Great News for MF investors

As per the latest SEBI directive,
Effective Jan 4 MF investors would not be charged any entry load if they are making direct application to the fund house.
You can start making direct applications to your fund houses from now on to save on entry load.Definitely a bad news for the MF brokers.

Which mutual fund to invest in???

When we say always invest in proven funds....People ask for specific names.
Here's an article that I found on Money today which may be useful for you in choosing a mutual fund for investment.
mutual fund blog India

NFO talk

NEWS :- Birla Sun Life Special Situations Fund:
Birla Sun Life Special Situations Fund is an open end equity fund that will invest in contrarian picks or stocks where there is potential for unlocking of value due to a corporate action.
Return/risk profile: While the return potential it carries is high, the fund’s risk profile will be also high. The fund is suited only to investors who own other equity products in their portfolio. Stocks in contrarian or special situations can carry significant downside risk if the expected event or unlocking of value doesn’t materialise
Fund Manager: A. Balasubramanian
Details: New fund offer closes on January 15. The benchmark is BSE 200. Minimum investment is Rs 5,000
Investors can invest a small portion of their funds for diversification, if they feel the theme is interesting. Risk - return proportion is high. Birla Sunlife is having a good number of performing equity funds. Investors who don't have Birla funds may add this to their kitty for diversification .


Among the tax saving investment options, ELSS and PPF/EPF are unique in the sense that returns from are absolutely tax free.
1) Interest earned from PPF is not taxed during accrual or pay out.
2) Dividend from ELSS is tax free.
3) ELSS has a lock-in period of three years. So,Profit on sale of units held after 3 years is a long term capital gain. It is subject to Nil tax as per current IT act.
ELSS and PPF are the way to go...

ELSS- equity linked saving scheme of Mutual Funds
PPF- Public provident fund
RPF- Contribution to Employee Provident Fund
' Tax investment options' , " Ways to invest to save tax', "1 lakh investment exemption under 80c'
'Which is the best tax saving investment option?',ta saving tips, how to save tax, what are the instruments that you can invest to save tax,best option to invest

Stocks and MFs penetration

I was travelling through some of tier-2,tier-3 cities in South India and even through some smaller towns. I was amazed to see the number of mutual fund advertisements, ads of stock brokerage houses. I was visiting these places almost after 5 years. Was good to see that equity investments is pulling in more and more people. Even in IPOs there is a broader participation from the public. if this trend continues for a while, we may not be an FII dependent market.
Another significant thing that was noticeable was that disposable income had reasonably increased in those places and spending pattern of people has also changed. realised that 'India growth story ' is real at least to some extent. Hope this growth continues and brings out many more millions out of poverty.

Advantage of planning for tax (investments) in advance

Planning for you tax saving investments at the beginning of the financial year is very critical (April - it's time to plan your taxes )and can be very handy for you. I would like to quote examples of two persons I know. The first person always plans for his tax saving investments in advance. This year too, he needed to save Rs 48,000. He planned out an SIP for 8000 for 6 months starting May'07 in a ELSS MF (tax saving mutual fund). His SIP got over in Oct07 and he is ready to present his savings to his employer by end of October'07 ( his employer needs it only by Jan'08). Now apart from saving 30% taxes on amount invested, he also has earned more than 10,000 as unrealised profits on his investments( thanks to the bull run !!).
My second friend starts thinking about tax planning only on January 1. His employer needs tax proof to be submitted by Jan'10. He never saves too. So, he is thinking between taking a personal loan for investing or paying 30% tax instead of saving.
Both of these friends almost earn the same amount and spending patterns are also similar. But the second person also spends a bit extra as there is no commitment like SIP.Planning for your tax investments always makes a difference. If you keep investing throughout the year, you tend to gain a lot as you don't feel the burden of investing a huge amount. You also need not fall prey to year end rush which can make you take a wrong investment decision too.
Always plan for your taxes in advance.Happy tax saving!!.
ELSS= Equity linked saving scheme.

Running behind a theme

A thematic fund has become a fashion nowadays. We see fund houses coming up with a lot of thematic NFOs. 'Infrastructure' is very hot among them.
Nothing wrong in having a part of portfolio in thematic funds. But we need to understand such 'concepts' are seasonal and may tumble once the season is down. The most important thing is that season never ends with a notice. (like IT sector suddenly seeming unattractive and most IT sector funds going down all of a sudden)
If you are a long term investor, you should have thematic funds just to add flavor and not as your main holding. For new investors its always better to avoid thematic funds as far as possible.
NFO= New fund offer from Mutual funds.

Post office schemes get life again

The government has at last done something to revive interest in Post office saving schemes.

1)The Government on Friday announced that the benefit of Section 80C of the Income Tax Act, 1961 will be extended to investments under Five Year Post Office Time Deposit Account and Senior Citizens Savings Scheme. The benefit of the deduction will be available in respect of investments made under these schemes with effect from April 1.
2)Also, 5% bonus will be payable on the deposits made under Post Office Monthly Income Account Scheme upon maturity. This benefit will be available on investments made in respect of new accounts opened under the Post Office Scheme on or after December 8.Together with bonus, the effective yield will be 8.9% as against 8.3% presently available under the Post Office Scheme.(POMIS).
This is definitely a good news for all of the post office investors.

