk. But how many of us really know how to play the market only a handful of safe that I propose. Just as control of the money market participants. com and network-18, you can help with plans. They give you detailed advisory on the market and where to invest money valuable. You are online portals that will give you an overview of these systems on the Indian market scenario.

Sebi’s good intentions crippled the Great Indian Mutual Fund

2010-08-03T11:09:00.001+05:30

On August 1, 2009, nearly a year back, the Securities and Exchange Board of India (Sebi), the stock market regulator, banned mutual funds from charging entry loads.

Mutual funds used to typically charge an entry load of 2.25% of the net asset value of a scheme and use that money to pay agent commissions.

In the new regime Sebi wanted the agent and the investor to negotiate and arrive at a commission, which the investor could pay the agent by issuing a separate cheque.

At least that was the plan.

While this made it cheaper for retail investors to buy mutual funds, the fall in commissions for its agents and distributors effectively left few people to sell it to them.

Now nearly one year on, the effects continue to be felt. “The situation is still difficult. We are still seeing net redemptions,” said the head of a mid-sized mutual fund.

Assets under management for equity funds, which have the most amount of retail participation among the various segments have seen net redemptions in 8 out of 11 months since the ban on entry loads.

There have been net outflows of Rs 8,160 crore since August 2009 in case of equity mutual funds.

As one industry person said, unlike other products such as toothpaste or toilet paper nobody wakes up in the morning and feels a pressing need to buy a mutual fund.

The Ulip conundrum
With insurance products offering higher commissions, distributors are said to have dropped the mutual fund in lieu of a more expensive investment product-the unit linked insurance plan, whichis an investment plan with a dash of insurance.

Ulips have been paying significantly higher commissions than mutual funds over the years, though structurally they are more or less the same.

Between July 2009 and March 2010, for which the latest data was available, Ulips managed to raise Rs 108,803 crore in total. That clearly illustrates the power of commission in a country, which is gradually coming out of financial illiteracy.

There was an attempt to bring parity between Ulips and mutual funds when Sebi issued a circular asking Ulips to register with Sebi, but an ordinance that placed control definitively in the hands of the insurance regulator (Irda) and away from the hands of the market regulator put paid to a glimmer of hope for mutual funds.

Fund houses grappling with changes are said to be finding it difficult to engage the customer, said industry insiders.

“The change was brought about too fast, business models need time to re-align. As a result, engagement with end customer has gone down because everybody is focused internally,” said the head of a foreign mutual fund.

What also does not help is the fact that insurance companies are allowed to use celebrities to advertise while mutual funds are not.

So you have the likes of Sachin Tendulkar, Virender Sehwag and even super star Amitabh Bachchan advertising insurance. “Now how do you expect us to take on a me too product being advertised by Amitabh Bachchan, our superior performance not withstanding?” asks the head of sales of a mid sized mutual fund.

Long-term Ulips?
Insurers have often stressed on the fact that Ulips are a long term product. In fact that claim also falls flat in lieu of the fact that over a period of five years, the average return of an equity mutual fund has beaten the average return of equity oriented Ulips by more than 20%.

The 25 best mutual funds on the other hand have given an absolute return of more than 80% in comparison to equity oriented Ulips.

Effective competition is supposed to act in the best interest of the consumers. But that does not seem to be happening in the context of the retail investor in India who can choose between the high commission paying Ulips and very low commission paying mutual funds.

The obvious reason as explained above is there are perverse incentives at work. But the truth is a little more complicated than that.

Let’s deviate a little into an interesting example that Sheena Iyengar gives in her book The Art of Choosing about bottled water brands.

“The two best-selling brands of bottled water in the U.S. are owned by Pepsi (Aquafina) and Coke (Dasani), you’d be... unlikely to see them aggressively advertising their health benefits relative to soft drinks, one of the few they could legitimately make.”

The moral of the story: A bottled water brand cannot say it is healthy to drink water if it happens to be owned by a company which also sells soft drinks.

Similar is the case with the Indian mutual fund industry. Not one mutual fund till date has made an effort to communicate its better performance over Ulips in the last five years. Not one mutual fund has made an effort to communicate its low commissions vis a vis Ulips.

If one side of the market cannot communicate what its strengths are then there is no way a market can function efficiently and people of course will continue to buy high commission paying Ulips.

And why is that? The biggest Indian mutual funds are all promoted by companies which have insurance subsidiaries. Be it Reliance, Birla, SBI, ICICI, HDFC, Kotak, Religare Bharti Axa, ING, Tata, HSBC, Canara or LIC.

All these promoters run both insurance companies as well mutual funds. So there is no way any of the mutual funds can come out and compare their performance with Ulips and say their performance is better. It is not in the interest of their promoters.

Over and above that some of these promoters also run banks.

And for banks, insurance commissions are lucrative and an easy way of boosting their other income.

In fact a recent survey titled the “India Bancassurance Benchmarking Survey 2010”, carried out by Rajagopalan Krishnamurthy of Towers Watson points out: “The responses to the survey confirm the assessment that bank distribution in the case of life insurance is currently highly skewed in favour of Ulips.

Ulip sales account for more than 85% of premiums generated by banks.”And since collecting these premiums pays high commissions, banks like to sell only Ulips.

So basically it’s not in the interest of any of the players in the market to disturb the current high commission paying set up. And you my dear investor are the least of their considerations.

The regulator’s perspective
The chairman of Sebi, C B Bhave expressed the regulator’s perspective at a mutual fund summit in June, saying that the regulator will prefer to put the investor before the industry.

The assets under management for the industry currently stands at Rs 6.75 lakh crore with Income funds accounting for Rs 3.28 lakh crore. The huge amount of money in income funds points out clearly to the oft repeated fact that the Indian mutual fund industry caters primarily to institutional investors.

There have been other attempts by the regulator to make the
mutual fund more “retail investor” friendly.

Recently Sebi has tried to bring in parity in the expenses charged to institutional and retail investors. Large institutional clients would be charged much lesser for their investments in debt funds
compared to retail clients. This, argued the regulator, amounts to the retail investor subsidising the institutional one.

Fund houses are said to have protested on the ground that the cost of servicing a retail investor too, is different from that of an institutional client.

Sale of mutual funds through exchanges began after Sebi’s November 13, 2009, circular stating that mutual fund schemes may be permitted to be transacted through registered stock brokers of recognised stock exchanges.

Despite points of presence inacross India, the initiative has so far failed to take off.On average, there have been 1,032 trades daily for the month of July, less even than one for every one of the 1500 cities that just the National Stock Exchange boasts a presence in.

A number of other mutual funds are also reportedly looking for banking partners to strengthen their distribution.

Some in the mid-sized segment are looking at selling a stake including one that is fond of gerunds and another which had tied up with a company known for its telecom operations.

Consolidation may not take place through acquisitions or mergers. “Consolidation in terms of AUMcould happen with more of the money going towards fewer of the players,” said the head of one of the largest AMCs.

Meanwhile, for many other mutual funds the ending does not seem as happy.

One mutual fund chief executive officer summed it up, late one night, after the passing of the ordinance which placed Ulips outside Sebi’s purview. “We are dying.”

Mutual fund investors go demat, exchange volumes spurt in July

2010-08-03T11:05:00.001+05:30

As a long-term benefit, demat of MFs could provide a big push to the trading of units on stock exchanges.

As executive director of the Securities and Exchange Board of India (Sebi) and later as chairman of National Securities Depository Ltd (NSDL) in the 1990s, C.B. Bhave dragged the Indian equity market into the paperless era.

He is now attempting an encore as chairman of Sebi, the capital markets regulator. In November, Bhave began a process to shred the paper in the mutual fund business through dematerialization, or demat.

Large distributors of mutual funds are now goading clients to hand over their paper certificates to NSDL, India’s largest depository, and hold them in electronic form instead. Industry experts say this would help distributors save postage, stationery and infrastructure costs.

There could be a long-term benefit as well: Demat of mutual funds could provide a big push to the trading of units on stock exchanges.

Ashu Suyash, managing director and country head, Fidelity Fund Management Pvt. Ltd, with Rs7,879 crore in assets, said, “This is the next part of the move to allow MFs (mutual funds) to be traded on exchanges. Without demat, the exchange platforms were not getting traction. This move will be an enablement.”

Krishnamurthy Vijayan, CEO, IDBI Asset Management Co. Ltd, with Rs1,300 crore in assets, said the demat process will help exchange platforms. “All capital market investments will be available in one statement, making life simple for investors,” he said.

Mutual fund buying on exchanges got off to a slow start, but activity has picked up in July. The daily average number of transactions grew more than 10-fold, to over 1,000 transactions worth nearly Rs6 crore in July.

In November 2009, Sebi floated the idea of trading units on exchanges to help the Rs6.75 trillion MF industry, which was on the back foot after a June 2009 Sebi order banning payment of agent fees from investor money.

However, till now only new purchases could be made through these platforms. With the introduction of demat, even old fund holdings can now be transacted on exchanges.

NSDL alone has over 10 million active demat accounts with assets worth Rs59.5 trillion. In comparison, the MF industry has over 40 million investor accounts with assets in excess of Rs6.75 trillion, most of it paper.

Surjit Mishra, executive vice-president and national head, mutual funds, Bajaj Capital Ltd, a financial products distributor, said that contrary to popular belief, a good number of MF investors already have demat accounts for their direct equity investments. “Roughly 50% of MF investors already own demat accounts. By converting their MF investments into demat form, they will get great ease in transaction and accounting.”

According to Mishra, this will improve further as people can now use the demat to sell and exit existing investments. “Without demat, only new (mutual fund) investments can be done and only those investments made through the exchange platform could be refunded. With the introduction of demat, existing investments can also be transacted. The number of transactions will go up,” he added.

Entities such as Integrated Enterprises India Ltd, a distributor and depository participant, are pushing dematerialization. “We are actively promoting the demat route,” said V. Krishnan, head of mutual funds at Integrated. According to him, the response has been good. “We have got very good response during the recent new fund offers of HDFC Asset Management Co. Ltd and ICICI Prudential Asset Management Co. Ltd. In June, we opened about 100 new demat accounts. This month the number has crossed 500 already and may cross 600 eventually.”

The growing popularity of exchange-traded funds, or ETFs, as an important class of funds is also driving home the importance of demat accounts. At least two new fund offers are for ETFs.

However, one major hitch is the direct transfer of units to client accounts. In share transactions, shares are first transferred to pool accounts of brokers before being moved to a client’s account. This gives the broker a chance to ensure that payment is received before the shares are transferred. But in a mutual fund transaction, the units are directly transferred to client account. “This puts the risk on the broker. Therefore, only pre-funded transactions are being executed at present. We have asked the regulator for the pooled account facility in mutual fund units also. Once this is allowed, most brokers would begin to show interest,” Krishnan.

Mutual fund investors go demat, exchange volumes spurt in July

2010-07-27T14:33:00.001+05:30

As executive director of the Securities and Exchange Board of India (Sebi) and later as chairman of National Securities Depository Ltd (NSDL) in the 1990s, C.B. Bhave dragged the Indian equity market into the paperless era.

He is now attempting an encore as chairman of Sebi, the capital markets regulator. In November, Bhave began a process to shred the paper in the mutual fund business through dematerialization, or demat.

Large distributors of mutual funds are now goading clients to hand over their paper certificates to NSDL, India’s largest depository, and hold them in electronic form instead. Industry experts say this would help distributors save postage, stationery and infrastructure costs.

There could be a long-term benefit as well: Demat of mutual funds could provide a big push to the trading of units on stock exchanges.

Ashu Suyash, managing director and country head, Fidelity Fund Management Pvt. Ltd, with Rs7,879 crore in assets, said, “This is the next part of the move to allow MFs (mutual funds) to be traded on exchanges. Without demat, the exchange platforms were not getting traction. This move will be an enablement.”

Krishnamurthy Vijayan, CEO, IDBI Asset Management Co. Ltd, with Rs1,300 crore in assets, said the demat process will help exchange platforms. “All capital market investments will be available in one statement, making life simple for investors,” he said.

Mutual fund buying on exchanges got off to a slow start, but activity has picked up in July. The daily average number of transactions grew more than 10-fold, to over 1,000 transactions worth nearly Rs6 crore in July.

In November 2009, Sebi floated the idea of trading units on exchanges to help the Rs6.75 trillion MF industry, which was on the back foot after a June 2009 Sebi order banning payment of agent fees from investor money.

However, till now only new purchases could be made through these platforms. With the introduction of demat, even old fund holdings can now be transacted on exchanges.

NSDL alone has over 10 million active demat accounts with assets worth Rs59.5 trillion. In comparison, the MF industry has over 40 million investor accounts with assets in excess of Rs6.75 trillion, most of it paper.

Surjit Mishra, executive vice-president and national head, mutual funds, Bajaj Capital Ltd, a financial products distributor, said that contrary to popular belief, a good number of MF investors already have demat accounts for their direct equity investments. “Roughly 50% of MF investors already own demat accounts. By converting their MF investments into demat form, they will get great ease in transaction and accounting.”

According to Mishra, this will improve further as people can now use the demat to sell and exit existing investments. “Without demat, only new (mutual fund) investments can be done and only those investments made through the exchange platform could be refunded. With the introduction of demat, existing investments can also be transacted. The number of transactions will go up,” he added.

Entities such as Integrated Enterprises India Ltd, a distributor and depository participant, are pushing dematerialization. “We are actively promoting the demat route,” said V. Krishnan, head of mutual funds at Integrated. According to him, the response has been good. “We have got very good response during the recent new fund offers of HDFC Asset Management Co. Ltd and ICICI Prudential Asset Management Co. Ltd. In June, we opened about 100 new demat accounts. This month the number has crossed 500 already and may cross 600 eventually.”

The growing popularity of exchange-traded funds, or ETFs, as an important class of funds is also driving home the importance of demat accounts. At least two new fund offers are for ETFs.

However, one major hitch is the direct transfer of units to client accounts. In share transactions, shares are first transferred to pool accounts of brokers before being moved to a client’s account. This gives the broker a chance to ensure that payment is received before the shares are transferred. But in a mutual fund transaction, the units are directly transferred to client account. “This puts the risk on the broker. Therefore, only pre-funded transactions are being executed at present. We have asked the regulator for the pooled account facility in mutual fund units also. Once this is allowed, most brokers would begin to show interest,” Krishnan.

Common investment mistakes you should avoid when investing in Equities

2010-07-26T11:30:00.000+05:30

Here are some common mistakes people make when investing in equities and that you should stay away from.

Mistake No 1: The first and biggest mistake is not to admit making a mistake

People stubbornly hold on to stocks where they are making sizeable losses in the belief that they can exit when the price reaches their buying price. Most of the minds are not trained to acknowledge the fact that they have made a mistake and probably the best thing is to move on. There was this gentleman who had bought a “penny stock” at Rs. 9 following a tip and hoping that it would double in a few months. The stock first rose by 20% and then declined by almost 40%. He was unwilling to let go of the position with the belief that he will do so only when the price reaches his buy price and it will happen sometime soon. The gentleman is still holding on to the stock and the stock has lost a further 40%. He could have exited the stock with a loss of just 28% initially (considering the appreciation of 20%). Now his losses are around 56% and he is still holding the stock. This happened in October 2005. Even several blue chip stocks have actually doubled or tripled since then.

Mistake No 2: Buy on tips and khabars and wanting to make a quick buck

Technology has made our lives much easier but at the same time has caused a lot of overload as well. We are subject to SMSes , emails and flyers with lucrative offers for “buy and sell tips” , commodities trading etc. that at the end of the day leave you confused. In this state only two things can happen, (a) One is that you procrastinate and not take any action with the fear of screwing it up and (b) Succumb to these offers for making you rich quickly.

The point that I am trying to make is that how people who are conservative or sane can take dangerous calls and sabotage their own well being. I remember having met this conservative gentleman who was targeting only 12% returns but still could not resist the stock market temptation when the broker called and showed him some tantalizing figures.

Mistake No 3: Buying a loser on its way down thinking you are averaging your costs

Mistake No 4: Ignoring Risk in the investment and looking only at the returns

Risk is an integral part of every equity investment and some equity investments are more risky than others. People however look at the returns without giving due importance to risk. Stock Futures can give you great returns but at the same time they can wipe out your capital as well. In the mutual fund context, people look at returns when investing in the fund, but do not consider the kind of risks the fund manager has taken whether it be concentration in stocks or sectors etc. At the same time betting heavily in Futures & Options, Commodities without understanding the nuances of the same is fraught with risk. Understand the risk i.e the downside inherent in every investment and volatility associated with it.

Mistake No 5: Buying penny stocks thinking they are cheaper and ignoring stocks, which are priced above a certain number like Rs. 1000 thinking, they are expensive.

Mistake No 6: Exiting Winners early and sticking to Losers

Ask yourself “Suppose I have a choice of 2 boats. Boat A is strong, consistent and has traveled the sea through many rough weathers as well. Boat B is showing some cracks and leaks in certain places. Water seeped in through this boat sometime back. Which boat will I choose to safely get me from this shore to the next? I bet all would opt for Boat A and no person in his right mind would opt for Boat B. Yet when this same logic is applied to stocks, people will stick to losers (Boat B) but exit winning stocks (Boat A) to make a small profit.

Mistake No 7: Just thinking but not doing anything

Finally doing makes all the difference. There is no substitute for action. Just knowing that exercise is good will not keep you fit. In the same vein, just knowing this stock is good is of no use unless you buy it.

I come across so many intelligent people who know many things but are simply unable to implement because of lack of time and busy schedules. “I knew this stock would do well, wish I had put in money here” or “I missed a good time to enter this stock” are some common responses you hear. Whatever the reason be, in the end what matters is whether you did what you knew was right. A better option for people here is to put their investments on Autopilot (Automatically investing fixed amounts every month in stocks and mutual funds).

To be a successful investor and create wealth through equities, you should shun the costly mistakes outlined. And yes if you have made any one of the above mistakes, admit it and correct it. More importantly “Stop Hoping”.

At the end of the day “Hope is not a Strategy in the Equities Market”.

Ten must-reads in an MF offer documents

2010-07-26T11:22:00.001+05:30

You would have come across this line in all Mutual Fund advertisements, “Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing.” It’s an open secret that this 80 to 100 page bulky document is not simple to read and the legal information it contains is not easy to understand for most investors.

However, Sebi has made the investor’s job easier by evolving an abridged form, the Key Information Memorandum. Also, Sebi has served the cause of investors by stipulating standard sections and standard disclosures in all Offer Documents. Hence, the Offer Document can be the friend and guide of an enlightened investor. Here is a guide to what an Offer Document is, why it is important and what are the 10 Most Important Things to Read in an Offer Document for investors.

What is a Mutual Fund Offer Document?
It is a prospectus that details the investment objectives and strategies of a particular fund or group of funds, as well as the finer points of the fund's past performance, managers and financial information. You can obtain these documents from fund companies directly, through mail, e-mail or phone. You can also get them from a financial planner or advisor. All fund companies also provide copies of their ODs on their websites.

10 Most Important Things to Read in an Offer Document:

Date of issue
First, verify that you have received an up-to-date edition of the OD. An OD must be updated at least annually.

Minimum investments
Mutual funds differ both in the minimum initial investment required, and the minimum for subsequent investments. For example, equity funds may stipulate Rs 5000 while Institutional Premium Liquid Plans may stipulate Rs 10 crore as the minimum balance. (Also read - How to reduce risk while investing?)

Investment objectives
The goal of each fund should be clearly defined — from income, to long -term capital appreciation. The investors need to be sure the fund's objective matches their objective.

