My first question is if it is wise to invest in a lump sum amount when the markets go down? The other question is how to apply for the NPS scheme launched by the government?
-Abhishek
To answer your first question, investing via lump sums in falling markets doesn’t make sense. The biggest advantage of investing via SIPs is that if you invest Rs 5,000 every month and check the value, you will be happy that the saving was accumulated because of investing. You won't be bothered by the fall in the markets. But when you invest in a lump sum, say for example, you invest Rs 1 lakh and it drops down to become Rs 90,000, then it becomes very difficult for you to keep investing. You feel pressurized to believe that maybe you haven’t taken the right decision.
Regular investing is not a guaranteed way of earning profits, but it is a way of managing your anxiety. If you want to invest a big amount like Rs 1 lakh, for example, then spread it over 2-3 months so that you can reduce the risk of a mis-timed investment in a high market.
Regarding the NPS, it has many points of purchase. You can view the addresses on www.pfrda.org and open an account from the nearest point of purchase.
(source:valueresearchonline.com)
Mutual Fund News update from Nishit Doshi (9824021680) a leading MF Advisor based in Ahmedabad. Gujarat.
Wednesday, January 4, 2012
Good ELSS Funds
I would like to invest a sum of Rs 80,000 in an ELSS fund. Which is the best scheme to invest in?
-Prabhat
ELSS funds come with a three year lock-in period. The well-performing ELSS funds to invest in are HDFC Taxsaver, Franklin India Tax Shield and ICICI Prudential Tax Plan, which have been around for a long time. If you would like to invest in an aggressive ELSS, consider Religare Tax Plan and Taurus Tax Shield, both of which are relatively new but have performed very well in recent times.
Investors looking at the performance of ELSS funds over the past three years should understand that in a market like this, ELSS funds can turn out to be high-performing investment avenues. And perhaps, this is the last year to invest in them because once the DTC kicks in, we will not have an equity-linked tax saving alternative in the coming years.
(source:valueresearchonline.com)
-Prabhat
ELSS funds come with a three year lock-in period. The well-performing ELSS funds to invest in are HDFC Taxsaver, Franklin India Tax Shield and ICICI Prudential Tax Plan, which have been around for a long time. If you would like to invest in an aggressive ELSS, consider Religare Tax Plan and Taurus Tax Shield, both of which are relatively new but have performed very well in recent times.
Investors looking at the performance of ELSS funds over the past three years should understand that in a market like this, ELSS funds can turn out to be high-performing investment avenues. And perhaps, this is the last year to invest in them because once the DTC kicks in, we will not have an equity-linked tax saving alternative in the coming years.
(source:valueresearchonline.com)
Exit Magnum Contra
I have been invested in Magnum Contra–Growth for the past four years. Should I continue investing in it? My investment horizon is of 10 years.
-Aman
Magnum Contra was a very good fund, but it has turned mediocre for the past 1.5-2 years. Since you have been investing in it for the past four years, it is possible that you might not have faced any major losses in it. But looking at the current market situation, you should switch your investments from this fund to another. If you feel that you will need this money in the next 3-5 years, move it to a balanced fund.
To continue your investments, you should pick a good diversified equity fund like Birla Sun Life Frontline Equity or HDFC Equity. The accumulated investments in Magnum Contra can also be put into these funds.
(source:valueresearchonline.com)
-Aman
Magnum Contra was a very good fund, but it has turned mediocre for the past 1.5-2 years. Since you have been investing in it for the past four years, it is possible that you might not have faced any major losses in it. But looking at the current market situation, you should switch your investments from this fund to another. If you feel that you will need this money in the next 3-5 years, move it to a balanced fund.
To continue your investments, you should pick a good diversified equity fund like Birla Sun Life Frontline Equity or HDFC Equity. The accumulated investments in Magnum Contra can also be put into these funds.
(source:valueresearchonline.com)
Tuesday, August 9, 2011
High On Insurance, Low On Investment
I am 36 years old, my wife is 33 and our son is 7. My wife and I each have an annual agricultural income of Rs 12 lakh. Our present household expenses are Rs 3 lakh per annum (Rs 25,000/month) and our son’s schooling expense is Rs 3 lakh per annum.
