Preview: Personal Finance
Mutual Fund update, Insurance update ,Commodity Market Update, Forex Trading.
Facility for holding Mutual Fund Units in dematerialised form.
NSDL has introduced facility to hold existing mutual fund units in demat accounts. You can use your existing demat account for converting your mutual fund units in dematerialised form by submitting conversion request to your Depository Participant. You can now have a single Transaction Statement for shares, debentures and mutual fund units. For further information, please visit our website at the following link:
Procedure for conversion of Mutual Fund Units into dematerialised form through your Depository Participant (DP)
- Obtain Conversion Request Form (CRF) from your DP.
- Fill-up the CRF.
- Submit the CRF alongwith the Statement of Account to your DP.
- After due verification, the DP would sent the CRF and Statement of Account to the Asset Management Company (AMC) / Registrar and Transfer Agent (RTA).
- The AMC / RTA will after due verification confirm the conversion request sent by your DP and credit the mutual fund units in your demat account.
Stay Away From ULIPs
Stay Away From ULIPs
Does it not make sense to invest in a ULIP? After all it gives the benefit of investing along with an insurance cover.
Our views on mixing insurance and investment can be summed in two words: DON'T EVER! The lure of Unit Linked Insurance Plans (ULIPs) is in its convenience - it combines insurance with investment. But what may appear as convenient may not make sound investment sense. A common misconception is that the entire amount you pay is invested by the insurance company. Not so. From the premium paid, the insurer deducts charges towards life insurance (mortality charges), administration expenses and fund management fees. So only the balance amount is invested. Also, ULIPs have very high first year charges towards acquisition (including agents commissions). In order to evaluate the return generated by a ULIP, you need to take into consideration only that portion of the premium that is invested in a fund. This information is not easy to come by. You will not know which stocks the fund manager has invested in, which sectors he is betting on, how concentrated his portfolio is and how it appears at any point in time. Neither are you aware of his stock picking capability and how strong his research team is (if he has one). You must be able to compare the returns with similar products in the market. Also, with a ULIP, you have to block your money for long periods of time. So you sacrifice on transparency and liquidity. For the tax benefit, opt for an ELSS. Here too you get benefit under Section 80C and the investment is locked only for three-years. If you have already invested in a ULIP, you might as well stick it out. Because all the charges, which could be as high as 60 per cent in the first year, begin to taper from the fourth year onwards. So you will have to stick on for at least 10 - 15 years to make sure you get a decent return on your investment. The high costs, difficulty in evaluation, lack of transparency and low liquidity don't make a ULIP a sound avenue to put one's money. Its the agents who benefit most since commissions can go up to 25 per cent. Insurance should never be an investment.(image)
Why “Trading” in MFs is not the best thing to do
Source: MoneycontrolWhy “Trading” in MFs is not the best thing to doThe reason people invest in Mutual Funds is because they don’t have enough time and the inclination to monitor and manage their own funds. They prefer handing their money over to a professional fund manager who would invest on their behalf in equities, debt, gold or any other asset class.However several people, besides just selecting a good mutual fund, also tend to go one step further and try to ‘trade’ with their mutual fund investments and try to time the market.When they feel markets are high, they send in redemption requests thinking markets would come down and when the markets are falling they tend to panic and once again send in redemption requests thinking everything is headed for doom.Or alternatively others keep switching from one mutual fund scheme to another within a matter of weeks. They exit one mutual fund and enter another; thinking they are being smart and can get more returns this way.I know of one person who told me how he traded in mutual funds, and how he constantly kept track of different mutual funds. Every time a new fund offer (NFO) came to the market he exited his existing mutual fund investments to enter the NFONow part of the reason people tend to trade and move in and out of mutual funds so rapidly is because mutual fund distributors and brokers promote this type of thinking. If you don’t move in and out of mutual funds rapidly, your broker won’t make any money. Remember that everybody works in his or her own best interest, and the best way a broker can make more money is by letting you churn your portfolioThe entry load you pay is income for your broker. Of course many of you might have started investing directly in a mutual fund and might not have to pay the entry load, however things like exit loads would still prevail in the short term.You might make more returns than a bank FD even if you churn, but you can make much more if you don’t trade mutual funds. You can save the excess entry load and exit load, which you would have to pay. You can save time and effort.And also the entire logic of investing in a mutual fun is to let the fund manager analyze and take care of your money. If market correct the fund manager has to decide what to do and not you. All you need to do is invest regularly in quality mutual funds. In case you have the time and inclination to do research, why not start investing directly in stocks after doing research?Many investors ask me, “When is it a good time to exit our investments?” The best time to exit your investments is when you need the money or when you feel the investment has no scope to go up further. In case you feel the Indian economy and Indian companies are having fundamental problems in the long run, that is when you should exit your investments.Always remember that no matter what investment you make; in the longer term risks always reduce if you have invested in quality. In order to be truly wealthy you need to have a long-term vision and belief in India’s economic growth.A lot more needs to be done in our country and this might be a challenge to a few, but for investors like me this is a wonderful opportunity. Since I have the time and passion to learn I invest directly in stocks. I started investing with Rs. 750 when I was sixteen years old and by the grace of God the Indian markets have been very kind to me. However for all those of you who don’t have the time or inclination to learn more about investing in stocks directly, mutual funds are a great way to invest and be part of India’s economic growth.Just remember investments are like seeds, and will grow into wonderful trees only if you give them time.[...]
MFs crash but still promise long term gain
Source: Economic Times 12.2.08
The bearish trend in the stock market for the last three weeks has hit the investors hard. Even those who have invested through mutual funds have lost substantial wealth. However, experts and mutual fund managers say that this has created a good opportunity to invest in the market. CEO of a mutual fund run by a foreign bank said in the next one to three years, Indian stock market will give a return of more that 25% compounded annually. He advised that investor should postpone the idea of liquidating their investments in the stock markets to invest some other assets class. He said the returns from the investment in the equity market would be more than other areas. As shown in chart, in the long term, equity is still the best instrument to invest. However, he cautioned that one should not enter the market with the short term view in the current market scenario. The 30-share sensitive index has fallen by over 25% in the last one month from 20,827 on January 11 to 16,631 on Monday. This, a senior fund manager said, has brought down the share prices of many good performing companies to very attractive level. He said that prices of medium and small companies have become even more attractive.
He said the present fall in the market is mainly because of the apprehension of a slowdown in the US economy. But, many foreign fund managers feel that in a scenario of a US slowdown, Indian companies will emerge as an attractive option to invest. A senior foreign fund manager said very few Indian companies are dependent on the export revenue besides the IT companies, which will benefit from slowdown as the outsourcing by US companies will further increase to cut cost.
The performance of India centric companies is likely to improve as economy continue to grow at around
8.5%. Investment in equity of these companies will remain robust. A senior mutual fund official said there is no redemption pressure on mutual funds. Investors are still investing in MFs. According to one source, Reliance MF has raised over Rs 5,000 crore in the primary market. Other funds like HDFC Infrastructure has mobilized around Rs 2000 crore. AIG Fund has raised another Rs 450 crore. These funds are likely to start investing in the current week. Besides, funds are mobilizing substantial fund through systematic investment plan (SIP). FIIs have also started coming back in the market. In February so far, there net investment has increased by Rs 330 crore as against a net sale of Rs 3,200 crore in January.(image)
Gold ETFs: Will they take off in India?
Gold ETFs: Will they take off in India?
Gold Exchange Traded Funds (ETFs) are now emerging as a lucrative option of investment in gold. Not only do they assure the quality of gold bought but also good returns. But will the concept will be accepted in India.
How it Works The Gold ETF is a new concept, an instrument that enables you to buy and sell gold in demat form. The gold is held by a mutual fund house which offers investors gold in units for as little as Rs 100. The fund houses invest the money collected from investors in standard gold bullion and issue 'gold receipts'.