Investment policies
An OD will outline the general strategies the fund managers will implement. You'll learn what types of investments will be included, such as government bonds or common stock. The prospectus may also include information on minimum bond ratings and types of companies considered appropriate for a fund. Be sure to consider whether the fund offers adequate diversification.

Risk factors
Every investment involves some level of risk. In an OD, investors will find descriptions of the risks associated with investments in the fund. These help investors to refer to their own objectives and decide if the risk associated with the fund's investments matches their own risk appetite and tolerance. Since investors have varying degrees of risk tolerance, understanding the various types of risks in this section( eg credit risk, market risk, interest-rate risk etc.) is crucial. Investors must raw be familiar with what distinguishes the different kinds of risk, why they are associated with particular funds, and how they fit into the balance of risk in their overall portfolio. For example, a Post Office Monthly income plan assures an 8% monthly income payment for its 6 years tenure. A Mutual Fund MIP invests in a portfolio of 80% to 90% bonds and gilts and 10% to 20% of equities, to generate capital appreciation, which is passed on to customers as monthly income, subject to availability of distributable surplus. In 2004, a lot of mutual fund customers underestimated this market risk and were caught by surprise when the MIPs gave low/negative returns. (Also read - Fear interest rate risk? Here is the solution)

Past Performance data
ODs contain selected per-share data, including net asset value and total return for different time periods since the fund's inception. Performance data listed in an OD are based on standard formulas established by Sebi and enable investors to make comparisons with other funds. Investors should keep in mind the common disclaimer, "past performance is not an indication of future performance". They must read the historical performance of the fund critically, looking at both the long and short-term performance. When evaluating performance, investors must look at the track record of a fund over a time period that matches their own investment goals.

They must check that the benchmark chosen by the fund to compare its relative performance is appropriate. Sebi is doing a fine job of ensuring this as well. In addition, investors should keep in mind that many of the returns presented in historical data don't account for tax. They must look at any fine print in these sections, as they should say whether or not taxes have been taken into account.

Fees and expenses
“Mutual funds have two goals: to make money for themselves and for you, usually in that order.”- Quote from Fool.com. Entry loads, exit loads, switching charges, annual recurring expenses, management fees, investor servicing costs…these all add up over time. The OD lists the limits on these fees and also shows the impact these have had on the fund investment historically.

Key Personnel esp Fund Managers
This section details the education and work experience of the key management of the fund company, including the CEO and the Fund Managers. Investors get an idea of the pedigree and vintage of the management team. For example, investors need to watch out for the fund that has been in operation significantly longer than the fund manager has been managing it. The performance of such a fund can be credited not to the present manager, but to the previous ones. If the current manager has been managing the fund for only a short period of time, investors need to look into his or her past performance with other funds with similar investment goals and strategies. Only then can they get a better gauge of his or her talent and investment style.

Tax benefits information
Mutual funds enjoy significant tax benefits under Sec 23 D and Sec 115 .For example, Equity funds enjoy nil long terms capital gains and nil dividend distribution tax benefits. A close reading of the tax benefits available to the fund investors will enable them to plan their taxes better and to enhance their post tax returns.

Investor services
Shareholders may have access to certain services, such as automatic reinvestment of dividends and systematic investment/withdrawal plans. This section of the OD, usually near the back of the publication, will describe these services and how one can take advantage of them.

Conclusion
After reading the sections of the OD outlined above, investors will have a good idea of how the fund functions and what risks it may pose. Most importantly, they will be able to determine if it is right for their portfolio. If investors need more information beyond what the prospectus provides, they can consult the fund's annual report, which is available directly from the fund company or through a financial planner.

This investment of time and effort would prove very beneficial to investors.

ICICI Prudential MF launches Gold ETF

2010-07-24T15:14:00.000+05:30

ICICI Prudential Mutual Fund launched its open-ended exchange traded fund -- ICICI Prudential Gold Exchange Traded Fund.

The fund has an objective to provide investment returns closely tracking the performance of domestic gold prices derived from London Bullion Market Association fixing prices, a press release said.

According to the release, Gold ETF costs are lower than buying, storing and insuring physical gold and the units can be bought and sold on the major exchanges like the NSE or BSE.

"The Gold ETF will allow investors to participate in the future potential of this asset classes with convenience and create a holistic financial portfolio for themselves," ICICI Prudential AMC, Managing Director, Nimesh Shah said.

The units can be bought and sold in small quantities - as low as one unit, which is approximately equivalent to one gram of gold. The purity is 99.5 per cent or higher and the NAV will be declared on a daily-basis, the release said.

The New Fund Offer of the fund will close on July 29. ICICI Prudential AMC has average assets under management of around Rs 73,795.42 Cr as on June 30, 2010.

Desi equity MFs shining globally

2010-07-24T15:07:00.001+05:30

Even as their assets under management (AUM) dwindle, equity mutual funds have something to cheer about. A study conducted by iFAST Financial has revealed that Indian diversified equity mutual funds are among the top performers globally in the last one year compared to their counterparts in other advanced markets.

The performance of Indian equity MFs for the period from January 10 to June 10, 2010 is also quite convincing. If one considers the returns given in the last one year as a benchmark, Indian and Indonesian funds clearly dominated the list of 20 top performing equity funds. "19 out of the 20 top performing funds are from these two countries," the report says.

There are 13 Indian funds in the top chart, followed by 6 from Indonesia and one from Philippines. The Indian funds that made it to the list include DSP Black Rock Small & Mid Cap, Reliance Equity Opportunity (growth), HDFC Mid Cap, UTI Mid Cap growth, ICICI Prudential Emerging STAR, IDFC Small & Mid Cap, Kotak Mid Cap growth, Franklin India Prima and Principal Emerging Bluechip.

As per the study, the top performing Indian funds are those that maintained higher exposure to mid cap and small cap stocks. "BSE Mid Cap and BSE Small Cap have delivered 40.8% and 58.03% returns respectively over a one-year period which is the key to the success of diversified MFs with high exposure to mid and small caps," the report says.

Even by the year-till-date-return parameter, the list of top 20 performing equity funds was dominated by funds from Malaysia, India, Indonesia and Thailand.

When Mutual Fund agents desert you, go the online way

2010-07-24T15:05:00.001+05:30

With margins having shrunk for mutual fund distributors, a lot of independent financial advisors (IFAs) who used to service small investors have given up their business or are changing their business model. This, coupled with the advantages of investing online, is making a lot of investors change their way of buying mutual funds.

“In the new environment, it has become difficult for distributors to service investors offline, and with investors finding it difficult to manage paper work, investing online is the way forward,” says Aseem Dhru, MD and CEO, HDFC Securities.

Let us take a look at the advantages of going paperless and the process to convert your existing units into the online mode.

Availability of research and online tracking
With 40 AMCs and hundreds of schemes to choose from, it is a marathon task for an individual investor to choose a scheme that best suits his needs. Most brokerages that offer online mutual funds transactions offer you research support.

In addition, they have financial calculators, which give you solutions as to how much you should invest to meet your future goals. They have in-house research teams who research mutual fund schemes on a regular basis by tracking their performance and even meeting their fund managers on a regular basis.

“You can check out the top-performing funds in each category for various time frames till the last available NAV,” says Srikanth Meenakshi, founder and director, fundsindia.com.

These websites have asset allocation models that can be used to construct your portfolio based on your age and risk appetite. Besides, they also have model portfolios which you can replicate while building your own portfolio. A customer portfolio is tracked regularly and updated, which helps him take any corrective action, if any.

Paperless approach
The online world offers convenience. In the physical world, you have to wait for a person to collect your form, write a cheque, give a copy of your KYC/PAN card every time you invest in a new mutual fund.

Today, with commissions coming down drastically in mutual funds, it is difficult to find a distributor to service you since there is cost involved in that. A person has to physically come to your house, collect papers, deposit it at the fund house or the registrar and ensure you get a proper statement for the same. However, all this is eliminated in the online mode at the click of a button.

“In the online mode, you can transact as you move or from any corner of the world,” says Maju Nair, AV-P mutual funds, Sharekhan. With internet banking, integration of banking account with your mutual fund account ensures seamless transactions with instant confirmation. With mutual funds being also offered through the stock exchange route, there are now two ways in which you can buy mutual funds.

So, how does one go about buying mutual funds online? There are essentially two ways in which you can do it.

Through stock exchanges using the demat route
You can buy and sell mutual funds online the same way as you trade in shares, through either the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE), provided your broker is offering these services. “By using this route, you can have a consolidated statement for both your stocks and mutual fund holdings,” says Aseem Dhru, MD and CEO, HDFC Securities.

Mutual Funds – Building on the real estate potential

2010-07-19T10:33:00.000+05:30

Stocks of real estate is difficult for an average retail investor to read. Wild fluctuations have been the order of the day. However, the mutual funds that have 3-4 per cent of investment real estate stocks allow a small investor to benefit from the swell, but remain protected in the troughs. Make an informed decision is necessary for the success of your investment goals. Mutual Funds (SFF) are certainly among the most popular investment vehicles on the market, but since you have to choose among dozens of mutual funds and not all the funds well, here we have to demystify the world mutual funds for you. What is FM? GPs are the funds managed by professionals who invest in shares of various companies, including real estate, listed on Indian stock markets. These funds are governed by the Securities and Exchange Board of India (SEBI) which guarantee the rights and interests of retail investors.

Any citizen of India can buy shares of mutual funds that are available in some Net Asset Value (NAV) reported daily by the fund management company. If you invest in MFs? As an investor you might think about investing in real estate shares directly. However, to make a successful investment, you should take a look at the nature of real estate stocks witnessed volatility in equity markets. The Realty index clocked returns enormous 48 percent between February 7, 2007 and February 7, 2008, the Bombay Stock Exchange (BSE), but not every investor who pumped their money into real estate directly in equity markets such returns. In fact, there are many who have bought shares at the wrong moment to attend a substantial erosion of the value of their investment. Mutual funds, on the other side, are managed by fund managers who have expertise on investment in stock market, and market movements on the title as a professional. In this way, they are well placed to make appropriate decisions for investment and-invest in the markets by the circumstances. Although mutual funds do not guarantee a win-win all the way, investing in funds has effectively demonstrated the ability to meet your goals. In fact, the management of specialized investment by mutual funds has obviously yields as high as 80 percent per year, which rarely reaches a naive investor in the stock prices of live.

Types of mutual funds Selecting a mutual fund depends on your risk appetite, investment horizon, and future needs. Once you work on these factors, you can choose an appropriate scheme for you. Meanwhile, Brix Research brings you the knowledge about different types of mutual funds classified on the basis of their investment strategy and time horizons. Corpus equity investment or balance – Equity funds park their body anywhere between 65 and 100% in equities. Balanced funds, on the other hand, maintain a balance between equity and fixed income securities. This latter option offers security and the return rate is relatively lower than the equity funds. Growth or Dividend – Under a growth fund, the returns generated on capital invested continue to accumulate, and your cost per unit increase. You can redeem your mutual fund, in case you want to book profits. Choose the option to dividends, on the flip side, you have the right to receive returns in the form of dividend to be distributed to investors on a periodic basis. Although it depends on company policy, dividends are usually distributed 2-3 times per year. In open-ended or closed – Based on the investment horizon, mutual funds are divided into two categories: open and closed. Open-ended funds allow you to buy and redeem shares at any time, however, where large-ended funds, there is a lock-in period whereby you can not redeem your mutual fund shares for certain period of time. Specialized or diversified – A Diversified Fund allocates its corpus in various sectors of consumer products, automotive, Petro, Pharma etc. In case of a slowdown in the sector, the other may be able to compensate. In this way, an investor invests its corpus in various companies and enjoys the benefits of diversification.

E-filing tax returns makes life easier!

2010-07-19T10:29:00.001+05:30

Filing of income tax returns online has been restored after a temporary suspension for a day by the Finance Ministry on account of a lapse in renewing the security certification. The last day for filing Income Tax returns is 31st July and many are contemplating whether it’s worthwhile shifting from the old fashioned method of filing returns physically to a modern method i.e. e-filing which was introduced in the assessment year 2006-07.

What is E-Filing of returns?

It means filing your Income tax returns electronically through the internet. It’s a simple, easy and convenient process. The steps that have to be followed include the following

1. Identify the form that is applicable to you. If you are confused on which form you need to fill, details are available on the website.

2. Download the return preparation software for the selected form.

3. Fill up the downloaded income tax return form. Verify it using the tools available therein and Create an XML file.

4. Create a user id and password on the Income tax of India website

5. Log in to the website using your user name and password

6. Upload the XML file generated into the web page. On successful upload, acknowledgment details would be displayed. Print the same verify it and then sign it manually. Send it by ordinary post within 30 days of filing the return to the Income tax Bangalore office. If you have a digital signature, add the digital signature and submit the e-return after which an acknowledgment is generated which ends the e-filing process. You need to keep the acknowledgment for your records.
If tax needs to be paid, you can also do an e-payment through the Income Tax website if you have a net banking account with any of the authorized banks. You will get a printable acknowledgment having the challan identification number which you have to quote while filing the returns.

Advantages

• Flexibility & convenience: This facility is available 24x7 and hence you can choose to file it from anywhere in the world provided you have access to an internet connection. This gives you the flexibility to file the I-T return at your convenience without having to bother about submission timings. Even if you’re filing your return on the last day, you need not worry about waiting in a long queue to submit your form. This in effect saves time for you.

• Great accuracy: The input output fields are interconnected online. This reduces the risk of making calculation errors. Under the physical process, errors in calculation require you to rework and also clean up the form to make it legible to the Income Tax authorities. There are no such problems while filing returns online.

• Environment friendly: Filing returns electronically is eco-friendly as it reduces the usage of paper which is a step in the direction of protecting the environment.

• Returns can be revised at ease: In case you have made an error while filing the returns, like you have provided information on one particular head of income, in that case you can re-file your returns using the acknowledgment number of the original returns filed.

Disadvantages

• Problems with internet connectivity can arise. Also, the website could be jammed as the last date for submission draws near making the process time consuming tedious.

• In case the individual does not have a digital signature, the verification of the acknowledgment received electronically will have to be done offline. It has to be sent only by ordinary post to Bangalore within a period of 30 days of filing the returns.

The Income Tax authorities are trying to make it simpler, easier and convenient for us to file returns and hence e-filing has been introduced and there is no doubt that the advantages of e-filing make it a more favored option. However, your objective should be to make sure that your income tax returns are filed in time, so adopt the means whether physical or online as is suitable to you, so that that you’re not in trouble if your returns are picked up for scrutiny.

Consolidated MF statements soon

2010-07-17T16:17:00.002+05:30

Single consolidated statement of mutual fund (MF) holdings will soon become a reality for MF investors. This, in other words, would mean MF investors holding MF units in different fund houses will soon be able to get one single statement. Market regulator Securities and Exchange Board of India (Sebi) has apparently asked all the registrar and transfer agents (RTAs) to club investor data together. Computer Age Management Services (CAMS), Karvy MF Services, Deutsche Investor Services and Franklin Templeton today provide RTA services to the mutual fund industry.

“This was an expected move from Sebi given that in a recent summit,” Sebi executive director KN Vaidyanathan had hinted on introducing the single view statement. “We are planning to put in place a mechanism where the investor will get a single view of their investments,” he said. CAMS president & CEO NK Prasad said, “We are working on it for a long time, but we haven't received any final approval from the regulator. Some of the issues are being discussed and we hope it will be sorted out.”

If implemented, this move will be of immense benefit to MF investors. Today there are operational issues that a mutual fund investor has to grapple with. For instance, an investor is given multiple folio numbers, for investing in different schemes and fund houses. And over the years, he accumulates multiple folios which he can't keep track of. And usually, at the end of the financial year, multiple mails of fund houses hound him with statements informing cost of your units and its current NAV. In the process, investor lose track of his investments. Some fund houses are also known to smartly ignore investors who they categorize as 'dormant' and don't communicate to them.

Market sources expect such platform for single view statement to be ratcheted up in next one month or so. Recently, National Securities Depository (NSDL) had started a similar facility for holding mutual fund units in dematerialized form. But the Sebi initiative, is more awaited as it is likely to come at zero cost for investors.

Best Performing Mutual Funds in India

2010-07-17T15:30:00.005+05:30

Best Performing Mutual Funds in last five years

UTI - FLOATING RATE STP
UTI Money Market Fund
UTI - Treasury Advantage Fund
Reliance Diversified Power Sector Fund
HDFC Top 200 Fund
HDFC Equity Fund
ICICI Prudential Dynamic Plan
Reliance Growth Fund
DSP Black Rock Top 100 Equity Fund
Reliance Banking Fund

Best Performing Mutual Funds in last three years

Reliance Pharma Fund
Franklin Pharma Fund
DSP Black Rock Micro Cap Fund
SBI MSFU - FMCG Fund
UTI - Pharma & Healthcare Fund
ICICI Prudential Discovery Fund
Religare MID N SMALL CAP Fund
UTI - Transportation and Logistics Fund
Birla Sun Life MNC Fund
SBI MSFU - IT Fund
Franklin Infotech Fund
UTI - Master Value Fund
Religare Mid Cap Fund
ING Dividend Yield Fund
DSP Black Rock Small and Mid Cap Fund
HDFC Mid - Cap Opportunities Fund
Franklin FMCG Fund
DSP Black Rock Technology.com Fund
Reliance Equity Opportunities Fund
ICICI Prudential FMCG Plan

Best Performing Mutual Funds in Debt - MIP

Period Name of the Mutual Fund % Returns
1 Year HDFC Monthly Income Plan - Long Term - Growth 16.19
3 Years Reliance Monthly Income Plan - Growth 14.81
5 Years HDFC Monthly Income Plan - Long Term - Growth 13.25

Best Performing Mutual Funds in Balanced - Equity Oriented

Period Name of the Mutual Fund % Returns
1 Year HDFC Prudence Fund - Growth 44.95
3 Years Reliance Regular Savings Fund -Hybrid Plan - Growth 20.86
5 Years HDFC Prudence Fund - Growth 24.49

Best Performing Mutual Funds in Equity - ELSS
Period Name of the Mutual Fund % Returns
1 Year ICICI Prudential Tax Plan - Growth 52.52
3 Years Taurus Tax Shield- Growth 20.21
5 Years HDFC Taxsaver - Growth 22.42

Best Performing Mutual Funds in ETF - GOLD
Period Name of the Mutual Fund % Returns
6 Months UTI - GOLD Exchange Traded Fund 8.92
1 Year Gold Benchmark Exchange Traded Scheme (Gold BeES) 26.45
3 Years Gold Benchmark Exchange Traded Scheme (Gold BeES) 27.67

Best Performing Mutual Funds in Equity - Diversified
Period Name of the Mutual Fund % Returns
1 Year DSP Black Rock Micro Cap Fund - Regular - Growth 87.71
3 Years ING Dividend Yield Fund - Growth 21.17
5 Years HDFC Top 200 Fund - Growth 28.01

Best Performing Mutual Funds in Equity - Large Cap
Period Name of the Mutual Fund % Returns
1 Year Principal Large Cap Fund - Growth 31.93
3 Years Principal Large Cap Fund - Growth 13.86
5 Years SUNDARAM BNP Paribas Select Focus- Growth 24.13

Don't know how to save tax?

2010-06-03T11:08:00.003+05:30

By now you would be having a fair idea as to how much have you committed under Section 80C. As the maximum investment limit under Section 80C is Rs 1 lakh (Rs 100,000), let us see what other tax-saving products are available to utilise this limit to the fullest.

There is a plethora of tax-saving products that come with varied duration, interest rates and taxability. However, one of the most important factors that decide the suitability of a product for you is the level of risk it comes laden with.

