Investing is a complex exercise only because we insist on making it so. But the basic principles are simple. As simple that anyone can become a good investor just by following simple and easily understood rules, which also help avoid big mistakes. Here are my rules for investment success.
Develop a Plan: For your short-term goals, make sure you're taking appropriate risks. Invest money that you'll need in the next two years to five years in cash and short-term bonds. If you've taken on too much risk for short-term objectives, pull back now. There's no telling where the bottom of this market is. It's better to cut your losses and preserve the money you already have for short-term goals. For your long-term financial goals, consider equities.
Keep It Simple: Buy a diversified equity fund or an index fund for equity exposure and a floating-rate bond fund for fixed income exposure. These are the basics of the investment world. Sure, you can buy many other types of funds (Petro, MNC, Gilt, Fixed Maturity, Serial Plans etc), but it's hard to go wrong with these two. To keep fund selection simple, stick with a diversified equity funds of well-established fund families. Equities prove to be the best performing long-term asset class. Stay away from exotic speciality and sector funds, unless you have a huge risk appetite and you can take in your stride a 25% loss in a quarter.
Ignore the hot stocks and funds: If you buy this year's top-performing fund or stock, be prepared to see it at the bottom next year. The fancy academic expression for this phenomenon is -- Reversion to the Mean. But the old saying explains it just as well -- what goes up must come down.
Invest Regularly: Investing a little bit of money each month is the surest way to reduce the risk of investing, because you lessen the possibility of buying at the market top. Also, no one is smart enough to anticipate all the moves, both up and down.
Buy and Hold: Short-term trading makes more brokers than investors rich. The income tax department likes the practice, too. If you meet anyone who claims to have made money through short-term trading, resist your temptation to listen any further and move on to a more productive conversation.
Start Early: It is not the "market timing" but time in the market that matters. Power of compounding will turn things in your favour.
Investing is a long-term proposition. Research your investments, remember your goals, re-examine your risk, and limit how much you listen to day-to-day market commentary. And don't let your emotions overpower your sense of reason.
(by valueresearch)
Mutual Fund News update from Nishit Doshi (9824021680) a leading MF Advisor based in Ahmedabad. Gujarat.
Wednesday, January 9, 2008
No Clear Focus
I have been investing in mutual funds from the last one year but have no knowledge on the funds I am investing in. I am not looking for a short term gain, but would like to stay invested over the next three to five years. Could you share with me some inputs on my portfolio? Do suggest funds that you feel should be replaced.
-Sanjay Pandita
First and foremost your portfolio lacks a clear focus. You are invested in many different kinds of funds, from one that invests overseas to one that actively hedges its portfolio (Reliance Equity). The net result is that your portfolio lacks a robust core holding. To address this we suggest that you look at a five or four star rated diversified equity fund that has a large cap tilt to it. You can make such a selection from our website or from the fund score card printed in our magazine.
-Sanjay Pandita
First and foremost your portfolio lacks a clear focus. You are invested in many different kinds of funds, from one that invests overseas to one that actively hedges its portfolio (Reliance Equity). The net result is that your portfolio lacks a robust core holding. To address this we suggest that you look at a five or four star rated diversified equity fund that has a large cap tilt to it. You can make such a selection from our website or from the fund score card printed in our magazine.
Since you have little knowledge about your funds we suggest that you go through the 'analysis' section of the fund page on our website. This will at least remove ambiguity on the objective of the fund.
As far as your current holdings are concerned, HDFC Mid-Cap Opportunities looks on track. Reliance Equity has delivered returns in line with the average peer; the fund's investment mandate is such that you will have to contend with average returns. SBI Infrastructure Fund has also delivered returns in line with other infrastructure players. The worrisome holding is that of Fidelity International Opportunities. It is too soon to comment on the fund, given that it is yet to release a single portfolio. So we don't know what kind of companies the fund is investing in or anything about the actual investment style. We advise you to keep a close eye on this fund. The only addition you need to make is that of a single diversified equity fund. Don't make the mistake of investing in every fund that sounds interesting, stick to quality funds that have an established track record.
Concerning your investment strategy, there are two aspects that we don't completely agree with. The first is that of investing lump-sum amounts. Especially since you are new to investing, it is better to stick to a systematic way of investing. The logic behind this is to eliminate the risk of adverse timing in entering the market. Opt for a Systematic Investment Plan (SIP).
