Saturday, April 26, 2008

Timing Your SIP

We all know that SIP is a good idea and is often regarded as the best way for retail investors to invest in equity funds. I have found an even better way. While going in for SIP, choose dates which are either right in the beginning of the month or right at the fag end of the month. It has been historically proved that the markets tend to very volatile and Sensex/stocks tend to be weak during this time. Thus you will end up buying units at a lower NAV.

In fact, I remember reading an article that just by investing in the fag end or the beginning of the month, an invester could end up with a potential saving of 3 to 3.5% which when compounded adds up to a huge amount.

So, plan carefully and invest for maximum returns.
Best of luck.

Tuesday, April 15, 2008

Fund House v/s Fund manager

Greetings,
I am not a firm believer in past records. Past is past. For future returns you have to start all over again. As Sa12 has also pointed out SBI Magnum contra's Fund Manager Sandeep Sabharwal's exit has made the fund Not a Pure Contra anymore. That's what happens, a fund which performs mainly due to the fund manager's talent is bound to suffer if he leaves the fund.
Believers of fund managers too tend to shift funds when the fund manager changes. So, I always believe in investing in a Fund House rather than a Star Fund Manager. Birla, DSP, Fidelity dont have any Star Fund Managers as such, still they are performing quite well and will continue to do so.
So, dont go by past records alone.
As for those invested in SBI Magnum Contra, they can switch to JM Contra Fund as it is managed by Sandeep Sabharwal, not just because of him, but as a Fund House too, JM has been quite a revealation in past two years with their focussed approach.

Wednesday, April 9, 2008

Mutual Fund Advise

Dear Khilji,
It is really sad to note that you have done all you investments right at the peak of the market. I always maintained that SIP is the best method of investing because you can never time the market.
And the number of funds you have invested 23 is really very big and is unwieldy for the amount you have invested. And your exposure to one fund, Reliance Mutual Fund, is more than 20%.
The first thing you have got to do is to Stop SIP immediately in Birla Basic Industries Fund. You may continue your sip in other funds though I am not comfortable with Franklin Prima Plus.
Thankfully, your choice of funds is not that bad. So, you have managed to save something here. Still, to trim your portfolio and give it a more diversified and compact look I would like you to switch SBI Global Fund to SBI Comma Fund which should be an outperformer due to high Commodities Prices worldwide.
You should also switch from Reliance Regular Savings Fund - Equity option to Reliance Vision Fund.RRS fund has been an outperformer only recently and you are better off in Reliance Vision Fund.
Except HDFC Top 200 Fund, you dont have any Large Cap Fund as such, so you can switch from DSPML Equity Fund to DSPML Top 100 Fund and also from Sundaram Select Mid cap & Sundaram Capex to Sundaram Select Focus Fund.
About the money you are having right now, you can invest in Arbitrage Fund and give a STP to large cap funds like HDFC Top 200, DSPML Top 100 and also Reliance Vision Fund.
As a prudent Asset Allocation, you need to take exposure to Gold and what better fund than DSPML World Gold Fund?.
And finally, to your last question, please drop your idea of investing in Reliance Banking Fund and UTI Banking Fund,. simply because the Large Cap and Diversified Fund do take exposure into Banking Stocks if they sense an opportunity there.
Next time, do consider investing through sips.
Best of luck.

ARBITRAGE FUND

I recently read a article on Arbitrage Fund which is very exhaustive and informative. May be it will be useful to you.

Investors not familiar with this type of scheme might just end up thinking that these are just equity-oriented schemes with another fancy name. However, this is not so. What such funds aim to do is to take advantage of the arbitrage opportunities between the cash and the futures market to generate fixed income. Therefore, these are a type of income scheme.

The arbitrage is sought by taking advantage of the mispricing between the cash and the derivatives market. Let's understand how this works. (Also read - How to build your MF portfolio?)