Index Funds

Index funds refer to equity funds that concentrate on a specific index such as Nifty, BSE. The key aim in investing in such index funds is to get returns that equal the returns of the index during a specific time period. The funds invest the money in stocks which are a part of the particular index. The ratio of money invested in various stocks is equal to the ratio of the shares in the index.

During any trading session, ETF index funds can be purchased and sold at the prevailing rates and so are similar to purchase and sale of shares. Demat account is compulsory for transacting in Exchange Traded Index funds ( ETFs). For non ETF index funds, demat account is not required and investment can be made with just a bank account as in case of normal MFs.

Tracking error is the differentiator when it comes choosing one index fund against the other. Tracking error is the extent to which the NAV of the index funds move in a manner that is inconsistent with the movements of their respective indices during a given period.

Average 1 year return from index funds as of 6th Dec 07 45.42%*

Returns proportionate to index

* returns data from valueresearchonline

ELSS -Good way to start

For salaried class who pay income tax and not investing in equity/ equity MF, ELSS fundwould be the best way to start investing in MFs.
This is because.
1) You start an investment for tax saving and straight away get a return equal to your income tax rate notionally. This takes you off the initial fear of investing in equity.
2) The Lock-in period of 3 years allows you to get a feel of equity market.both ups and downs.
3) The confidence you gain by investing in ELSS can then be extended to equity investing.
SIP should be the preferred way to invest in ELSS too. More on ELSS
ELSS= Equity Linked Savings Scheme. Investment in this fund upto Rs.100000 can be used for availing tax exemption.

Fund house with a difference

Quantum AMC follows a direct-to-investor model. Brokers are not used by the fund house to collect investment.
This fund house doesn't charge an entry load as entry load is primarily used to pay commissions to mutual fund agents or distributors.
If you are willing to invest directly either in bulk or SIP without paying brokerage/ entry load on it, you can do it through Quantum fund. ( 100% of your money will be converted into fund units)
Investors should appreciate the intention of QUANTUM AMC in eliminating brokers . Those who are willing to invest can look into for more details.
AMC= Asset management company.

Small fund - NFO

"DBS Chola Mutual Fund has announced the launch of its three-year close-ended fund DBS Chola Small Cap Fund. The fund will invest in equity and equity related instruments of companies with small market capitalisation. The offer is open from November 20 to December 20. The minimum application amount is Rs. 5,000."- news

our views-Lot of proven mid caps available in the market. Pure small cap oriented funds are very few ( DSPML Small companies fund and Sundaram BNP paribas select small cap). Investors who have a big time horizon and want to have smaller companies in their portfolio can look at this fund.

Nifty and Sensex

Important difference between Nifty and Sensex is,
1) Nifty takes the full market cap of all of its 50 stock constituents and calculates weights accordingly.
2) Sensex Weights companies based on the free-float market capitalisation. Free-float is the shares not held by the promoters or institutions and hence, freely available for trade.
search terms:-
nifty vs sensex, nifty and sensex weights difference.

"Infrastructure"...raining NFOs

Kotak Mahindra Asset Management Company (KMAMC) is all set to play the infrastructure theme by launching the Kotak Indo World Infrastructure Fund, a three-year close-ended equity scheme.
The fund will open for subscription on November 27 and close on December 22.
Fund is close ended.Investors too keen on infrastructure can prefer investing through SIPs in open-ended funds like UTI Infrastructure, Tata Infrastructure or ICICI prudential infrastructure fund. But limit your exposure to sectoral funds.

SIP in a single stock?

Like SIP in a mutual fund , can one do a systematic investment in a single stock??...
It means allocating a month every month to purchase a particular stock. Say, on 1st on every month I would buy 2 shares of company X and accumulate it over a period of time. This is definitely a great idea. But SIP works better in case of a portfolio( read as collection of stocks or equity MF). This is because when you invest in a single stock, your risk return proportion is very high. But if you are thoroughly convinced about the growth prospects of a stock you can go ahead understanding the risk involved.
To understand this in a better perspective, someone who was buying Reliance stock every compared with someone who had been accumulating Infosys. Both of been accumulating blue chips , but you know the current scenario is not favouring IT stocks. Things may take a turn tomorrow. So, this kinds of risks / returns and your goals need to be understood before you start an SIP in a single stock.

JM Agri & Infrastructure Fund -NFO

Open 19-Nov-2007 Issue Close 18-Dec-2007

Scheme Objective

JM Agri & Infra Fund, is a close-ended equity oriented scheme. The investment objective of the Scheme is to provide long-term growth by investing predominantly in equity / equity related instruments of companies that focus on agriculture and infrastructure development of India.