Currently, there are two mutual funds which offer Gold ETFs in India. The Indian Players Benchmark Mutual Fund launched India's first gold Exchange-Traded Fund (ETF) on February 15 and listed as Gold BeES on NSE early this week. Benchmark was soon followed by UTI Mutual Fund's gold scheme on March 1, which will list on the NSE in April.
Eight others including the Kotak Mutual Fund, Tata Mutual Fund and Prudential ICICI Mutual Fund have also firmed up plans to follow suit. And experts believe that for retail investors the move from physical gold to paper gold makes a lot of sense.
Says Deepak Rattan, ABN AMRO Private Banking, "Gold ETFs are said to bring a lot of cost effectiveness into the system. It is extremely tax efficient from the investor's perspective because Gold ETFs have various tax advantages which typically accrue to mutual funds.
" The Indian Market However, what could prove to be a dampener in the success of this new concept in India is the need to hold demat accounts to buy Gold ETFs. Especially considering the fact that a large part of the population residing in small towns and rural areas do not hold demat accounts and the fact that even though India accounts for 35-per cent of global investment in gold, investors put their money in gold, not only to see value of their investment grow, but also to use the metal for making jewelry later.
Rajan Mehta, Benchmark Asset Management, thinks that the time is right, however. "I think the mindset will change over a period of time. It was the mindset when share certificates were there, when demat was introduced. Over time people have seen the convenience and have forgotten about physical certificates. The same will happen with Gold ETFs.
" Gold ETFs have been a great success in countries like the US, the UK and Switzerland and it is estimated that the size of the Gold ETF market in India would grow to Rs 5,000-7,000 crore in two years. But in a country like India, where gold is acquired in the form of jewellery and is passed on from generation to generation, the success of Gold ETFs will depend on how far the yellow metal succeeds in warehouses rather than ending up in jewelry boxes.
choose the best mutual fund for yourself..
choose the best mutual fund for yourself..
Source: Economic times
Lets start by trying to understand the concept of risk.
In general it is said that the riskier a fund, the more its potential for earning high returns, at least most of the time.
A riskier fund will give you higher returns in a rising stock market — but would destroy your wealth in a falling one.
So one must always look for funds that deliver the best risk adjusted returns.
These are the schemes with minimum risk, and consequently lesser long term returns as compared to equity funds. Liquid funds invest in very short term debt papers, with typically a portfolio maturity average of around three months. In other words, these are mainly used as an alternative to short-term fixed deposits.
Floating rate fund
Floating rate funds form the next level of risk. These funds invest in floating rate securities whose coupon rates are linked to a benchmark rates are aligned to any movements in the market rates. Put simply it means that the cash flow which they generate, fluctuates along with the change in interest rates. These are most suitable for rising interest rate times, like the present.
Debt or income funds
These are funds that invest predominantly in income bearing instruments like bonds, debentures, government securities, commercial paper etc. Though these schemes seek to provide a regular and steady income to the investors, the returns from these funds suffers in times of rising interest rates like now. There are short and long term income funds available, based on the maturity duration of portfolio.
These stand between debt and equity as such funds invest both in equity shares and a fixed income-bearing instruments. The objective is to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These funds are most suitable when the direction of the stock market looks a little uncertain.
It is no secret that equity funds (rather equity in general) carries the highest level of risk, but in turn offers the highest returns to an investor. These schemes are easy to understand in that they invest predominantly in equity stocks. Stock markets are known to be volatile, but in a rising stock market like the present one, these investments yield more returns than any other investment.
Specialty funds like sectoral funds or ELSS
If one is very bullish on one particular sector and want to invest only in companies of that sector, sectoral funds suit him the best. There are various sectoral funds available in India like those that invest in banking, technology and pharma companies.
And lastly equity linked saving schemes or ELSS.
A long name for a simple tax saving instrument. These are growth schemes with a mandatory 3-year lock-in period on investments. Savvy investors usually use the product towards the end of the financial year to save taxes. Investing for retail investors should be a long-term process. So research your investments, remember your goals, re-examine your risk and invest — so that your money can work as hard as you.
to know how to invest in any of funds write to firstname.lastname@example.org
Source: Express money
My investment in Templeton India Pension Plan has doubled to around Rs 12 lakh. Now that I have crossed 60 years, I can make withdrawals from it. How will these withdrawals be taxed?
Your withdrawals will be taxed as capital gains — (selling NAV minus buying NAV) multiplied by the number of units sold. The good news is that you don’t have to pay any capital gains tax on your investment if the following two conditions are met:
Your scheme is an equity-oriented fund (that is, its equity holding should be 65 per cent or more) and it is open-ended in nature.
Your investment in it has been for more than one year.
If both these conditions are met, your capital gains will be tax-free. Also note that since investments in Templeton India Pension Plan qualifies for deduction under Section 80C
(earlier under Section 88) of the Income Tax Act, there could be a lock-in
period of three years, during which time withdrawal is not allowed.
I want to invest in equity funds, but I don’t know where and how to start. Help me choose the best funds with quick returns.
Hari Monga, Panchkula
If you are looking for “quick returns”, then mutual funds are not the investment to make. I don’t know what’s the investment to make, but let me stick to what I know, which is mutual funds. I guess the main reason you are asking for “quick returns” is the experience of the past three years or so, when the stock market and most equity funds have done phenomenally well. But to expect similar returns in the
immediate future, one would have to be brave — or foolhardy.
Having said that, in the long run, equities give the best returns of all asset classes. Going by empirical evidence, the Bombay Stock Exchange (BSE) Sensex, the popular index, has returned a compounded annualised 13-15 per cent over 10-15 year
periods. Over such long periods, there are years when the market won’t perform (for example, 1995-98) and years when it will do very well (last three years). That’s why to earn top returns from equities, invest keeping the long term in mind.
The rationale for equities established, let’s put in place some ground rules for you as a first-time investor:
* Not all your savings should go into equities. Consult your financial planner on how much should. Alternatively, a crude equity allocation formula is 100 less your age (if you are the conservative types, 80 less your age). Till the age of 35 years, I would suggest the 100 less your age formula.
* Start a systematic
investment plan (SIP) in good diversified equity funds with a proven track record — the longer,
* About 60 per cent of your investment should be in funds with a large-cap bias, 30-35 per cent with a mid-cap objective, the balance in theme funds.
* Spread your risk. Don’t put all your money in just one scheme. Instead, for each objective of yours,
divide your investment across three schemes, across three fund houses. That way, even if one scheme stumbles because of bad money management, the others give you a chance to make up.
* In order to choose schemes, take the help of a good investment advisor, again with a good track record. If you want to do it yourself, go through performance rankings of independent fund-tracking agencies like Crisil or Value Research, and pick funds that have consistently done well.
* Track your schemes periodically to make sure they stay performers. Earning returns and preserving your capital is as tough, if not tougher, than earning it.(image)
Save on taxes and get rewards too
Save on taxes and get rewards too
Source: Economic Times
Tax-saving mutual fund schemes appear to be in a hurry to “reward” unitholders with as many as six of them declaring dividends in January 2007. In general, fund houses are known to pay out dividends in the last quarter of the financial year. Equity-linked savings schemes (ELSS) usually see increased inflows in the last few months of a financial year as investors flock to avail of the tax benefit.
Dividends from equity MFs (diversified, balance and tax saver) are fully exempt from income tax under Section 10 (33). But according to the 2006 amendment in Income Tax Act Sec 80C, investments in ELSS are allowed as deduction from the total income, up to maximum Rs 1,00, 000 in a financial year.
