Mutual Fund Invesment: April 2008

Sunday, April 13, 2008

Invest in Existing Funds

If I invest online in mutual funds, will the units be allotted at same time at current price? If not then when and at wat price?
-Sanjeev
If you invest in mutual funds via the fund house website or through some online broker, you should take note of the cut off time that the site specifies. If you transact before the cut off time you would get units as per same day's NAV. Else you would get the NAV of the next business day.

What is the future of Reliance Growth fund for long time?
-Devender
Reliance growth is a five star rated aggressive mid cap fund which has good track record. Invest in the fund with a long term view, if you have a high risk appetite.

I have to invest Rs. 1.3 lakh for 1 year. Please suggest Fund?
-U.R. Singh, SILVASSA
Equity fund investments are not recommended for 1 year time horizon. For such a time span consider a well rated debt fund like Kotak Flexi Debt or ICICI Pru Long Term.

Is it required to have a Demat A/C for Mutual Fund? Which is less risk MF or a SHARES?
No. For investing in mutual funds you do not need a demat account. You need to have a PAN card, a savings account and KYC compliance (for amount above Rs 50000). A mutual fund is less risky than a stock, as in mutual funds your money is invested in various stocks, thereby diversifying the portfolio and reducing the risk.

I want to invest 1 Lac in equity fund. Please tell me some fund's in which it'll be doubled in the shortest term.
Mutual funds have associated market risks and do not give assured returns. To be aggressive opt for some mid cap funds like Reliance Growth, Birla Mid Cap, or Sundaram Select Midcap. These funds are agressive and tend to be more volatile than diversified funds.

How to know about the track record of a mutual fund?
You can know about the track record of a mutual fund by visiting valueresearchonline.com. The site would help you analyse the fund performance and compare it to other funds in a category.

Which is the best open ended fund in which high risk and high return?
If you wish to invest in a high risk mutual fund, go for a mid cap fund. These funds tend to be more aggressive than large cap oriented fund. Some good mid cap funds are Sundaram Select Midcap, Reliance Growth and Birla Midcap.

I have invested in Franklin Bluechip fund - Rs 10000 for 3yrs. Is it a good fund or not?
Franklin Bluechip is a three star rated large cap oriented fund. Off late the fund has been an average performer and there are better funds in which you can invest like Reliance Vision, Sundaram Select Focus or HDFC Top 200.

I have invested Rs 60,000 in LIC ULIP for tax saving under section 80C.How is the performance of the fund. Should I continue for next year?
One should avoid investing in ULIPs due as they have high associated charges. These charges would eat up your returns in the long run. For the performance of the fund contact the company or visit the companies website.

(by value research)

No MFs Dedicated To Silver

There are four schemes that invest in physical gold (known as Gold Exchange Traded Funds of ETFs), but none that invest or trade in silver. There is also no specific mutual fund scheme which invests only in metals and oil and gas sector stocks. You can consider SBI Magnum Comma which has been consistently increasing its exposure to the metal sector over the past one year. By December 2007, its investment in the sector stood at over 30 per cent. Its one-year return (as on January 11, 2008) was 77.72 per cent. You can also look at UTI Energy (formerly UTI Petro Fund) and Reliance Diversified Power.

(by valuerresearch)

FDs v/s Debt Funds

It is true that fixed deposits (FDs) are a safer investment option when compared to debt funds. Debt funds are sensitive to interest rate fluctuations unlike an FD which offers a fixed interest rate for a fixed tenure. But the most important difference between these two is the tax treatment on gains. The interest earned on a fixed deposit is to be added on to your income irrespective of the term of the FD. Further, there is no distinction between short or long term capital gains tax in FDs. This overall reduces the yield of a fixed deposit, especially if you fall in the 30 per cent tax bracket.

What makes debt funds a better choice is the tax treatment on its gains. Just like FDs, if you redeem a debt fund within one year then you need to add the gains to your income (Short term capital gains). In case you redeem the investment after one year (long term capital gains) you can avail the indexation benefit.

(by valueresearch)

Friday, April 11, 2008

Investing Through SIPs

I want to invest Rs 1 lakh for three years. Which mutual funds I should go for, so that I get good return after 3 years (near to double)? Please advise.
-Deepak
Mutual funds have associated market risks and do not offer guaranteed returns. Though you should expect 15-20% per annum, you can opt for well rated mid cap funds if you wish to be aggressive. Some good picks can be Reliance Growth, Sundaram Select Midcap, or Birla Mid Cap.

I am investing Rs.60000 monthly as a sip. How long should I continue to invest to get Rs 1 crore.
-Vivek Manchanda, Lucknow
Assuming an annual return of 20 per cent from equity diversified funds, it would take 7 years for you to achieve your target of Rs 1 crore.