Fund Class Equity Diversified
Fund Type Close-Ended
Fund Manager Sandip Sabharwal
Entry Load 0.00 %
Exit Load 0.00 %
Comment Exit Load - for ongoing redemptions/switch out after three months from the date of allotment, the exit load till maturity of the scheme will be Nil. However, at the time of redemption, the unitholders will be charged the balance proportionate unamortized initial issue expenses applicable to their investments.
This is a close ended fund and will be converted to a open ended after the specified period. Better to invest in performing funds like JM Basic through SIP. Watch the performance of this fund. if it is good, switch to it once it is open ended. You may invest now only if you bet too much on the fund manager's reputation.

ING Real Estate NFO

ING Investment Management India launched ING Global Real Estate Fund, an open ended Fund of Funds (FoF) scheme for the Indian investors. The scheme opens on Nov. 20, 2007 and closes on Dec. 14, 2007. The earliest closure date is Dec. 7, 2007.
The minimum application amount to invest in ING`s global real estate fund is Rs 5,000 and in multiples of Re 1 thereafter. The minimum additional purchases are of Rs 1,000, in multiples of Re 1 thereafter. The units will be available for Rs 10 per unit during the NFO and at applicable NAV thereafter. The NFO opens on Nov. 20, 2007 and closes on Dec. 14, 2007. Investors will have the choice of three options: dividend option, growth option and bonus option. The Scheme may, at the discretion of the Investment Manager, also invest in the units of other similar overseas mutual fund schemes, which may constitute a significant part of its corpus and for liquidity requirement invest in money market securities.
This scheme will invest overseas via the SEBI guidelines which allow investments by the mutual fund industry to the extent of USD 5 billion.
Those who want to have exposure to Global real estate can apply. Can be added to diversify your portfolio.New investors with lesser MF exposure can look for better options.
It will be treated as debt fund for all taxation purpose. Tax benefits available to equity funds wont apply to this fund.

Investing in "Fund of Fund" (FoF)

Fund of funds (FoF) concept~ A fund manager uses his expertise to allocate investments across existing schemes to suit an investment objective. This is intended to address the need for quality advisory and offer investors a solution that is made up of the best-of-breed funds.
Now should you invest in FoF because , it is difficult to choose and keep track of best funds?
Choosing good funds is not as difficult as picking stocks. Enough information is available on web to make an informed decision. It also doubles up the cost of managing your fund to some extent.
The main deterrent is-
Tax treatment ~ All FoFs are taxed as debt funds even if the underlying allocation is across equity schemes. ( as per current Income tax law -11/2007)
Yes, your FoF is taxed as a debt fund even if it allocates all its portfolio to equity funds alone.

Know your taxes when investing in GLOBAL funds.

As per the Indian Income tax rules (current), MF schemes that invest at least 65% of their total corpus in Indian equities are only treated as "Equity Funds" for taxation purposes. For such funds the long term capital gains tax is NIL. i.e If you buy an equity fund and sell it after one year, You have no tax burden on the same irrespective of the amount of profit you make.
So,if the Global/ Asian/ Foreign Equity schemes of Indian fund houses invest less than 65% in Indian equities, they are considered like debt funds for taxation purposes.
When you want to invest in a global fund next time, check out its allocation to Indian equity and understand the taxes applicable before you invest.
An intelligent investor always takes applicable tax laws into consideration before he makes an investment decision.
Global fund- select list-ABN AMRO China India Fund, Birla Sunlife International Equity, Tata Indo Global Infrastructure,Sundaram BNP Paribas Global Advantage,Principal global oppurtunities, Kotak global emerging market,Fidelity international oppurtunities,ICICI Indo Asia fund, DWS Gloabl thematic offshore,DSPML world gold.

Base Effect

The amount that you invest is very important in getting a return. eg. A gets 100% return on his investment and B gets 50% return during the same time period of investment. On the outset A seems to have gained more . But the amount invested also matters. If A had invested Rs 1000 and B invested 1 lakh. A's gain is Rs 1000 and B's gain is 50,000.
So, we can call this the 'Base effect'. Having a decent investment base is very critical to make a impact. Many may not be able to accumulate huge money for investments. So , its always better to keep growing your investment base slowly and steadily. Systematic investment plans like RD and SIP would help the investors build a strong investment base over a period of time.
Little drops make a big ocean. Small amounts can lead to a huge investment base. Happy Investing.
SIP is the best way to create wealth.

NFO- opinion

Franklin Asian Equity Fund - Those of who want to spread their portfolio/ risk across Asian markets can apply.

ICICI Prudential Real Estate Securities Fund (The scheme will not be directly owning or holding real estate properties.) is a 3-year close-ended debt fund, designed to invest in Real Estate Sector and real estate oriented sectors like Cement, Construction, Metals, Hotels, Retail, Banks & Finance Companies etc.
The scheme will:
Predominantly invest (51% to 100%) in high yielding debt securities issued by companies that are associated with or benefitting (directly / indirectly) from the real estate sector.
Invest up to 49% in equity of companies, which are engaged in industries that benefit directly or indirectly from the Real Estate Sector or have substantial investments in property (incl. Land holdings).
The initial allocation of the fund will typically be 70% in debt instruments and 30% in equity
and equity related securities.
For all practical purposes this is a DEBT fund and taxes as per debt funds would apply. 30% leverage on Equity is available. This can be considered as an option against FD. However no returns assured!