So, whatever your risk appetite be (low, medium or high), there are products to choose from. On the one end of the scale are fixed income tax-fee instruments, such as Public Provident Fund (PPF).

On the other end are market-linked products, including equity-linked savings schemes (ELSS). And there are others in between.

Remember, as a salaried employee, 12 per cent of your basic salary finds it way into debt assets, such as Employees Provident Fund (EPF).

Even if you do not take this into account, the asset mix for your take-home income should be such that you give adequate time for assets, such as equities, to work in your favour.

Ideally, those who have the luxury of time in achieving their long-term goals can have an equity-debt mix of 70:30. Those nearing their goals can stay put at 30:70 or even 20:80.

Making the choice

Tax-saving products are available for almost all age groups and risk profiles. In addition to differentiating factors such as duration, interest rates and taxability, liquidity and commitment towards future payouts are also important things to consider.

Another way to look at them is to consider their returns -- fixed and assured returns, and market-linked returns.

Whatever be the nature of returns you plan to choose, there are two things that you must keep in mind: your portfolio's equity-debt mix and linking the investment to your goals.

While choosing any tax-saving investments, do not skew your portfolio mix or distort your portfolio towards any specific asset class.

Similarly, select the product that helps you achieve your long-term financial goals rather than just save tax for the year.

And, above all, keep the impact of inflation on the radar while zeroing down on any of these investments.

What's on the menu

Within the basket of Section 80C investments, you can choose among products that give fixed and assured returns (low-risk), and products whose returns are not fixed but linked to the market (medium- and high-risk).

Low-risk options

Options for those looking for fixed and assured returns are plenty.

The basket comes with options such as notified bank fixed deposits (for a period of five years), life insurance plans (pure term and endowment), Public Provident Fund (PPF), National Savings Certificate (NSC) and Senior Citizens Savings Scheme (SCSS), among others. All such schemes fall under the low-risk category.

Senior Citizens Savings Scheme

As the name suggests, this scheme is only for those who are above the age of 60. Only retirement proceeds can be invested in these schemes. Early retirees can invest in SCSS, provided they do so within three months of receiving their retirement proceeds.

The scheme can be availed from a post office or a bank, and it offers the highest post-tax returns among all taxable products for a period of five years, at 9 per cent.

The upper investment limit in the scheme is Rs 15 lakh (Rs 1.5 million) and the interest is payable quarterly and is fully taxable.

The scheme is a must-have for all retirees in order to form a base income to meet their monthly household needs.

Bank deposits

For those who are less than 60 years old and self-employed, the five-year bank tax-saver is the next pit stop.

In addition to giving you fixed and assured returns, these tax- savers also come with the tax advantage. A bank deposit is a one-time investment and there is no commitment to pay in the future.

IDBI Bank and ICICI Bank currently offer interest of 8 per cent per annum over five years. Remember, the entire interest income from such deposits is taxable.

Public Provident Fund

This is a self-directed investment option and can be opened by any salaried or non-salaried individual in any specified bank or post office.

It is a 15-year investment that currently carries a tax-free interest rate of 8 per cent. The rate is subject to change every April.

You don't have to pay a fixed sum every year, any amount between Rs 500 and Rs 70,000 keeps the account active. The pre-tax yield of PPF is the highest amongst all fixed income instruments.

National Savings Certificate (NSC)

Those who are risk-averse can opt for this option. This government-backed security is available at post offices and comes with an interest rate of 8 per cent, compounded half-yearly.

The interest is entirely taxable and has an investment horizon of six years.

Market-linked returns

Here, one may choose from pension mutual fund schemes under the medium-risk category, or equity-linked savings schemes (ELSS) of mutual funds and unit-linked insurance plans (Ulips) under the high-risk category.

Medium-risk options

If, along with saving taxes, you want to invest towards retirement, pension funds could come in handy. Even investors with a moderate risk appetite can go for pension funds.

There are two pension schemes offered by the two fund houses: UTI-Retirement Benefit Pension (RBP) Fund by UTI Mutual Fund and Templeton India Pension Plan (TIPP) by Franklin Templeton. Both these schemes are hybrid products (a combination of equity and debt).

Usually, a pension fund invests 60 per cent of its corpus into debt and the remaining 40 per cent in equity instruments.

With pension funds, you can invest as little as Rs 500 every month. A unitholder has to ensure that he invests an aggregate sum of at least Rs 10,000 before he completes 52 years of age for UTI-RBP.

In case of TIPP, however, an investor has to make a minimum investment of Rs 10,000 by the time he reaches the age of 58.

UTI-RBP allws you to withdraw your money any time after the stipulated lock-in period of three years, but you need to maintain a minimum balance of Rs 10,000 in the folio till the age of 52 years.

In case of TIPP, investors can redeem a minimum amount of Rs 1,000, subject to a three-year lock-in period from the date of investment. An investor can withdraw his full holdings after reaching the age of 58.

This gives him the opportunity to redeem his investment after three years, but in this case, he would need to pay an exit load, which is 3 per cent of the corpus.

TIPP is a part of OLM 50 -- Outlook Money's list of choicest schemes across categories. Consistency in performance is the hallmark of the fund and, therefore, it enjoys a 4-star rating by Outlook Money.

High-risk options

ELSS

This is a type of mutual fund which routes investments to the equity market. It differs from other mutual funds in that it carries a tax benefit on the amount invested and has a three-year lock-in period for funds invested.

Any income in the form of dividends received from such equity funds is tax-free in the hands of the investor.

Even the long-term capital gains arising from the transfer of such units of an equity-oriented fund are exempted under Section 10(38) of the Income Tax Act.

If the performance of the scheme has been good and you do not need money, funds need not be withdrawn after the end of the three-year lock-in period. Instead, you can remain invested for a longer period of five years or more.

Unit-linked insurance plans

A unit-linked insurance plan (Ulip) is a market-linked life insurance plan that combines both investment and protection.

The premiums that you pay not just provide you with life insurance, but part of them are also invested in investment funds of your choice.

As a policyholder, you can choose the allocation of your insurance premiums towards protection and investment. Link your goal to the Ulip, be it for children's education or marriage, or any other long-term objective.

Choose between Type I Ulips (where death benefit is higher of sum assured and fund value) and Type II Ulips (where both sum assured and fund value are paid on death).

Ulips serve you best if they are run for a longer duration -- at least 10 years. Any early exit could prove to be expensive.

If you had begun tax planning for this year around April, you are probably on the right path. For those who did not, now is the right time.

Finally, even after you have made investments and claimed tax breaks, do not forget to keep the records and documents of your investments and tax deduction certificates as you would need to furnish them to your employer very soon.

List of Best Equity Diversified Mutual Funds for 2009

2010-05-24T15:10:00.005+05:30

Which is the best Equity Diversified Mutual Fund ?

I am going to list down some of the best Mutual funds which I have figured out from Valueresearchonline.com . I am listing down 6 Equity Diversified Mutual Funds and 3 Tax-saving Mutual funds . I will highlight the main points of Mutual funds like its History , its performance and its Portfolio Allocation.

Best Equity Diversified Funds

These funds are suitable for people who are looking for long term investments and are ready to take the risk of mutual funds .

DSPBR Equity-G

12 year old fund , Return Since Launch is at an excellent : 24.6%

Strong 5 yrs return at 33.4% beating its benchmark by impressive 8.4%

50% Portfolio in Small and Mid cap Companies (Risky Fund, with High Potential)

DSPBR Top 100 Eqt Reg-G

6.5 year old fund , Return Since Launch is mind boggling : 36.8%

Strong 5 yrs return at 30.6% beating its benchmark by 6% .

80% Portfolio in Large and Giant Companies

Looks less risky Fund compared to DSPBR Equity-G.

HDFC Top 200

13 year old fund , Return Since Launch is excellent : 25.3%

Strong 5 yrs return at 31.8% beating its benchmark by 7% .

65% Portfolio in Large and Giant Companies and 30% in Mid caps . Well Diversified Fund

One of the best funds available with long term Track record.

Magnum Contra

10 year old fund , Return Since Launch is excellent : 27.6%

Strong 5 yrs return at 35.86% beating its benchmark by astonishing 11% .

55% Portfolio in Large and Giant Companies and 35% in Mid caps and Small cap.

Reliance Regular Savings Equity

4 year old fund , Return Since Launch is 21% even with the bloody market Crash.

Strong 3 yrs return at 21.5% beating its benchmark by 12.5% speaks for its potential in Future .

45% Portfolio in Mid caps and Small cap makes it a Risky and Aggressive Fund .

With minimum investment required of Rs 500 , It can find a small corner in one’s Portfolio

Only for Risky Investors , Its a new Fund and hence does not have Strong and Long track record like its seniors.

Sundaram BNP Paribas S.M.I.L.E. Reg

4.5 year old fund , Return Since Launch is 22.5% even with the bad markets.

Good 3 yrs return at 16.5% beating its benchmark by 7% .

With close of 75% Portfolio in Midcaps and Small cap makes its Fund with heart of real Risk takers . Don’t get into this if you don’t like messy markets . It can take your heart our of your body and play hide and seek with it .

Best ELSS Mutual funds (Tax Saving Mutual Funds)

These are tax saving Funds , used for saving the tax under Sec 80C upto Rs 1 lac . Suitable for investors who want to invest for long term and also require tax saving .

Sundaram BNP Paribas Taxsaver

One of the oldest Tax saving Funds with 10 yrs of Strong Track Record

Return Since Launch is 22.3% .Strong 33% return in last 5 yrs beating its benchmark by impressive 6.5% .

Very good performance in last 2-3 years in falling markets with 17.3% return in last 3 yrs which is almost double of its benchmark returns .

Well diversified amoung Giant , Large and Midcap companies makes its a Good fund .

A little aggressive fund with 55% portfolio in just 3 sectors of Energy , Finance and Construction , betting on India’s future ..

A very flexible fund know for its adaptability with any situation makes it suitable for every kind of investor.

Canara Robeco Equity Tax Saver

One of the oldest Tax saving Funds with 16 yrs of Good Track Record

Return Since Launch is 15% which is decent enough in such a long term .

Very good performance in last 5 years with 30.5% return beating its benchmark by impressive 7% .

Mind Boggling 60% return in till date in current year (2009) shows that some great potential is building in this fund .

Well diversified amount Giant , Large and Midcap companies makes its a Good fund .

High Concentrating in midcaps (around 50%) makes it a risky Fund .

Minimum Investment of Rs 500 makes it an attractive choice for Risky Small Investors .

HDFC Tax Saver-G

This one is the quite genius who does not shout much about its achievement . Not much appreciated among its peers but has one of the best long term track record which has ability to put all the tax saving funds in shame .

One of the oldest Tax saving Funds with 13.5 yrs of excellent track record.

Return Since Launch is 34% which is an unmatched achievement in itself .

Close to 29.5% returns in last 5 yrs beating its benchmark by 6% .

It is now becoming more aggressive by increasing its allocation in Midcap funds .

Note : This is not an exhaustive list of Good funds . There are many good funds which are not here . Its just a Compilation of funds which I personally feel are good ones and have ability to perform in Future . All the funds have high Equity Allocation and can be very risky . You should invest in these only after understanding your Asset Allocation and Risk-appetite to handle the ups and downs of its performance .

Guide to Investing For Beginners

2010-05-22T14:21:00.001+05:30

This is a real basic guide to investing for beginners. Sometimes the new investor gets lucky simply due to circumstances. Other times the odds are stacked against you the day you start investing. Here are some incites to help steer the new investor in the right direction.

As a general guide to investing for beginners, stock investing is the centerpiece of the average investment portfolio. Bonds become more important as you near retirement. Stock investing is where you either make it or get busted in your working years, and timing is just about everything.

Don't overlook the luck factor; and don't rely on it. If you were lucky enough to start investing in 1982, you had 18 years of easy stock investing and bond investing ahead of you. Stocks (equities) were in a bullish mode and interest rates were coming down from historical highs. A new investor in the year 2000 or in late 2007 was not lucky in any sense of the word. Investing for beginners was tough.

If you are a new investor and frustrated, do what the sports professionals do when they are in a slump: get back to basics, in this case investing basics. Equities and bonds are only half of the equation. Think in terms of four basic investment categories: equities, bonds, safe investments and alternative investments.

Since you can't count on luck, especially in stock investing, always have money invested in all four categories. Safe investments like bank CDs, savings accounts, and money market securities pay interest and add stability to your portfolio. Alternative investments like real estate, basic materials, precious metals and even foreign securities can produce profits and help offset losses when U.S. stocks and/or bonds are in a slump.

By having money in safe investments and alternative investments as well as U.S. equities and bonds, the investing basics are on your side from a historical perspective. To be honest with you, the financial world has been difficult for most of us to get a handle on since the financial crisis unfolded in 2008. Since then, safe investments have paid peanuts, with interest rates falling to all-time lows. Many other investments, like real estate and basic materials, were hit for heavy losses along with the stock market.

Investing in 2009 was very unpredictable, with stocks soaring after being devastated previously. This is all the more reason for the new investor to go back to investing basics and cover all the bases. Investing for beginners can be tough enough without having to search for investments in all four of the asset classes I have covered. How can you simplify the process?

Mutual funds are available to cover all the bases, including safe investments called money market funds. You pick the funds, and they do the management for you.

Three Questions to Ask Before Investing in an Equity Mutual Fund

2010-05-22T14:18:00.001+05:30

Equity mutual funds offer a great opportunity for new, small or uncertain investors to take advantage of the potential growth facing the market in the coming years. Some of the benefits to equity mutual funds are that they are professionally managed and normally limit investor exposure through proper diversification.

When it comes to Equity mutual funds, investors really need to understand three basic facts about the fund before they invest in it. By understanding these basics, investors will feel better about investing their money because they will know what the mutual fund is all about.

1. What is the fund's track record compared to its peers? Obviously the past two years have not been terrific in terms of mutual fund returns (although 2009 alone has indeed been positive). However, a poor 2- or 3-year rate of return should not take away from how well the fund has performed against similar funds or the index itself. If the index has returned -9.5% over a three-year period and the fund you are considering returned -7.5%, you would assume this to be safer than the index itself. However, you want to take this investigation one step farther and see how well the fund held up against its peers. If it is better, then your fund should be considered a better-performing fund. Another way to gauge this is to look at Morningstar ratings. The higher the rating, the better the risk-adjusted rate of return.

2. What is the fund's management team? By getting to know the management team, you will get to know how experienced the team is in term of managing funds and managing funds properly. In most cases, funds with high management turnover will likely perform worse than funds with solid investment teams. In addition to the team, try to understand the team's management style. Are they aggressive managers who turn-over their holdings frequently or do they take a buy-and-hold approach to allow for longer-term growth and returns? Are they investing in small, higher-risk companies or larger blue-chip companies? Understanding the underlying management of the fund will allow you to get comfortable with the fund before you pour your money into it.

3. How many assets does this fund have under management? If a fund has little money under management, it could be a sign of two things. One is that the fund is new, the other is that the fund is not popular. If there are few assets under management, you could have difficulty accessing your money when you need it. Invest in larger funds if you are relatively new or know you will need your money within a short period of time.

By answering these three questions, you will get a better appreciation for the fund you are about to invest in. This is important because the more comfortable you are, the less involved you will need to be in monitoring your investments, allowing you to enjoy longer-term growth without compromising your sanity.

The Best Mutual Fund Investment Strategy

2010-05-22T14:13:00.001+05:30

The best mutual fund investment strategy for most people reduces risk and gives the investor plenty of flexibility. Here's how to set yourself up to invest money so you don't need to worry when the investment environment turns ugly.

We'll use Ram as our example. He's afraid of losing money, but at the same time wants to earn higher returns than he can get from his bank. A moderate risk, at most, he will accept. Ram is also frugal, and hates to pay fees to invest money. He has a savings account at the bank he adds to regularly.

His best investment strategy, according to his brother Shyam whom he trusts, involves opening a mutual fund account with a major no-load fund company. This is where you get the best mutual fund investment bang for your buck, according to Shyam, because the cost of investing is low. Plus, with a mutual fund investment you get professional management as part of the package.

Once his account is set up Ram will invest money systematically into four different mutual funds: a money market fund, a short-term bond fund, an intermediate-term bond fund, and a large-cap U.S. stock fund. To lower the cost of investing even more, the stock fund and bond funds will be index funds.

Remember, Ram is risk conscious. So, here's how they set things up. Ram opens his mutual fund account by putting a few thousand dollars into a money market fund, where he has high safety and earns interest in the form of dividends. Plus, this gives him added flexibility in managing his account.

They set it up so that every month a few hundred dollars will flow from his bank account to his money market fund, which will be used as his cash reservoir. Then, Ram instructs the mutual fund company to have money flowing each month (equal amounts) into his three other funds (his investment funds) from the money market fund.

This is his best mutual fund investment strategy and it gives Ram plenty of flexibility. If he wants to add extra money, he sends it into the money market fund without interrupting his investment strategy. If he wants to take some money out, he takes it from there as well. He has the flexibility to change the amount of money that flows from his bank account and/or that flows into his various funds.

In the beginning he should have equal amounts invested in each of his three investment funds fed by the money fund. Over time this will change as all three will perform differently. The short-term bond fund is the safest of the three, paying higher dividends than the money market fund but less than the intermediate bond fund. It should not fluctuate much in price.

At the other extreme, the stock fund is the riskiest and it has good growth potential. The value of this mutual fund investment will fluctuate considerably.

To keep risk at bay, once a year Ram will rebalance his portfolio as part of his investment strategy. He wants to keep his stock fund and two bond funds approximately equal in value. To do this he simply moves money around between these three funds.

His money market fund is simply his cash reservoir, and it gives him added flexibility. The other three funds provide higher interest income and growth (the stock fund).

This investment strategy is especially attractive in a tax-deferred or tax-free account like a traditional or Roth IRA, because income taxes are not an issue until money is withdrawn from the account.

Mutual Fund Pros

2010-05-22T14:11:00.000+05:30

As with any other type of investment, there are mutual fund pros and cons. Many investors swear by them while others won't even consider including them in their portfolios - however, regardless of which school of thought you tend to subscribe to in this matter, there is no denying that mutual funds offer a host of benefits which are not available when otherwise dealing in stocks.

As the old saying goes, there is safety in numbers - and when you are investing in a mutual fund, you are actually pooling your resources with other investors to buy bonds and/or stocks and effectively sharing the risks. Even at the cost of shared benefits, many will agree that the security obtained this way is well worth it. Diversification is key in minimizing your risks while investing. Having your money spread across various different industries and / or investment types will help if one of these areas takes a blow, and at the very least you won't be losing everything at once. One of the mutual fund pros is that you do not need to worry about that - the fund ensures this diversification for you. In most cases, even when investing in multiple funds you won't end up with too similar bonds or stocks, unless you have searched specifically for such funds. Also one of the mutual fund pros is the fact that the fund manager is generally a trained professional, able to make the best decisions in any given situation. This means you won't need to hire your own financial advisor in order to make good use of your investment, and the savings could easily be converted into additional investment funds, reaping you even higher profits!

Furthermore, the manager will always have the fund's best interests at heart and will pursue them relentlessly while you are free to take care of your regular activities. One of the greatest mutual fund pros is that the transaction fees are much lower than normal. As many seasoned investors know, the transaction fees can sometimes kill the profits entirely. The reason the individual fees seem smaller is because they are not supported by a single individual, but by a group of people making a large purchase. As a mutual fund investor, you have the ability to withdraw your money at any time. While this is also possible in stocks, that does not mean it's true to the same extent - most of the time, cashing out on short notice in stocks means you'll be losing a lot of your initial investment. In mutual funds, you typically recover the whole initial amount, and may even reap a profit on occasion. Many people don't realize it, but investing into a mutual fund being as easy as it is, especially when comparing the process with stock investments, certainly counts as another one of the mutual fund pros.