ELSS from DBS Chola, Birla Sun Life, UTI, Principal, HDFC and Franklin Templeton have paid dividends in the last month. Funds like Franklin India Taxshield have delivered dividends as high as 80%, which means that at current NAV, their payout ratio was 21%. Next on the list of big dividend payers is Birla Tax relief ’96, has declared a dividend of 260%. A quick comparative study undertaken by ET reveals that no tax-saver fund had declared any dividend in January 2006.
However, the following two months i.e February and March 2006, saw 13 tax-saver mutual fund schemes deliver dividends. Though fund managers choose to get cryptic and philosophical on dividends and their impact on the corpus of funds, it is common knowledge that tax-planning schemes declare huge dividends in the months leading up to March. But in general, fund houses start paying dividends as the quarter progresses.
There is no contravention of law. Funds follow Sebi’s diktat of closing dividend record within five days of announcement — in letter. But whether they conform to the regulation in spirit is open to debate. Industry watchers say that mutual fund distributors hard-sell tax-saver schemes, saying that a good part of the money will be returned to investors in the form of dividends.
And this arrangement benefits all parties involved — the taxpayer can get an exemption for the full amount invested though he gets back a considerable sum; distributors get their commissions upfront and the scheme’s corpus gets a boost. Say for instance, a person in the highest tax bracket 30% invests Rs 1,00,000 (the maximum exemption under section 80c of IT Act) in Franklin Taxshield in December 2006. On this investment he stands to save tax up to Rs 30,000. As of date, he would have got back Rs 20, 000 as dividend, approximately.
That makes his effective investment Rs 80,000. Thus, the investor avails an effective tax rebate of 37.5%. Given that two more months are left during which the dividend activity will peak, the effective tax rebate can shoot up considerably.(image)
MF may become long-term saving vehicles
MF may become long-term saving vehicles
Source: Economic Times
MUMBAI: After keeping pace with the Indian capital market step by step in terms of growth and still maintaining a better risk profile for investors, the mutual funds are emerging as a viable long-term savings vehicle in the country, a new study shows.
The mutual fund industry has grown about four-times to a whopping $65 billion in terms of their total asset size since 1993, while the industry's contribution to the country's GDP has also grown considerably in the past decade to nearly 10 per cent, a Deutsche Bank Research report said.
Interestingly, the stock market's benchmark index Sensex has also nearly quadrupled since 1993 and due to the loosened restrictions on investment in-debt instruments and money markets the mutual funds have been able to match the strong growth.
"Combined with rising per-capita income, improving awareness of capital market investing and pension fund reforms would make mutual fund investing a viable long-term investment vehicle," D B Research analyst Jennifer Asuncion-Mund said.
"A number of different schemes are now available in the market which appeals to investors varying investment objectives and constraints," she added.
The different new schemes include, assured return, balanced, floating rate, fund of funds, gilt, growth, income, liquid and money market funds.
Besides, the new offers of open-ended schemes allowed investors the flexibility to adjust their fund exposures, while regulations against fund managers' use of derivatives have been relaxed, allowing them to hedge their positions.
Equity Asset under managements (AUMs) of fund houses are rising steadfastly with robust capital market growth which vouches for the positive outlook for the industry. Mutual Funds have added over 18.5 lakh investors in the third quarter of current fiscal taking the total investor base to 2.67 crore, according to leading brokerage firm Sharekhan's report on the MF industry.
On monthly basis, AUMs of the 30 fund houses increased 2.2 per cent to Rs 1,46,749 crore in January 2007 from Rs 1,43,619 crore in December last year. The rise in the equity AUM was in line with the market movement of 2.2 per cent.
Interestingly, the cash level for all equity funds launched before January 2007 increased to Rs 9,957 crore in the month from Rs 6,710 crore in December 2006. The cash as a percentage of the total corpus also followed a similar trend, increasing to 8.2 per cent in January, 2007.
"The increase in the cash levels has been largely due to profit booking in a rallying market.. flush with cash MFs are well-placed to maintain the buying interest and propel the market forward," the Sharekhan report said. Despite the rapid growth in the industry for the past three years, the DB Research report says that MF industry still cannot be characterised as "come of age," if seen in the light of their low share in the household sectors total investment pie. One promising development announced in the Budget in 2006 was the lifting of overseas investment limits by mutual funds to USD three billion from USD two billion.
This would allow domestic fund managers to offer new opportunities in higher-yielding funds, such as those dedicated to emerging markets and alternative investments (e.g. commodities), currently not available in the local market, the report said(image)
FUND VIEW - SocGen can't rule out India market correction
FUND VIEW - SocGen can't rule out India market correction
Source: Reuters, India
Mon Feb 19, 2007 10:46 AM IST
Societe Generale Asset Management won't be surprised to see a correction in India's stock markets given high price-earning multiples, but continues to sell the country to investors for medium and long-term returns, its chief said.
Alain Clot, group chairman and chief executive officer of the French fund house, told Reuters any such correction would be short-lived and would offer international investors a sound opportunity to buy into Indian stocks.
"We are bullish. We are long (on) India... if you think three months, it is a different story but if you think medium term, it is a nice satisfactory sound investment theme," he said on Thursday.
India's stock markets have seen a three-year bull run as the economy has grown at over 8 percent annually, driven by high domestic consumption and exports.
The benchmark stock index rose 42 percent in 2005, 47 percent in 2006 and 4 percent so far in 2007, leaving investors cautious over the potential for sustained returns.
Clot said the sharp rise in price earning ratios in India were being driven by strong corporate profits, but also by speculation in some stocks. "One cannot exclude a correction takes place in India in '07," he said.
However, the strong earnings growth would continue, as it was being fueled by an expanding middle-class as well as robust exports, while many other countries had just one of those two engines of growth, he said.
"Corporate profits will remain quite high in '07-'08 and will be the main engine and incidentally, the one we prefer because it is a much sounder one than the pure multiple effect," he said.
Societe Generale has a mutual fund joint venture with India's largest bank, State Bank of India. SBI Funds Management Pvt. Ltd. manages assets worth 180 billion rupees ($4.08 billion) serving 3.5 million investors.
Societe Generale also has an offshore fund worth $350 million focussed on India and Clot said it was set to grow to over $2 billion in five years.
"India is one of the main theme of diversification for international investors," he said.
He also saw investment opportunities in infrastructure and all sectors catering to the middle-class.