Suppose the stock price of XYZ Ltd. is quoting at Rs. 600. Let's say the stock is also traded in derivatives segment, where its future price is Rs. 610. In such a case, one can make a risk-free profit by selling a futures contract of XYZ Ltd. at Rs. 610 and buy an equivalent number of shares in the equity market at Rs. 600.

Now when settlement day arrives, it wouldn't matter which direction the stock price of XYZ Ltd. has taken in the interim. In other words, it is irrelevant whether the share price of XYZ Ltd. has risen or fallen, one would still make the same amount of money.
This happens because on the date of expiry (settlement date) the price of the equity shares and their stock futures will tend to coincide. Now, all one has to do is to reverse the initial transaction i.e. buy back the contract in the futures market and sell off the equity. So four transactions have taken place --- buy stock, sell futures, sell stock, buy futures. In this manner, irrespective of the share price, the investor earns the spread between the purchase price of the equity shares and the sale price of futures contract.

Examine the following table


Scenario I
Scenario II

XYZ Price at settlement
700
500

Profit/Loss on sale of equity shares at expiry
100
-100

Profit/Loss on purchase of stock Future at expiry
-90
110

Net Profit
10
10


In Scenario I, XYZ Ltd. skyrockets to Rs. 700 on the settlement date. At this point, the price will be same in the equity and futures markets. So when you sell the stock, a profit of Rs. 100 is earned. However, you also buy back the stock future thereby incurring a loss of Rs. 90. End result, a net profit of Rs. 10 is earned. The same thing happens even in Scenario II where the share price crashes to Rs. 500. Still you will end up with same profit.

Yes, it does sound like a very simple and effective way of making money in the market. After all, the problem that most investors have with entering into the equity market is the lack of assured risk free returns. And now here is a product that gives you exactly that. However, if only life were indeed that simple.

The first hurdle is the presence of arbitrage opportunities. In a given period of time, the market may or may not provide any meaningful arbitrage opportunities. And as explained above, it is these arbitrage opportunities that hold the key to the amount of money the fund will earn. No doubt, the fund management team will have to be extra vigilant in identifying such opportunities.

Of course, nowadays, they have sophisticated softwares that flag such mispricing the moment it occurs. However, investors do have to take into account the uncertainty of the supply of arbitrage as a hurdle in earning returns. For this very reason, such schemes cannot assure returns, the returns totally and completely depend upon available opportunity.

Secondly, there is the issue of costs. Each transaction in the stock market involves payment of brokerage and security transaction tax (STT). These costs directly dilute the earnings. Each leg of the entire transaction i.e. buying stock, selling future, selling stock and buying futures will entail the payment of these costs. Therefore, it again comes down to the presence of the arbitrage opportunity and it being meaningful enough i.e., after the payment of the expenses, the left over profit if any, should be material enough to make the transaction worth entering into.
Investors should note that by definition such schemes will always yield limited returns. However, the risk free nature of the returns is the USP of the product. Like mentioned earlier, if you want your funds to take a pit stop from the jet setting pace that the stock market has set, such a scheme will be an ideal shelter. Also, with the abolition of Sec. 80L, most fixed income earning avenues won't cover inflation post taxes.

However, in the case of non-equity MFs, dividends are subject to only a 14.025 per cent distribution tax, thereby again creating an arbitrage opportunity for taxpayers in the highest bracket. If one chooses the growth option and stays invested for over 1 year, capital gains tax @10 per cent or @20 per cent with indexation has to be paid.

This then becomes another alternative apart from Fixed Maturity Plans & Floating Rate schemes to beat the risks inherent in income schemes. Those wanting a breather from the equity market and those looking for safe fixed income should invest.