— Nimbalkar Khardekar
The Khardekars have started investing fairly early, are currently earning well and have clear cut goals. If one looks at the basic inflow and outflow, as of now they have an inflow of Rs 24 lakh per annum and an outflow of Rs 11,39,142. The latter includes their monthly household expenses as well as premium payments towards various insurance policies and monthly investments. That leaves them with an investible surplus of Rs 12.60 lakh. While some of this money can be placed in a bank fixed deposit as an emergency fund, the chunk of it can be invested towards their goals. And by invested, we mean equity investments. While they have a bag full of insurance policies and a Public Provident Fund (PPF), they must ensure that equity forms a major component of their portfolio if they are to achieve wealth creation. The returns from equity far outweigh the returns that one would get from a fixed-return instrument. For that reason, equity is a must for virtually every portfolio, though the actual amount allocated to that asset would differ.
Here are some suggestions.
* A health policy must be taken out in the son’s name. An accident, sickness or illness can deplete one’s bank balance rapidly. Health insurance is a must for every individual.
* Despite having so many insurance policies, we would still recommend a term plan for each of the spouses since both are earning. The total value can be around Rs1.5 crore. The tenure can be for as long as possible since it will protect the remaining members against life risks.
* If they discontinue with their insurance current plans, it would be a losing proposition. We recommend that they continue with all their insurance policies.
* They should also continue to invest the maximum annual limit in PPF. This will continue even under the new tax regime of the Direct Tax Code (DTC).
* Since time is on their side and they do not have major liabilities or debts, exposure to equity must increase. Specially if they are saving for their retirement and their son’s retirement too. They can start by just increasing the amounts of their Systematic Investment Plans (SIPs). As their income rises, they can proportionately increase the amount that is channelized towards their investments.
* We recommend that investing in equity funds is always done systematically. This enables the investor to buy more units when the market is down and less when it is high. It is a good strategy to participate in the equity market.
* An annual review of the portfolio is recommended. No one must buy and sit tight. Every quarter, they must look at the performance of their funds via each fund’s benchmark and its peers. They can also keep a tab on the star rating of the fund that is assigned by Value Research. If a fund keeps falling in performance, then it can be replaced by another good performer in its respective category.
* As they approach their goal, they can begin to lower the equity exposure and put the money in a bank fixed deposit or debt fund. They must not wait to sell all their equity investments at one go because that would put them at the mercy of the state of the market then, which is too much of a risk.
* They must create a contingency fund which will help out during emergencies. The amount could be around four months of monthly expenses. This can be kept in a liquid fund or even a savings account or bank fixed deposit which is linked to a savings account and can be accessed instantly.
The Kharkekars have not only planned for their retirement but even their son’s, which is going one big step ahead. But if they stick to the plan, it is certainly achievable and definitely very commendable.
(source:http://www.valueresearchonline.com)
— Nimbalkar Khardekar
The Khardekars have started investing fairly early, are currently earning well and have clear cut goals. If one looks at the basic inflow and outflow, as of now they have an inflow of Rs 24 lakh per annum and an outflow of Rs 11,39,142. The latter includes their monthly household expenses as well as premium payments towards various insurance policies and monthly investments. That leaves them with an investible surplus of Rs 12.60 lakh. While some of this money can be placed in a bank fixed deposit as an emergency fund, the chunk of it can be invested towards their goals. And by invested, we mean equity investments. While they have a bag full of insurance policies and a Public Provident Fund (PPF), they must ensure that equity forms a major component of their portfolio if they are to achieve wealth creation. The returns from equity far outweigh the returns that one would get from a fixed-return instrument. For that reason, equity is a must for virtually every portfolio, though the actual amount allocated to that asset would differ.
Here are some suggestions.
* A health policy must be taken out in the son’s name. An accident, sickness or illness can deplete one’s bank balance rapidly. Health insurance is a must for every individual.
* Despite having so many insurance policies, we would still recommend a term plan for each of the spouses since both are earning. The total value can be around Rs1.5 crore. The tenure can be for as long as possible since it will protect the remaining members against life risks.