Societe Generale manages $450 billion worth of investors' money in 32 countries including $44 billion in Asia.(image)
Faithful to the India story (Reliance Growth Fund)
Source: Hindustan Times..While almost all equity funds have rewarded their investors handsomely in the past three to four years, there is a clutch of funds that clearly stand out. Reliance Growth Fund is one among those whose stellar performance in no small way built the reputation of Reliance Mutual Fund, which now has become the largest fund house in terms of assets managed.The scheme was launched way back in October 1995 as an open-ended equity growth scheme with the stated investment objective of achieving long term growth of capital by investment in equity and equity related securities through a research based investment approach. It is positioned as a diversified equity scheme that can invest in small, mid as well as the large cap stocks without any group bias and takes a long term view without being excessively bothered about the short term volatility of the markets. This allows the small investors to bet on the long term growth story of India without being affected by the market swings.Having said that, the fund has put money predominantly in mid cap stocks with excellent growth credentials. It has grown to become one of the largest equity funds in the country with assets under management of Rs 3214 crore as at January 2007, a significant jump from the Rs 1963 crore of assets managed in July, 2006. Fund Manager, Sunil Singhania who has been at the helm from 2004 is a Chartered Accountant and a Chartered Financial Analyst (USA).On the return front, Reliance Growth has been a top performer posting an annualised return of 33.94 per cent returns since inception compared with 13.92 per cent of its benchmark, the BSE 100. Over the past three year and five-year periods, returns have been exceptional at 52.37 per cent and 63.54 per cent in comparison with the 32.23 per cent and 32.66 per cent return of the benchmark index over the same time frame. In the recent six month to one year horizon too, a period in the stock market which saw superior gains from large caps, Reliance Growth has returned 30.52 per cent and 33.95 per cent gains as against the category median of 22.82 per cent and 25.80 per cent. The manager has been able to contain volatility as well with the indicator beta at 0.91, in line with the median of the peer group of diversified equity funds.Compared to its many of its peers, Reliance Growth’s portfolio is more diversified with the top three sectors and the top ten stocks contributing at a significantly lower level (about 30 per cent) to the total portfolio value.A relatively high percent of the portfolio (about 12 per cent as at January 2006) is in debt/ cash as well. When asked about this, Madhusudan Kela, Head Equities at Reliance Mutual Fund said that cash levels are maintained as part of an overall investment strategy and the fund manager is not factoring in a drastic fall in market levels.True to its philosophy, the fund has invested across a range of sectors and has been fairly consistent in keeping many of the top stocks in the portfolio unchanged over the past one year.The top three sectors the fund has invested in are metals, industrial goods and software. In January, the fund increased its exposure to metals, petroleum and auto sector while paring exposure to capital goods, pharma and software sectors.The fund has also invested in new issues and has added the newly listed Cambridge Solutions to its portfolio the previous month. The price earnings multiple of the portfolio at about 13 is rather low as well compared to many of its peers, which points to a value based investing philosophy. When queried by myiris.com on the approach to portfolio building, Kela said that the fund is essentially a mid-cap oriented and a strict comparison with large cap funds (of which there are many in the equity diversified group) might not be v[...]
The best way to invest (Gold ETF Funds)
Source: Express moneyJunk the jeweller, bung the bank. If you buy gold for investment purposes, you don’t need to look beyond gold funds now ..When the new fund offer of Gold Benchmark Exchange Traded Scheme opens for subscription on Thursday, it will mark a milestone in Indian investing. Not only will it mark the debut of a hassle-free way of investing in gold, it will make India only the seventh country in the world to offer gold funds to its investing public. If you buy gold for investment purposes, not for consumption, take note: gold funds are the least problematic and most cost-efficient way of investing in the yellow metal.Gold BeESIt’s fitting that the first gold fund to hit the market should be from Benchmark Asset Management Company, which filed an offer document for a gold exchange-traded fund (ETF) with Sebi as far back as May 2002 the first to do so not just in India, but also in the world. UTI Mutual Fund and Kotak Mahindra Mutual Fund have also got the green signal from Sebi to launch their gold funds. These are expected to be launched any day now and will probably be on the same lines as Benchmark’s Gold ETF.Gold BeES is an open-ended ETF that gives you an exposure to gold, without you holding gold in the physical form. Here’s how it will work. In its NFO, two kinds of units will be allotted. The money pooled in by investors like you will be used to buy gold from companies and high net worth individuals, who will, in turn, be allotted ‘creation units’. The gold will be stored by a custodian on Benchmark’s behalf.The transaction cost in a gold fund is 1-1.5%. A jeweller charges a mark-up of 5-7%, banks 10-20%The creation units give these large investors the right to buy gold from Benchmark whenever they want. The gold serves as the underlying security backing your units. So, when the price of gold rises or falls, the value of Benchmark’s gold holding moves in tandem, as does the NAV (net asset value) of your units. Once the allotment happens, the fund is listed. The units allotted to you (not the creation units) are traded on a stock exchange like any other security.The trading price is closely linked to the fund’s NAV, which is closely linked to the price of gold. Each unit of Gold BeES will represent one gram of gold. Say, the per gram price of gold on the date of allotment is Rs 950 and you invest Rs 10,000, the minimum. Benchmark is charging an entry load of 1.5 per cent (Rs 150 on Rs 10,000). That means the net amount invested is Rs 9,850. Given the price of Rs 950 per gram, you will be allotted 10.37 units (9,850/950). These units are like a company’s shares, and will trade on stock exchanges. So, when you want to sell your units, in part or in full, you sell it on the exchange at the given market price. Similarly, when you want to buy more units, you buy more from the stock exchange. Since the market price will be linked to the spot price of gold at all times, you have a near-mirror exposure to the asset. Says Rajan Mehta, executive director, Benchmark Asset Management Company: “Since we don’t have an official spot rate in India, we have benchmarked it against LBMA bullion rates, to which we add import duties and VAT, and convert it to Rupees.”There can be times when this linkage weakens a surge in demand for units lead to a spike in the market price of the Gold BeES or a sell-off leads to a crash. Benchmark has budgeted for such times also. It has tied up with some authorised participants who, in such times, will arbitrage between spot price of gold and the market price of the Gold BeES, and link prices again to NAV. As a result, the deviation in the market price from the NAV is expected to be minimal.The advantagesGold ETFs are, by far, a cheaper and hassle-free way of investi[...]
India is in for long period of high and stable growth’
India is in for long period of high and stable growth’
Source: Economic Times..
Jpmorgan Asset Management recently forayed into mutual fund business in India. The company already has an exposure of around $6 billion to Indian equities through India-dedicated offshore funds. . Excerpt: What’s your view on the Indian equity market? JPMorgan group is optimistic about the Indian equity markets. With good growth prospects for the Indian economy, Indian companies are expected to grow topline and bottomline at good rates. Already, the Indian companies are witnessing a dramatic improvement in their return on equity and return on capital employed. Balance sheets are looking robust. Fundamentally, the India story looks good. India is in for a long period of high and stable growth. Aren’t market valuations on the higher side? Often P/E multiples for the entire market is looked at in order to get a regional perspective on valuations. This could be misleading. Rather it is the earnings — quality of earnings and the sustainability of the earnings growth — that is important. And for India, the story looks good ahead. For March 2008, consensus estimates put Indian corporate earnings to grow at 15% — an upgrade from the 12-13% levels expected three months back. In the past 12-18 months, there has been constant upgrade of earnings estimate. At the current juncture, the top two themes are ‘domestic consumption’ and ‘infrastructure’. Companies that fall under this category are expected to do well. Our top holdings in JF India Fund are Infosys (6.8%), Bharat Heavy Electricals (6.7%), ACC(6.1%), Bharti Airtel (5.7%) and Larsen & Toubro (5.2%). Our portfolio valuations, based on various metrics like P/E, P/B, are also at index averages. Why are you entering into the MF business in India? Increasing exposure to markets such as India is as essential to our business development as it is to our client’s portfolio performance. We are already among the top three investors in India, managing around $6 billion of India-dedicated offshore funds. We are already the fourth largest MF in China ($110 billion market). If we have to remain a leader in Asia, we have to be a leader in India. Our exposure to emerging markets began with the launch of Asia fund in 1971, followed by launch of global emerging market fund in 1990. What’s your current portfolio strategy for India investments? We typically use the proprietary model for doing the valuation exercise. India, at current valuations, is giving a larger landscape for stocks to be picked at attractive levels using the bottom-up approach. We maintain a concentrated portfolio — with portfolio turnover remaining below 30% pa. Our top 10 stocks for India-dedicated fund constituted 50% of overall portfolio.(image)
SIP it slow, if you want it to grow
SIP it slow, if you want it to grow
SIPs allow one to buy at every level in the market; one buys more in a falling market and less when the markets are rising
MUMBAI: Systematic investments plans (SIPs) of mutual funds are slowly becoming popular. And with good reason. Going by the advertisements brought out by mutual funds detailing their many virtues, they may well be the best thing to have happened to mankind since the invention of the wheel. Jokes apart, investing through SIP does work.