The author is the Director of A N Shanbhag NR Group, a Mumbai based tax and investment advisory firm. He may be reached at sandeep.shanbhag@moneycontrol(dot)com

HDFC Equity fund

Yes, Wadia I definitely agree with you. HDFC Equity Fund is certainly more bullish on mid-cap than most other funds. And you know Prashant Jain is a Long Term investor with a eye on fundamentals.
I even had the privilege of meeting him in person recently and he seemed to be particularly bullish on Mid-Cap Infrastructure Stocks. He seemed to suggest that after the current market volatility with bearish undertone passes, it will be the Infrastructure stocks which will gain the most. He is very sure about the India Growth Story.
He has always been like this; slow to start but very sure of what he is doing and most importantly, showing results.
So, boarders, HDFC Equity is a good pick for the long term and you can invest in it for long term. Dont forget Sip
Best of luck.

Mutual Fund Advise

One investor wrote :
"Hi,
i\\`ve just inherited some money about 4 Lacs, was wondering what\\`s the best way to invest this. Looking at a time frame of 5-7 years. I\\`m 32 and willing to take risks. Especially looking at Mutual Funds. Any advice is appreciated."

My reply was
Dear Mr.Paraveen,
At the outset congratulations for inheriting 4 lakhs. Your decision to invest in Stock Markets through Mutual Funds is an apt one and appreciable.
It would be prudent to invest through SIPs for high returns and avoiding short term losses due to market volatility. You could invest your 4 lakhs in 4 funds firstly through Arbitage Fund and then give Systematic Transfer Plan., This way not only your money will be earning you higher than SB returns but also you will also participate in SIP without any hassle.
Here I have given 5 funds, you can choose 4 fund of your choice.
1. Birla Sunlife Equity Fund
2. DSPML Top 100 Fund
3. HDFC Prudence Fund
4. SBI Magnum Comma Fund
5. Reliance Growth Fund
If you are not comfortable with SBI Comma Fund you can consider Sundaram Select Focus Fund.
My personal view is SBI Comma Fund should be an outperformer in coming days due to its high exposure in Commodities Stocks.
Avoid Theme Funds, NFOs as far as possible. You can also consider investing a small sum (say5%) in DSP ML World Gold Fund.

Best of luck.

Tuesday, April 8, 2008

Mutual Fund Advise

An Investor asked me :

"Dear Mr. Srikanth

I am a small investor, age 43. I want to reshuffle my portfolio.
I want to switch in the following fund due to laggard of the fund performance, Pl. advice me or give your valuable suggestion for the following fund. All the below fund I want to switch in or switch out in one time in during April & May'08. I am hold the fund 3 to 5years.


From Sundaram Select Midcap to Select Focus (Rs.80,000)
From Magnum Global – switch out to Birla Midcap (Rs.80000)
HSBC Adv. India Fund –switch out to Birla Frontline Equity (Rs.20000)
Magnum Multiplier Plus to Magnum Contra (Rs.113000)
DSP ML Equity to DSP ML Top 100 (Rs.65000)
HDFC Equity to HDFC Top 200 (Rs.55000)
Fidelity Equity Fund – switch out to HDFC Top 200 (Rs.20000)
Franklin Prima Plus – switch out to HDFC Top200(Rs.20000)

All the above fund I invested before eight months now loss by 5% to 10% approx.

Expecting your best advice / suggestions.


Best regards,

Prithwis"