The second aspect that we would recommend is to avoid investing in close-ended funds. The close-ended nature of these funds means that in the initial years you cannot withdraw your money without incurring a considerable cost. Plus the liquidity window of many such funds makes redemption a tedious job.
(by valueresearch)
Bustling with Energy
The Reliance Diversified Power has the numbers to boast, but as any specialized fund, this fund has the chances of falling as well. Investors are advised to take a careful look before jumping in…
You can't blame the fund manager for creating a portfolio that encompasses financial service companies. Power generation is monopolised by the public sector and there are simply not enough sound power companies available. But in all fairness, the stocks in the portfolio are either pure power plays or those that have a significant stake in this sector.
You may disagree with the investment mandate, but you can't argue with the numbers. The fund delivered an astounding 81.37 per cent in 2005 and 58.78 per cent in 2006. As on November 2, the year-to-date (103.97 per cent) and one-year return (130.38 per cent) was impressive. But don't get too swayed by the performance. This is a sector fund at the end of the day and most scrips in this sector are trading at a significant premium to their earnings. In a bear phase, they could get severely thrashed. Going by the returns of the June 2006 quarter, this is quite a possibility.
Besides the usual risk that accompanies a sector specific fund, this one likes to take big wagers. At close to Rs 2,300 crore, the assets under management (AUM) are significant but spread across only 18-20 stocks. Until recently, it was not unusual to find single scrips hogging 13-15 per cent of the fund's AUM. Recently, there has been a decline on this front. The allocation to the top five has reduced to 31 per cent from an earlier high of 41 per cent in January.
If the fund manager is restricted by the investment universe, he has ample flexibility on other fronts. His mandate actually permits him to invest the entire portfolio in not only equity, but also entirely in fixed income securities (of power companies and those related to the power sector). So this equity offering can well turn into a debt fund.
With the mandate to even go 100 per cent in cash and equivalents, the cash holdings are significant if the fund manager does not find good investment opportunities. As of September 30, 25 per cent of the fund's portfolio was held in cash. The high PE multiples could be a reason, but it could also be attributed to the deluge of inflows which have more than trebled the fund's AUM in the past one year. What's interesting is that the high cash holding has not dented the fund's performance.
The fund manager is not restricted by market capitalisation either. The portfolio can tilt towards any market capitalisation, so don't get influenced by its current mid-cap slant.
The power sector has huge potential given the gigantic fiscal outlays and supply gaps in the sector. And the ever expanding directory of listed power generation companies will translate into more investment opportunities and better valuations as well. But bear in mind that the sector is well courted by managers of diversified equity funds. So check your overall exposure to this sector before you consider an investment.
(by valueresearch)
You can't blame the fund manager for creating a portfolio that encompasses financial service companies. Power generation is monopolised by the public sector and there are simply not enough sound power companies available. But in all fairness, the stocks in the portfolio are either pure power plays or those that have a significant stake in this sector.
You may disagree with the investment mandate, but you can't argue with the numbers. The fund delivered an astounding 81.37 per cent in 2005 and 58.78 per cent in 2006. As on November 2, the year-to-date (103.97 per cent) and one-year return (130.38 per cent) was impressive. But don't get too swayed by the performance. This is a sector fund at the end of the day and most scrips in this sector are trading at a significant premium to their earnings. In a bear phase, they could get severely thrashed. Going by the returns of the June 2006 quarter, this is quite a possibility.
Besides the usual risk that accompanies a sector specific fund, this one likes to take big wagers. At close to Rs 2,300 crore, the assets under management (AUM) are significant but spread across only 18-20 stocks. Until recently, it was not unusual to find single scrips hogging 13-15 per cent of the fund's AUM. Recently, there has been a decline on this front. The allocation to the top five has reduced to 31 per cent from an earlier high of 41 per cent in January.
If the fund manager is restricted by the investment universe, he has ample flexibility on other fronts. His mandate actually permits him to invest the entire portfolio in not only equity, but also entirely in fixed income securities (of power companies and those related to the power sector). So this equity offering can well turn into a debt fund.
With the mandate to even go 100 per cent in cash and equivalents, the cash holdings are significant if the fund manager does not find good investment opportunities. As of September 30, 25 per cent of the fund's portfolio was held in cash. The high PE multiples could be a reason, but it could also be attributed to the deluge of inflows which have more than trebled the fund's AUM in the past one year. What's interesting is that the high cash holding has not dented the fund's performance.