Reliance Growth has been the top performing scheme in the last ten years. If an investor had invested Rs 2000 every month, from October 1996 till now, over a ten year period, his total investment of Rs 2.40 lakh (Rs 2000 per month, amounts to Rs 24,000 per year, and Rs 2.4 lakh over ten years) would have grown to more than Rs 22.1 lakh by now. This with the assumption that he had invested in the growth option of the scheme.
But back then, the investor had to know that Reliance Growth as a scheme would be the best performing scheme, in the next ten years. This he obviously would not know given that the scheme was launched only in December 1995 and had very little track record. Also those were the days when US-64 used to rule the roost and every middle class Indian had it as an essential part of his or her investments.
Let's say an investor wants to start investing through an SIP now, he does not face the same problems, like his contemporary did ten years back. Right now, like other things in life, there is no dearth of mutual funds to choose from. On the last count there were more than 160 funds to choose from in the diversified equity category. Also some of the mutual funds have been in the market for a period of five to ten years now. Hence there is enough data to separate the men from the boys.
The first thing to take a look at when deciding to invest through the SIP route is to take a look at the long term performance of the scheme, preferably over a 5 to 10 year period.
If a fund has performed well over this period what it tells us is that the fund has been through various stages of the market and has survived them. Hence the chances of such a fund performing well over the coming years are better vis a vis fund which was launched only in the last few years of the bull run.
As of now most fund houses charge the same entry load on bulk investments as well as SIP investments. This typically tends to be 2.25% of the amount invested. But there are fund houses which charge an entry load of 1% or even 0% on investments through SIP.
This is used as a selling point by mutual fund distributors. But an investor should not invest in a fund through the SIP route just because it charges a lower entry load. The long term returns of the fund should be the primary criteria on whether to invest in a particular fund.
It is very important to continue with the SIP when the markets are falling. When the markets are falling, its a good time to buy. But when prices are falling, its psychologically difficult to buy. On the other hand, when the markets peak, a lot of investors enter the market.
An SIP ensures that you buy more when the markets are falling and less when its peaking. But if an investor backs out when the markets are falling he won't be buying when the markets are falling and this will not him to average his price, the primary reason behind the success of investing through the SIP route.
To know how to get started with sip write to email@example.com
How to handle DEBT carefully
How to handle DEBT carefully MoneycontrolThe last few years have seen a substantial rise in the personal debt of individual families in India. This is in the form of credit card outstanding balances (many people don't even realise this is a debt), personal loans, vehicle loans, home loans etc.The reason for this is, of course, quite obvious:Booming economy with rapid increase in income levelsDouble income familiesLow interest ratesEasy availability of finance & convenienceHard-selling by the lendersUnbridled consumerismBut debt is, in effect, spending tomorrow's income today. Therefore, as long as the going is good, there's no issue. But suppose(a) There is a setback to one's income (job losses are not uncommon) or(b) There is some emergency (medical problems, natural/manmade disasters etc. are also not uncommon) or (c) If the interest rates become too high (could happen if the inflation does not come under control soon). God forbid if things turn bad, then debt could become a really serious problem. Therefore, we must be extremely careful and smart in the way we manage our debt.Before you take-up a debt, you must keep three things in mind:What is it financing?Paying for the parties or dinners through credit card is very common. As long as this is within your paying capacity and you will clear the bills on the due date, then it's OK. But if you are going to roll-over your balances, then you are using your credit card debt to finance consumption. Or if you are going on a vacation abroad under an EMI (equated monthly instalment) scheme, again you are financing consumption. This is definitely the worst form of debt and must be prevented.If instead, you are buying a house or a car through a loan, that's fine. You are, at least, buying an asset.So ideally speaking, debt, which builds assets for you, is OK.Is it within prudential norms?Second important point is to keep your debt within manageable levels, even though the lenders may be willing to lend you large amounts.This can be checked by calculating your 'debt service cover ratio', which is nothing but Debt service cover ratio = Monthly payment of all loans / Monthly take home-payBroadly speaking, if you have no significant liabilities, then this ratio should not exceed 40-45%. And, as you near retirement or add any liabilities, this ratio should be suitably reduced.Also, the ideal ratio will depend on the type of loan. For example, for home loans 40-45 per cent?ratio is fine. But for personal loans, the ratio should preferably not exceed 15-20 per cent?and for credit cards it should be less than 5-7 per cent.Are the terms competitive?Shop around for the best deals in terms of interest rates, convenient repayment schedule, and minimum prepayment charges etc. The financial jargon can sometimes be confusing. So if it sounds too good to be true, it should raise warning signals in your mind. Remember, it is better to be safe than be sorry.But if you have already breached the above guidelines, you can still try to bring the things under control.Consolidate your debtsIf you have too many loans like multiple credit cards, personal loans, home loans, vehicle loans etc. it will be difficult to keep track of all these and make timely payments on the respective due dates. You could therefore, for example, transfer the balances on your various credit cards to one card. Or you could take a personal loan and pay-off all your credit card outstanding balances. This will consolidate all your small loans into a single debt, making it easy to manage.Pay-off 'bad' loans firstThe credit card debts and personal loans are the so-called 'bad' loans. One, they primarily finance consumption and two the interest rates on[...]
ELSS: Standing the test of time
Source: Business standard
Although equity-linked savings schemes of mutual funds may not have fared as well as ULIPs over the past year, fund managers advise investors to look at these funds more seriously.
They also feel investors should opt for a longer time horizon, as a one-year period is too short for an ELSS.
"Now, ELSS has a long background with a proven track record. An investor can chose from hundreds of schemes, which is not the case with ULIPs. Over the past year, a large number of ULIPs have been launched, and their returns are yet to stand the test of time," says Sanjay Sinha, equity head, SBI Mutual Fund, which runs a successful ELSS - Taxgain.
Over the long term, ELSS returns are indeed noteworthy. According to Value Research data, ELSS funds have, on an average, earned a compounded return of 41 per cent a year over the past five years. In the same period, the Sensex has seen a yearly gain of 33 per cent.
Mutual funds, typically, cost less than ULIPs in terms of management fees. Sinha says, "The charges deducted by ULIPS are higher in most of the cases, even though they could differ depending on the scheme."
Financial planners advise investors to keep investments and insurance separate. And small investors like Ganesh Barbhai, a 45-year-old private sector bank professional, are implementing that.
He sees no point in mixing the two. Barbhai, who is an avid follower of the stock markets, has a portfolio consisting of 15-20 stocks ranging from Reliance Industries to recently launched mid-cap infrastructure scrips.
ULIP is not an easy product to understand and, if investors are not savvy enough, some of the benefits such as switching from equity to debt may not be utilised.
"My company takes care of both my life and medical insurance. So I do not find any reason to invest in insurance policies, though they are fetching good returns," says Barbhai.
"Besides, while investing into ULIPs, sometimes the investor has to choose between exposure of his premium towards life cover and investments, or among the four-five plans offered by the insurer. I see many hassles here. In ELSS, there is no such hassle, once you pay the basic amount, the AMC deducts its load, and your investment is through," adds he. The entire investment is put in the vehicle (after load) in the case of ELSS unlike ULIPs.
"In ELSS, the entire collection or corpus is put into some or other instrument, while that doesn't happen for ULIP, as part of it is reserved for life cover," says Sinha.
However, there are many who believe the two products are different and cannot be compared.
"I don't think there is any reason to compare ULIP with ELSS. I view the two as totally different investment routes. The basic objective of a ULIP is insuring for life. If compared with the returns given by ULIPs, I think ELSS have performed better, even though it is not prudent to compare sheer returns of the two instruments, irrespective of their nature and objective," says R Rajagopal, equities head, DBS Cholamandalam.
Sinha of SBI Mutual Fund advocates for ELSS - rather than ULIPs. He says mutual fund schemes give more returns and cost less.