* If they discontinue with their insurance current plans, it would be a losing proposition. We recommend that they continue with all their insurance policies.
* They should also continue to invest the maximum annual limit in PPF. This will continue even under the new tax regime of the Direct Tax Code (DTC).
* Since time is on their side and they do not have major liabilities or debts, exposure to equity must increase. Specially if they are saving for their retirement and their son’s retirement too. They can start by just increasing the amounts of their Systematic Investment Plans (SIPs). As their income rises, they can proportionately increase the amount that is channelized towards their investments.
* We recommend that investing in equity funds is always done systematically. This enables the investor to buy more units when the market is down and less when it is high. It is a good strategy to participate in the equity market.
* An annual review of the portfolio is recommended. No one must buy and sit tight. Every quarter, they must look at the performance of their funds via each fund’s benchmark and its peers. They can also keep a tab on the star rating of the fund that is assigned by Value Research. If a fund keeps falling in performance, then it can be replaced by another good performer in its respective category.
* As they approach their goal, they can begin to lower the equity exposure and put the money in a bank fixed deposit or debt fund. They must not wait to sell all their equity investments at one go because that would put them at the mercy of the state of the market then, which is too much of a risk.
* They must create a contingency fund which will help out during emergencies. The amount could be around four months of monthly expenses. This can be kept in a liquid fund or even a savings account or bank fixed deposit which is linked to a savings account and can be accessed instantly.
The Kharkekars have not only planned for their retirement but even their son’s, which is going one big step ahead. But if they stick to the plan, it is certainly achievable and definitely very commendable.
(source:http://www.valueresearchonline.com)
Exit Stocks, Enter Funds
I have received stocks worth Rs 1 crore from my father. He had been actively trading and investing in stocks for the past 35 years. I am not that good at stock investing and I don't know exactly what to do with them. But I do have a long-term investment horizon. Over 70 per cent of these stocks were bought over a year ago. What should I do?
- D Kumar
You are lucky that your father has handed over a portfolio valued at a little over a crore currently, which is doing well. However, such a large and valuable portfolio also comes with attendant responsibilities. That you have listed your financial goals and have a mutual-fund portfolio that rides on systematic investment plans (SIPs) reflects your sound temperament towards investing. That you also have a house of your own and do not service any loan indicates your prudent handling of finances.
Insurance: By opting for a term plan you have made the right selection. The Rs 27 lakh cover is a good start and is about 10 times your current annual household expenses. If you take on any additional liability, consider increasing this cover.
You have Rs 4 lakh worth of medical insurance that covers you and your family members. However, an employer-provided insurance cover lasts only as long as you are employed. Urgently consider supplementing this cover with one purchased by you.
PPF: You have PF deducted from your salary. If the debt component of your portfolio is high, reduce your contribution to PPF.
Pension Plan: You don't need a pension plan. Check its fund value and exit costs and terminate the plan if this does not cause losses.
Financial Goals
That you have been able to quantify your goals and are also aware of the time frame within which you have to achieve them are positives. Now work towards achieving them.
With the Rs13,000 investible surplus that you have, it will not be easy to achieve your financial goals within the time frame you have stated, unless you start dipping into the stock portfolio that your father has given you. Temper some of your goals: postpone your retirement and your plan of buying a bigger house. Instead focus on goals such as saving for your child's education.
At 32, however, you have time on your hand, and your income will increase. Continue investing aggressively in equities as it is one asset class that has the potential to help you achieve your financial goals over the long term.
