Friday, May 30, 2008

What is Absolute Returns and what is Annualised Returns ? Which one should the investor trust while investing in mutual funds ?.

Absolute returns: Let us take an example of SBI Magnum tax gain which has given returns of 10.5% in last 1 year (as on 30/5/2008) . This is absolute returns for 1 year. Now the same fund has given an absolute returns of 1089.3%. for a 5 year period (as on 30/5/2008) meaning if you had invested Rs. One lakhs in this fund 5 years earlier it would have now been Rs. Ten lakhs and eighty-nine thousand.

Annualized returns: Using the same example Annualized returns are calculated based on adding first year returns to the principal amount for calculation of next years returns and so on and so forth. so annualized returns for the SBI Mangum taxgain scheme for 1 year was 10.5% (as on 30/5/2008) whereas for last five years annualized returns is 64.1% (as on 30/5/2008)
It still means that your Rs. 1 lakh invested in the same fund 5 years is now Rs. Ten lakhs and eighty-nine thousand.

NOTE : Mutual funds returns should be compared in Annualized returns in order to be compared with other products such as Bank FD's , ULIP's, Post Office MIS etc.

Example :
1) If you invest Rs. 100 ; after 1 year returns is 20% so end of the year it becomes Rs. 100 + 20= Rs. 120.
2) Now second year also you make a profit of 20% so your money is Rs. 120 + 24 = Rs. 144
3) After 2 years your money of Rs. 100 is now Rs. 144 so your
Absolute returns for 2 years is 44% whereas Annualized returns is 20% year on year.

Thursday, May 29, 2008

Difference between Growth, Dividend Payout and Dividend Reinvestment

Dividend Payout: Mutual Fund companies as when they keep on making profit they distribute part of the money to the investors by way of dividends. If you want to keep on taking part of profit regularly you are advised to select this option wherein you can keep on getting back money frequently.

Dividend Reinvestment: This option is similar to the first option except for the difference that dividend declared is re-invested in the same fund on the same days NAV. so all your profit is invested back in the same fund to make it grow more.

Growth: This option is for the people who have long term financial goals and they dont need money regularly. In this option mutual funds NAV will keep on growing and it will never declare dividends. so overall at the end of the investment term you get larger kitty.

NOTE: Returns per say calculated on each of this 3 option will be the same. The only difference will be the way in which you take out your money.

भविष्य को सुरक्षित बनाओ ! सीप से अपने सपने पूरे करे !

मूचल फंड में इन्वेस्ट करो और आपके भविष्य को सुरक्षित करो !
अपने भविष्य की जरूरत को समज कर उसे पुरा करने के लीये अपने बलबूते पे आज से ही फिनान्सिअल प्लानिंग का शुभ आरंभ करो !

हर महीने थोड़ा थोड़ा कर के (SIP) करे ! और अपने सपने साकार करे ! चाहे बेटी का ब्याह करना हो या बेटे को वीदेश भेजना हो आया अपने retirement के लिए लोनावाला में बंगला लेना हो ! हर चीज़ सम्भव है !
बूँद बूँद से सागर बनता है ! थोड़ा थोड़ा करके सपना पुरा होता है !

हर सलाह के लिए हमसे बेजीजक सम्पर्क करे !

हैप्पी इन्वेस्तिंग !

Wednesday, May 21, 2008

HSBC declares 10% dividend in HSBC advantage India Fund

HSBC declares 10% dividend in HSBC advantage India Fund. The record date for this Mutual Fund has been fixed as May 26, 2008.

Tuesday, May 13, 2008

Reliance SIP Insurance !

Most of the people do SIP and many of them have ULIPs or traditional LIC policies.

The latest one is the product from reliance stable. Reliance SIP Insurance !
Basically this is an excellent product most of the people would register for an SIP for say 15 year term for Rs. 5000 per month for his daughters marriage. Now if the investor dies after 2 years then in regular SIP, his investment will stop as his earnings is no more. but in "Reliance SIP Insurance" . The rest of the premiums will be paid by the insurance company till the end of the term. so for remaining 13 years the insurance company will pay the installments in place of investor. That is (5000 * 12 * 13 = Rs 7,80,000) will be paid by insurance company.

So investor can have a peace of mind and can secure his financial goals in unforeseen future.

This is really amazing product as the cheapest insurance cover in todays times is TERM INSURANCE, but just that we do not get anything in return from it, at maturity most of the people don't go for it. This will really be a good product as people can take care of there children's future. The best part is, its free under group insurance.

Happy Investing for our kids for there bright Future.
Reliance guys are innovative and proactive.

Monday, May 12, 2008

What are Different types o f Mutual Funds

Diversified Equity Fund : The most common type of mutual fund is Diversified equity fund. If you are new to Mutual Funds you should always prefer best performing Diversified Equity Fund. This kind of funds diversify there investment across sectors. The fund manager can always increase or decrease the exposure of this fund to any particular sector as and when he may find it suitable. for e.g If he thinks construction and real estate sector if going to outperform rest of the sectors then he may increase the investment of this fund more towards construction and real estate related companies. and if after few years he may think that real estate has picked and there is no room for appreciation he may reduce or totally his exposure to real estate and may switch his investment to other sunrise sector like banking and finance.

Sectoral Fund : This kinds of funds by there nature are sector specific funds. Lets say Pharma Fund is a fund which can only invest in Pharmaceutical related companies. Hence when pharma sector do well then this funds will do very well and when pharma sector goes down this fund goes down too. so this kinds of funds give very extreme performance depending on the sectors performance. so If you are bullish on a particular sector then rest of the sectors then you can invest in this kind of funds.