Quant. fund in India

Mutual Fund Lotus India Mutual Fund
Scheme Name Lotus India AGILE Fund
Objective of Scheme To generate capital appreciation through investment in equity and equity related instruments. The Scheme will seek to generate capital appreciation by investing in a passive portfolio of stocks selected from the industry Leaders on the basis of a mathematical model.
Scheme Type Open Ended
Scheme Category Growth
New Fund Launch Date 25-Oct-07
New Fund Earliest Closure Date 23-Nov-07
New Fund Offer Closure Date 23-Nov-07
Indicate Load Separately
Entry Load : Where purchase amount is less than Rs. 5 Crores - 2.25% Where purchase amount is equal to or greater than Rs. 5 Crores - Nil Exit Load : if redeemed on or before the expiry of 6 months from the date of allotment - 1% if redeemed after six months and on or before the expiry of 1 year from the date of allotment - 0.6% if redeemed after the expiry of 1 year from the date of allotment - Nil
Offer Price (Rs.) 10
Minimum Subscription Amount Rs. 5,000/- per application
This is a first of its kind QUANT fund in India.This fund will operate on a preset quantitative formula with minimum fund manager intervention.We have to wait and see how this performs over a period of time.
The cost of holding the fund should be lesser as compared to diversified equity as this will be a passive fund.
It will be interesting to see how quant and index funds perform in a market dominated by active funds. Actively managed funds have not been able to meet the indices for a couple of years now and it will be interesting to see the future trends.

Mutual Fund- FAQs

This article on money control answers the most frequently asked and critical questions on Mutual Funds.
A must read for new investors in mutual funds.
Ace investors may also have a point or two to gain from this article..
Happy Reading...Link
Also Read, Ideas money Mutual Funds FAQ

Mutual fund - New fund offers

UTI-Infrastructure Advantage Fund-Series I.

The new fund offer (NFO) opens on November 12, 2007 and closes on December 19, 2007. Units can be purchased only during the NFO period.
Fund is close ended.Investors too keen on infrastructure can prefer investing through SIPs in open-ended funds like UTI Infrastructure, Tata Infrastructure or ICICI prudential infrastructure fund. But limit your exposure to sectoral funds.

Scheme Name JPMorgan India Smaller Companies
Launch Date 09/11/2007 closing on November 30th 2007
Fund Manager Mr. Harshad Patwardhan
Investment Objective :The investment objective is to seek to generate long term capital appreciation from a portfolio that is substantially constituted of equity and equity related securities focused on smaller companies. Generally, the universe will be the companies constituting the bottom fourth by way of market capitalization of stocks listed on the National Stock Exchange or The Bombay Stock Exchange. The fund manager may from time to time include other equity and equity related securities outside the universe to achieve optimal portfolio construction. However, there can be no assurance that the investment objective of the scheme will be realised.Minimum investment is 5000 rs Entry load of 2.5 percent Exit load of 1 percent
Lot of proven mid caps available in the market. Pure small cap oriented funds are very few ( DSPML Small companies fund and Sundaram BNP paribas select small cap). Investors who have a big time horizon and want to have smaller companies in their portfolio can look at this fund.

Sundaram BNP Paribas Select Thematic Funds Energy Opportunities

There is a a new fund offer from Sundaram BNP which is on the most happening energy sector. Those who want to bet on this sector can allocate a small amount to this fund.
Energy is a growing sector and has all the attention of stock market now. But the risk of investing in a thematic fund applies to this fund too.
If you are a new investor, better avoid and get into some proven diversified fund through SIP route.
The NFO opens on 12/11/2007 and closes on 11/12/2007
Offer Document - Download

Lack of conviction for Retail investors??

"Indian mutual funds (MFs) total assets under management (AUM) crossed the magical Rs 5 lakh crore mark at the end of October.
But with the Sensex at the 20,000 levels, market insiders say that very little fresh money has come in from that set of investors whom fund houses have been diligently trying to target: retail."

This news shows that although FIIs are pouring in money, Retail investors are booking profits and staying away from investing further.

Ultimately FIIs are benefiting more while most of retail investors stay out of the race. I think the concept of long -term investing and it's benefits needs to precipitate further.

ideasmoney turns ONE on Nov 4 , 2007

Thanks for all the readers for your patronage... comments/ suggestions welcome to

Not comfortable with equities/ equity MF

This week I happened to meet at least a few people who talked to me about the risks of stock market. One of them who spoke on these lines was an MBA (Finance). Even after talking with data, logic and information ( mostly provided on this blog), I couldn't see them impressed. I didn't press them too much because I am not an agent selling Mutual Funds :-).
When so many FIIs flock here ( including some of their pension funds), we are yet to get into a perfect equity investing cult in this country ( esp. the southern part of the country??).
The equity Mutual Fund penetration has been improving but has a long way to go. At the current 30-40% CAGR, MF can be a $10 trillion industry in few years to come. But still it would be only a part of the country's true savings potential.
Equity/ Equity MF investments definitely carry a risk along with them. But by intelligent means of investing and staying in the market for long run, one can definitely get better tax free returns when compared to debt investments.
My lesson from the interaction last week with the equity averse investors made realise...." People create their own destiny".