Mutual Fund Cons

2010-05-22T14:08:00.000+05:30

Apart from the multiple benefits offered to investors, there is a number of mutual fund cons as well. The investor should be aware of these as well, in order to be able to make an informed decision regarding the compatibility of this investment option with his goals. In this article, we aim to familiarize you with the less beneficial aspects and the risks of mutual funds.

The first of the mutual fund cons is, obviously, a low return on your investment. Mutual funds may be a comfortable option when it comes to making a retirement plan, however they are not suitable if you are looking to turn a solid profit out of it, as their evolution simply lacks the abrupt changes generally found on the stock market. While they are no doubt effective, their method is not meant to bring great wealth, but merely stability and comfort.

You might buy into a mutual fund with dubious management - and that is why you should verify the manager of the fund thoroughly before buying in. You will want to make sure that you entrust your money to a person capable of making the right choices. One of the main cons is that you can never be 100% sure of who you are placing your trust in.

There is also the problem of too many investors crowding funds which gain a reputation of getting high returns - everyone buys in to get a share of the profit, but what they do not realize is that the manager can only do so much with the invested money and, at the same time, the profits are split among much more people, causing the individual profits to drop dramatically. As such, one of the mutual fund cons is that overpopulation leads to them becoming ineffective, regardless of the managers skills and the evolution of the companies the fund has invested in.

If you are looking for guidance and advice on an individual level, mutual funds are probably the worst place to go. The fund manager makes his decisions with the best interest of the fund in mind. This is another one of the cons - you will not receive the guidance a broker could offer, and the fund manager acts on the groups best interests, with disregard to individual needs.

For people who like to be in control of the situation, probably the biggest of the mutual fund cons is the fact that, when buying into one such fund you are effectively giving someone else control over your investments. And even if you are not a control freak, you may feel some unease having your retirement or the college education of your child cared for by someone else.

In the end, the decision whether you will include mutual funds in your portfolio or not is entirely yours - but it is in your best interest to be aware of both the advantages and the drawbacks of mutual funds before making your decision.

Franklin Templeton Mutual Fund announces dividend under FT India Balanced Fund

2010-05-19T17:19:00.001+05:30

Franklin Templeton Mutual Fund has declared dividend under its scheme, namely FT India Balanced Fund. The quantum of dividend decided for distribution under the scheme is Rs.3 per unit where face value of the scheme is Rs.10 per unit. The record date decided for distribution of dividend is 21st May, 2010.

FT India Balanced Fund is an open ended balanced scheme with investment objective to provide long term growth of capital and current income by investing in equity, equity related securities and high quality fixed income instruments. The scheme is managed by Mr. Sachin Padwal-Desai, Mr. Anand Radhakrishnan and Mr. Vivek Ahuja and is benchmarked against Crisil Balanced Fund Index.

Fidelity Mutual Fund announces payment of loyalty premium to investor

2010-05-19T17:16:00.001+05:30

Fidelity Mutual Fund has announced a unique loyalty premium for investors who invested in Fidelity Equity Fund from its inception. The eligible investors will receive two free units at current NAV for every 500 units. The units will be received by eligible investor as on 18th May, 2010.

Fidelity Mutual Fund is currently celebrating 5 years of its operations in India and hence have declared Loyalty Premium. Ms. Ashu Suyash, Managing Director and Country Head India of Fidelity International stated that they are delighted to offer the loyalty premium to their long term investors and they believe that their vision of always acting in the best interest of customers, in helping them reach their financial goals will help them build a solid long term business in India.

SBI Mutual Fund launched SBI PSU Fund On May 17 , 2010

2010-05-19T16:58:00.002+05:30

SBI Mutual Fund has launched a new open ended equity scheme, SBI PSU Fund.

The new fund offer is available from 17th May, 2010 to 14th June, 2010. The investment objective of the scheme is to provide investors with opportunities for long-term growth in capital along with the liquidity of an open-ended scheme through an active management of investments in a diversified basket of equity stocks of domestic Public Sector Undertakings and in debt and money market instruments issued by PSUs and others.

The scheme plans to allocate 65 per cent to 100 per cent of assets in equity and equity related instruments covered under the universe of PSU Companies including derivatives with medium to high risk profile. It would further allocate up to 35 per cent of assets in debt and money market securities with low to medium risk profile.

The minimum application amount for scheme is Rs. 5000.

The scheme will charge an exit load of 1 per cent if the units under the scheme are redeemed within 3 year from the date of allotment.

The scheme will be managed by Mr. R. Srinivasan and will be benchmarked against BSE PSU Index.

Which are the best Mutual Funds schemes in India?

2010-05-19T16:07:00.004+05:30

Selecting the right mutual fund, especially in the equity segment, is a challenge.

But, deciding which option to go for (dividend payout, dividend reinvestment, growth option) is as critical. Let's work on that.

Equity funds - Growth option

Under this option, no dividend is declared and the Net Asset Value moves up and down depending on the market movement.

You end up paying tax only when you sell your units. The rate of tax depends on the period for which you held the units.

Let's say you sold your units (redeemed them) within 12 months of buying (date of investment). You will have to pay short-term capital gains. This is a flat rate of 10%.

If you redeem the units after 12 months, you will have to contend with long-term capital gains. As per the current tax laws, this is nil.

While most investors may be clear about this, they are unsure about the right time to book profits (sell your units at a profit). And, it is essential to sell to rebalance your portfolio to the original asset allocation.

Asset allocation is a method by which one decides the percent of total investments (exposure) to different asset classes such as equities (shares) and debt (fixed-return).

So, when the value of your equity funds grows over a period of time, your exposure to that asset class increases.

Remember, the key to success in equity investing is to book profits periodically, even if you are a long-term investor.

Undoubtedly, the growth option can be described as the best as it advocates long term investing. However, investors have had mixed experiences over a period of time.

There have been occasions when investors have sold their units (exit) only to see the NAV scale greater heights. Or, they may exit in panic when they see the NAV spiral downwards.

Therefore, deciding the right time to rebalance, is a challenge for those who opt for growth option.

Are these funds good investments?

Equity funds - Dividend payout

Under this option, the fund declares a dividend as and when it has surplus money.

As per the current tax laws, dividend declared by equity and equity oriented funds is tax free in the hands of investors.

An important highlight of this option is that any dividend received within 12 months from the date of investment, a part of the short-term capital appreciation, is converted into tax-free income.

For example, assume that the NAV of a fund grows from Rs 10 to Rs 14 after seven months and the fund declares a dividend of Rs 3 per unit. This will convert 75% of the short-term gains into a tax-free income.

If you had to sell your units, you would have had to pay tax. But when you get a dividend, you don't.

Another major advantage of this option is that it allows you to book a profit at different levels without having to bother about the right or wrong time to do so.

Considering the tax laws and the automatic rebalancing of portfolio, this certainly can be a better option.

The best tax saving funds

Equity funds - Dividend reinvestment

Under this option, the fund declares a dividend and reinvests it into the fund.

The point to be noted is that the entire tax-free dividend amount is reinvested on a particular day, which in a way is timing the market.

Considering that timing the market is not a strategy that works all the time, re-investment option may not prove effective at all times.

The one that scores?

To avoid the market timing, one can opt for dividend payout and reinvest the dividend amount in an equity fund through a Systematic Transfer Plan.

A STP allows you to transfer a fixed sum at pre-determined intervals, from one fund to another. So, you may have some money invested in a floating rate fund and you can opt for a STP whereby the money will move to an equity fund of the same mutual fund house.

If the amount is not sufficient to enroll for an STP, some additional contribution can be made.

Why you must invest in ELSS funds?

Debt funds

These are funds that invest in fixed-return instruments.

In the debt and debt oriented funds, it is beneficial to opt for the dividend option for an investment made for less than one year.

On the other hand, it makes sense to go for the growth option for investments that one intends to keep for more than one year.

When a debt fund declares a dividend, there are certain tax implications.

As per the current tax laws, mutual funds are required to pay:

Dividend distribution tax: 12.50%
Plus Surcharge: 10% on the tax
Plus Education cess: 2% on the total of the above two

This is for individual investors. If it is a corporate, then the dividend distribution tax increases to 22.44%, while the other two stay constant.

But, it is important to note that dividends are tax free in the hands of investors.

On the other hand, long-term capital gains are taxed at 10% for every investor, irrespective of the category he falls under.

The short-term capital gains are taxed as per the applicable slabs for individuals. In other words, the gain is added to the income and according to the tax bracket the individual falls under, he is taxed. For corporates it is 30%.

As is evident, each of these options have positive and negative implications. The key is to select the right option keeping in mind the type of fund, tax incidence, investment objectives and time horizon.

Mutual Fund Investment For NRI's In India.

2010-05-19T15:57:00.003+05:30

Mutual Fund Investment For NRI's In India- What Do You Need To Know?

Are you an NRI and looking to invest in mutual funds in India?

Mutual fund investment has gained momentum in India over past few years and it is a wise decision to invest in mutual funds for getting good returns.

Of late, India has emerged as one of the most productive place for investment across the globe. The reason why more and more people want to invest their money in India is because of the fast growth which India is witnessing in the recent time.

The economical grow quite evident with the kind of confidence the investors are showing towards India as a major investment hub.

With so many investors wanting to invest their money in mutual fund India, it surely has become the spotlight of investing map in the world. The investors feel that their money is in the safe hands as mutual funds carry minimal risks when compared to equities and therefore it is a good bet for long term gains.

People of Indian origin / NRI's are eligible to invest in mutual funds in India after taking general permission from Reserve Bank of India.

Huge capital returns are encouraging more and more NRIs to invest in mutual funds of late and the results are also overwhelming.

So how do you go about your investing your money in mutual funds in India? Just read rest of the article.

As per the provisions of schedule 5 of the foreign exchange management an NRI can invest in most of the mutual funds India offers.

How can NRI invest in mutual funds?

An NRI can invest in mutual fund schemes in India through the money lying in the credit of NRE/NRO account or may be through banking channels which are approved by the authority.

All you need to do to invest in mutual fund is by submitting a duly completed application form along with cheques or DD to investor service center.

To invest on mutual funds, it is compulsory to have an NRE bank account. General permission has been granted by the Reserve Bank of India to offer mutual fund, subject to few conditions.

These conditions are:

The investment amount has to be received by inward remittance through normal banking channels or through debit to an NRE Bank account of the investor. The net amount of the interest or dividend and proceeds of units should be remitted through normal banking channels or be credited to NRE bank account of the investor as mentioned by him / her with a condition of payment of applicable tax.

Tax liability for income received from NRI mutual fund:

Section 10 (35) of Income tax Act, 1961 defines that income received from mutual fund investment under section 10 (23D) is exempt from income tax. Therefore all dividends are tax free on NRI mutual fund held by the investor. However any tax that is applicable will be deducted at source.

Indian Mutual Fund Assets Soar 32% On Month In April rReports NASDAQ

2010-05-19T15:52:00.002+05:30

Strong net inflows into income schemes helped assets managed by Indian mutual funds soar nearly 32% on month to their highest level in five months in April, even as lower sales continued to hurt equity schemes.

Mutual fund assets jumped to INR8.09 trillion last month from INR6.14 trillion in March, data from industry body, the Association of Mutual Funds in India, showed Monday. Assets had hit a record-high level of INR8.22 trillion in November last year.

In April, income funds--which formed 62% of total industry assets--recorded net inflows of around INR1.78 trillion, a sharp contrast to March, when they saw net outflows of in excess of INR1.64 trillion. A net inflow or outflow is calculated as the difference between total sales (of existing plus new schemes) and redemptions.

However, equity funds, the second-biggest category, with a 22% share of the industry's assets at the end of April, recorded net outflows of INR11.33 billion, after witnessing net outflows of INR20.16 billion in March, the AMFI data showed.

Basics of Indian Stock Market

2010-04-27T17:20:00.002+05:30

The Bombay Stock Exchange (BSE) and the National Stock Exchange of India Ltd. (NSE) are the two premier exchanges in India. You can find detailed information about these exchanges on their websites, www.bseindia.com and www.nseindia.com respectively.

The NSE and BSE are equal in size in terms of daily traded volume. The average daily turnover at these premier Indian exchanges grew nine fold to more than Rs. 77 billion in the nine year period between 1998 and 2007. Most key stocks are traded on both the exchanges and an investor can buy them on either.

BSE’s primary index is the BSE sensex comprising thirty stocks. Correspondingly, NSE has the S&P NSE 50 Index (Nifty) which consists of fifty stocks, respectively, are selected from different sectors. BSE Sensex is the older and more the widely followed index of the two, not the least because it embeds a longer history.

Both the exchanges have fully computerized systems of trading, respectively known as BOLT (BSE On Line Trading) and NEAT (National exchanges automated trading), which facilitate efficient order processing, automatic machine, faster execution of trades and transparency.

The scrip traded on the BSE have been classified into “A”, “B”, “B2”, “S”, “T” and “Z” groups. The “A” group represents those shares which are in the carry forward system .The “F” group represents the debt market (fixed income securities) segment. The “Z” group scrip are the blacklisted companies. The “G” group represents government securities.

The key regulator governing India’s stock exchanges, brokers, depositories, depository participants, mutual funds, foreign institutional investors (FIIs) and other participants in India’s secondary and primary markets is the Securities and Exchanges Board of India Ltd (SEBI).

Working of the Indian stock markets

If you want to buy / sell shares from the stock market, you have to first place your order with a broker.

Depository

A Depository is an organization responsible for maintaining an investor’s securities in the electronic form.

In India, there are two depositories, namely National securities Depository Ltd. (NSDL) and Central Depository Services Ltd. (CDSL).

Depository Participant (DP)

The market intermediary through whom investors can avail of depository services is called depository participant (DP). As per SEBI regulations, DPs are organization involved in the business of providing financial services such as Banks, brokers, custodians and financial institutions.

Why people Invest

Everybody wants to save and invest. You invest to make your money grow so that it will shield you against inflation. If your invested money gives returns that are more than the rate of inflation, only than you have a surplus. You can invest in fixed deposits, bonds, gold, property, mutual funds or in shares of companies. Investment decisions should be based on your risk profile, available savings and time horizon.You should always remember that risks and returns are directly proportional to each other, namely the higher the risk, higher the returns.

Birla MF launches Capital Protection Oriented Fund–Series 2

2010-04-24T17:25:00.001+05:30

Birla Sun Life Mutual Fund has launched a Birla Sun Life Capital Protection Oriented Fund – Series 2, a close ended capital protection oriented scheme. The investment objective of the scheme is to seek capital protection by investing in high quality fixed income securities maturing in line with the tenure of the scheme and seeking capital appreciation by investing in equity and equity related instruments.

The scheme will have duration of 36 months from the date of allotment of units.

The New Fund Offer (NFO) will open for subscription from April 21 to May 21, 2010. The face value of the new issue will be Rs 10 per unit.

The Scheme offers growth option only. The minimum application amount is Rs 5000 and in multiples of Rs 10 thereafter.

Entry and exit load nil. No redemption/repurchase of units shall be allowed prior to the maturity of the scheme. Investors wishing to exit may do so through stock exchange mode.

The scheme would allocate 80% - 100% of assets in debt securities and money market instruments with low to medium risk profile. It would further invest up to 20% of assets in equity and equity related instruments with high risk profile. Money Market Instruments include commercial papers, commercial bills, treasury bills, and Government securities having an unexpired maturity up to one year, call or notice money, certificate of deposit, usance bills, CBLOs and any other like instruments as specified by the Reserve Bank of India from time to time.

The Benchmark Index of the scheme will be CRISIL MIP Blended Index.

Indians shy away from investing in mutual funds: Report

2010-04-21T10:52:00.002+05:30

According to a PTI report , Indians are reluctant to invest in mutual funds on fears of high risk and lack of information on how this investment product works.

Despite being available in the market for over two decades now with assets under management equalling Rs 7,81,711.52 crore (as of February 28, 2010), less than 10 per cent Indian households have invested in mutual funds, according to the report by research and analytics firm Boston Analytics.

The report suggests that investors are holding back from putting their money in mutual funds due to perceived high risk and lack of information on how they work. The report is based on a survey of approximately 10,000 respondents in 15 Indian cities as of March 2010.

Among respondents with high savings, close to 40 per cent of those who live in metros and Tier I cities said such investments were very risky, whereas 33 per cent of those in tier II cities said they did not know how and where to invest in such assets. On the other hand, among nine out of ten who invested said they did so because they felt mutual funds were more professionally managed than other asset classes.

Five Stocks to Buy in India Today!!

2010-04-21T10:45:00.001+05:30

Indian stocks are at a two-year high now after the Bombay Stock Exchange's Sensex index gained 60% in the past year.

Does this mean opportunities to buy stocks are over?

Not exactly.

Stocks are no longer the bargains they were in 2008, as many of them have hit 52-weeks highs. So there aren't many deals out there. But if, like me, you can't bring yourself to pay exorbitant prices then look for companies which have good growth ahead of them but their stocks are available at prices lower that their peers.

Caution: Some money managers expect that given the market's recent gains, there could be some decline coming in the next two to three months. Indeed, the market has been down in recent trading sessions. But that's a guessing game.

To search for five stock picks today, I zeroed in on sectors that I believe will grow tremendously over the next three to five years. Given India's expected economic growth of 8%-plus over the next few years, practically all sectors should benefit. But selecting sectors helped narrow the search.

In each sector, I looked for stocks which were relatively cheap, not just in price but also based on certain financial metrics. For instance, I considered price-to-earnings ratio (earnings per share divided by stock price) which shows how much an investor would pay for every rupee of profit made by the company. I looked at companies' earnings for the financial year ended March 2009, and estimated earnings (based on the consensus of analysts) for the year ending March 2010.

The Sensex is currently trading at a price-to-earnings ratio of 21 so I looked for stocks trading at lower levels than that. I dug into research reports of around half a dozen brokerage firms and spoke to analysts and mutual fund managers to confirm or abandon my theories.

Of course, there are plenty of ways of looking at every stock, so what I consider a buy might be a sell for someone. That's how markets trade.

But if I was looking to invest in individual stocks today, here is where I would put my money. I don't, and can't, own these stocks due to Wall Street Journal rules.

Automobiles: Mahindra & Mahindra Ltd.

A combination of a growing economy and government incentives have helped push up sales for the automobile industry over the past year. An index of auto stocks has gone up nearly 120%.

However, the demand for autos is not likely to abate anytime soon especially from India's rural areas, which are getting wealthier.

Auto maker Mahindra & Mahindra Ltd is well-placed to capitalize on this increase. The company is a dominant player in the tractor market with 41% of the market share, and its popular utility-vehicles like Scorpio and Bolero allow it to command 56% of the market, according to research from Edelweiss Securities Ltd. Both these segments are poised to grow rapidly over the next few years and Mahindra & Mahindra has been investing in expansion.

The company has also been trying to expand into non-auto businesses, like information technology with its acquisition of Satyam and a financial services business. But these other businesses haven't made much of an impact to Mahindra's bottom line. In fact, they could be a risk if they add to expenditure but not to profits. Thankfully, 70% of the firm's revenue comes from automobiles, according to Edelweiss.

At a share price of around 511 rupees (after a stock split last month), the company is trading at a price-to-earnings ratio of around 18 times its 2009 earnings, and 16 times its estimated earnings for the year ending March 31, 2010, according to Thomson Reuters. That's much cheaper than some of its rivals.

Power: NTPC Ltd.

