At last it has happened. 3 cheers for SEBI and Mr. Damodaran.
We have tried to make 2008 happier for mutual fund investors,” is what SEBI chairman M Damodaran had to say on the last day of 2007. Beginning January 4, 2008, mutual funds investors will not have to pay entry load if they buy funds directly from mutual fund companies. Such purchases can be made either through the internet, or through applications submitted directly to the AMCs or their investor service centres.
The load waiver would also be applicable to additional purchases done directly by the investor under the same folio and switch-ins to a scheme from other schemes.
A majority of mutual funds charge 2.25 per cent entry load for their equity schemes, which is used to pay for the commission of the agents and distributors and meet other marketing and distribution expenses.
These changes were first proposed by SEBI back in August 2007.
Wishing all a very happy and prosperous new year.
Wadiaz
Monday, December 31, 2007
Saturday, December 29, 2007
DO NOT FORGET ASSET ALLOCATION
Rising equity markets can have a strange impact on investors. They become overconfident as far as their investment abilities are concerned. As a result, they often end up getting invested in avenues that they should avoid and end up taking on more risk than they should. Another impact of rising markets is that investors develop a myopic vision. For example at present, most investors refuse to touch a non-equity product even with a barge pole.
Let’s travel back in time to the year 2003 when monthly income plans (MIPs) were the season’s flavour. While the reasons for the popularity enjoyed by MIPs then are debatable, their utility isn’t, especially in a scenario like the present one. For a moderate risk-taking investor who is willing to take on marginally higher risk, MIPs offer the opportunity to clock higher returns vis-à-vis debt fund investments. Conversely, for a high risk-taking investor, MIPs offer the opportunity to incorporate a degree of stability in an equity portfolio. Sadly, a product that can value to the portfolio has been pushed to the sidelines.
This brings us to a more serious topic. By investing only in equity-oriented products, many investors have landed up with lop-sided portfolios. As a result, their asset allocation has been compromised with. And over longer time frames, it is asset allocation which can help investors not just safeguard their portfolios on the downside, but also create wealth.
By diversifying across assets, investors give their portfolios the flexibility to counter market uncertainties. Sadly, it is rather difficult to appreciate the importance of asset allocation in times like now, when equity markets have surged northwards almost consistently. In fact, asset allocation might be seen as a hindrance, since being fully invested in equities seems like a surefire method to clock impressive growth. However, it takes adversity (in this case, a sharp fall in equity markets) to fully appreciate the benefit of holding a portfolio populated by several assets.
My advice to investors – don’t get caught on the wrong foot by being invested in only one asset class (read equities) and ignoring asset allocation. Hold a portfolio comprised of various assets like fixed income instruments, real estate and gold, alongside equities. Obviously the allocation to each asset will depend on your risk profile and investment objectives. This is where a competent investment advisor will have an important role to play.
Let’s travel back in time to the year 2003 when monthly income plans (MIPs) were the season’s flavour. While the reasons for the popularity enjoyed by MIPs then are debatable, their utility isn’t, especially in a scenario like the present one. For a moderate risk-taking investor who is willing to take on marginally higher risk, MIPs offer the opportunity to clock higher returns vis-à-vis debt fund investments. Conversely, for a high risk-taking investor, MIPs offer the opportunity to incorporate a degree of stability in an equity portfolio. Sadly, a product that can value to the portfolio has been pushed to the sidelines.
This brings us to a more serious topic. By investing only in equity-oriented products, many investors have landed up with lop-sided portfolios. As a result, their asset allocation has been compromised with. And over longer time frames, it is asset allocation which can help investors not just safeguard their portfolios on the downside, but also create wealth.
By diversifying across assets, investors give their portfolios the flexibility to counter market uncertainties. Sadly, it is rather difficult to appreciate the importance of asset allocation in times like now, when equity markets have surged northwards almost consistently. In fact, asset allocation might be seen as a hindrance, since being fully invested in equities seems like a surefire method to clock impressive growth. However, it takes adversity (in this case, a sharp fall in equity markets) to fully appreciate the benefit of holding a portfolio populated by several assets.
My advice to investors – don’t get caught on the wrong foot by being invested in only one asset class (read equities) and ignoring asset allocation. Hold a portfolio comprised of various assets like fixed income instruments, real estate and gold, alongside equities. Obviously the allocation to each asset will depend on your risk profile and investment objectives. This is where a competent investment advisor will have an important role to play.
Thursday, December 27, 2007
Real Estate Investment Trusts (REIT)
“Real estate is an asset class that has grown rapidly. Why keep the small man out because he does not have money to buy land?” Said SEBI chief Mr. Damodaran.
The decks have been cleared for the launch of the real estate investment products in the market.
The last hurdle had been cleared with the Association of Mutual Fund Industry and the Institute of Chartered Accountants of India having firmed up the valuation norms for these products, he said. “We should be able to clear the guidelines soon. Our expectation is that in the next couple of months, we should be able to streamline it.”
Explaining the process, he said that these two bodies looked at whether it was possible at all to accord a valuation and the frequency with which one needed to do it. Valuation, almost on a continuing basis, is needed as people enter and exit schemes on a regular basis.