Please suggest me the best funds which can give me 40-50 per cent return after 5 -6 years?
It is tough to predict future returns, but you should select few five or four star rated equity diversified mutual funds for investment. Some good picks can be Reliance Vision, HDFC Top 200, Birla Front Line Equity or Sundaram Select Focus. These funds have been consistent performers in the past.

Investment in Franklin Asian Equity Fund through sip five thousand per month can I continue.
-N.P. Patil
The fund was launched in December 2007 and its too early to evaluate its performance. If you are investing via SIP you should invest in better open ended rated fund which have a good performance history.

I have invested in a ULIP - Birla Sunlife named Gold Plus II. Is this the right decision?
-Arun Shrivastav
ULIPs are not smart investments because of the high charges. These charges eat up your return in the long run. Now that you have invested, it is compulsory to remain invested for 3 years. Check the fund value post 3 years and take a decision.

I wish to invest Rs 2000 each in 10 equity schemes through SIP. Please suggest schemes.
A sip of Rs 20,000 should not be divided into 10 different funds. So many funds would lead to over diversification and would make portfolio management tough. Pick a maximum of 4-5 funds. Some good options can be Kotak 30, HDFC Equity, Sundaram Select Focus or SBI Magnum Multiplier Plus.

Why return of ELSS is lower then diversified equity mutual fund? Suggest some good aggresive & moderte diversified funds.
-Jiten
ELSS Funds are just like any other equity diversified fund with a three year lock-in. The past 1 year return of both categories is around 25%. Some good moderate risk picks can be Magnum Tax Gain, Franklin India Tax Shield or Birla Sunlife Tax Relief 96. ICICI Pru Tax Saver, Sahara Tax Gain, and Principal Tax savings are aggressive funds.

I want to invest Rs 3000 p.m for next 20 year in mutual funds. Please tell which fund will be the best.
SIP is the best technique for investing in equity funds as it helps you average the cost of purchase. Choose from well rated top performers like HDFC Equity, Sundaram Select Focus, Birla Frontline Equity or Kotak 30.

What is the future of UTI India Life Style Fund?
-Bikas
UTI India Life style is a relatively new equity diversified fund. The fund however has fallen less than the category average in the recent crash. Remain invested for some time before evaluating its performance.

What is Active Investment?

While going through the details of Reliance Regular Savings Equity Fund on its website, I noticed that it involves an Active Investment. Can you please clarify what is meant by 'Active Investment'? How is this style different from other styles? Would also like to know if mutual funds are allowed to do intra-day trading or not? I had taken a personal loan of Rs. 7.5 lakh to clear some old family debts. I intend to set up a SWP in one or two mutual funds for the next four years which would supplement me to pay the loan EMIs. Can you suggest two equity mutual fund schemes which may be ideal for this purpose?
-Amit Bhattacharjee

When it comes to investing, there are two styles to it - Active and Passive. Active investing is a strategy in which the fund manager is highly involved in buying and selling of stocks (in case of mutual fund). Here the aim of the manager is to beat the returns generated by the corresponding benchmark or an index.

On the other hand, in the passive style of investment, stocks are bought with a long term perspective. Here the portfolio is not as frequently churned as it is in active investing and the manager does not resort to profit booking based on short term price fluctuations. Indexing is an example of passive form of investing. An index fund invests in same stocks, in the same proportion, as in an index like Sensex or Nifty

Coming to your second query, we would not recommend you to initiate a SWP in equity mutual funds to help you pay your EMIs. If you invest one time in equity funds and then opt for a SWP, you would be assuming high market risk. If your investment value goes down over time and you withdraw funds (via SWP), you are in a way booking losses. So you can approach this in two ways. Firstly, as the interest that you will be paying on the loan would be quite high, it would be a wise decision to clear a part of the loan and save on interest. Secondly, if you wish to go the SWP way, then opt for a pure debt fund like Kotak Flexi Debt or ICICI Prudential Long Term and then opt for a SWP as they are low risk funds.

(by valueresearch)

Funds on Liquid Diet!

As the market continues to yo-yo, fund mangers have decided to play it safe; as it is quite evident from the cash position (percentage of net assets) of the various funds*. A look at the equity portfolios of March 2008 reveals that funds are on a strict liquid diet. This will not only insulate the fund from abrupt fluctuations, as much as possible, but also give the fund managers ample leeway to cherry pick as and when the market throws up great opportunities.

As on March 31, Sundaram BNP Paribas Capex had 30 per cent of its assets in cash, followed by LICMF Growth with 29.47 per cent. The cash position of these two schemes during the peak of bull run (January 2008) was 9 per cent for LICMF Growth and 7 per cent for that of Sundaram BNP Paribas Capex. But in terms of absolute amount of cash holding, the Reliance brigade rules the roost.