Given India's massive shortage of power in India, "a huge capacity addition" will happen over the next few years, says J. Venkatesan, a fund manager at Sundaram BNP Paribas Mutual Fund. He expects India's annual power generation to be 20,000 to 25,000 megawatts in three to four years, as opposed to 8,000 to 9,000 megawatts currently.

Private power companies will drive the bulk of this new capacity and, in turn, reap the rewards in terms of high profits. But in anticipation of these gains, investors have already pushed up the stock price of some of the private companies. Adani Power Ltd., for instance, is trading at a price-to-earnings ratio of 174 times!

In contrast, investors are treating government-owned and India's largest power company NTPC Ltd. almost as an outcast and its stock is trading at 19 times earnings.

Given its size and ownership, NTPC is unlikely to grow at the same pace as the smaller private companies. But it, too, has expansion plans and will benefit from the overall growth in the industry. Its stock will reflect this growth over the next few years.

If and when markets dip, this stock will hold up better than hundreds of other stocks. That's what happened in the downturn of 2008; it performed better than the Sensex.

So buy NTPC expecting healthy returns over the next few years but also as your buffer during a bad market.

Telecommunications: Bharti Airtel Ltd.

There's a lot of growth remaining for India's mobile and telecommunications companies with millions of more subscribers still potentially to be added to India's mobile network.

But for now, this industry is grappling with a lot of bad news.

In an effort to get market share, some new mobile companies sparked a price war by charging super-low prices – such as pay per second phone calls – which is hurting them as well as other companies. Several money managers have backed away from these stocks, causing them to fall in recent months.

India Real Time: What Are Your Stock Picks?

One of the biggest casualties has been industry leader Bharti Airtel Ltd., which is down nearly 30% since September, and trading at around 308 rupees. Its price-to-earnings is at around 13. Its peers, Idea Cellular Ltd and Reliance Communications are trading at 19.5 times and 21 times earnings.

While Bharti's immediate future is also pretty cloudy, it has many things going for it over the next five to seven years.

Price wars can't last forever and ultimately the industry will have to consolidate. Bharti will be among the survivors.

Second, it is well-positioned to win a part of the 3G broadband spectrum which will essentially allow it to provide better quality internet service on mobile phones. While it could be an expensive purchase, the experience of the West shows that it can lead to high-margin growth.

Its recent acquisition of the African assets of Kuwait's Mobile Telecommunications Co., known as Zain, could be a boon. Of course, it could potentially be a disaster if Bharti's India model doesn't work in Africa. Only time will tell.

So, risks are aplenty in Bharti stock. But then again, if everyone was certain that a company was going to do well, its stock would not be cheap, no? Bharti's aggressive and visionary management has made it a leader in India, and my bet is that this management will get the company through the upcoming rough patch with flying colors.

Banking: Federal Bank Ltd.

There is no shortage of banking bulls and here's why.

As the economy grows faster, more companies are starting to borrow money to expand their businesses, which in turn means higher fee income for banks. Meanwhile, they have sharply reduced their bad loans or non-performing assets, notes Mahesh Patil, co-head of equity at Birla Sun Life Asset Management Co.

Investors have lately been loading up on stocks of large, private banks like HDFC Bank Ltd and ICICI Bank Ltd, pushing up their prices. Government-run State Bank of India, however, is relatively cheaper at 13 times earnings.

I decided to look away from the usual suspects and zeroed in on a bank in southern India, Federal Bank Ltd.

This is a small but respected bank based in Kerala, whose deposits and loans have grown at a compounded annual rate of 21% and 26% respectively, according to research from Angel Broking Ltd. The bank has a higher than average proportion of deposits from non-resident Indians, which typically carry lower interest. Around a fifth of its deposits are from non-residents, often from the Middle East.

The bank has been increasing its product suite by selling insurance products and mutual funds and also plans to open new branches in the next few years. Federal has also been eyeing acquisitions as a way to grow. On the other hand, the bank itself seems an ideal target for a large bank trying to build its presence in the south.

Its stock is trading at around 278 rupees currently, 10 times its expected annual earnings of 2010. This is small company stock, which means that in declining markets, this stock could lose more value than others.

So be prepared for volatility if you buy.

Infrastructure/Cement: J.K. Lakshmi Cement Ltd.

As India builds more homes, roads, airports and infrastructure projects, cement companies will be one of the biggest beneficiaries.

This reasoning led to a sharp gain in cement stocks in 2009. Lately, however, investors have been pulling back from cement company stocks because these companies have huge supply available and investors worry that demand won't keep up. Also, the cost of raw materials such as coal have been going up. Together, these factors could hurt net profits in the near-term.

Over the last few months, cement stocks have fallen and some money managers expect the declines to continue.

That's possible. Or, you could miss an opportunity because some of these stocks are trading at cheap levels. If you are willing to hang on for the next three to five years, the next year's outlook shouldn't bother you much.

Consider J.K. Lakshmi Cement Ltd., a small market value company headquartered in New Delhi. The company provides cement primarily to Rajasthan, Gujarat, Maharashtra and other states in north India, according to ICICI Securities Ltd.

At a share price of around 77 rupees, the stock costs three times its expected earnings for the year ending 2010, according to Thomson Reuters.

The company's profits next year will likely be lower than in the financial year ended March 31, 2010, but they will still be robust especially given that the company is servicing high-construction areas of north India, says Pankaj Pandey, head of research at ICICI Securities.

But remember that since J.K. Lakshmi is a small-cap stock, the road ahead for its stock will be rockier than its larger peers.

Well, those are my picks in this market. Do you agree? If not, send me your five favorite stocks.

Happy Investing!

SBI raises 18,000 MF sales force

2010-04-07T17:47:00.003+05:30

Turns biggest mutual fund marketing machine in India; move puts focus on parent banks’ support to AMCs

India’s largest lender has trained a veritable army to sell mutual funds to its customers, in a year-long programme that could change the face of the country’s mutual fund distribution business.

Around 18,000 employees of State Bank of India (SBI) have passed a mandatory industry test that makes them eligible to sell mutual funds, said two bank employees involved in the programme, giving the public sector bank the biggest mutual fund marketing machine in the country. The two SBI officials requested anonymity.

While a little more than 100,000 individuals have qualified to distribute mutual funds as of December, informal industry estimates suggest that barely 30,000-40,000 of them actively sell mutual funds to clients. The others prefer to sell insurance products after a June decision by the Securities and Exchange Board of India (Sebi) to ban upfront commissions on the sale of mutual fund units to investors.

SBI will thus likely have one-third of the nation’s active mutual funds sales force.

Any person wanting to sell mutual funds in India has to first qualify in an examination conducted by industry body Association of Mutual Funds of India (Amfi). The SBI programme is called ACE, acronym for Amfi Certified Employee.

The Rs7.81 trillion Indian mutual fund industry has been in a state of flux after Sebi banned upfront commissions. The regulator has since encouraged asset management companies to allow investors to buy and sell mutual fund units on the stock exchanges, but volumes have been poor.

SBI has even motivated its employees to take the test by giving a one-time cash award of Rs5,000-10,000 depending on their position in the hierarchy and performance in the test, one of the two SBI officials said.

Though these employees are now eligible to sell units of all the three dozen-odd fund houses in the country, they will focus on products of the bank’s subsidiary SBI Funds Management Pvt. Ltd.

SBI Funds serves its investors through a network of 260 points of sales and service. The parent bank also has 12,207 branches, 8,500 automated teller machines and electronic channels such as Internet banking.

The public sector bank’s aggressive moves in mutual fund distribution is an indication of the growing importance of captive distribution channels compared with third party distributors such as agents.

A recent study by consulting firm McKinsey and Co., Asset Management Survey 2009, said proprietary bank channels and direct sales accounted for just 10% of the total retail inflows into mutual funds. Independent financial advisers and third party distributors accounted for 68% with the remaining 22% coming from nationwide distributors of financial products such as Bajaj Capital Ltd.

In this context, public sector banks such as SBI offer “the next big hope” for the mutual fund industry, said Rajesh Krishnamoorthy, managing director iFast Financial India Pvt. Ltd. “Ten thousand people going to the public and talking about mutual funds is really good for the industry. With such a huge branch network, they are sitting on a goldmine,” he said, referring to SBI’s huge retail customer base.

Krishnamoorthy also pointed to the juicy fee income earned by smaller private banks. “A huge portion of this fee-based income comes from selling investment products to retail individuals,” he said.

“Axis MF (mutual fund) is the perfect example of what a captive bank channel can do to your business,” said Sanjay Santhanam, a former marketing head at leading asset management companies.

According to Santhanam, the idea of public sector banks entering the mutual fund space is just what the doctor ordered for the industry: “But it will be interesting to see how the banks incentivize the staff (for selling mutual funds).”

Axis Asset Management Co. Ltd, which launched operations in October 2009 has been able to mop up a corpus of Rs3,754 crore leaving behind at least 14 of its older rivals aided largely by the distribution muscle of its parent Axis Bank.

The Reserve Bank of India rules do not allow banks to give cash incentives to staff for selling financial products.

Public sector banks are still working out ways to incentivize staff to market various products without running afoul of regulations.

“One of the options is to maintain some kind of a points system, wherein points accumulated can be redeemed periodically for gifts,” said Santhanam, “but if public sector banks have to realize their dream of becoming financial supermarkets, these old rules need to go.”

Mint could not ascertain what incentives SBI is offering its mutual fund sales force.

Even many new entrants into the mutual fund business are those who have a strong banking channel support. Over the past week, two asset management companies announced their plans.

IDBI Asset Management Co. Ltd, which will soon launch its funds, will initially sell its products through the 700 branches of its parent bank.

Union KBC Asset Management Co. Ltd, another new venture, which has received Sebi approval, said it will use 2,700 branches of the Union Bank of India to market funds.

A senior official of SBI Funds Management Pvt. Ltd said: “In the past two months, the banking channel has helped us mop up in excess of Rs1,000 crore. We are one of the few fund houses who have seen net inflows this quarter.” he said.

According to him, the bank can play a much larger role given its network and reach. “At present, the banking channel contributes 25-30% of the inflows. Given its strength, this number can easily be 50-51%,” he said.

Axis in Market Share ‘Grab Mode’ Aims to Triple Assets in India

2010-03-30T12:03:00.001+05:30

Axis Asset Management Co., backed by India’s third-largest non-state bank, plans to triple its assets over the next year as it aims to become one of the nation’s top 10 money managers.

Funds under management may rise more than threefold to 100 billion rupees ($2.2 billion) by March 31, 2011, Chief Executive Officer Rajiv Anand said in an interview in Mumbai.

Anand, who targets making Axis one of the top 10 equity asset managers in the nation over the next few years, said he’ll consider acquiring rivals. Axis posted the biggest increase in assets under management last month among Indian money managers, according to data compiled by Bloomberg, with funds climbing 42 percent to 37.5 billion rupees in February.

“We are in market share grab mode,” Anand, 44, said. “We expect our growth to be quite steep over the next couple of years.”

India’s mutual funds industry has gained fivefold in size in as many years, with assets under management swelling to 7.8 trillion rupees in February, according to data compiled by Bloomberg. India’s 1.1 billion people, almost half of whom are under 25 years old, are spending more on electronics, clothes and cars as incomes grow in the world’s second-fastest growing major economy.

Expanding Equities

Axis Asset Management, which has more than doubled its team to 100 people since it started operations last year, may increase hiring by 10 percent to 15 percent over the next two years, Anand said. The money manager aims to have 10 million customers by March 2012 as it seeks to tap the clients at almost 900 Axis Bank Ltd. branches across India. Axis Mutual Fund currently has 150,000 customers.

“Being a bank-sponsored mutual fund clearly helps, so we are leveraging that to grow the business,” said Anand.

Axis has five funds including two money market plans, two equity funds and a debt fund. The company is awaiting approval from the regulator to start two new plans. The money manager, which has about four percent of its assets in stocks, expects the share of equities and equity-linked products to rise to 30 percent of assets over the next year.

MFs dig infra for big bucks

2010-02-27T15:41:00.001+05:30

The mutual fund industry didn’t get anything from the finance minister, but that has not stopped them from exploring how they could work out some of the other proposals in direct taxes to their advantage . Though a sizable part of the industry was expecting the FM to scrap the tax arbitrage opportunity available to corporates investing in short-term debt products, he did not oblige.

Some mutual fund players were trying to figure out whether they could corner the extra Rs 20,000 investment that qualifies for tax deduction announced in the Budget. In addition to Rs 1 lakh under section 80C, an investor can invest an extra Rs 20,000 in long-term infrastructure bonds to claim tax deduction, the FM said in his Budget speech.

“We are not sure whether we will be able to launch a product to invest in these bonds,’’ said the chief of a private sector mutual fund. “Since this is in addition to Rs 1 lakh, even our tax saving schemes won’t be able to attract this amount,’’ he added. “MFs are unlikely to get this pie.

Even in the past, the government had allowed ICICI and IDBI to issue taxfree bonds,’’ said another MF manager. “The government is most likely to come up with a list of institutions which can issue such bonds in the near future.’’

Financial advisers are unanimous that the bonds will be useful for investors looking for long-term taxfree returns. However, they await details — such as the lock-in period and interest rate — before recommending them to their clients. They believe that the bonds could lose their charm if they have a long lock-in . However, the tax-free status, backed with government guaranty, would still make them hugely popular among risk-averse investors.

Investment options to Save Tax under Section 80C

2010-02-09T11:27:00.001+05:30

No one likes paying tax and it prompts everyone to look for options that may reduce their tax liability. There are many provisions to do this and one of the most common options is the tax deductions under Section 80 C of the Income Tax Act. There are various investing options under 80 C that enable you to reduce your taxable income up to a maximum limit of Rs 1 lakh.

The eligible deductions that everyone might be aware of are contributions to Employee Provident Fund, Payment of tuition fee or repayment on home loan. In addition there are investment avenues that are eligible for tax deduction about which you might have little knowledge.

Investing in Government Securities

For those who seek absolute protection of their capital, Investing in Postal Saving schemes such as NSC or putting money in PPF (Public provident fund) is an option.

Public Provident Fund (PPF)

PPF offers interest income in the range of 8% with annual compounding. However, the maximum amount that can be invested in PPF is Rs.70,000 and money cannot be withdrawn before the completion of 6 years. Those who look at PPF in terms of their retirement corpus and feel that their current PF deduction is not sufficient, may consider this option.

National Savings Certificate

Another popular avenue investing - NSC also offers a return of 8% on half yearly compounding basis. Another feature is that interest accrued on NSC is also eligible for Section 80 C benefit. The interest on NSC investment, except in the sixth year, is not paid but credited to the investor's account. So, the interest that accumulates is treated as invested in NSC and the accumulated interest thereby qualifies for tax deduction. The duration of NSC is for 6 years with an option of premature encashment after 3 years. However, that would reduce the net yield from NSC.

Tax saving FD's

This is a relatively new kid on the block. Tax saver fixed deposits are issued by banks for a tenure of 5 years and premature withdrawal is not permissible. It generates interest income of 8% with quarterly compounding. The interest income is taxable. If we compare tax saving FD's to NSC, Tax saving FD's have an edge on lock in period which is lesser by one year. However NSC have an edge from the fact that interest accrued is also eligible for 80 C limit for the first five year.

Investment in Equity linked Saving Scheme(ELSS)

ELSS are funds invested primarily in equity shares of companies. They have been in limelight for their superior performance in the recent past and are a popular tax saving investment. Due to their tax saving nature, they are also known as tax saving mutual fund schemes. Like all investment avenues under Section 80C, ELSS funds also involve a certain lock in. In this case the lock in is for three years which means that they cannot be withdrawn for a period of three years from the date of investment. The ELSS Fund manager basically invest 80% of the total amount in the equity shares and the remaining 20% is invested in other instruments like bonds, debentures, government securities and others.

However the basic risk with ELSS scheme is that since it has a considerable equity exposure, the returns are linked to market returns and hence there is no guarantee of returns and even capital. At the same time, ELSS can also be seen as a way to long term investing in equity markets and with India growth story unfolding and fundamentals looking intact, investment experts anticipate that equities would continue to outperform other investing avenues for at least next 5-7 years. Investing in ELSS provides dual benefit of capitalizing on superior returns as well as tax saving. With the current market turmoil avoid this instrument unless you are looking for a long term investment. If that is the case look for good fund managers with stellar tax records.

Life Insurance and Tax savings

As far as life insurance is concerned, endowment plans (money back plans) have been a popular source of investing.There are various long term life insurance policies which give you good returns, tax savings under 80C and an insurance cover as well.

ULIP's have taken a center stage now since they offer insurance as well as market related returns in a single product. However, investors should understand the underlying structure of ULIP carefully since these offerings have a substantial charge towards expense in the initial years and is advisable only for investors with a large investing horizon. Avoid ULIPs if you do not like to risk money. Also invest in ULIPs with a long term horizon of a minimum of 10 years.

Another avenue within insurance domain is Pension plans. Pension plans have got a boost in last finance bill with the overall limit raised from Rs. 10,000 to Rs. 100,000. Senior Citizen Saving Scheme 2004 and Post Office Time Deposit Account have also been included in Section 80 C.

However some people may be biased towards other investing options as compared to Life Insurance products since they may prefer insurance and investments separately.

Infrastructure development Bonds

With a return in the range of 5-6% this is the last avenue a tax saver would resort to. The dismal returns provided by these bonds have resulted in the investors shying away from these bonds. The return is hardly good enough to fight inflation, leave alone wealth creation.

So investing in any of the above avenues would help you reduce your taxable income by a maximum of Rs 1 lakh, irrespective of how much you earn and under which tax bracket you fall.

India Stocks Fall on Lower-Than-Expected Offers for NTPC Shares

2010-02-09T11:20:00.001+05:30

Indian stocks fell the most in a week, led by construction companies, on concern the government will raise less than expected from share sales to fund infrastructure and after it postponed the sale of mobile phone licenses.

Jaiprakash Associates Ltd., a builder of dams and roads, slumped to the lowest in three months after investors offered the government lower prices than forecast for equity in NTPC Ltd., a power producer. The delay of an auction of third- generation mobile phone licenses that would help fund the government’s deficit contributed to the drop. Bharti Airtel Ltd. sank 1.6 percent.

“Investors are concerned about how the government will address the fiscal deficit on a sustainable basis,” said Mohit Mirchandani, who helps manage $127 million at Taurus Mutual Fund in Mumbai. “That concern has increased after the 3G auction delay.”

The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 271.10, or 1.6 percent, to 16,224.95, the steepest decline since Jan. 27. The S&P CNX Nifty Index on the National Stock Exchange lost 1.8 percent to 4,845.35. The BSE 200 Index also retreated 1.8 percent to 2,055.29.

Jaiprakash slipped 4.5 percent to 131.2 rupees, its lowest close since Nov. 3. DLF Ltd., India’s biggest developer, slid 4.4 percent to 321.35 rupees.

Government Target

Investors offered to buy only 80 percent of the 412 million NTPC shares that went on sale yesterday, according to data on the National Stock Exchange Web site as of 4 p.m. today. Offers ranged from the 201 rupees minimum per share to a maximum 210 rupees.

The NTPC share sale’s “overall collection will be 10 to 15 percent lower than what was expected,” said Ambareesh Baliga, vice president of equities at Karvy Stock Broking Ltd. in Mumbai. “The earlier expectation was that the offer would happen at a higher level.”

NTPC, India’s biggest power generator, declined 1 percent to 207.7 rupees.

The government aimed to raise more than $2 billion from the sale of 5 percent of NTPC’s shares, according to JPMorgan Chase & Co., one of the banks helping to manage the offer.