The fund manager is not restricted by market capitalisation either. The portfolio can tilt towards any market capitalisation, so don't get influenced by its current mid-cap slant.
The power sector has huge potential given the gigantic fiscal outlays and supply gaps in the sector. And the ever expanding directory of listed power generation companies will translate into more investment opportunities and better valuations as well. But bear in mind that the sector is well courted by managers of diversified equity funds. So check your overall exposure to this sector before you consider an investment.
(by valueresearch)
Subtle Differences
Both ABN Amro Future Leaders and ICICI Pru Emerging Star focus on small stocks. Yet the differences in portfolios are glaring.
Mid- and small-cap stocks are bringing a smile to everyone's face. For this reason we decided to compare two funds - ABN Amro Future Leaders and ICICIPru Emerging Star - both of which are heavy on such stocks.
Though Emerging Star defines its mandate as investing in diversified mid-cap stocks, it has a very broad definition of mid cap. The mid-cap universe includes any stock that has a market capitalization between Rs 100 crore and Rs 2,000 crore.
Future Leaders, on the other hand, is not that precise in its objective. The fund will focus on high growth stocks in the mid- and small-cap segment. The fund will look for companies that offer opportunities for long-term growth and are driven by dynamic style of management and entrepreneurial flair.
Going by the above objectives, it's not surprising to find that both keep switching between mid and small caps quite frequently. For example for the last four months (August- November 2007), Emerging Star had been a mid cap fund. But prior to this, for another four months it had small-cap heavy portfolio (April 2007 to July 2007). Future Leaders started out as a mid cap offering in April 2006 but changed its complexion to small caps by April 2007. It remained a small cap-heavy fund for another two months and then was again back to its mid-cap orientation.
While both funds vary their complexion quite frequently, they are both currently focused on reducing their large-cap exposure. Large caps, which were seen in small quantities in Emerging Star till September this year, are nowhere to be seen now. The Future Leaders fund has quite drastically lowered it large-cap exposure from over 16 per cent (August 2007) to less than 7 per cent (November 2007).
Emerging Star comes across as the much more focused option if one goes by its objective and allocation to equity. It permits a maximum 10 per cent exposure to debt and the same for cash. But Future Leaders has the leeway to touch its cash exposure to 35 per cent and the same holds for debt. But despite being more focused, Emerging Star was always the more diversified option with a huge portfolio. But it is moving more towards the style of Future Leaders in its concentration of portfolio. Emerging Star has consciously and gradually worked on reducing the number of stocks from 70 (November 2006) to 44 (November 2007). If you thought 70 was too large, you should note that they had 81 in May 2006. Future Leaders has maintained the portfolio at more of less 30-35 stocks since October 2006. Of course, they too have started off with as many as 50 stocks in the portfolio. Both have negligible amounts in cash.
But once you begin to look at the portfolios, all similarities end. At first blush, it appears that both their preferences for technology are identical. After all, it is the top sector in each portfolio accounting for 20 per cent of the assets. But dig a little deeper and a different picture emerges. Emerging Star's conviction in technology has not diminished reduced and the fund has maintained this level of concentration in the sector for the past one year. But Future Leaders has cut down on technology and added financial services along the way. Technology formed over 30 per cent and financial services 4 per cent of the Future Leader's assets in September 2007. Now, financial services accounts for over 18 per cent and technology has dropped to 20 per cent (November 2007). Emerging Star has taken a diametrically opposite stance and sold all of its financial services in October and November.
Future Leaders also has a preference for basic/engineering (17.26 per cent) and healthcare (9.76 per cent) but Emerging Star tilts towards metal and metal products (15.27 per cent), services (14.27 per cent), construction (13.37 per cent) and basic/engineering (8.29 per cent).
Long-term holdings in ICIC Pru Emerging Star include stocks like Sintex Industries, Subex Azure, Orient Paper and Deccan Chronicle but Future Leaders sticks with Elecon Engineering and Phoenix Lamps. In fact, the difference in their investment philosophy is quite stark from the fact that both have only two stocks in common.
The differences don't only exist in their portfolio but also in their assets. Emerging Star has seen its assets rise over the past three years to over Rs 889 crore. But Future Leaders has seen a dip from Rs 589 crore (May 2006) to Rs 98.38 crore (November 2007). The reason for these fluctuations in assets is probably a lot to do with their performance.