My Reply was :
Dear PritwisDear sir,
Your investment is above 4 lakhs and so investment is not small. You has said you want to hold for 3 - 5 years which is good and I dont think if your time horizon is that long, you need to make such major changes.
However, you has asked for my suggestion and here goes.
1. Switching from Sundaram Select Midcap to Select Focus., definitely good and recommended.
2. SBI Magnum Global to Birla Midcap switch is not fully agreed upon. Even though Birla Midcap has performed well, I would rather have Reliance Growth Fund which has a better track record.
3. HSBC Adv India Fund to Birla Frontline Equity switch is a must and should be done at the earliest.
4. I recommend some changes with your switch from Magnum Multiplier Plus to Magnum Contra. First of all, Divide your amount in Multiplier Plus equally and invest in Sbi Comma Fund and Sbi Balanced Fund equally. Sbi Comma Fund should be an outperformer going forward due to booming Commodities Market and Sbi Balanced Fund will give a bit of downward protection to your portfolio in weak markets.
5. DSPML Top 100 Fund has become a favourite of mine in recent times and a switch to it is always welcome.
6. And HDFC Top 200 Fund is my evergreen favourite, and I always recommend in every portfolio and should form a core of your portfolio.
7. Switching from Fidelity Equity Fund to HDFC Top 200 Fund could be avoided because you already have a exposure to HDFC Top 200 Fund and also Fidelity Equity Fund (though a underperformer recently) has beaten the Benchmark consistently since inception.
8. Finally your switch from Franklin Prima Plus to HDFC Top 200 Fund need to be reconsidered and instead you can look at Templeton India Equity Income Fund which invests in High Dividend Yield Securities in India and abroad. It has given a return of above 22% since launch and has beaten the Benchmark comfortably.
I feel you are shaken by the recent market volatility and are considering switching to Large Cap Funds. Well, it is a good thing but if you are here for long term you need not worry, mutual funds are best avenue for high returns. And please invest through Sip in future.
Thank you,
Best of luck.

Say NO to ULIP

Basically, ULIPs are expensive and opaque mutual funds disguised as insurance. This permits the so-called insurance companies to circumvent the strict transparency, expense, and commission-related laws that govern mutual funds. It also enables them to escape the scrutiny of SEBI, which has historically been a tougher regulator than IRDA. Will the new regulations stop these abuses? No way. All I'm hopeful of is that a handful of alert and aware investors will read this new document and ask some tough questions. Anyhow, the realistic situation is that there's almost no chance that anyone will step forward and fix things. As someone responsible for your money, you need to be sensible yourself. Insurance is a great idea and most of us need it. But we need real insurance, which is to say term insurance. Here's what you should do. Make a liberal estimate of how much money your family will need if you die suddenly. Shop around and buy the cheapest term insurance you can find. You'll be stunned at how cheap term insurance is and also at how difficult it is to buy (The quickest way to get rid of an insurance agent is to say that you're interested only in term insurance). You probably won't be able to think logically about insurance as long as you don't realise that it's an expense. It's a necessary expense, like buying a helmet or going to a doctor, but it's not an investment. You need both insurance and investment. To get the best deal in both, don't mix them up.

Courtesy :Dhirendra Kumar, Value Research

Thanks to Mr. Dhirendra Kumar editor of Mutual Fund Insight magazine & CEO of Value Research website - he opened my eyes. Now I am a staunch believer of TERM INSURANCE. If you really think hard about Insurance - you will realise the importance of TERM INSURANCE. My experience was that I felt enlightened. Insurance is for your dependants or nominees. It is for reducing financial loss suffered by them. IT IS NOT AN INVESTMENT OR ONLY A TAX SAVING AVENUE. Do not look at maturity value of insurance policies - the moment you do that you are looking at your own benefit - then you lose focus - . Always look
for policies which give maximum INSURANCE COVER for the least premium. Look at the ratio between annual premium and SUM INSURED. The one with the least ratio is the best for you.

Monday, April 7, 2008

Templeton India Equity Income Fund

Dear Arin,
Your choice of investing in Templeton India Equity Income Fund is a good choice. This Fund invests with a focus on stocks offering high dividend yield in India and abroad. So, this fund gives you dual advantage of not only Dividend yield focus but also diversification by investing in foreign securities.

The Fund has given a return of 22% Compounded annually since launch and has comfortably outperformed its Benchmark. Most importantly, the Fund has fared particularly well during the recent crash outperforming the index.
So, all in all, A Good diversification. Go ahead an invest.
Best of luck.