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SIP Calculator

Calculator for SIP returns
Don't forget to consider the entry load on SIP when entering the monthly contribution amount. For example, if you invest Rs 1000 p.m. (Enter only 1000- entry load as monthly contribution).

Just a thought

I was chatting with my neighbour, a couple of days back. He is not an equity investor. He was telling that the bull run was not at all justified and the markets are highly overpriced. When there is no change in earnings of companies in the past three months, how can the market shoot the roof?.
Definitely a logical question!!. My neighbour had booked a flat in 2006 for a huge amount of money. The flat would have cost only half of it, had he booked it in 2005. I asked him , when the rent in the place has been stable ( similar to earnings of the shares), how can the market value of house double...( the appreciation he expected on his flat is not happening now..that's another story....).
He did'nt have any answer too. Stocks are definitely expensive now but the flats are more expensive at P/E's exceeding 200!!.
May be , stocks will be driven more by liquidity than the fundamentals like the real estate. So, retail investors should follow a systematic investment plan to overcome the bumpy rides. Don't stay away from equity, but take the SIP route to benefit from volatility....Enter equity only if you can stay for long in the market ...(> 5 years).

Wondering what to do in a volatile market?? read this

Over the long run, equities have been known to outperform most other asset classes, yet rapid changes in stock prices, whether upwards or downwards, may tempt investors to exit the market, and deviate from their long-term financial plans. However, history suggests that staying invested in the market through volatile periods can be beneficial in the long run, as demonstrated by the following chart :

The data demonstrates that an investor who, through attempting to time the market, misses just the ten best days of market returns in the last ten years, will make considerably less than one who remains invested through volatile periods. This also demonstrates that volatile periods can account for a large part of upward changes in market levels. While it is uncertain whether the current upswing in market levels is sustainable in the short-term, for the medium-term, there have been no changes in economic fundamentals, which remain positive. India’s economy is still fore casted to grow on track, with FY08 forecasts ranging from between 8% to 8.5%. In this volatile market, the Systematic Investment Plan (SIP) method continues to be a viable way of investing in stocks through a professionally managed mutual fund, regardless of current levels. It is also important to distinguish between the run-up in the Sensex (to a great extent driven by just 5 out of the 30 stocks in the index), and the situation in the broader market, where there continues to be long-term stock picking opportunities that active fund managers can capitalise on.
Source - Fidelity AMC Newsletter

The great fall is here ( Smart recovery later on)

"The Sensex has plunged by 1500 points to 17,500. The Nifty has crashed by 500 points.
The trading has been halted for an hour. The trading has been halted for the time since May 2004".
Something BIG as expected has happened and now we are seeing this feat repeated by FIIs again and again. Only way to get away with this is prudent systematic investment. Domestic investors should get more muscles than FIIs. It will be a long time before this happens.
Sensex recovers smartly by end of day... down only by a small percentage. !

Returns proportionate to index

One of my friends was asking me . How to get returns in proportion to index ( Sensex/ NIFTY,etc).?
The simplest answer would be buy the index stocks in the same proportion that the index is made of . You can also choose to invest in index funds which try to closely track the composition of index in their portfolio.
There are also exchange traded index funds like NIFTY BEES , JUNIOR BEES and so on. These ETFs can be bought and sold just like stocks.
I know a friend of mine who is used to buying units ( very small quantity) from such an ETF every week (cost price averaging). He would also do value cost averaging by buying more Index fund ETF units on the day when ETF falls apart from his regular buying. This has helped him a lot and he is sitting on huge profits when the sensex is at a great height now....
Sounds like a smart can try it out too!.
ETF- Exchange Traded Funds.

An even faster 1000

Sensex crosses 19K
A few days after we saw the sensex achieve the fastest thousand, we have seen a even faster 1000 ( from 18k to 19k).
There are predictions of 20,25 and 30K. As we all know, no expert can give a correct prediction. But one thing is sure....something BIG is awaiting for the indices ( may be a big fall too??)

Sitting on the fence

Sensex has been soaring. It is said that only 4% of the country has invested in stocks.
Many people are yet to figure out the power of equity. Of course, equity is one of the riskiest investments. But systematised investment and time generates great returns . Personal finance literacy is very low and proper education in this regard from schools would help us a lot.
I have had multiple opportunities to talk to many from the 96% group ( non-equity investors). They have either turned a blind eye to the equity or have been sitting on the fence expecting the sensex to fall( right from days when sensex was at 6000 levels).
Even today, sitting on the fence wouldn't help you create wealth for yourself. Sensex may fall drastically even tomorrow. But you can't keep out of it for that sake. Come in with a long term plan ( not a couple of years !!)and invest systematically through SIPs. This is definitely better than sitting on the fence and waiting for the indices to go down.