Barring two instances, Emerging Star has always beaten the category average, sometimes by a huge margin, in a surging market. The two instances were in the September quarters of 2006 and 2007. While the equity diversified category's returns September 2006 quarter stood at 15.73 per cent, the fund's return was marginally less at 14.83 per cent. In September 2007 quarter was bad for the fund. It generated returns of just over 5 per cent when the category's returns were at 14 per cent. But it remains to be seen how this fund proves itself in a falling market. For example, in second quarter of 2006 when the markets lost heavily, though the fund beat its benchmark CNX Nifty Junior, it lagged behind the category average. In this period the fund had lost over 16 per cent compared to the category's loss of 13.5 per cent. Similarly, in the first quarter of 2007, the fund was neither able to beat the category nor its benchmark.
On the other hand, ABN Amro, which is relatively a new fund, is yet to show its brilliance. In its short history it has been able to beat the benchmark (CNX Mid Cap) and the category average only once. That was in the December 2006 quarter when the fund's 17.19 per cent return was much better than that of its benchmark (10.83 per cent) and the category average (11.37 per cent). Unfortunately, in the first quarter of 2007, Future Leaders lost by more than 10 per cent, underperforming the category average and the benchmark. It will have to put up better numbers to increase its assets.
(by valueresearch)
Mid- and small-cap stocks are bringing a smile to everyone's face. For this reason we decided to compare two funds - ABN Amro Future Leaders and ICICIPru Emerging Star - both of which are heavy on such stocks.
Though Emerging Star defines its mandate as investing in diversified mid-cap stocks, it has a very broad definition of mid cap. The mid-cap universe includes any stock that has a market capitalization between Rs 100 crore and Rs 2,000 crore.
Future Leaders, on the other hand, is not that precise in its objective. The fund will focus on high growth stocks in the mid- and small-cap segment. The fund will look for companies that offer opportunities for long-term growth and are driven by dynamic style of management and entrepreneurial flair.
Going by the above objectives, it's not surprising to find that both keep switching between mid and small caps quite frequently. For example for the last four months (August- November 2007), Emerging Star had been a mid cap fund. But prior to this, for another four months it had small-cap heavy portfolio (April 2007 to July 2007). Future Leaders started out as a mid cap offering in April 2006 but changed its complexion to small caps by April 2007. It remained a small cap-heavy fund for another two months and then was again back to its mid-cap orientation.
While both funds vary their complexion quite frequently, they are both currently focused on reducing their large-cap exposure. Large caps, which were seen in small quantities in Emerging Star till September this year, are nowhere to be seen now. The Future Leaders fund has quite drastically lowered it large-cap exposure from over 16 per cent (August 2007) to less than 7 per cent (November 2007).
Emerging Star comes across as the much more focused option if one goes by its objective and allocation to equity. It permits a maximum 10 per cent exposure to debt and the same for cash. But Future Leaders has the leeway to touch its cash exposure to 35 per cent and the same holds for debt. But despite being more focused, Emerging Star was always the more diversified option with a huge portfolio. But it is moving more towards the style of Future Leaders in its concentration of portfolio. Emerging Star has consciously and gradually worked on reducing the number of stocks from 70 (November 2006) to 44 (November 2007). If you thought 70 was too large, you should note that they had 81 in May 2006. Future Leaders has maintained the portfolio at more of less 30-35 stocks since October 2006. Of course, they too have started off with as many as 50 stocks in the portfolio. Both have negligible amounts in cash.
But once you begin to look at the portfolios, all similarities end. At first blush, it appears that both their preferences for technology are identical. After all, it is the top sector in each portfolio accounting for 20 per cent of the assets. But dig a little deeper and a different picture emerges. Emerging Star's conviction in technology has not diminished reduced and the fund has maintained this level of concentration in the sector for the past one year. But Future Leaders has cut down on technology and added financial services along the way. Technology formed over 30 per cent and financial services 4 per cent of the Future Leader's assets in September 2007. Now, financial services accounts for over 18 per cent and technology has dropped to 20 per cent (November 2007). Emerging Star has taken a diametrically opposite stance and sold all of its financial services in October and November.
Future Leaders also has a preference for basic/engineering (17.26 per cent) and healthcare (9.76 per cent) but Emerging Star tilts towards metal and metal products (15.27 per cent), services (14.27 per cent), construction (13.37 per cent) and basic/engineering (8.29 per cent).