Financial goals
Monthly investments
Cost (Rs) Years to go @12% @15%
First child's education 20 lakh 9 10,300 8,750
Second child's education 20 lakh 11 7,300 6,000
Retirement and other future expenses 5 crore 19 57,200 38,700
Current portfolio
Schemes Category Rating 3-yrs ret(%) 5-yrs ret(%)
DSPBR Equity Multi Cap **** 15.47 16.16
HDFC Equity Multi Cap ***** 20.89 16.94
HDFC Top 200 Large & Mid Cap ***** 18.95 16.97
ICICI Prudential Fusion Mid & Small Cap Not rated 6.26 6.55
IDFC Premier Equity Mid & Small Cap ***** 18.78 19.94
Reliance Regular Savings Equity Multi Cap **** 13.47 20.5
Returns as on April 6, 2011 Ratings as on March 31, 2011
Suggested portfolio
Schemes Category Rating 3-yrs ret(%) 5-yrs ret(%)
Fidelity Equity Large & Mid Cap ***** 16.34 14.7
HDFC Equity Multi Cap ***** 20.89 16.94
DSPBR Micro Cap Mid & Small Cap **** 14.66 —
AIG World Gold International Not Rated — —
BSL Dynamic Bond Ret Income **** 8.92 8.79
IDFC Premier Equity Mid & Small Cap ***** 18.78 19.94
Returns as on April 6, 2011 Ratings as on March 31, 2011
Investments
You have a diversified stock portfolio of 71 scrips spanning market capitalisations and sectors. Managing such a large portfolio will require you to review and watch their performance closely. On the other hand, mutual funds require less frequent review, once a few good funds have been selected and a portfolio built around them. Your temperament suggests you would be better off having the larger portion of your equity investments in equity mutual funds rather than in stocks.
Do not exit all the stocks you own; hold on to some of them, especially the ones that are part of a large representative index such as BSE 100. These are mostly companies with good financials and fundamentals. They are actively traded and both institutional and retail investors invest in them. By staying invested in these stocks, you can expect the value of your holdings to grow further, as well as earn dividends and bonuses from them, as has been the case in the past. You may exit the remaining stocks in a phased manner by booking profits and without attracting capital gains tax.
Mutual Funds
Your current selection of six mutual funds is not bad, but no thought seems to have gone into making a portfolio out of them. Having three multi-cap funds and two mid- and small-cap funds is diversification in terms of numbers but not in terms of style or market capitalisation. What you need is a diversified portfolio that is easy to manage and has the potential to help you achieve your long-term financial goals. Diversification reduces the volatility within a portfolio.
We have suggested an aggressive portfolio that has 90 per cent equity exposure and have retained two of your existing SIP investments in it. The higher equity allocation and regular investments in this portfolio should help you achieve your financial goals.
You can also adopt a core and satellite portfolio strategy. The core portfolio will comprise funds that need low maintenance, while the satellite portfolio will have to be actively tracked. With this dual strategy you can take advantage of market opportunities without putting your complete portfolio at risk. The core comprises large-cap and large- and mid-cap funds. The satellite allocation comprises multi-cap funds, mid- and small-cap funds, sector funds and even thematic funds.
As the core portfolio comprises funds that are not prone to violent swings, it will cushion your portfolio against market swings while providing steady returns. The satellite portfolio comprises high alpha-generating funds, which will give a fillip to returns. The main advantage of this approach is that it is flexible and can be modified according to the investor's risk appetite.
You have also parked some of your savings in fixed deposits. Transfer them into a liquid fund, which is likely to give superior returns while also being more tax efficient.
(source:http://www.valueresearchonline.com)
- D Kumar
You are lucky that your father has handed over a portfolio valued at a little over a crore currently, which is doing well. However, such a large and valuable portfolio also comes with attendant responsibilities. That you have listed your financial goals and have a mutual-fund portfolio that rides on systematic investment plans (SIPs) reflects your sound temperament towards investing. That you also have a house of your own and do not service any loan indicates your prudent handling of finances.
Insurance: By opting for a term plan you have made the right selection. The Rs 27 lakh cover is a good start and is about 10 times your current annual household expenses. If you take on any additional liability, consider increasing this cover.
You have Rs 4 lakh worth of medical insurance that covers you and your family members. However, an employer-provided insurance cover lasts only as long as you are employed. Urgently consider supplementing this cover with one purchased by you.
PPF: You have PF deducted from your salary. If the debt component of your portfolio is high, reduce your contribution to PPF.
Pension Plan: You don't need a pension plan. Check its fund value and exit costs and terminate the plan if this does not cause losses.
Financial Goals
That you have been able to quantify your goals and are also aware of the time frame within which you have to achieve them are positives. Now work towards achieving them.