Sunday, April 6, 2008

Mutual Fund Advisor

I recently read a letter by a reader in a personal finance magazine which was a really hard hitting and I am reproducing the same here for the benefit of all :
"The author while welcoming the move which does away with the need of an mutual fund agent says 'why pay the agent just because he gets me a form while it is I who decides on the funds to buy"., It's like saying why pay the doctor just because he writes a prescription for my headache. Just like the doctor, who does more than writing prescriptions, an agent does more than just getting a form. "

Now I would be very happy if you can give your opinion on this.
Thank you.

Thursday, April 3, 2008

Mutual Fund Advise

Like Ranjan, I too am against mixing investment with insurance. For insurance there are separate avenues avaialable. So, just for the sake of Insurance I would not recommend DWS Tax Saver.
Now, coming to your investments you seem to have too much exposure to SBI Mutual Fund. So, instead of Sbi magnum balanced fund you can consider DSPML Balanced Fund.
Discontinuing with HDFC Tax Saver may not be such a good idea. Even though the fund's performance has not been upto mark recently, you should that the Fund has always outperformed the Benchmark over longer periods which inspires confidence. And moreover, HDFC as a Fund House position themselves as "No Surprise Fund House" which explains their performance during Bull Market. It is when the market is Bearish or Sideways that the Funds of HDFC give better returns than thier peers.
Regarding your other choice of investments they are really good and to compliment these investments and balance your portfolio, I feel you should add a Large Cap Fund like Birla Sunlife Frontline Equity Fund or DSPML Top 100 Fund to your portfolio.
Regarding your choice for 2 more Diversified Funds to add to your Portfolio my choice for the same would among the following:-
Birla Sunlife Equity Fund
Fidelity Equity Fund
Reliance Growth Fund
HDFC top 200 fund
Best of luck.

Wednesday, April 2, 2008

Mutual Fund Advise

One invester asked "I have invested Rs40000 & Rs 60000 inFidelity Equity & FR. Prima Plus for the last 2-3 years. Now I want to go fora redemption and reinvest the same amount in Kotak Oppertunity and Sundaram Focous respectively. Is the selection of funds and timing is right ?"

MY REPLY ::
Dear Guest,
Selection of funds is secondary for you. Firstly why do you want to switch?. If it is because of laggard performance, then you are 50% not right. I said 50% because Fidelity Equity Fund may have been underperformer in recent times but they have outperformed the Benchmark since inception and more importantly they have a solid reputation and will in all probability give you above average returns.
As for Franklin Prima Plus, not just this fund almost all funds from the Franklin Templeton Fund House have been laggard and underperformed and you would do well to switch partly or in fact fully. And you would better off if you can split the amount and invest equally in Sundaram Select Focus and preferably DSPML Top 100 Fund.
I would like to add one more thing., it is always risky to have too much exposure to one particular Fund House. In your case your investment is spread over just 2 Fund House. Kindly try to spread your investments
And next time try to invest through SIPs to ride out the market volatility and earn above average returns. You could also consider investing in funds like
Birla Sunlife Equity Fund
DSPML Tiger fund
HDFC Top 200 Fund
Kotak 30 Fund
Reliance Growth Fund
SBI MAgnum Comma fund

Best of luck.

NFOs are not bad

In the 9 April 2008 issue of the Outlook Money magazine, the article "Why have NFOs lost their lustre"? made interesting reading. However I beg with the author with some issues. Avoiding all NFOs would not be a very wise thing to do. You have to invest in some NFOs which are exceptions to the existing schemes like DSPML World Gold Fund, Lotus Agile Fund, etc and exotic funds like JM Core 11, especially if they are Close-ended funds because you may not be able to invest in the fund for another 3 years.
Also, the author says that some fund houses give even upto 8.5 percent commission to distributors. I myself being a distributor have never come any fund house giving even 5%!!!! He should be careful before writing such non factual informations. And for ongoing schemes I get only 2%.

Thanking you,
Srikanth Matrubai
sharesher@indiatimes.com