Prime Minister Manmohan Singh’s government, which owns 89.5 percent of the New Delhi-based utility, is accelerating the sale of stock in state-run companies to help plug the fiscal deficit and take advantage of an 81 percent advance in the nation’s benchmark stock index last year.

Budget Gap

The share sales may help India boost economic growth by increasing spending on infrastructure and trimming the budget shortfall, forecast to reach a 16-year high of 6.8 percent of gross domestic product by March 31.

State Bank of India led a decline in lenders as a government report today showed the nation’s food inflation accelerated for a second week to near an 11-year high, fueling expectations the central bank may raise borrowing costs after last week ordering lenders to set aside more cash reserves.

“Inflation is a big problem,” Kevin Grice, an economist at Capital Economics Ltd. in London, said before the report. “A hike in policy rates is still imminent.”

State Bank, the largest lender, declined 2.6 percent to 1,947.9 rupees. Housing Development Finance Corp., the biggest mortgage lender, lost 3.9 percent to 2,418.5 rupees. ICICI Bank Ltd., the country’s second-biggest lender, fell 1.3 percent to 828.8 rupees. Axis Bank Ltd., the fourth-largest lender by market value, fell 2.1 percent to 1,048.45 rupees.

Inflation

Consumer-price inflation in India is the highest among Asia-Pacific countries, according to Bloomberg data.

Bharti Airtel, India’s largest mobile-phone operator, fell 1.6 percent to 304.1 rupees. The government may not hold the auction of 3G licenses by March 31, Finance Secretary Ashok Chawla said yesterday, without giving a new date. The auction would be completed before April 1, Communications Minister Andimuthu Raja said on Jan. 19. The government in October set Jan. 14 as the tentative deadline to start taking bids for the airwaves.

Reliance Communications Ltd., the second-largest mobile- phone operator, retreated 3.7 percent to 164.8 rupees. The stock was downgraded to “reduce” from “hold” at Emkay Global Financial Services Ltd.

Infosys Drops

Software stocks declined after a report showed the U.S. services industry expanded less than forecast. The Institute for Supply Management’s index of non-manufacturing businesses in the U.S., which make up almost 90 percent of the economy, rose to 50.5, lower than the median economist estimate of 51 in a Bloomberg survey.

Infosys Technologies Ltd., the second-largest software services provider, lost 1.8 percent to 2,429.05 rupees, while larger rival Tata Consultancy Services Ltd. plunged 1.9 percent to 738.7 rupees. Wipro Ltd., the No. 3, fell 2.5 percent to 655.2 rupees. The U.S. accounts for 40 percent of India’s software sales.

Indian state refiners gained after a government-appointed panel recommended that prices of gasoline and diesel be freed, easing their losses from selling fuels below cost. Indian Oil Corp. rose 0.3 percent to 316.8 rupees. The stock had earlier soared as much as 5.1 percent. Bharat Petroleum Corp. gained 0.5 percent to 583 rupees, paring its earlier advance of as much as 3.4 percent.

Tata Motors Falls

Tata Motors Ltd., India’s biggest truckmaker and owner of Jaguar Land Rover Ltd., lost 4.4 percent to 689.6 rupees and Mahindra & Mahindra Ltd., the largest maker of sport-utility vehicles and tractors, slid 3.5 percent to 1,017 rupees after the government-appointed panel recommended additional duty on diesel-powered vehicles.

“That is a concern,” said Umesh Karne, a Mumbai-based analyst at BRICS Securities Ltd. “Tata Motors is the biggest maker of diesel-powered passenger vehicles in India and the additional duty, if implemented, could dampen sales.”

Overseas funds bought a net 109 million rupees ($2.35 million) of Indian stocks on Feb. 2, paring their outflows this year to 3.41 billion rupees, the Securities and Exchange Board of India said on its Web site.

Foreign fund flows into India’s stock market rose to a record 834.2 billion rupees in 2009, beating the previous high set two years earlier in local currency terms, as the biggest rally in 18 years lured foreign investors.

RBI Call on Debt Funds to Hurt Indian Funds

2010-02-09T11:14:00.001+05:30

Heightened scrutiny by India's central bank on debt investments by the country's banks will take a toll on the domestic mutual fund industry's asset growth, with banks set to shrink their fund holdings.

In recent weeks, the Reserve Bank of India has ratcheted up its rhetoric on the potential risk posed by the so-called circular trade between banks and mutual funds, where banks invest excess cash in debt funds while fund houses use a large portion of these debt fund proceeds to invest in banks' certificate of deposits.

The central bank, in a private note issued to banks has asked banks to act as "self regulators" on their debt fund investments, three people familiar with the matter had told Dow Jones Newswires in mid-December.

Certificates of deposits are short-term instruments used by banks to raise funds.

While banks generally cut their mutual fund assets exposure at the end of each quarter to meet capital adequacy requirements, industry experts expect future data to show that the RBI's moral suasion is having some impact.

Mutual fund assets in the quarter ended Dec. 31 were down 19% at 6.65 trillion rupees ($143.7 billion) from a record high of 8.22 trillion rupees at the end of November. However, the funds are generally reinvested in the beginning of the following month.

"Some of the investments (by banks into debt funds) may not come back. We are already seeing that in January the amount of money coming back is lower," U.K. Sinha, chairman and managing director of UTI Mutual Fund, India's oldest and fourth largest fund house.

Bank investments into mutual funds rose to as high as 1.69 trillion rupees as of Dec. 4 from 319.20 billion rupees in late December 2008, data from the central bank shows. Debt fund assets--which include income funds and liquid/money market funds--make up the bulk of the banks' investments and accounted for 66% of the mutual fund industry's total assets at the end December.

Even though the RBI has not issued a prescriptive directive on the issue, the central bank's exhortations to banks to self-regulate could well spur a further downsizing of bank's inflows into debt fund schemes, some bank treasury officials and industry experts said.

At least four fund managers and bank treasury heads who declined to be named said in total, debt mutual funds held by India's banks could shrink by between 30% and 40%.

"There's always the risk that if banks don't scale back, the RBI may do something drastic such as changing the capital adequacy norms to a period-average basis, from the current 'end of the quarter' basis," said Ashutosh Khajuria, treasury head at IDBI Bank, noting that banks will prefer to cut debt fund holdings than risk a showdown with the country's central bank.

For its part, the RBI's concern is the interdependence of banks and mutual fund houses in India.

Banks' dependence on certificates of deposits purchased by mutual funds poses a significant rollover risk which banks must be mindful of, RBI deputy governor Usha Thorat said recently. Banks, meanwhile, tend to withdraw liquidity en masse, increasing the danger of a run on mutual fund assets, Ms. Thorat noted.

The increased central bank scrutiny comes at a time when banks, despite a recent revival in credit, are flush with deposits and cash, meaning that the limitations on debt fund investments may force banks to increase lending, affecting risk. Otherwise, banks may deposit a larger amount of cash in low-yielding central bank reverse repo window, a move that would affect earnings.

Under the reverse repo window, banks park their surplus cash with the central bank at the overnight rate of 3.25%.

After dipping to as low as 9.5% in late October, loan growth for Indian banks rose 13.9% year-on-year in the two weeks ended Jan 15. It, however, lagged the 16.8% growth in deposits, and still remains below the RBI's twice-reduced forecast of 16% growth for the fiscal year.

India Inc may lose tax cover on MF investments

2010-01-23T17:27:00.000+05:30

Capital markets regulator Securities and Exchange Board of India (SEBI) wants the government to scrap tax benefits for corporates investing in mutual funds (MFs), a proposal, if accepted by the government, could deal a body blow to local asset management companies and other firms.

The regulator has also proposed to the government that the securities transaction tax, or STT, which is levied on buying or selling of stocks and on derivatives trade, should be cut by one-third and that a uniform stamp duty be levied and collected by a central agency.

These proposals have been forwarded to the finance ministry, in the run-up to the Budget, said a person with the knowledge of the proposal. The letter to the finance ministry says, “Tax benefits to corporates investing in schemes of mutual funds may be withdrawn.”

It is not just the capital markets watchdog that is uncomfortable with MF industry’s unhealthy dependence on short-term funds from corporates.

Though this helps fund houses grow their assets and boost valuations, policymakers are worried about the systemic implications of any swift outflow of such institutional funds that could hobble some of the fund houses. This was evident during the second-half of 2008, when the Reserve Bank of India (RBI) had to keep liquidity support open to help MFs meet their redemption obligations.

RBI has also been unhappy at the way banks have been parking their surplus with MFs, which in turn finds its way back to banks. The central bank has nudged banks to restrict their investments in MFs.

Any move, either to do away with the tax benefits or to tweak the tax rates, could hurt the local MF industry whose growth is linked to the flow of funds from corporates. Over 50% of the money that Indian MFs attract for their debt schemes comes from corporate treasuries and banks. According to latest data, the assets under management of the Indian MF industry are a little under Rs 7-lakh crore.

SEBI’s proposal is aimed at putting an end to the rampant misuse of debt schemes of MFs by corporates, who park short-term corporate treasury funds to enjoy a tax arbitrage. While income from their treasury operations attract the corporate tax rate of 33.99% (including surcharge and education cess), treasury investments in debt funds attract a dividend distribution tax (DDT) of only 22.66%.

“If the tax benefit is removed, it will discourage corporates from using mutual funds as a treasury instrument... as we want to develop mutual funds as a vehicle for retail investors to take exposure in the securities market,” said a SEBI official.

Recently, RBI had told banks to go slow on their MF investments. In the last fortnight of December 2009, banks withdrew more than Rs 1-lakh crore from MFs. RBI deputy governor Shyamala Gopinath too had expressed her concerns about tax arbitrage through mutual fund investments.

“Mutual funds’ fixed-income products enjoy certain tax exemptions not available to banks. But this is outside the regulatory purview. However, if these policies introduce any vulnerability in the financial system, there is a need to address this through appropriate macroprudential and microprudential regulations,” Ms Gopinath said at a Fixed Income and Money Market Dealers Association (FIMMDA) meet.

SEBI has also asked the government to drastically reduce the securities transaction tax (STT) on equity transactions, as it increases the transaction cost. The regulator has recommended that STT should be slashed by one-third, as the rate has effectively tripled with the withdrawal of STT as a rebate under Section 88E in the last Budget.

Besides proposing a uniform stamp duty that will levied and collected by a central agency and shared among states based on an agreed formula, SEBI has recommended a goods and services tax (GST)-type concept for stamp duty collection on securities trades.

Market players say that there are several anomalies in the stamp duty, as it is levied by states with each levying different rates for different securities instruments. There are also disputes among states. Transaction costs in India are one of the highest in the world, with government levies, such as stamp duty and STT, accounting for almost 75% of the cost.

SEBI also wants Indian Depository Receipts(IDRs), instruments through which Indian investors can invest in equity shares of foreign companies, to be treated as securities for tax purposes. It has also recommend to the government that IDRs should not be taxed on transfer.

Top 10 Mutual Funds in India

2009-12-03T13:20:00.002+05:30

India can be an investors paradise or and investors nightmare. India was a region hit hard by the economic downturn of the last couple of years but has been bouncing back nicely from the nearly 53% lose taken last year. It has rebounded well though, much faster than other developing countries and many foreign investors are channeling funds into this "new" market. The top 10 current Indian mutual funds are:
• The Matthews India Fund offers investors specific exposure to India's economy but investing in Indian start ups.
• Reliance Capital Asset Management managed more than one half times more money than it nearest competitor with more than $21 billion rupees in assets.
• Britain's Standard Life Investments owns a large stake, 40%, in HDFC, India's second largest private-sector lender. This firm managers $527 billion rupees in June and is still growing.
• Prudential Plc, a part of the British Financial services group, has a nearly 59% stake in ICICI Prudential Asset Management, with only ICICI holding the remainder.
• The State Bank of India and Punjab National Bank, along with Life Insurance Corp, all state run entities, each own 25% of UTI Asset Management which is the oldest mutual fund company.
• Birla Sun Life Asset Management is a joint venture between Aditya Birla Group and the Canadian insurer Sun Life Financial and manages $410 billion rupees.
• Societe General has obtained a 37% stake in SBI Funds Management, with State Bank of India, the largest bank in India. This fund manages $300 billion rupees.
• Franklin Resources Inc. owns India's sixth largest fund, Franklin Templeton Asset Management and manages %247 billion rupees.
• Tata Asset Management is controlled by Tata Group, which controls more that $238 billion rupees in June. The firm is also allying itself with Britain's New Star Asset Management, to manage New Star India's India-dedicated funds.
• Kotak Mahindra Management is owned by Kotak Mahindra bank Ltd, which has an alliance with T. Rowe Price in an effort to launch global funds.
With India's newly booming market opportunities, it may be just the place for savvy investors to squirrel away some money for better returns.

UTI to be first on NSE mutual fund platform

2009-12-03T13:16:00.000+05:30

Around 30 of the 100 schemes of UTI Mutual Fund will be listed on the new NSE Mutual Fund platform.
The liquid schemes will not be included among them, said a top UTI official.
For the fund industry, it will be a new technology-driven initiative when UTI MF lists its schemes on Monday on NSE's new platform – the Mutual Fund Service System (MFSS).
In November 2000 a similar initiative by the Association of Mutual Funds in India made it possible for Indian funds to declare their NAVs on a common platform.
BSE to join soon
Around 10 mutual funds are expected to join NSE's platform within a week's time, an NSE official said. BSE too is readying a similar platform for launch, a BSE spokesperson said, without giving further details.
The new transaction platform allows investors who have demat accounts to transact in mutual funds online by logging on to their broker's telecom network, which will be linked to NSE's MFSS.
Those who do not have demat accounts will have to apply to their respective mutual funds for generation of a personal identification number (PIN), a user ID and password; this route will also facilitate online transactions, without the broker coming into the picture.
Such investors will have to provide their bank account details along with their PAN and fund folio numbers to get their PIN.
Transactions would be processed on the business day on which the investor's funds are credited to the mutual fund's bank account. Units will be allotted at the previous day's NAV for orders received up to 3 p.m.
In addition to online subscription and redemption, investors can apply for new fund offers and additional subscription in various schemes.
The facility will also enable switching of units from one scheme, plan or option to another.
No entry load will be charged for direct applications that are not routed through a broker or distributor, but are forwarded online to mutual fund houses through their online transaction facility, the Web site of UTIMF said.
There is no clarity on levy of brokerage and securities transaction tax. NSE officials declined to comment on this matter.

Now you could trade Mutual Funds on NSE

2009-12-03T13:13:00.001+05:30

Sounds interesting after ETF’s now it the time for Mutual Funds to get traded.
The National Stock Exchange on Tuesday announced the introduction of mutual fund service system, a platform on which mutual fund units will be traded through the stock exchange infrastructure, from November 30.
The Bombay Stock Exchange is also developing a similar platform with Central Depository Services.
All trading members of the exchange who are registered with the Association of Mutual Funds of India as mutual fund advisors and who have signed up with specific AMCs will be eligible to participate in MFSS. Trading members will have to register with NSE as “participants”.
A fully-automated on-line order collection system, called NEAT-MFSS, will be provided to the “participants”, who can use their existing telecom network to connect to this system and enter requests for subscription and redemption of MF units. Participants can choose between physical and depository modes while capturing subscription/redemption requests.
The pay-in of funds for subscription will be through designated bank accounts. The subscription transactions will be settled on a T+1 basis according to the timelines specified by the clearing corporation. Pay-out of funds for redemption transactions will have to be directly made to investors from the registration and transfer agent for both physical and demat modes.
This would be great as there would be no need of an Mutual Fund Broker to buy and sell the fund. This would cause an increase in volatility indeed.

Axis Mutual Fund launches its first equity fund

2009-11-26T16:59:00.000+05:30

Axis Bank-promoted Axis Mutual Fund has launched its first equity fund, Axis Equity Fund, a diversified equity fund benchmarked to the S&P CNX Nifty.

“We aim to offer total investment solutions to consumers and not just individual products. Our research has shown that there is a huge demand for simplicity and trust in financial services,” Axis AMC’s Managing Director & CEO, Rajiv Anand, said in a statement here today.

“We have chosen to launch a simple but effective product in the category of diversified equity funds. Industry data indicates that in the last five years (as on October 30, 2009) all the 85 diversified equity funds have given positive returns with the worst giving 12 per cent per annum and the best 34 per cent per annum. With a simple product and a reputed brand name like Axis, we have an appealing solution for the consumer,¿ Anand said.

Axis Equity Fund will open for subscription on November 11 and close on December 8, the statement said. It will re-open for purchase and redemption on January 7, 2010.

Investors can apply through a lump sum purchase or through Systematic Investment Plans during the NFO. The minimum lump sum purchase is for Rs 5,000.

The scheme is available in two options-growth and dividend and one per cent will be charged as exit load if the investor redeems/switches out from scheme within one-year from the date of allotment.

“Axis Equity Fund is a solution designed for a consumer who is seeking a balance between deciding the best investment option that helps him provide for his family's future and ensuring that he has invested wisely, thus helping him enjoy the present with his family's National Sales Head, Karan Datta, said.

Axis Mutual Fund had launched two debt schemes in the month of October 2009. It manages Rs 1,988-crore in these two schemes as on October 31. Axis Mutual Fund already has offices in over 25 Indian cities.

What makes an ETF better than a mutual fund?

2009-11-26T16:56:00.001+05:30

Exchange traded funds or ETF have been in existence for ages but are a novel concept in the Indian market. As with every emerging market the novelty of the product leads to on the brave of heart investing in the same, even though returns from such investments remain to be above par even in the volatile markets that we are plagued with in recent times.

Gold investments traditionally in India have been in the form of buying gold in physical form on a variety of occasions. In our country, investments since donkey year`s people have bought gold jewelry on various occasions. Apart from the cost price being eroded over time these investments also face risk from various factors such as theft, resale concerns, quality assurance, making charges, less tax efficient in absence of wealth tax and long-term capital gains tax. With the Indian markets opening up, a bouquet of products & investment products are being showcased to the Indian investor. Various AMCs have already begun strategically launching new products that are solely dedicated towards investing in a variety of companies, which deal in this soft yellow metal. So the question remains what makes an ETF better than a Mutual fund??

The Risk-Return Trade off - Why Invest In ETFs

The basic concept of a mutual fund allows an investor`s money to be professionally managed by a fund manager, however with this an investor is left to burden the cost associated with it which can be a maximum of 2.5% of the AUM of the specific scheme. Compared to this ETFs are passively managed, have low distribution costs and minimal administrative charges, hence most ETFs have lower expense ratios than conventional mutual funds.

Systematic Wealth Creation Through ETFs

With a majority of working Indian investors being from the salary class the systematic investment plan (SIP) offered by mutual funds look very attractive as a small scale saving option. However SIP in ETF is not convenient, as the investor has to place a fresh order every month. Also SIP in mutual funds may prove expensive as compared to a no-load, low-expense index funds as you have to pay brokerage every time you buy & sell but investors cannot automatically re-invest your dividends.

Secondly, investors may have to pay brokerage to reinvest dividends in ETF, whereas dividend reinvestment in MFs is automatic and with no entry-load But ETFs are conveniently traded on various stock exchanges, like a stock at any time of the day and at real-time prices, while the market is open. Investors are also able to short sell an ETF or buy on margin or even purchase one unit, one can buy MFs only at the NAV based on the closing prices.

Concluding Views

As market valuations become fair or over-valued, it will become more & more difficult to beat the index. Then index-based funds (both conventional MFs & ETFs) may become a better option than actively managed funds Gold ETFs or Real-Estate ETFs have no comparable product in the conventional MF sector, and hence become the only MF route to invest in such markets. To an investor who is bullish on long-term & defensive investment strategy in equity an index linked portfolio would be more attractive than a actively managed portfolio. ETFs offer alternatives to an index-based fund however as most investments are subjected to market risks a case-to-case comparison is, however, important, as some index-funds may be cheaper. Also for SIPs, index-funds may prove better than ETFs.