Long-term holdings in ICIC Pru Emerging Star include stocks like Sintex Industries, Subex Azure, Orient Paper and Deccan Chronicle but Future Leaders sticks with Elecon Engineering and Phoenix Lamps. In fact, the difference in their investment philosophy is quite stark from the fact that both have only two stocks in common.
The differences don't only exist in their portfolio but also in their assets. Emerging Star has seen its assets rise over the past three years to over Rs 889 crore. But Future Leaders has seen a dip from Rs 589 crore (May 2006) to Rs 98.38 crore (November 2007). The reason for these fluctuations in assets is probably a lot to do with their performance.
Barring two instances, Emerging Star has always beaten the category average, sometimes by a huge margin, in a surging market. The two instances were in the September quarters of 2006 and 2007. While the equity diversified category's returns September 2006 quarter stood at 15.73 per cent, the fund's return was marginally less at 14.83 per cent. In September 2007 quarter was bad for the fund. It generated returns of just over 5 per cent when the category's returns were at 14 per cent. But it remains to be seen how this fund proves itself in a falling market. For example, in second quarter of 2006 when the markets lost heavily, though the fund beat its benchmark CNX Nifty Junior, it lagged behind the category average. In this period the fund had lost over 16 per cent compared to the category's loss of 13.5 per cent. Similarly, in the first quarter of 2007, the fund was neither able to beat the category nor its benchmark.
On the other hand, ABN Amro, which is relatively a new fund, is yet to show its brilliance. In its short history it has been able to beat the benchmark (CNX Mid Cap) and the category average only once. That was in the December 2006 quarter when the fund's 17.19 per cent return was much better than that of its benchmark (10.83 per cent) and the category average (11.37 per cent). Unfortunately, in the first quarter of 2007, Future Leaders lost by more than 10 per cent, underperforming the category average and the benchmark. It will have to put up better numbers to increase its assets.
(by valueresearch)
New Funds - Birla Sun Life Special Situations Fund
Birla Sun Life Special Situation Fund is the latest offering which will follow an investment strategy that would take advantage of Special Situations and Contrarian investment style. The fund has defined Special Situations as potential gains from merger, acquisition, demerger, restructuring, divesting, buy backs, new funding etc. The fund may also invest in companies that are currently out of favor, overlooked or ignored for poor results, product failures, factor affecting the industry, political interventions, etc. The fund plans to invest 80 percent of the proceeds in equity and the remaining 20 percent in fixed income securities.
Scheme Details
Issue Opens: December 17, 2007
Issue Closes: January 15, 2008
Fund Category: Open-End, Equity Scheme
Benchmark Index: BSE 200
Minimum Investment: Rs. 5000
Entry Load: 2.25 per cent for investment of less than Rs 5 crores
Exit Load: For investment of Rs. 5 crores, an exit load of 0.50 per cent will be charged if the units are redeemed out within six months from the date of allotment.
About the Fund Manager
A. Balasubramaniam is the designated fund manager for the scheme who has a total experience of 15 years in the financial industry and is working with Birla Sun Life AMC for the last 10 years. Prior to joining Birla Sun Life AMC, he was working with GIC Mutual Fund
Currently, he is managing Birla Advantage Fund, Birla MNC, Birla Mid Cap, Birla India GenNext, Birla MIP, Birla MIP II Savings 5, Birla MIP II Wealth 25, Birla Sun Life MIP, Birla Balance and Birla Sun Life'95.
Birla Sun Life AMC
Birla Sun Life AMC started its operation in the year 1994. Currently they are managing assets worth Rs 31,370 crore. The fund house's 21 equity fund offerings contribute over 26 per cent to its total asset under management. Out of its thirteen rated equity funds, two are rated 1-star, three are rated 2-star, two are rated 3-star, five are rated 4- star while Birla Sun Life Frontline Equity enjoys a 5-star rating.
Performance of Similar Funds
Currently, there is only one fund with similar investment style - Fidelity India Special Situations Fund. This is a Rs 2,234 crore diversified equity fund which has delivered a return of 48.15 per cent (as on December 26, 2007) since its launch in April 2006.
In recent years Birla Sun Life equity funds have been impressive. The fund holds great promise if the fund manager is able to derive the best from its broad team of managers and analysts managing a wide array of equity funds. These fund portfolios often show interesting special situation stocks ideas. This fund could be a worthy consideration for NFO fans, seeking an opportunistic bet from a proven fund family.
(by value research)
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