Financial planners advise investors to first get the basics right - use the tax exemption limit and invest in ELSS, and take a term insurance policy to cover life.Any surplus investment beyond this amount can be invested in mutual funds or ULIPs, based on the risk appetite.(image)
How safe are your Fixed Deposits...
Source: Times of india Have you recently noticed a large number of advertisements from banks, announcing hikes in their fixed deposit interest rates? You couldn’t have missed them. They are everywhere – hoardings in railway stations, advertisements on TV, jingles on the radio, etc. Are you impressed with the rate hike? If you are, you have a misconception. The hikes in bank fixed deposit interest rates are merely an illusion. The truth is — the ‘real’ return on your bank fixed deposit is miniscule-tonegative.UNDERSTANDING ‘REAL’ RETURN When you place your money in a bank deposit, you believe that the interest rate offered by the bank is your income. Wrong.There are two outflows from this interest income.The first one is obvious, and the other, not so obvious. The obvious one is taxation. Interest income earned on your bank deposit is fully taxable. The ‘not-so-obvious’ one is inflation. Inflation eats into all your income – whether it is earned income (salary, business income, etc.) or unearned income (income from your investments). However, in case of a fixed income investment such as a bank deposit, a rise in inflation has an immediate effect. IMPACT OF TAXATION ON YOUR INCOME Presently, banks are offering interest of about 8-8.50 per cent on one-year fixed deposits. Let’s assume that you are earning 8.50 per cent on your one-year fixed deposit. This income is fully taxable. This means that if you fall in the highest tax bracket, i.e. 30 per cent, 2.55 per cent of your interest income will have to paid as tax (30 per cent of 8.50 per cent). You are now left with 5.95 per cent interest income.IMPACT OF INFLATION ON YOUR INCOMERecently, inflation touched a 2-year high of 6.12 per cent. The main culprit has been a rise in the prices of food items. The supply of essential commodities has been lower than the demand, resulting in rise in inflation. While the rate of inflation did come down marginally to 5.95 per cent for the week ended 13 January, the expectation is that it will be difficult to contain inflation in the near future. Inflation directly reduces the ‘real’ return on income through a simple subtraction. This means that assuming an inflation rate of 6 per cent, your bank deposit interest rate of 8.50 per cent, will become 2.50 per cent after reducing inflation. THE NET EFFECT A combination of taxation and inflation has a profoundly negative effect on your bank deposit interest rate. Let’s understand this dual effect taking our example forward. On your interest rate of 8.50 per cent, after taxation and inflation, your ‘real’ interest is -0.05 per cent! By placing your money in a bank deposit, you are actually eroding your capital! However, don’t despair. There are better investment alternatives, which are equally safe AND help you retain the real value of your capital.ALTERNATIVES TO BANK DEPOSITSMutual funds offer a number of debt schemes, which are good alternatives to bank deposits. These schemes help cope with inflation by either investing a portion of the corpus in equity (where potential returns are higher than debt securities thereby helping earn returns that are higher than the inflation rate) and/or investing in debt securities with floating interest rate (where the interest rate is reset depending on the market rates). In addition, dividend distributed by these schemes is tax-free in your hands. Some of these schemes are enumerated below: Floating Rate Funds (FRFs) FRFs invest in floating rate debt securities such as bonds, floating rate notes, debentures, etc., where the interest paid on the security is reset periodically, depending o[...]
GETTING YOUR MIN AND PUTTING IT TO USE
GETTING YOUR MIN AND PUTTING IT TO USE Source: timesurmoneyALTHOUGH QUOTING A MUTUAL FUND IDENTIFICATION NUMBER (MIN) HAS BECOME MANDATORY FOR MUTUAL FUND PURCHASES OF RS 50,000 OR MORE, FROM JANUARY 1, 2007, BARELY 2,000 INVESTORS HAD THEIR MINS IN PLACE AT THE BEGINNING OF THE NEW YEAR. THIS IS A RATHER INSIGNIFICANT NUMBER, CONSIDERING THAT THERE ARE AROUND 2.5 CRORE FOLIO NUMBERS IN EXISTENCE.THIS MAY BE PARTLY DUE TO THE FACT THAT THE MIN GUIDELINES CAME OUT AS LATE AS DECEMBER 27, 2006, AND INVESTORS HAVE NOT HAD THE TIME TO GO OUT AND GET THEMSELVES MINs.IT MAY ALSO BE DUE TO THE FACT THAT SOME INVESTORS DO NOT REALISE HOW SIMPLE IT IS TO OBTAIN THIS NUMBER AND HOW ALL PERVADING IT WILL BECOME IN FUTURE. HERE’S AN FAQ ON MIN AND ITS IMPORTANCE.WHAT IS A MIN? FOR WHAT DO I NEED IT? A Mutual Fund Identification Number (MIN) is a unique number that is allotted to mutual fund investors. If you plan to make a fresh investment of Rs 50,000 or more in any mutual fund scheme, you must quote your MIN on the application form. DO ALL MUTUAL FUND INVESTORS REQUIRE A MIN?At present, those who make fresh investments in any scheme from any fund house require a MIN. If you are investing via a Systematic Investment Plan (SIP), you will need to obtain a MIN even if the SIP was registered prior to January 1, 2007. However, any switches made from existing investments or dividends re-invested do not require quoting of a MIN. Another class of mutual fund investors, who are exempt from furnishing their MIN, are existing investors, irrespective of their current holdings, as long as they do not purchase units worth Rs 50,000 or more.DO I HAVE TO GET A NEW MIN EACH TIME I INVEST IN UNITS OF MUTUAL FUNDS?No. Once you acquire a MIN, it can be quoted on all future mutual fund unit purchases that you make, irrespective of which mutual fund house you invest with and which scheme you choose. What’s more, you do not have to mention your MIN, each time you purchase fresh units. Once it is linked to your folio number, the fund house in question will use it in all future account statements. In case you possess multiple folios/accounts with a single mutual fund, you can request them to update the MIN in all your folios/accounts.SUPPOSE I HOLD A JOINT FOLIO WITH ANOTHER INVESTOR. DO WE RECEIVE A JOINT MIN?No. In the case of joint holdings, each of the holders should have a MIN of their own, which must be quoted across all their holdings, single or joint.IF SOMEONE IS MANAGING MY PORTFOLIO FOR ME AND INVESTING ON MY BEHALF BY USING MY POWER OF ATTORNEY (POA), WHOSE MIN MUST BE QUOTED? In such cases, the person who holds your PoA is required to obtain a separate MIN and quote it along with your own MIN while investing on your behalf.CAN MINORS APPLY FOR A MIN?Minors will not be allotted MINs. So, while investing on behalf of a minor, the guardian of the minor must quote his or her MIN in the mutual fund form. However, once no longer a minor, the investor must obtain a MIN of his or her own.WHAT ARE THE CHARGES THAT MUST BE PAID TO OBTAIN A MIN? This number can be obtained free of cost, simply by submitting the appropriate form along with certain basic personal documents.WHERE CAN I GET THE FORM? WHAT DOCUMENTS ARE REQUIRED?The form can be downloaded from AMFI’s website (www.amfiindia.com) or from the websites of mutual fund houses with whom you plan to invest. Alternatively, mutual fund distributors will guide you about where a physical form can be obtained. You have to submit proof of identity and address, your photograph and a copy of your PAN card along with the form to designated Points [...]
Reliance long-term fund garners Rs 2,100 crore
Source: Financial Express
Reliance Mutual Fund's new fund offer (NFO), Reliance Long Term Equity Fund (RLTEF), which had opened for subscription last month, and closed on December 11, has mobilised over Rs 2,100 crore, from over 300 cities of India. The fund received over 5.08 lakh applications.
