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)
Mutual Fund News update from Nishit Doshi (9824021680) a leading MF Advisor based in Ahmedabad. Gujarat.
Friday, April 11, 2008
Funds on Liquid Diet!
Once overweight on equities and neutral on cash, mutual funds seem to have reversed that position. Welcome to the new world of cash stash!
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.
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)
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.
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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
My net monthly salary is Rs. 28,000. I plan to invest Rs. 8,000 every month through SIPs (Rs. 5,000 in ELSS and Rs. 1,000 each in three equity funds). My target is to build a corpus of Rs. 1 crore after 20 years. Please suggest in regards to the ELSS fund and three equity funds that I should invest in to achieve my goal.
-Ved Prakash Mishra
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)
-Ved Prakash Mishra
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)
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:
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| FTFTF - Series III | : | Rs.0.60 per unit (Gross) | |
| FTFTF - Series VIII | : | Rs.0.40 per unit (Gross) | |
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| Record Date for both dividends | : | April 16, 2008 (Wednesday) | |
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| Ex-dividend NAV Date | : | April 17, 2008 (Thursday) |
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