POMIS news

For those of you , Who haven't heard about this yet...
The investment limit for POMIS has been increased from 3 Lakhs to 4.5 Lakhs. For a joint account, the investment limit has been raised to Rs. 9 Lakhs.
But with 8% return, POMIS is not an attractive investment aveneue currently.
POMIS- Post Office Monthly Income Scheme.

Futures and options - an eye opener

For those who are looking forward to understand the basics of derivatives, find below the following links.

Was going through these a couple of days back. They are really good in introducing the readers to derivatives and will help understand basics of Futures & Options.

Part I

Part II

Happy reading

ideasmoney hits a TON

Ideasmoney hits a ton with this post. Thanks for all the readers of the blog.

The most searches that led viewers to this blog during last week is 'ICICI regular income bonds 2007'. This bond issue has seen a lot of interest. Some have asked whether the issue is safe. Any investment has risks associated with it. Risk - return analysis and an investor's need should be considered before you invest in any product.

NFOs - Global Funds- questions

We get a a lot of questions like" Should I invest in global fund NFOs"?. ( esp . wrt Birla International equity fund and Tata global infrastructure fund")
Overseas trading facility now offered by ICICIdirect , this is one another first from ICICI. The important point one should keep in mind in investing overseas is the exchange rate movements!! For eg. if you invest in a U.S company and the value of stock goes up by 10% but meanwhile dollar falls against rupee by a greater percentage- you stand to loose and vice versa.
Anyhow, good to see equity investments going really & seamlessly GLOBAL.

Sensex out of minor -hood

Sensex has crossed 18k mark. 789 points gained yesterday is the biggest single day gain. Much of action has been happening in large caps. We need to see whether small and mid cap stocks too catch up .
If there is news of political instability again or any adverse news , we need to see how the indices react!.
This journey looks more thrilling ( and risky?) now.

Stock Markets, P/E and experts!!

Sensex is trading at a P/E of 24.13 times. Some experts say that global liquidity is the reason and we are under priced when compared to China ( P/E multiple of around 40).
Sensex has moved on from very low P/E in 2004 of 15,16....and so on. We have been hearing this low P/E concept at every phase. (Now its relative low price earning muliple concept?)
Stock market zoom is faster than actual growth. May be, we were genuinely under priced all these days!!. We can see whether this is a sustainable price to earnings multiple only when a global crisis looms large and FIIs start shedding the stocks. Direct retail investors have to get much more careful, if they are not investing for the long run.
( BSE -P/E multiple during Harshad Mehta was more than 40, Current BSE Realty Index -P/E Multiple 63.81 times, Current BSE Capital Goods -P/E Multiple 42.22 times)
Is there a big bubble in realty and capital goods?. Are we poised for a BIG growth?. I am atleast not sure about the hype around realty index.!!

Jump start of a gold fund

When there is so much happening in the equity market, there has been a silent roof shooter.
DSPML World Gold Fund-G which was launched in August 2007 has started of with flying colours.

Latest NAV

12.8327 (01/10/07)

Return Since Launch 28.33 * source - value research.
Gold as an investment has always managed to beat inflation. This investment jump start has been on par with an equity performance!!!
May be this is a shorter time to compare..So. Let's wait and watch.

Search paths to this blog

On analysing the recent search paths to this blog , two searches still stand out . They are 1) ULIP compared with SIP and 2) How to make money in stock market.

For beginners ULIP is Unit linked Insurance Plans which invest in units as desired by the investors. ULIPS are Insurance cum Investment Plans. SIP is not an investment instrument but an investment method to invest in Mutual Funds. You can regularly invest in equity mutual funds through SIPs. ( Read posts labelled SIP, Insurance and ULIP for more info).

SIP definitely scores over ULIP as an investment.

Unfortunately, the trend reflected through data is not that great. Data from preceding month shows that flows ( into equity market) from insurance companies (ULIPs) into equity were four times greater then flow from MFs. It's a good sign that people have realised the power of equity, but still we have to mature in terms of understanding and choosing the right instruments.
To answer the second question, Investment in equity mutual funds through SIP is the best way for retail investors. You need to spare time and need to have patience to achieve your long term goals in this route. Happy Investing!.

Readers can feel free to write to us or comment on the posts regarding any questions/ clarifications.

10 year bond yielding 10% p.a

ICICI Bank has come up with a regular income bond issue. The 10 year option yields 10% p.a interest. There are annual and monthly payout options for interest depending on the option you choose. This bond is also available for 5 year period.( subscription from September 29, 2007 and closes on October 12, 2007.)
In a scenario, where interest rates are seemingly cooling down, this may be a good option . 10% p.a. interest for a 10 year period may be a great boon for those who keenly looking at investments like FD & other low risk investments.
Those who have the zeal to take a bit of risk , can safely avoid this. 10 Year is a good amount of time in which one may get a slightly better than this through equity/balanced funds.