RLTEF is a 36-month, close-ended diversified equity fund with an automatic conversion into an open ended scheme at the end of the 36 months from the allotment date. RLTEF will invest in select small and mid-cap stocks, which have the potential to grow and deliver attractive returns.
In a release, Vikrant Gugnani, president, Reliance MF, said, "Given the robust growth displayed by the Indian economy, the small and mid-cap companies have the potential to transform into large caps in the coming years." RLTEF will offer attractive growth potential to investors who have a long-term horizon. This offering is bound to strengthen our leadership status in the equity space, Gugnani added.
Meanwhile, according to a report, Reliance MF's cash holding in the month of November is pegged at 9.94% of its total AUM, which is higher than that of the previous month when it was 8.85%. On the other hand, according to the Association of Mutual Funds in India (Amfi), the AUM of the overall industry went up by 71.33% or Rs 1,42,130 crore to Rs 3,41,378 crore between January to November this year. The total AUM of the Indian private sector owned MFs has gone up by 76% or Rs 33,508 crore to Rs 77,106 crore between the same period.
However, the predominantly Indian bank-sponsored joint ventures, registered the lowest growth. The AUM in this segment went up by 48% or 5,164 crore to Rs 15,961 crore. However, the joints ventures of Indian banks with other types of entities have grown by 59.97% or Rs 16,524 crore to Rs 44,078 crore.
In November, the cash holdings of AMCs rose to 6.53% from 6.41%, a rise of Rs 2.71 billion. AMCs with cash in excess of 10% of AUMs are Sundaram BNP at 14.25%, StandChart at 11.81%, DBS Chola at 11.55%, Can MF at 11.46%, and Reliance MF at 10%.
DSP-ML Tax Saver Fund – Should you buy?
DSPML has come out with DSP-ML Tax Saver Fund, the first open-ended Equity Linked Saving Scheme (ELSS) from the fund house. (Note that every mutual fund can have one open-ended tax saving scheme (ELSS) and other ELSS NFOs have to be mandatorily close ended.)
DSP-ML Tax Saver Fund offers deduction under Sec. 80C and the minimum lock-in period would be three years as in any other ELSS. Investment expert Sandeep Shanbhag believes that this enforced lock-in offers the opportunity to the fund manager to take long-term calls without having to worry about creating liquidity for daily redemptions. “To that extent, the performance of ELSS funds in general have been better than their open ended counterparts”, he added.
Advisor Hemant Rustagi feels, “ELSS is one of the best options among the instruments eligible for tax benefits under section 80C as they provide an opportunity to participate in the equity market and also help save taxes while doing so.”
However, on the flipside Rustagi says, “Though ELSS have the potential to give better return compared to other options under Section 80C, there is definitely some risk attached to it.” “This can, however, be tackled by investing thru SIP”, he added.
Experts also feel that DSP-ML Tax Saver does not have any unique feature that other ELSS funds do not possess, and as an investment strategy, investors would be better off investing with ELSS funds with a proven track record instead of taking part in New Fund Offers (NFOs) that have no special selling proposition.
In reply, the fund house states, “When investing in NFO’s it is also important for investors to look at the track record of the fund house in managing asset classes. DSPML Fund Managers has a consistent track record when it comes to equity fund management. DSP Merrill Lynch Fund Managers Ltd was declared the best equity fund group over 3 years at the Lipper India Fund Awards 2006. DSP Merrill Lynch Equity Fund was among four schemes that won the CNBC TV18 - CRISIL Mutual Fund of the Year Award – 2006.More recently, DSPML Opportunities Fund and DSPML India T.I.G.E.R. Fund, two of our top-performing equity funds, have been recognised for their outstanding performance. Both these schemes have been ranked CRISIL CPR 1.”
Existing Equity Diversified Schemes
(Rs in cr)
DSP-ML Equity Fund
30 / 132
DSP-ML India T.I.G.E.R. Fund (G)
9 / 132
DSP-ML Opportunities Fund (G)
31 / 132
DSP-ML Top 100 Equity Fund (G)
29 / 132
28 / 66
* Figures as on November 30, 2006
Experts believe that, “If an investor decides to invest in this fund, he will have to go by the track record of the existing funds of the fund house to assess its capabilities. On the other hand, some of the existing ELSS has an excellent track record. One can look at the quality of the portfolio and the extent of exposure to different market caps in these funds and then take a decision.”
- Reena Prince(image)
How should you handle delisting of a stock you hold?
With all the hype around IPOs and their listing gains, have you considered what could happen in the case of its mirroR IMAGE… delisting. Here’s a look at what delisting could mean for you, in terms of the value you can expect for tendering in your stocks.Very recently, the Securities and Exchange Board of India (SEBI) has issued draft regulations for delisting of securities and has invited comments from the public on the same. This debate has been thrown open until the 14th of December 2006. Since its outcome could very well have implications for you some day, spend a moment to read on about the whole concept of delisting and more importantly, how you could be remunerated for shares that a company offers to buy back from you.Delisting and what drives companies to delist To put it simply, when a company’s shares are cancelled from the list of stocks that can be traded on an exchange, it is called delisting.A company could delist itself voluntarily or the exchange or a regulatory authority could compulsorily require it to be delisted.A company can voluntarily delist when a substantial proportion of its shares have been acquired by a single entity (either the promoters or an acquiring company and their consorts) and as a result, the public holding dips below a requisite level. In such cases, the promoters, who hold a substantial chunk of the shares, may not wish to be accountable to the public anymore or may have no plans to raise money by way of public equity offerings in the future and may see delisting as a suitable course of action.Delisting also makes sense in cases where a company’s stock suffers from poor liquidity or if the company is plagued with corporate governance issues or if it is classified as a sick company by the Bureau for Industrial and Financial Reconstruction.In the case of the latter, delisting may be made compulsory.How shareholders are presently compensated At present, a company that voluntarily chooses to be delisted, offers to buy back its shares from minority share holders through a ‘reverse book building’ process. Although the purpose here is to buy back shares from shareholders and not issue fresh ones, the process adopted is very similar to ‘book building’ used in the case of IPOs. In the case of reverse book building too, a company suggests a floor price — a base price which it is willing to pay for the shares that you offer. Then, for a specific number of days, shareholders can send in their quotes of how many shares they are willing to sell and at what price (at or above the base price). The actual price is determined at the rate at which a maximum number of shares are tendered.In order to counter balance the power given to shareholders in fixing the price of delisting shares (since there is no ceiling on the price that they can quote), companies were given the freedom to reject the discovered price.The problem with reverse book buildingWhile the reverse book-building process was initiated to ensure a transparent and fair mechanism to pricing shares that were being delisted, it was assumed that rational investors would quote a reasonable premium in the process. However, SEBI has observed that the book building process has not necessarily been translating into genuine discovery of price. It has sited a number of reasons for this lapse. Some of them include the disproportionate powers with public shareholders holding major chunk, the possibility of frivolous bids to destabilise the delisting offer, the freedom to[...]