ELSS Fund : This are Equity Linked savings schemes. This funds always have a 3 year lock-in period which means that you can withdraw you investment only after 3 years of its investment. hence investment done in may 2008 can only be withdrawn or redeem only after may 2011.
This funds are eligible for tax benefit Under section 80C within the overall limit of Rs. 1 Lakh.

Large cap Fund : This are funds in which majority of the investment is done Large cap companies only. you can safely assume that majority of the investment will be in bse 100 companies or so. This is a must have fund in your portfolio.

Mid cap Fund :
This funds will invest majority of there investments in Mid-size companies only. This fund can be added in your portfolio for little aggression.

Small cap Fund : This fund will invest majority of its investments in Small- cap companies. This is the most risky fund among all the cap-size funds. since its most risky it can sometimes gives you very high returns over long term.

Balanced Fund :
This kind of funds are more stable and less volatile as compare to pure Equity fund. In this kind of funds there is reasonable investment in Debt and as well as Equity. hence its less volatile and more secure compare to pure equity fund.

Debt Fund :
This kind of funds are used for short term investments. This fund mostly invest in government securities and bonds. Most of this funds can give you returns between 6% to 12%. If you want to park your huge money which is just lying in bank account then its much smarter choice to invest in debt fund.

Saturday, May 10, 2008

I want to invest Rs 10,000 in Mutual Fund via SIP, what is the best strategy to go about selecting good performing Mutual funds

In this uncertain times investing in Mutual Funds should be done via SIP (Systematic Investment Plan) to remove volatility and avoid risk due the value cost averaging property of SIP.

STRATEGY1) Find out best performing funds in Diversified Equity fund category. This can be done by checking the performance of a fund over 1 year, 3 year and 5 years horizon. Double check this performance from at least 2 to 3 different sources regarding returns in percentage. The returns figure you need to look at is Annualized compounded return rather then Absolute return.

2) Split your investment of 10k in around 2 or 3 different Funds from different fund houses. say you can do SIP of 5k and 5k in two different funds or you can do an SIP of 4k, 3k and 3k in three different funds.

3) Few of the top performing funds over the years.
a) SBI contra Fund
b) HDFC Top 200 Fund
c) HDFC Equity Fund
d) UTI MasterShare
e) Reliance Growth Fund
f) Reliance Vision Fund

4) Few top performing Tax saving ELSS Funds.
a) SBI Magnum Tax Gain
b) HDFC Tax saver Fund
c) Reliance Tax saver ELSS

5) Make sure you invest in different kinds of fund maybe 1 or 2 in Large Cap Fund and 1 in Midcap Fund,

6) If you want to take very high risk for long term then you can select a small cap fund in small proportion. Strictly avoid sectoral or thematic funds.

7) Review your portfolio once in six months.

Happy Investing !

Thursday, May 8, 2008

Portfolio Rebalancing

What is portfolio re-balancing and how is it done ?

stage 1:
Lets assume initial ratio of investment is as follows
Equity : 50%
Debt : 50%

stage 2:
Markets rise rapidly and give very high returns and so the equity component grows faster as compare to debt such that now equity is more then 75%.
Equity : 75%
Debt : 25%

Since market has risen so much and there is high probability of it going down then going up. so its better to sell some of your Equity component and move it to debt fund. you can sell 25% of equity and invest this 25% in debt.
This will re-balance your portfolio to the initial ratio of 50 - 50

Stage 3:
Markets crashes dramatically and equity gives you a maybe even -ve returns and the debt gives you better return and your equity-debt ratio gets skewed such that
Equity : 25%
Debt : 75%

Now in this scenario you should rebalanced your portfolio such that you take 25% of your money from debt and invest it in Equity and make the ratio as was the case initially to 50% - 50%.

you can have your own initial fixed ratio maybe not 50-50 but 60-40 or vice-versa depending on your risk appetite. you can even decide the criteria when to rebalanced your portfolio but the idea is as and when markets give phenomenal results you need to book partial profit. and when the markets crash you need to invest when equity get s cheap thereby you getting more units.

Happy Investing !

Wednesday, May 7, 2008

Toll Free Numbers of Fund Houses

HDFC : 1800 233 6767
Reliance : 1800 300 11111
SBI : 1800 22 30 40

Thursday, May 1, 2008

Mutual Fund better then stock market

Call it "Power of huge money" or the "power of scale" or the "power of size" is so immense that the odds of beating them is heavily against us.

If a retail investor has just few lakhs rupees at his disposal. He just cannot afford to have analyst who can go and meet a companies management, there distribution network at the grassroot level, there clients, there auditors. But say a big Fund house can spend even a fraction of there AUM (Asset Under Management) to study the actual working of the company. (e.g Reliance Growth Fund currently has AUM of over 5,000 Crores, for them even spending 1% of this on research will work out to 50 crores). I am not talking about the things like people can bribe the insiders of company for inside reports etc.

Can any individual spend 50 CRORES just on research ? Well most of us maybe not.

So I would rather be a part of this huge giants of the financial world rather then fight against them.

Documents required for investing in Mutual Fund

Documents to be Submitted
1) Completed Application form of the respective AMC
2) Cheque in favour of the scheme you want to invest in
3) Copy of Pan card (self Attested)
4) KYC (Know your customer)document if the invested amount is more then Rs 50,000
5) ECS Auto debit form in case of SIP