For more details on the issue visit this link.

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Comparing PPF and ELSS as tax saving instruments

Contributions to PPF ( Public Provident Fund) and ELSS ( Equity Linked Savings Scheme of Mutual funds) are eligible for tax deductions.
PPF gives a return of 8% p.a. The most attractive part being the interest is tax free*. 15 years is the minimum term that you need to hold this account for. It definitely helps in compounding your money in such a period of time.
ELSS also generates tax free dividend (if you opt for dividend payout ) and the capital gains you make out of this scheme is also tax free*.
These two schemes definitely stand out of the rest in terms of tax saving schemes. Fixed Deposits, NSC ( National Savings Certificate ) do not enjoy tax free* returns. ULIPs also enjoy some tax benefits but we have emphasised the need to separate insurance from investment enough on this blog.
So, When we compare PPF and ELSS , Equity is capable of generating greater returns in the long run( esp PPF period of 15 years). So, if one is ready to lock in his money for 15 years or so, he can prefer equity based investments . ( ELSS have yielded 40% return in last 5 years # Same performance however cannot be expected year on year, but around 12% returns can make a huge difference!!! in a 15 year period).
* tax free as per income tax laws applicable in Sep'07

Fastest 1000!

As I Just finished the post "FII in full FLOW", the Sensex raced paced the 17000 mark for the first time.
This is the fastest 1000 of the sensex..May be it's the effect of the fire works in 20/20 cricket.???
It can't get thrilling than this. We are on a roller coaster ride???.. Let's wait and watch.

FII in full FLOW

After the fed. rate cut, FIIs have started pouring in money into all emerging stock markets including India.
We are seeing an unprecedented bull run. Sensex may even touch 17000 today!.
Should retail investors book profits?.. Yes and No
Yes, if their target price levels are met and they are not willing to take great risk. However, you shouldn't repent if stocks sore more than this level.
Those who have invested in Equity MFs / Stocks with a longer time horizon can definitely hold on to their portfolios as the long term growth story remains intact.
Those on a SIP way, need not bother much as their purchase price is going to average out in the long run.
FII- Foreign Institutional investors, MF- Mutual Funds, SIP- Systematic Investment Plan

Sensex crosses 16000

Sensex crossed 16000 today. May be the Fed. rate cut fuelled the fire. It would be interesting to see where we go from here. With industry seeming to be slowing down a bit, we will get to know whether a sustained upward trend is here to stay.

Upward or downward trend, We think that volatility is here to stay. So as retail investor we can SIP it all the way without making guesses.

SIP ...all the way

Strong and Incredible Performance ( SIP = Systematic Investment Plan)

We have written enough to prove that SIP is always a better option for retail investors esp. in a volatile market. But nothing speaks like DATA.

Look at the returns that Rs 1000*12 in would have provided you during Sep'06 to Aug '07 .

source ET intelligence/ value research

nb :- A lot people come to this site by the search term 'SIP vs one time investment' and ' MF SIP vs ULIP'.

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Stock picking strategy

If you are a beginner and willing to pick up stocks on your own, Looking at the hot stocks that the AMCs hold for their equity funds would be one of the strategies. Continuous monitoring of 'How hot these stocks remain with AMCs' is also very important.

Reliance Industries seems to be the hottest stock with all the AMCs.

Have a look at the list of HOT stocks. you may pick up a clue or two from this .

Source: NAV india/ Hindu Businessline

AMC = Asset Management Company ( Mutual fund company)

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For 10 year analysis on some equity funds---

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Power of equity in yielding returns

Was going through this article on Businessline.
The stocks that are shown in the article have yielded between 161 to 2616 % returns ( since Jan'01 to Sep' 07).
Anyone who could have afforded a small investment and stuck on would have reaped huge benefits .
This very clearly proves that equity is the best investment over the long run in spite of all the volatility.
The main attribute that is required for an equity investor is PATIENCE.

ULIP options

Investors who have invested in ULIP (Unit Linked Insurance Policy) have an option of choosing units from income, balanced and equity units. (some give a few more customised options too!)
This choice is given at the time of applying for the plan. Options can also be changed during the lifetime of the policy with most of the insurers.
1) Which option is best?
Since ULIPS are all supposed to be long term investments, 100% allocation to Equity units( growth option) should be the obvious choice. Even if you are an extremely conservative person , you should opt for at least 50%of your money to be invested in equity.
2) Most of the insurers give a 'Premium Redirection' and 'Switch' option. What is the difference between the two?
' Premium Redirection' can be used by the policy holder to divert all further premiums in a different proportion into income/balanced /growth than what he has already opted for. For example If I had opted to invest 100% of my premium into balanced units and I choose to buy only 100% equity units from further premium , I can give a premium redirection instruction.
'Switch' is switching of existing units in a policy from equity to balanced, income to equity,etc.
3) How often should I keep switching to units in a policy?
If anyone can predict the highs and lows of a market , he can do a great switching job. But no one can do this perfectly. So, it is always better to stay with your option unless there is a major change in economic scenarios or change in your risk appetite. Frequent switching wouldn't help you grow your money faster( unless you are extremely lucky!!) (Time or Timing ?? Market )

How to choose an equity fund?