Real estate prices – Up and Away
Real estate prices – Up and AwaySource: timesmoney..With real estate prices having clocked a phenomenal rise over the past year and a half, the question on every property investor’s mind is — “Are these growth rates sustainable?”For potential real estate investors, tracking property markets in Mumbai over the past year or two has been an unnerving experience. Prices seem to be getting steadily inflated and you hope in your heart that a correction is around the corner.However, the longer you wait for a fall in rates, the more elusive it seems to get. To make matters worse, interest rates on property loans are climbing too. If you find yourself faced with the predicament of whether to buy now or wait for the bubble to burst, revisiting Mumbai’s property market fundamentals may offer you some advice. Recent trends in real estate prices Over the past one year, the prices of property have risen by an average of anywhere between 40 to 60 per cent in the more popular areas of the city of Mumbai. In some cases, the rates have even doubled during this period. Unrelenting demandThe demand for homes has remained strong as it is fuelled by factors such as easy availability of loans to fund property deals, a rise in disposable incomes of young people in the city, fiscal incentives attached to purchase of homes, etc. As Prashant Dixit, senior manager, corporate sales, 99acres.com explains, “Certain types of properties are always in demand. For instance, in the case of a 2BHK apartment in the range of Rs 40 lakh, there are always takers in excess of availability. The housing segment in general, barring a few pockets, is largely a sellers market.”Commercial property too has been subject to growing demand. With the entry of Wal-mart and the launch of the Reliance chain of fresh food stores, “big is beautiful” in the retail space translates into greater demand for such property, which in turn means stiff prices. This pressure comes in addition to the already steady demand from the Information Technology, Business Processes Outsourcing, Biotech and other such sectors as they expand their presence in and around the city. Rates could steady in future… While the persistent demand will ensure that fall in prices is not likely, there have been some measures implemented to slow down the rise in prices. As Anju Puri, managing director, Trammel Crow Meghraj, explains, “Certain aspects of the property market will not change. Those who wish to purchase homes for their own consumption will continue to purchase them anyway, irrespective of whether interest rates are up or down and how property prices move. However, loan regulations pertaining to buyers of second homes have become more stringent.” There are also economic factors which point to a slowing down of the growth in property rates. There is a fair amount of supply coming in due to changes in land laws and development of land banks held with developers. There has also been an increase of 1-1.5 percentage points in the rates charged on property loans; this could dissuade speculators. And lastly, such growth rates in prices cannot be sustained in the long run since a real estate market can only develop in the presence of fair rates and healthy volumes,” offers Kekoo Colah, executive director, Knight Frank (India) Pvt. Ltd. Last, but not the least, development of infrastructure and work opportunities in satellite cities like Navi Mumbai and Thane could take the pressure off the is[...]
Should you invest in close-ended equity funds?
Source: timesmoneyWith a host of close-ended equity funds’ NFOS being announced, you may be wondering whether they are worth considering. Your question answered…Have you noticed a number of advertisements these days from mutual funds inviting you to subscribe to their new ‘close-ended’ schemes? Before you decide to invest, it is important that you understand the scheme and its ‘close-ended’ nature.There are two kinds of mutual fund schemes – (1) open-ended funds and (2) close-ended funds. An open-ended fund is a scheme that exists till perpetuity and offers fresh units to new investors even after the scheme closes its initial offering. On the other hand, a close-ended fund exists for a specific period of time and does not offer fresh units to new investors after it closes its initial offering. Both schemes make available redemption of units to investors who have invested during the initial offering.Recently, a number of schemes have been launched as ‘close-ended’ schemes for a specific tenure after which they become open-ended. Consider the ‘SBI One India Fund’ launched by SBI Mutual Fund. This scheme is a 3-year close-ended fund, which becomes open-ended at the end of 3 years. Similarly, LIC Mutual Fund has launched the ‘LIC MF India Vision Fund’, a 3-year close-ended equity fund, which becomes open-ended at the end of this period.Shift from open-ended to close-ended Presently, there are more than 180 open-ended equity funds and a modest 22 close-ended equity funds. The question that will come to mind is – up to now, mutual funds seem to prefer offering open-ended funds, so why the recent spate of close-ended funds? The answer to your question lies in the recent change in regulations. Open-ended funds could earlier write off expenses incurred to launch the fund over a period of years. This was disadvantageous to investors who stayed invested in the fund over a long term since investors who exited earlier did not bear their share of the cost. Now, SEBI has stated that these expenses should be paid by the new fund investor in the form of an entry load. However, for close-ended funds, these expenses can be written off against the fund over the life of the fund. So, if a new close-ended fund is a 3-year fund, these expenses can be written off over 3 years. This makes it easier for mutual funds to market funds since levying an entry load in a new fund offering is a disincentive to investors.Benefits of close-ended schemesInvesting in close-ended equity funds is preferable to open-ended ones because of 2 reasons: firstly, the fund manager can take investment decisions with a long-term view since he does not have to worry too much about redemptions (usually close-ended funds levy high exit loads for redemptions done before completion of fund tenure, thereby discouraging investors from redeeming prematurely) and secondly, the entire corpus of the fund can be fully invested, thereby making every rupee work to earn returns. Past comparison of closed versus open While conceptually, investing in a close-ended fund makes more sense than investing in an open-ended one, factually, the past tells a different story. Taking 1-month, 3-month, 6-month and 1 year performances, as on 30 November 2006 for growth options of close-ended and open-ended diversified equity schemes, in almost all time periods, performances of open-ended schemes have been better.To conclude Before making an investment dec[...]
Need cash? Don’t redeem all your units
Need cash? Don’t redeem all your unitsSource: timesmoneyIf you need cash and want to draw it from your mutual fund investment, you don’t have to redeem all your units. Here’s how you can calculate the exact number of units you should encash. Deepa Srivastava (name change), an employee with a multinational company, needed Rs 10,000 for her vacation. She did not have the cash since all her money was invested. She decided to break one of her mutual fund investments to meet this payment.She had invested in a diversified equity scheme of ABC Mutual Fund about 3 months back. Her investment amount was Rs 50,000 for which she had received 1960.784 units (her purchase NAV was Rs 25.5 per unit). She pulled out her account statement and ticked on the ‘Redeem all my units’ section. Three days later she received her redemption proceeds – Rs 77,500 (the redemption NAV was Rs 39.525). Now, since she needed only Rs10,000. The balance simply languished in her savings bank account. What Deepa should have done was redeem only to the extent of money she needed for her vacation and for the tax due on the capital gains accrued on redemption. Here is a guide on redemption for Deepa and you. Redeeming an equity fund held for more than a year If you are redeeming an equity fund, which you have held for more than one year, there is no tax due on the capital gain. You should simply redeem the number of units that will get you the amount you need, plus the Securities Transaction Tax (STT) due on redemption. Presently, STT at the rate of 0.25 per cent is due on the redemption of equity funds. In Deepa’s case, since she needed Rs 10,000, she should have redeemed units worth Rs 10,025 (Rs 10,000 needed by her + Rs 25 (Rs 10,000 x 0.25 per cent) for STT). This means she should have redeemed only 253.636 units to receive this amount (253.636 units x Rs 39.525, which is the redemption NAV). Redeeming an equity fund held for less than a year If you are redeeming an equity fund, which you have held for less than one year, you have to pay tax on the capital gain and STT on the redemption amount. If surcharge is applicable to you (surcharge is applicable if your total income in the year exceeds Rs 10 lakh), the applicable tax rate is 11.22 per cent (10 per cent income tax + 10 per cent surcharge + 2 per cent education cess). If surcharge is not applicable to you, the tax rate will be 10.2 per cent (10 per cent income tax + 2 per cent education cess). When redeeming your units, you should consider the tax payment due so that you don’t run short of cash. Now, if surcharge is applicable to you (where the tax rate applicable to you is 11.22 per cent), the cash you receive in your hand will be after tax and after STT. Let’s take Deepa’s example to understand this. Deepa’s redemption NAV is Rs 39.525 and her purchase NAV is Rs 25.5. This means that her capital gain per unit is Rs 14.025 (Rs 39.525 – Rs 25.5). On this, she will pay tax at 11.22 per cent i.e. her tax amount per unit will be Rs 1.573 (Rs 14.025 x 11.22 per cent). This means Deepa will get Rs 37.854 per unit after payment of tax (Rs 39.525 (redemption NAV) – Rs 0.098 (STT) - Rs 1.573 (capital gains tax)). To find out how much she should redeem to also take care of the tax due, Deepa should simply use the formula: Cash amount needed x Redemption NAV after STT / Amount per unit after tax. Deepa will need to redeem units to the extent [...]