Fidelity MF launches equity fund, plans intl funds in India

2009-11-26T16:50:00.000+05:30

Fidelity Mutual Fund today announced the launch of its Fidelity India Value Fund, an open-ended, diversified equity fund.

The company is also looking at launching its international funds in the Indian market, a top company official said here.

"With the launch of the India Value Fund, we are broadening our offering of equity funds. Value investing has at its heart a bottom-up stock picking approach given its focus on finding undervalued stocks," Fidelity International's Managing Director and Country Head, Ashu Suyash, told reporters here today.

The fund will invest in Indian and international equities with a higher focus on undervalued securities to deliver long-term capital appreciation.

"We are also looking at launching international funds in the Indian markets. We still have to go through necessary approval process before their launch here," Suyash said.

The Fidelity India Value Fund's new fund offer (NFO) will remain open from November 16 - December 15, 2009.

"Value investing has a real role to play even in a growth economy. The fact is that there is little or no correlation between whether a stock is undervalued and the GDP growth of that economy. If you look at the last ten years, in which India saw strong GDP growth, you would still find that value outperformed growth by two times," Fidelity India Value Fund's Fund Manager, Nitin Bajaj, said.

"As long as markets are driven by sentiment and emotions like fear and greed, we will see market inefficiencies and momentum which will give rise to valuation anomalies. It is these undervalued stocks that I'm looking to uncover," Bajaj said.

Benchmarked to the BSE 200, the Fidelity India Value Fund will have a normal allocation to equity and equity-related securities within a range of 80 per cent to 100 per cent of net assets. The normal allocation to other instruments, including cash, debt and domestic ETFs will be within a range of 0-20 per cent.

The Fund may also invest up to 10 per cent of net assets of the fund in foreign securities including overseas ETFs.

Fidelity International's Indian asset management company has total assets under management of over Rs 9,000-crore and more than 16-lakh customer accounts, Fidelity offers Indian investors investment options through its five equity funds and five fixed income, hybrid funds.

Ten ways to Evaluate a Mutual Fund

2009-11-13T15:34:00.001+05:30

Every Mutual Fund agent and financial Web site has different theories on how to evaluate Mutual Funds. Many of these theories focus on simply analyzing the fund's recent performance and the reputation of the fund house, which is rarely enough to differentiate a good investment from a bad one.

In reality, Mutual Fund analysis is a sophisticated problem studied by global investment professionals, and while no list can do complete justice to the problem, there are ten nuanced factors that professionals look at:

1. Performance track record

Everyone scrutinizes returns but the key word is track record or the complete history of returns. Funds in India often sell on recent track record (a week, month, or year), which says little about the fund's long-term performance. Fund houses will also cherry pick the period of returns they show to make the fund house look good.

Since inception performance or performance over the fund's life is a critical factor, equally critical is what the starting point for the fund was. An equity fund that started in October 2008, a market low, will have great since-inception performance today, because it happened to catch a big bull market.

Everyone can succeed in a bull market; analyze how funds have performed in a bear market. Be sure to use a correct benchmark when analyzing a fund's relative performance. A small-cap fund should be bench marked to an index like the BSE 200 or BSE 500, while a large cap fund to the Nifty or Sensex.

Fund houses will commonly show small-cap funds in comparison to the Sensex, which is an unfair benchmark because there is a premium on small-cap stocks as they always do better in a broad based bull rally.

2. Fund manager profile

The fund manager (not the fund) is often ignored in the Mutual Fund decision-making process, and is more directly related to how your money is managed than the fund house. In reality, the fund manager is the one making the actual investment decisions and driving the trades.

A strong fund manager will have a professional qualification in finance and many years of experience in investment management, where investment management is specifically the management of funds, and not investment banking, chartered accountancy, and brokerage.

Understand what funds the manager has worked at in the past and what her/his own investment track record is. It's also important to look at the management of the firm and their involvement in the fund: Who makes the final decision, the fund manager or the fund house management?

3. Investment style and process

A good fund manager will have a distinct investment style, whether it is fundamental, quantitative or macroeconomic. No one style is better than the other; the important thing is whether the manager sticks to her/his investment style and if this style is reflected in the portfolio holdings. A small-cap fund manager should not start doing arbitrage strategies just because they get good returns.

A fundamental manager who focuses on the deep understanding of companies and sectors should not manage an IT fund, a pharma fund, and an infra fund. A fund manager's style should not be determined by what is selling in the market.

4. Risk

Returns are important, but risk is just as important, if not more.

Risk can be quantified in various ways from as simple as standard deviation and beta to more complicated risk models. What is important to check is a fund doesn't just show good returns, but good risk adjusted returns. Sharpe or information ratio is a good measure of risk-adjusted returns.

In addition to total returns, the risk a fund takes relative to its benchmark should be studied. If you are looking for equity returns similar to the benchmark and a fund is taking a lot of risk to the benchmark, you may not be paying for what you want.

Also, good funds should have an independent risk management team that oversees the portfolio manager and keeps the risk the manager takes in check.

5. Portfolio turnover

Portfolio turnover is a measure of the amount of trading the fund is doing and a measure of how aggressively the portfolio is churning the portfolio. Higher amounts of turnover means the fund is holding their investments for a much shorter period, which may be undesirable if you think of your equity investments as a long term investment.

In addition, higher amounts of turnover lead to higher expenses whether it is brokerage, custody, statutory taxes or other expenses. This is a hidden yet important cost because it directly reduces your returns.

6. Fund size

Fund houses and Mutual Fund agents often pitch larger funds as better, because raising more assets is a sign of fund performance and investor confidence.

This is only partly true. While a fund should have some size, larger funds are not nimble and their trading activity can move the markets. If a large institutional investor redeems his units from the fund, the fund will have to sell its holdings to meet the redemption request. The sell orders of the fund are likely to move prices and the brunt of this is borne by smaller retail investors.

In addition larger funds struggle with liquidity -- it is hard to exit out of holdings in a cost-efficient and timely way because the trade size is so large.

Also, larger funds are likely to skip smaller potential multi-bagger investments because at the starting point, the investments are too small to make a meaningful difference to the corpus.

7. Cost of funds

Mutual Fund investment costs are not insignificant and are often deceptive. Funds will often show only entry and exit loads, leaving out the expense ratio, which is a very significant cost. In addition, the entry load is now a moot point since SEBI has regulated that entry loads are out -- a fund is not doing you a favor with zero entry-load.

Exit loads, which are perceived negatively, are not always bad -- they prevent you from recklessly moving from one fund to another, and keep your focus on the long term. It is just important to make sure the exit load is in line with your investment horizon.

8. Fund house approach

The fund house's approach of managing their portfolio of funds says a lot about their commitment to providing clients good investment returns.

Fund houses that are focused on managing a few funds well are better than fund houses that launch one fund after another, just because there is a new flavor of the season. Fund houses that have the courage to launch innovative products and concepts are also better than those creating me-too products.

Also beware of fund houses that launch and shut down the same concept again and again -- just for the benefit of getting a fresh track record.

9. Investment objective

Ask your Mutual Fund agent to tell you the investment objective of the fund: What is the fund trying to provide to you?

Long-term capital appreciation is not an investment objective -- every fund tries to provide that and every investor wants that. Examples of investment objectives are tracking the Nifty, providing roughly 5 per cent over the Nifty, or providing 10 per cent a year in all market environments (bull or bear).

An investment objective should be concrete and realistic -- 50 per cent returns every year is not realistic.

Once you know the fund's objective you can correctly evaluate its performance -- a fund whose goal is to track the benchmark cannot be criticized for not outperforming it.

10. Aggressive cash management

It is important to understand what percentage of the assets a fund holds in cash and what its cash management strategy is, as well as what the historical cash holdings are.

Funds that move into cash aggressively may be able to protect you in crash. However, keep in mind, as the market rallies, they will lag the market as they move back from cash to equities. On the other hand, funds that are always fully invested will do well in a rally, but give you severely negative returns in a crash.

Selecting a Mutual Fund is both art and science and should be done very thoughtfully. Study the fund house carefully or work with a qualified investment adviser who understands Mutual Fund selection. More than 40 fund houses and thousands of funds make us spoilt for choice. So, choose wisely.

SEBI Declares System Audits of Mutual Funds to be Conducted by CISA/CISM-certified Auditors

2009-10-08T14:56:00.001+05:30

The Securities Exchange Board of India (SEBI) stated recently that system audits of mutual funds in India must be conducted by CISA/CISM-certified (or equivalent) auditors. ISACA, a global association of 86,000 IT and business professionals and a provider of IT knowledge and certifications, believes that this is a crucial step undertaken by SEBI, considering the importance of systems audit in the technology-driven asset management activity. ISACA administers the globally respected Certified Information Systems Auditor (CISA) and Certified Information Security Manager (CISM) designations, as well as the newer Certified in the Governance of Enterprise IT (CGEIT) credential.

Avinash Kadam, past international vice president of ISACA, commented, “This is a welcome step taken by SEBI to protect the interests of the investors in mutual funds. There is very high dependency on information technology in the financial sector. Mandatory audits of systems and processes will bring transparency in the complex workings of mutual funds, prove integrity of the transactions and build confidence among the stakeholders.”

According to ISACA, the step will be beneficial as it requires a comprehensive audit of systems and processes related to examinations of the integration of the front office system with the back office system. The audit will also involve the examination of fund accounting systems for calculation of net asset values, financial accounting and reporting system for the AMC, unit-holder administration and servicing systems for customer service, funds flow process, system processes for meeting regulatory requirements, prudential investment limits and access rights to systems interface.

Accordingly, these systems audits will be conducted once every two years. A systems audit report and compliance status will be presented before the trustees of the mutual fund. The systems audit report/findings, along with trustee comments, are to be communicated to SEBI.

More than 70,000 professionals have earned the CISA designation since inception in 1978, and its retention each year consistently remains at 92-94 percent. More than 10,000 professionals have earned the CISM certification since it was established in 2002, and its retention each year consistently remains at 93-94 percent.

Sebi may allow MF units to be traded on exchanges

2009-09-30T15:00:00.000+05:30

The move includes new fund offers.

After a series of bad news such as entry load ban, mutual funds may finally get some good news from the market regulator.

The Securities and Exchange Board of India (Sebi) is now planning to enable investors to buy and sell mutual fund units through stock exchanges. Fund houses will also be allowed to sell new fund offers (NFOs) through exchanges, helping them to save on distribution costs.

Sources privy to the discussions told Business Standard that a committee under a Sebi executive director has been constituted to look at amendments to the regulations governing stock exchanges, depositories and brokers to push through the move. Another source said to start with, it would be optional for fund houses to use the platform. Trading on stock exchanges would be in addition to the proposed platform being developed by Association of Mutual Fund of India (Amfi).

The sources added that Sebi was keen on stock exchange-based mutual fund purchases and sales or redemption because the Amfi platform could take a while to be ready.

The move comes at a time when the market regulator has terminated the system of entry load and put curbs on the levy of exit load on mutual funds.

At present, investors have to approach fund houses to buy or redeem units. On their part, fund houses declare net assets value (NAV) on a daily basis and trading takes place on the basis of the previous day’s NAVs.

Under the new mechanism, fund houses have to offer two-way quotes based on the previous day’s NAV for trading.

Last year, Sebi had mandated the listing of all new fixed maturity plans on the stock exchanges, which had lowered listing fees to push through the move. At present, 83 FMP schemes are listed on stock exchanges but volumes are low.

Apart from the sale and purchase of units, new fund offerings could also be made through the stock exchange channel in addition to those through distributors.

A Sebi official said that stock exchanges would have to make minor modifications to their software to allow for trading through terminals. The move would also require dematerialising mutual fund units.

On the trading platform being developed by Amfi, a committee headed by UTI Asset Management Company Chief Market Officer Jaideep Bhattacharya had suggested the introduction of a unique identification number for each investor that would help them track their portfolio, including their value, once they log on to a website.

“Sebi’s initiative should work well for the industry,” said the CEO of one of the largest asset management companies in the country. He said cost advantages would accrue for investors and fund houses and brokers would also benefit. “The commission may be low for financial advisors but it will be good for brokers who will also be able to make more use of their terminals,” the CEO added.

Asit C Mehta Investment Intermediaries Managing Director Deena Mehta said, “Fund houses can sell new schemes and even units of the schemes floated earlier. Distributors can act as sub-brokers. This will cut costs for fund houses also.”

There were over 500,000 trading terminals across 600 Indian towns and cities and Mehta pointed out mutual funds had a presence in 150 of these locations.

She added that trading through the stock exchanges would also mean that the settlement process could take place through the clearing houses of these exchanges.

What investors can do to take cover

2009-09-30T14:57:00.002+05:30

With higher inflation likely to erode a good portion of one’s returns, investors must consciously inflation-proof their portfolios. Here are a few pointers.
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It is a bit of a paradox that inflation data should point downward even as commodity prices are headed in the opposite direction. This is exactly what is happening in India today.

Not only are consumer prices well ahead of the official price indices, even the official inflation number is expected to climb over the next year. But why is inflation important, what does it mean to investors and how should they factor inflation into their financials plans? An analysis.

The two commonly used indicators to gauge inflation — Consumer Price Index (CPI) and Wholesale Price Index (WPI) — have historically moved in tandem. But not any longer. Growth in the WPI, after being in the negative zone for 13 weeks, has now barely turned positive, with a reading of 0.3 per cent for the week ended September 12, 2009.

But growth in the CPI-Industrial Workers is a whopping 11.8 per cent for the latest month (July 2009). (In this analysis, we refer to the CPI-Industrial Workers index as CPI, as that may be most representative for the urban consumer).

If as an investor, you took note of the official inflation numbers (the WPI) to conclude that inflation was at a low ebb, you would be mistaken, as it is the CPI that is more representative of the prices you pay.

Higher inflation in consumer prices

In fact, such a divergence between the CPI and the WPI is of fairly recent origin. Between 1998 and 2008, inflation measured by the two indices moved in much the same way, with the correlation between them at a near perfect 0.99. However, that completely changed in the last year, with the correlation slipping to a negative (-0.14), suggesting that the CPI has moved up even as the WPI corrected sharply.

The reason for the divergence is explained, to a large extent, by the higher weight assigned to food articles and a lower one to fuel prices in the CPI. Food and food products form 46-67 per cent of the CPI, against 25.4 per cent in the WPI indices. On the other hand, fuel and other energy products have weights of 14.2 per cent in the WPI against 6.43 per cent in the CPI.

A rising CPI may also indicate that the services you consume are getting more expensive, as it takes into account expenses on housing (15 per cent weight) and services such as health, education, telecommunications and transportation, which are ignored by the WPI.

In the first half of 2008-09, WPI inflation ruled higher than CPI due to higher prices of oil, manufacturing products and metals putting upward pressure on the index. As oil prices and prices of other commodities (metals and minerals) cooled off, WPI began to fall; simultaneously, supply constraints started showing up and the CPI began to tread higher ground, outpacing the WPI.
What it means for investors

Having noted the divergence between CPI inflation and the official inflation numbers, what are the implications for investors?

Lower real returns: CPI inflation at 11.8 per cent, implies that investors who ploughed their savings into an 8.5 per cent one-year deposit offered by a public sector bank in July last year, would have ended up with a negative 3.4 per cent real return. The annual rate of CPI inflation in the last five years was 7.3 per cent.

This implies that any fixed income option that delivered less than 7.3 per cent has been fetching the investor a negative return in real terms. Note that inflation erodes your real returns from fixed-income investments. In a savings-focussed country such as India, where much of the savings are ploughed into bank deposits, higher inflation may effectively erode a good portion of the investors’ returns and, at times, the principal as well.

Therefore, investors who put their money mainly into fixed income investments have to make a conscious attempt to seek out those that offer high double-digit returns. Or they should add riskier investments to beat inflation.

Factoring inflation into your long-t erm plans: Financial planners usually assume a 5 per cent inflation rate (based on the WPI) to compute targets for long-term financial goals in Indian context. But the recent CPI-WPI divergence suggests that they should actually be assuming a much higher number.

As mentioned above, CPI in India over the last five years has grown by nearly 7 per cent annually. An investor may also need to have some margin of safety against factors that may drive inflation up by one or two percentage points in a particular year.

Rejig your investments: In high inflation scenario, a reasonable and real rate of return can be expected from investments in assets such as equity, commodities and real estate. Equity investments, which registered negative real returns the last year following the global meltdown, have recorded stellar returns during the bull market (2004-08), even adjusting for inflation.

The Sensex return during 2004-08 grew by 30 per cent, compounded annually, while CPI inflation grew at 6 per cent. This implies equity investments can conserve capital and may offer real returns.

Investors also have a hedging option against inflation in the form of commodity-oriented mutual funds, which take exposures to stocks of commodity producers or miners.

These are bound to be directly linked to the commodity basket tracking inflation. However, unlike equity, the options among commodity linked funds are few.

Some of the commodity funds offered in India are Magnum Comma Fund, DSP BlackRock Natural Resources and New Energy Funds and Mirae Asset Global Commodity Stocks Fund.

Purchasing property also acts as a good hedge against inflation, especially for people renting it out. Data suggest that rents grew at a decent pace in the last few years, apart from providing capital appreciation on the property. NHB housing index indicates that property prices went up 17.8 per cent CAGR in 2001-07 in five major cities.

Data suggest significant capital appreciation for property investments historically, notwithstanding the recent correction. Not only is the choice of investments important but also the marco-economic outlook, especially keeping tabs on the monetary response to inflation by the central bank.

Interest rate moves: One facet of your investments directly linked to inflation is interest rates. The Reserve Bank of India has traditionally used its policy rates to quell inflation.

As WPI inflation shot up from 7.8 per cent to 12.8 per cent between September 2004 and August 2008, the RBI increased repo and reverse repo rates by 300 and 150 basis points respectively and the cash reserve ratio (CRR) for banks was raised by 450 basis points to normalise inflation.

However, current divergence in the indices may put the central bank in a Catch-22 situation as CPI growth continues to stay high, even as WPI remains low. The benign interest rate regime may not be reversed until there are signs of revival, notwithstanding the spike in food prices and fiscal expansion.

With inflation expected to go back to high single digits by this financial year-end, the market expects moderate and gradual hikes in policy rates from January next year. Lending rates are sure to trend up if that happens. And bank deposit rates may catch up only later.

Debt funds boost mutual fund assets: CRISIL

2009-09-30T14:51:00.000+05:30

The mutual fund industry’s assets under management (AUM) reached a new peak at the end of August touching Rs.7.57 trillion, growing by 5 per cent over the previous month. Only the debt category, driven by ultra short term debt funds, registered net inflows during the month. All other categories saw net outflows.

As for returns, equity funds outperformed due to strong performance from mid-cap and small-cap funds while long-term debt funds saw negative returns due to rising yields. “Ultra short term debt funds saw strong inflows in August, with banks parking their surplus funds in these schemes. The new no entry load rule seems to have initially dulled the inflows into equity funds even though fund performances were good during the month,” said Krishnan Sitaraman, director, CRISIL Fund Services.

Poor monsoon to affect auto sector after festival season

Edelweiss Research has said in a recent report that in North, West and South India, the impact of a weak monsoon does not seem to be substantial so far on the passenger car and two-wheeler segment. Nearly 90 per cent of the dealers (barring some in UP and Haryana) that their researchers met expected the festival season beginning October to be strong. The exception is the tractor segment where inventory build up is visible.