For most of the novice investors , "How to choose an equity fund?" or " What fund should I invest in from among the few hundreds available'? remains the top question.

Most of them are also misguided by NAVs. i.e Fund which have a lower NAV is cheaper. (Mutual Funds - All you wanted to know ) . This is one reasons for mushrooming of NFOs .(Beware of NFOs )

What are the simple ways to choose a fund?

1. Go for the ones that have consistently performed against their benchmark indices. ( Every fund is bench marked against certain index and see the comparative returns over a period of time( atleast 3 years).)

2. Avoid frequently chasing the top performers for last 3months/ 6months (Chasing the best performing mutual funds ) one you have invested.

There are different websites which give different ratings for a same fund. Use your extensive study of sites initially to figure out the best. Over a period of time you will get adept at this skill.

In this context, I happened to see an analysis of consistent top performing equity funds on business line. The summary sheets are presented below for your reference.

The analysis showed that only 7 of the 64 diversified equity funds (including tax planning funds) have repeatedly beaten their benchmarks in each of the last five years (August 2002-2007). A further 28 funds (roughly four out of every 10) have outperformed their benchmark in four of the past five years.

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Investing in Global funds

Lot of fund houses have come up with global funds. These 'Global Funds' invest in equity and other instruments globally,as the name suggests.
Should one invest in these funds??
India is one of the fastest emerging markets and it is expected to give reasonable returns in the years to come. Global funds help your money to gain opportunities abroad, but they also come along with a set of risks associated with them.
It is very much essential to understand these factors before you invest in these funds.
These funds can form a small portion of your portfolio , if you are too keen on extensive diversification .
Investors who are new to MF/stocks better ignore these funds for a while.
An article that appeared on personalFN may be of great use to investors

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More on ' Buy tomorrow'

Thanks for your overwhelming response to the article Power of postponing consumption .
This 'buy tomorrow' instead of today will apply to all electronic gadgets like cellphone, TV,Ipods and other electronic goods. These goods are priced maximum when they enter the market and they become cheaper and cheaper as they go into mass production.
Example. A phone which was priced @ 20,000 2 years back, is available at Rs 5000 today.
A laptop which was priced@ almost a lakh a decade ago costs around 35-40,000 today.
So , if you are in a need to grow your money , it's always better to wait till the price slides and splurge into these.
On the opposite ,there are things which get dearer by the day...... for those things it would be better to buy today rather than tomorrow.

Call from a ULIP company

Of late, the calls that I get from ULIP companies have increased by leaps and bounds.
All of them promise very high returns on the these insurance and investment plans. The Best way to tackle these guys is to ask for a letter in writing that I would get these returns.
I think IRDA ( Insurance regulators) need to take much more sterner action against these companies and agents who miss sell through false promises and propaganda.
Unless the buyer's get aware of what they are buying and what they are paying...these extortionists like Investment agents and real estate agents are going to take innocent investors for a toss..
With respect to Investments, Innocence of the investors is not definitely a bliss for himself.
KNOWLEDGE IS POWER for an investor.

Great way to hone your stock picking skills

Some time ago, 'money bhai' was introduced in money control website. The players can invest in portfolio of their choice (stocks) with virtual money. Winners , rewarded with prices.
Economic times has also come up with a similar idea. See their site for details.
Working on a dummy portfolio is the best way to learn or hone your stock picking skills. When someone allows you to do that for a prize, it becomes extremely interesting.
I think, those who are looking for honing their skills should actively participate in these games.

Mutual Funds and SIP

There is always a question .. Whether SIP is better than one-time investments?. Was going through one of the personal finance magazines. They had published a list of top performing MFs.

The data shows return from these funds on SIP basis and one-time basis. Please check the chart yourself to figure out the returns from SIP investment.

There is considerable difference in returns from SIP and direct investment. This may not be the case always. But , it proves a point that the concept of cost averaging works out in favour of investor during volatility.

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Your queries answered

1) I have a SIP in ELSS fund for 3 years ( till 10 Apr 2009). Can I redeem the units from fund only after 10 Apr 2012 , after the 3 year lock- in period applicable for ELSS tax saving funds ?

Lock-in period in ELSS is applicable for units based on the date of purchase of that relevant unit.
Say I have an SIP for 6 months..

units purchased on 10th of may07 ,jun 07, jul 07, aug 07 ,sep07 ,oct 07.

redemption of units purchased on 10th may 07 can be dome on or after 10 may 10
same way ,units purchased on 10th jun 07 can be done on or after 10 jun 10. and so on

The lock-in for the units will be determined by the purchase date of that unit.
To determine one year holding to Equity MF for Long term capital gains, same rule needs to be applied.

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These are just opinions/ ideas exchanged. No one can claim us responsible for any investment failures /losses based on the ideas expressed here.

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