With the Rs13,000 investible surplus that you have, it will not be easy to achieve your financial goals within the time frame you have stated, unless you start dipping into the stock portfolio that your father has given you. Temper some of your goals: postpone your retirement and your plan of buying a bigger house. Instead focus on goals such as saving for your child's education.
At 32, however, you have time on your hand, and your income will increase. Continue investing aggressively in equities as it is one asset class that has the potential to help you achieve your financial goals over the long term.
Financial goals
Monthly investments
Cost (Rs) Years to go @12% @15%
First child's education 20 lakh 9 10,300 8,750
Second child's education 20 lakh 11 7,300 6,000
Retirement and other future expenses 5 crore 19 57,200 38,700
Current portfolio
Schemes Category Rating 3-yrs ret(%) 5-yrs ret(%)
DSPBR Equity Multi Cap **** 15.47 16.16
HDFC Equity Multi Cap ***** 20.89 16.94
HDFC Top 200 Large & Mid Cap ***** 18.95 16.97
ICICI Prudential Fusion Mid & Small Cap Not rated 6.26 6.55
IDFC Premier Equity Mid & Small Cap ***** 18.78 19.94
Reliance Regular Savings Equity Multi Cap **** 13.47 20.5
Returns as on April 6, 2011 Ratings as on March 31, 2011
Suggested portfolio
Schemes Category Rating 3-yrs ret(%) 5-yrs ret(%)
Fidelity Equity Large & Mid Cap ***** 16.34 14.7
HDFC Equity Multi Cap ***** 20.89 16.94
DSPBR Micro Cap Mid & Small Cap **** 14.66 —
AIG World Gold International Not Rated — —
BSL Dynamic Bond Ret Income **** 8.92 8.79
IDFC Premier Equity Mid & Small Cap ***** 18.78 19.94
Returns as on April 6, 2011 Ratings as on March 31, 2011
Investments
You have a diversified stock portfolio of 71 scrips spanning market capitalisations and sectors. Managing such a large portfolio will require you to review and watch their performance closely. On the other hand, mutual funds require less frequent review, once a few good funds have been selected and a portfolio built around them. Your temperament suggests you would be better off having the larger portion of your equity investments in equity mutual funds rather than in stocks.
Do not exit all the stocks you own; hold on to some of them, especially the ones that are part of a large representative index such as BSE 100. These are mostly companies with good financials and fundamentals. They are actively traded and both institutional and retail investors invest in them. By staying invested in these stocks, you can expect the value of your holdings to grow further, as well as earn dividends and bonuses from them, as has been the case in the past. You may exit the remaining stocks in a phased manner by booking profits and without attracting capital gains tax.
Mutual Funds
Your current selection of six mutual funds is not bad, but no thought seems to have gone into making a portfolio out of them. Having three multi-cap funds and two mid- and small-cap funds is diversification in terms of numbers but not in terms of style or market capitalisation. What you need is a diversified portfolio that is easy to manage and has the potential to help you achieve your long-term financial goals. Diversification reduces the volatility within a portfolio.
We have suggested an aggressive portfolio that has 90 per cent equity exposure and have retained two of your existing SIP investments in it. The higher equity allocation and regular investments in this portfolio should help you achieve your financial goals.
You can also adopt a core and satellite portfolio strategy. The core portfolio will comprise funds that need low maintenance, while the satellite portfolio will have to be actively tracked. With this dual strategy you can take advantage of market opportunities without putting your complete portfolio at risk. The core comprises large-cap and large- and mid-cap funds. The satellite allocation comprises multi-cap funds, mid- and small-cap funds, sector funds and even thematic funds.
As the core portfolio comprises funds that are not prone to violent swings, it will cushion your portfolio against market swings while providing steady returns. The satellite portfolio comprises high alpha-generating funds, which will give a fillip to returns. The main advantage of this approach is that it is flexible and can be modified according to the investor's risk appetite.
You have also parked some of your savings in fixed deposits. Transfer them into a liquid fund, which is likely to give superior returns while also being more tax efficient.
(source:http://www.valueresearchonline.com)
Subscribe to:
Posts (Atom)