Based on their interactions with dealers, the researchers have concluded that around 50 per cent of two-wheeler and 30 per cent of car volumes in the rural sector are accounted for by farmers, around 30 per cent by the salaried class, and the balance by businessmen (primarily small traders, dependent on farmers for their income). Hence, around 70 per cent of vehicle buyers are directly or indirectly dependent on agriculture. Hence, most dealers (over 90 per cent) expect the impact of poor rains on volumes to be felt December onwards. However, late rains (that augur well for the post monsoon Rabi crop) and various measures by state governments may buffer the blow.

WPI inflation turns positive

For the week ending September 5, 2009, headline inflation (the wholesale price index, WPI) stood at 0.12 per cent. Inflation for the week ending 11 July 2009 was revised to (-) 0.63 per cent from (-) 1.17 per cent. “Looking forward, we expect food prices to move up due to the start of the festive season in October. WPI inflation could cross 7 per cent by end March 2010,” says a research note from Anand Rathi Financial Services.

L&T Finance buhttp://www.blogger.com/img/blank.gifys Asset Management Arms Of Chola DBS for Rs 45cr

2009-09-30T14:41:00.001+05:30

The transaction indicates how valuations have dropped in the Indian mutual fund space.

L&T Finance, the subsidiary of engineering and construction major Larsen & Toubro, has acquired 100% stake in the asset management business of Cholamandalam DBS Finance Ltd for a consideration of Rs 45 crore.

With this deal, L&T Finance gets to deepen its offerings in the financial services segment while Cholamandam DBS’ exit from asset management business will allow it to focus on its core areas. L&T recently raised $200 million from an issue of non-convertible debentures (NCDs).

The transaction indicates how valuations have dropped in the Indian mutual fund space. Valuations have come under greater pressure after capital markets regulator Securities and Exchange Board of India announced a move to abolish front-end or entry fees charged by mutual funds from August.

Cholamandam DBS is a joint venture between Murugappa Group and Singapore’s DBS Bank. The acquisition includes 100% stake purchase by L&T Finance of DBS Cholamandalam Asset Management Ltd (DCAM), DBS Cholamandalam Trustees Ltd. (DCTL) as well as involves the transfer of DBS Chola Mutual Fund (DCMF) and the schemes under the fund. DCAM has average assets under management of Rs 2,893 crore as of August 31, 2009. The transaction has happened at little more than 1.5% of the assets of the fund.

Earlier reports indicated that DBS, the largest bank in Singapore, will buy the partner’s stake in the whole venture. Equirius Capital advised L&T Finance while Edelweiss was sole advisor to Cholamandalam DBS.

Recent transactions in the industry like Nomura's stake buy in LIC Mutual Fund and Religare Enterprises' buyout of Lotus India Fund also happened at low valuations. LIC-Nomura deal happened at 2.5% of the funds assets while Lotus-Religare deal happened at 1-2% of the funds assets. Lotus India was owned by Singapore's sovereign wealth fund Temasek and private equity firm Sabre Capital Worldwide.

Compare this to peak valuations of 2007-08. In March 2008, Standard Chartered sold its Indian asset management business to Infrastructure Development Finance Co for $205 million, valuing the firm at about 6% of its assets under management. In December 2007, Reliance Capital sold about 5% of its fund unit for Rs 500 crore, valuing India’s largest fund firm at 13% of total assets.

ETF on radar of investors

2009-09-21T17:45:00.001+05:30

India is the latest buzzword in the global financial marketplace. The perception of global investors about India is changing for the better.

India's ability to protect itself in the recent meltdown has resulted in investors viewing India as a separate investible entity. Earlier, this market was unceremoniously clubbed with other emerging markets and merited only an occasional mention. India is now seen as a fast-growing economy with specific skills in knowledge-based sectors such as information technology, financial and healthcare.

Foreign investors heading for India

India's financial sector is doing well. The government is giving priority to infrastructure development. There are effective regulatory mechanisms in place. All these factors make India an ideal destination for foreign investors. It is an ideal destination for investors looking for alpha returns and follows a more actively-managed investment strategy.

Domestic ETFs trade well in the US

Many new Indian exchange-traded funds (ETFs) are being launched in the US and these ETFs trade very well there. A tremendous short-term gain of 23 percent by an Indian ETF and 52.5 percent year-to-date returns generated by another India ETF has helped in generating the buzz around Indian investments.

ETFs represent a basket of stocks that reflect an index, say Nifty, S&P 500 or Nikkei.

ETF helps in diversification

An ETF is a financial instrument that is traded on the stock markets
like any other shares, unlike a mutual fund. Hence, an ETF's price changes throughout the day, fluctuating with supply and demand. On the other hand, a mutual fund's NAVs are calculated at the end of each trading day. ETF helps in diversification by investing in index and flexibility or liquidity like a stock in the same instrument.

The expense ratio of an ETF is less, and brokerage and commissions are chargeable like any other share. It is important to remember that while ETFs attempt to replicate the return on indices, there could be some tracking error that varies from fund to fund depending on the fund manager's ability. It is not uncommon to see a one percent or more difference between the actual index's year-end returns and that of an ETF.

Here, an ETF is nothing but an exchange-traded fund that is based on a basket of securities listed on various exchanges. These ETFs aim at capturing the major sectors of the economy by owning a diversified mix of major companies that represent the majority of the total market capitalisation of the economy.

India-focused ETFs can be of two types - domestic and international. International ones are those floated aboard, targeted at international
investors who want to invest in India. Such ETFs carry a higher expense ratio than most domestic funds, but it should be noted that administrative costs will typically be higher when international investments are involved due to increased exchange costs and brokerage fees for trading on an international exchange.

Domestically, India began its foray into the sphere of exchange-traded funds in December 2001. ETF like Nifty BeES, the Nifty Benchmark Exchange-traded Scheme was the first Indian ETF launched in the country. Based on the S&P CNX Nifty Index, it was launched by the Benchmark Mutual Fund. Other India ETFs include the Junior BeES, Liquid BeES and gold-based ones.

Investment strategy

Every individual investor must consider investing in ETFs for the convenience it offers. It is a simple instrument that is easy to understand and invest in. The associated costs are low, and the portfolios are flexible and tax-efficient if held for more than a year. ETFs simplify the index and sector investing in a way that is easy to understand. For example, if an investor feels that gold could appreciate in the next six months he can invest in gold ETF or if he feels that mid-cap stocks could appreciate he can invest in ETFs tracking midcap index.

Here, the advantage is that instead of investing in a few mid-cap shares and hoping those very mid-caps will appreciate in value, the investor gets the whole basket of mid-cap by investing in an ETF tracking the midcap index. The disadvantage is that if only some midcaps appreciate and some don't the ETFs will show only a marginal increase in value.

Nevertheless, long-term investors will find that the broad-market based ETFs can find a place in their portfolios. ETFs make sense for buy-and-hold investors too. The combination of the immediate diversification, lower cost and higher flexibility offer makes ETFs a good investment tool.

Sahara Star Value Fund reopens for sale

2009-09-21T17:42:00.000+05:30

Sahara Mutual Fund has announced the re-opening of its equity scheme “Sahara Star Value Fund” with effect from September 18, 2009. As per the provisons of the scheme, units will be offered for purchase and redemptions on all business days on an ongoing basis. The scheme debuted at Rs 10.1468 per unit as against a face value of Rs 10 per unit on September 17, 2009.

Announcing this, Mr. Naresh Kumar Garg, Chief Executive Officer, Sahara MF mentioned that the equity markets worldwide have started appreciating post early signs of economic revival. The Indian markets to is reflecting the early signs of good economic growth going forward backed by stronger government policies and good industrial production. While stock across sectors have already posted handsome gains, there are still many quality stocks which are attractive picks. Sahara Star Value Fund, which would invest in such quality stocks which hold value on relative parameters. The fund is positioned as a preferred vehicle for investors to participate in the perceived long term value creation.

Sahara Star Value Fund, is an open ended growth scheme with the objective to provide long term capital appreciation by investing predominantly in equity and equity related instruments of select companies based on value parameters.

India's ETF investors making up for missing gold buyers

2009-09-21T17:39:00.001+05:30

Record prices have forced many of India's traditional gold buyers out of the market in recent months with jewelry demand remaining largely lethargic, but the recent rally in prices is creating a new source of demand: investors who are looking for the safety, convenience, and steady returns of exchange-traded funds, or ETFs, backed by gold.

Even among investment products, ETFs are gaining an upper hand over gold bars and coins because of the easy liquidity and lower costs associated with ETFs, analysts say. India has for long been the biggest market for gold, but much of that demand has traditionally been from rural households which buy gold in the form of jewelry.

While India continues to be a price-sensitive market with every rally hitting demand for the yellow metal, the rising popularity of ETFs indicate that going forward, the Indian market could see less of an impact from rising prices at a time when gold is again in the limelight because of a falling dollar and increasing fears about the return of high inflation.

"In the last 10 days, our daily volumes have more than doubled to 70-80 kilograms. This is despite it being an inauspicious period to buy gold in the country," said Sanjiv Shah, executive director of Benchmark Mutual Fund, which has the largest volumes and assets under gold ETFs in India.

Domestic spot gold prices rose above 16,000 rupees ($332.6) for 10 grams for the first time Wednesday after international prices convincingly moved above the key $1,000-per-troy-once level earlier this week.

The rally has come at time when Indian consumer demand has already been at multi-year lows since the start of the year. According to the World Gold Council, India's gold consumption fell 38% on year in the April-June quarter to just 109 tons. During the previous quarter, gold sales were only 17.7 tons, down 83% on year.

Those numbers, however, are not deterring fund houses from launching even more instruments for investors looking at gold as an option.

According to market participants, a number of Indian fund houses are planning to launch gold ETFs in the next few months.

Religare Mutual Fund and HDFC Mutual Fund have submitted proposals to the Securities and Exchange Board of India -- the industry regulator -- to launch new ETFs.

Six fund houses -- Benchmark Asset Management Co., Kotak Mahindra Mutual Fund, UTI Asset Management Co., Reliance Capital Asset Management Ltd., Quantum Mutual Fund, and SBI Mutual Fund -- already offer gold ETFs in India.

Separately, UTI Mutual Fund, Reliance Mutual Fund, and IDFC Mutual Fund have submitted proposals to launch funds that invest in gold ETFs.

"In the last year Indian gold ETFs have given excellent returns, prompting major fund players to plan more launches to tap this market," said Kapil Gandhi, a trader with STCI Commodities.

According to data from exchanges and the Association of Mutual Funds in India, gold ETFs have given returns of about 35% in the year ended Sept. 15, while gains from gold futures were around 25% for the same period. The stock market, as measured by the benchmark Bombay Stock Exchange Sensitive Index, or Sensex, returned an even lower 23%, making gold ETFs one of the best investment choices last year.

With some analysts expecting domestic gold prices to hit 18,000 rupees/10 grams soon, more investors are expected to go in for asset re-allocation and increase their investment in gold ETFs.

"Investors who had been waiting on the sidelines are now coming in and volumes have been above average in the last few days," said Arvind Chary, fund manager for Quantum Mutual Fund's gold ETF.

"Out of the total consumption of 800 tons of gold (annually), anecdotal evidence suggests that 200 tons were in coins and bars. Over a period of time, this demand will shift to gold ETFs," said Shah of Benchmark Mutual Fund.

This is expected to result in more gold buying by these fund houses. Currently, gold holdings by the six listed ETFs in India are estimated around 6 tons.

But some industry officials warn fund houses may be getting overly excited about the scope of the market.

"Indians still prefer to hold gold in their hands," and that is "proving to be a deterrent to the growth of ETFs in India," said Ashok Minawala, former chairman of the All India Gems and Jewellery Trade Federation. "People have started accepting" the current high prices as expectations are for prices to rise further. That is helping revive consumer demand, he said.

Domestic institutions, not FIIs, powered stock market rally

2009-09-21T17:35:00.001+05:30

Foreign institutional investors preferred QIPs, IPOs to secondary market.

Only one-fourth of FII investments was routed to the secondary market.
Monthly inflows from FIIs were negative in six out of nine months this year.
Domestic institutional investors put in twice the amount invested by FIIs in 2009.

Contrary to popular belief, foreign institutional investors (FIIs) are not the prime driving force behind the recent stock market rally. FIIs have preferred to buy equity stakes directly from promoters through qualified institutional placements (QIP) and primary market offerings, rather than secondary market investing for most part of 2009.

Instead, it has been the domestic institutional investors (DIIs), including mutual funds, banks and insurance companies, which have been the mainstay of the secondary market this year. Net investments made by the DIIs since the beginning of this year has been almost twice the amount invested by the FIIs.

Data disseminated by the market regulator, Securities and Exchanges Board of India (SEBI), show overseas investors ploughing in about Rs 47,000 crore or $9.8 billion into Indian equities in 2009. This figure (that has become synonymous with liquidity) is often cited driving stock prices higher.

But it needs to be remembered that not all of these funds find their way to the secondary market since SEBI’s data include investments made into qualified institutional placements (QIPs), initial public offerings (IPOs), rights issues and so on.

FII flows into the secondary market alone, captured in the category-wise turnover data published by the BSE, were only one-fourth of the above number reported by SEBI.

Specific sectors

Moreover, monthly FII flows were negative in six out of nine months this year. These investors presciently bought Indian equities in April and May in the period preceding and just after the Lok Sabha elections. They withdrew into a shell thereafter and were net sellers in June, July and August. During this period, domestic institutions such as mutual funds and insurance companies powered the rally. They bought over Rs 13,000 crore of stocks in the three months from June, even as foreign investors were net sellers.

A large portion of FII funds has been routed to the QIP issues that have flooded the market this year. The absence of lock-in period on such investments, speed and the ability to corner a chunk of equity at a small discount to the market price, seem to have made QIPs popular among overseas investors.

That FIIs preferred such placements also shows that they took a positive view on specific sectors such as construction, infrastructure, and power, even while retaining a cautious outlook on Indian markets as a whole. Interestingly, even in 2008, the FIIs had ploughed in over Rs 48,000 crore into Indian equity through IPOs, rights issues and so on, even as they pulled out over Rs 1 lakh crore from the secondary market.

In fact, if the secondary market investments of FIIs appear promising at all, that is mainly on account of inflows over the past two weeks. A net inflow of Rs 9,000 crore which is about 70 per cent of the inflows received since this January, came in after September 7. Inflows into the secondary market up to September 6 stood at less that $1 billion.

Gold ETF volumes take a big leap

2009-09-19T13:17:00.000+05:30

Rise 70-200%, courtesy soaring prices of the yellow metal.

The recent rally in gold prices seems to have generated a lot of buying interest in gold exchange-traded funds (ETFs). This is evident from the fact that the volumes of such ETFs have doubled since last week.

Though gold prices have been rising of late, they touched a peak of $1,000 per oz on September 8. With investor interest shifting to this asset class, volumes of almost all gold ETFs have surged sharply in the range of 70-200 per cent in the last one week. The traded turnover on exchanges too has jumped in the same proportion.

Benchmark’s Goldbees, the most heavily traded gold ETF, saw its volumes moving up to 47,860 units on Wednesday, a sharp jump of 77 per cent from 26,937 units a week before. Similarly, UTI’s Goldshare saw over 100 per cent increase from 3,283 units to 6,603 units, Quantum’s gold ETF witnessed a 149 per cent rise from 1,026 to 2,556 units and SBI GETS registered a 214 per cent jump in volumes from 2,457 to 7715 units.

Gold ETFs are open-ended mutual fund schemes that invest in standard gold bullion (0.995 purity). The investor’s holding is denoted in units, which gets listed on a stock exchange. These are passively managed funds and are designed to provide returns that would closely track the returns from physical gold in the spot market.

The dollar slipped to its lowest in a year against a basket of major currencies, pushing gold prices. Higher oil prices are also fuelling gold.

Experts say that with the festive season approaching, gold buying may get yet another boost from investors. “With inflationary concerns expected to resurface next year onwards, a lot of investors are betting on gold as a hedge against inflation,” said a fund manager who did not wish to be named.

Chirag Mehta, fund manager, Quantum Gold ETF, said: “Investors who were waiting on the sidelines have decided to join the rally, leading to a surge in volumes. A lot of investors are also concerned about the rally in equities and commodities which, they fear, may not be sustainable. Hence, they are moving to gold.”

Rajan Mehta, Executive Director of Benchmark Mutual Fund, said: “The belief going around is that there is a Chinese put option in gold and hence there is less downside and more upside.” According to the World Gold Council (WGC), Indian households own about 15,000 tonnes of gold, comprising around 10 per cent of global stocks. Currently, there are six gold ETFs, one each by Benchmark, UTI, Kotak, Quantum, SBI and Reliance Mutual Fund.

Inspite of gold prices remaining highly volatile over the last few months, gold ETFs as a category are still giving returns of 33.46 per cent per annum, the highest annualised return by any asset class. According to the latest figures from the Association of Mutual Funds in India (Amfi), gold ETFs received net inflows worth Rs 15 crore in August. The industry currently has Rs 904 crore of assets under management in gold ETFs.

Tax Saving Mutual Funds in India

2009-09-11T15:17:00.002+05:30

Prior to opting for a tax saving mutual fund, it is important that the investor consider certain important factors such as performance, investment style, expenses(entry load & exit load) and other critical parameters. This is done to ensure that the investor will start treating the fund at par with regular diversified equity fund which could lead to improper asset allocation. Despite of the current financial crisis that the market is going through, investors are advised to invest in funds where the underlying assets are mainly equity funds. If you invest in a rising market, the more risk you are willing to take will get you more returns. It means if you have more equity funds in your investment portfolio or if you invest in more aggressive Mutual Fund, you are bound to make money compared to a moderate investor.

The prime criteria that an investor will have to consider prior to opting for a tax saving mutual fund will be the performance of that particular fund in the recent past. Performance is critical parameter, through which a fund must re-deem itself before it could be considered to for investing. Practically all equity linked investments are considered with a 3-5 year period investment horizon. While evaluating the performance of a fund importance on premium on consistency across market phases is to be kept. Opting for tax-saving funds that have put in a reasonable show during the upturns and downturns of the market consistently during the last 5 years (approximately) is a good idea. Volatility and return along with proper investment planning is another important aspect of a mutual fund. Usually it is a fund manager, who determines the performance of a fund in the market. Good returns on Mutual Fund NAV’s (net asset values) can be achieved by pursuing an aggressive investment strategy. Investing in tax-saving funds that have rewarded investors more per unit of risk taken by them is suggested. Managing other costs and expenses like a fund manager’s salary, marketing/advertising costs, administering costs is to be maintained. The cost of investing in a mutual fund is measured by the expense ratio. The ratio represents the percentage of the fund’s assets that go purely towards the cost of running the fund.

According to SEBI (securities & exchange board India), taxes that are implied on your annual salary will be exempted if you invest in tax saving mutual funds. Moreover the returns that you earn aren’t taxable. Tax Saving Mutual Funds in India generally maintain the following rules while granting tax benefits on their schemes: 1) Any special tax benefits for the mutual fund company and its shareholders (only section numbers of the Income Tax Act and their substance should be mentioned, without reproducing the text of the sections). 2) Tax benefits are to be declared under the column of “objects of the offering”.

Some excellent tax saving mutual funds in India are: a) SBI Mutual Funds, b) Prudential ICICI, c) Franklin Templeton Mutual Fund India, d) Standard Chartered Mutual fund India, & e) Bajaj Capital. As stock markets turn more volatile, and the choice of funds increases, it will become pertinent to make the right investment decision to start with. Going forward, & opting to invest in a fund that not only provides you tax relief but also good returns is advisable.