Scheme	Mar-08	Jan-08
Reliance Growth	740.31	998.01
Reliance Equity	537.71	540.35
Tata Infrastructure	385.17	373.53
DSPML T.I.G.E.R. Reg	373.52	161.47
Reliance Vision	297.51	264.48
ICICI Prudential Dynamic	284.76	-
Franklin India Flexi Cap	235.76	90.84

Figures in Rs crore

As on March 2008, diversified equity funds were sitting on a cash pile of Rs 7,859 crore, as against Rs 4,773 crore in January 2008. A total of 108 funds increased their cash allocation expressed as percentage of net assets, while 33 saw a decline. All in all, cash available with the fund houses in March increased to Rs 7,859 crore (8.64 per cent of the total assets) from Rs 4,773 crore in January (4.46 per cent of total assets).

While sitting on cash protects you - the investor, from a sharp downfall, it also implies that you miss out on sudden upward spurt; a phenomenon which has now become a part and parcel of Indian equity markets.

* We are only referring to the cash positions of diversified equity funds.

(by value research)

Mission Rs 1 Crore

Congratulations. You are right on track! Assuming that a well rated equity fund would generate 20 per cent annual return in the coming years, your monthly investment of Rs 8,000 would grow to Rs 1.98 Crore in 20 years. However, fund selection would be the key here. Choose a fund which has proven its worth and has a good performance history.

For tax saving funds, choose from well rated funds like Magnum Tax Gain, Birla Sun Life Tax Relief or Sundaram Tax Saver. Amongst diversified equity funds select some large cap oriented funds like Reliance Vision, Sundaram Select Focus or Birla Frontline Equity. Avoid investing in too many funds. You can choose two ELSS funds (Rs 2,500 each) and two equity diversified funds (Rs 1,500 each) to divide your total investment of Rs 8000 per month.

(by value research)

Should Fund Investors Worry?

Recently, we a team of analysts at Value Research did a study to measure exactly how badly has the recent downfall in stock prices hurt stock prices. The results threw up some numbers that may come as a surprise to those focused on the recent crash. The big news is hardly news--equity funds have had a horrendous time in the recent times. In fact, it is a surprise how bad has the recent quarter (January to March) been for equity funds. This three month period has generally been the worst that equity funds have had since this decade began in January 2001. That's impressive, though not in a good way. Funds that we classify in the key 'Diversified Equity' category, which has the largest number of funds (194) as well as the highest investor interest, lost an average of 28.3 per cent in just these three months. This was far worse than the previous worst of the decade, when these funds lost 16.9 per cent in the first three months of 2001.

A comparison with the benchmark indices show up funds in an even worse light. Of the 277 equity funds (which includes diversified equity as well as other categories) that were part of this study, only 35 outperformed their benchmarks while 242 failed to do so. What's worse, of the 35 which beat the benchmark, a mere seven managed to do so by a margin greater than five per cent. At the other end of the scale, as many as 142 funds underperformed their benchmarks by more than five per cent. Of the small number of funds that beat the benchmarks handsomely, a majority are those that also invest abroad. This demonstrates the value of true diversification in bad times. However, even international funds lost investors' money, they just lost less than domestically-focused funds. In the entire list, the sole profit-making exception was DSP Merrill Lynch World Gold Fund, which invests not in gold but in stocks of companies that are part of the global gold mining and refining industry. In any case, the fact of this fund making a profit is of not much practical use since such an exotic fund can only be a small percentage of any real world portfolio. The same is true of international funds as well and not too much should be read in their relative good performance.

While equity funds are in some trouble, the normally staid world of debt funds is also not in great shape. Even though debt fund numbers for the entire quarter look almost normal, the month of March has come as a shock to investors who thought debt was a safe harbour in which to ride out the equity storm. Worsening inflation numbers and the resulting uncertainty on interest rates has seen the average returns of funds in the Medium and Long-term government securities (gilts) category lose 1.1 per cent during March. Even short-term gilt funds, which are supposed to be insulated from interest rate shocks have had a poor month in which they have gained just 0.1 per cent with 6 of the 18 funds in the category making losses.

However, all is not doom and gloom. In my opinion, the good news is that when one looks at a longer period of a year instead of a quarter, fund performance is still very strong and the losses of this quarter have not come even close to wiping out the previous three quarters' gains. Which means that the moral of the story is quite clear. Investors who have invested steadily over a longer period are still fine. Which is just as it should be.

(by valueresearch)

Dividends in Franklin Templeton Schemes

Franklin Templeton is declaring the annual dividends in Franklin Templeton Fixed Tenure Fund - Series III (FTFTF - III) and Franklin Templeton Fixed Tenure Fund - Series VIII (FTFTF - VIII).

The details for the same are given below:



FTFTF - Series III	:	Rs.0.60 per unit (Gross)
FTFTF - Series VIII	:	Rs.0.40 per unit (Gross)

Record Date for both dividends	:	April 16, 2008 (Wednesday)


Ex-dividend NAV Date	:	April 17, 2008 (Thursday)