However, the ultimate test for whether ‘REITs’ will succeed will be the taxation treatment. Those markets that have not given favourable tax treatment to REITs, the product hasn’t taken off because you need to see the capital gains angle, he said. In some jurisdictions that have welcomed this product, notably the US to begin with and later the Asian markets, the product has taken off as the tax treatment was favourable.
So, while the product will be available, the additional attractiveness of the product by way of appropriate tax treatment is something that the Ministry of Finance will have to decide, he said.
“Should that happen, I think the way the real estate is growing in this country, this is going to be not just an attractive product, but I think it will bring some discipline into this (real estate) industry.
The decks have been cleared for the launch of the real estate investment products in the market.
The last hurdle had been cleared with the Association of Mutual Fund Industry and the Institute of Chartered Accountants of India having firmed up the valuation norms for these products, he said. “We should be able to clear the guidelines soon. Our expectation is that in the next couple of months, we should be able to streamline it.”
Explaining the process, he said that these two bodies looked at whether it was possible at all to accord a valuation and the frequency with which one needed to do it. Valuation, almost on a continuing basis, is needed as people enter and exit schemes on a regular basis.
However, the ultimate test for whether ‘REITs’ will succeed will be the taxation treatment. Those markets that have not given favourable tax treatment to REITs, the product hasn’t taken off because you need to see the capital gains angle, he said. In some jurisdictions that have welcomed this product, notably the US to begin with and later the Asian markets, the product has taken off as the tax treatment was favourable.
So, while the product will be available, the additional attractiveness of the product by way of appropriate tax treatment is something that the Ministry of Finance will have to decide, he said.
“Should that happen, I think the way the real estate is growing in this country, this is going to be not just an attractive product, but I think it will bring some discipline into this (real estate) industry.
Tuesday, December 25, 2007
Can I still make money
There is never a good time to enter the market. Neither is there a bad time. One just has to be consistent and disciplined.
It is the discipline that pays off in the long run, not timing. ‘Buy low, sell high’ sounds great on paper but is rarely successful in reality because investors want to ‘buy lowest and sell highest’. And that is virtually impossible. Do not invest in stocks, sectors and funds you do not understand. And if you do not have the time or inclination to get educated on your investments, stick to handful of equity diversified or balanced funds.
Invest regularly via systematic investment plan (SIP) of a mutual fund. An SIP is best for a period of at least 3 years and not just one year, as most investors tend to opt for. The longer the time frame over which you distribute your investment, the better it is for you. During this time ignore all the ups and downs and corrections and invest consistently. Equity was, is and always will be long-term game. One needs to stay put and ride the ups and downs of the market. Don’t let the market frenzy lure you in to irrational decisions. When the frenzy dies down, you will be much better off by having kept your cool and sticking with your investments.
My advice: Be an India bull.
Now I would like to share with you my real experience on the ‘irrational behavior’.
In the month of December 2004, I invested in UTI infrastructure fund dividend payout (it was known then as basic industries fund) after analyzing the infrastructure boom that was likely to happen in India. The fund corpus at that time was somewhere around 60 crores and NAV 13 or there about. As the time went by, the fund was doing quite well and had given me dividend too. Then one day I read an article about thematic funds and whether one should invest in such schemes or not. This created a doubt in my mind (My analysis of Infrastructure boom in India went out of the window) whether I had taken a correct decision or not? The doubt started growing in my mind as I read more of such stories. Then came the crash of May 2006 and just before that I redeemed the whole holding of this fund. I still do not know for sure why I did that and the rest is history. If I had stayed invested in this fund, today I would have reaped rich dividends by sticking with my convictions.Moral of the story: Be long term greedy and go with your convictions
It is the discipline that pays off in the long run, not timing. ‘Buy low, sell high’ sounds great on paper but is rarely successful in reality because investors want to ‘buy lowest and sell highest’. And that is virtually impossible. Do not invest in stocks, sectors and funds you do not understand. And if you do not have the time or inclination to get educated on your investments, stick to handful of equity diversified or balanced funds.
Invest regularly via systematic investment plan (SIP) of a mutual fund. An SIP is best for a period of at least 3 years and not just one year, as most investors tend to opt for. The longer the time frame over which you distribute your investment, the better it is for you. During this time ignore all the ups and downs and corrections and invest consistently. Equity was, is and always will be long-term game. One needs to stay put and ride the ups and downs of the market. Don’t let the market frenzy lure you in to irrational decisions. When the frenzy dies down, you will be much better off by having kept your cool and sticking with your investments.
My advice: Be an India bull.
Now I would like to share with you my real experience on the ‘irrational behavior’.
In the month of December 2004, I invested in UTI infrastructure fund dividend payout (it was known then as basic industries fund) after analyzing the infrastructure boom that was likely to happen in India. The fund corpus at that time was somewhere around 60 crores and NAV 13 or there about. As the time went by, the fund was doing quite well and had given me dividend too. Then one day I read an article about thematic funds and whether one should invest in such schemes or not. This created a doubt in my mind (My analysis of Infrastructure boom in India went out of the window) whether I had taken a correct decision or not? The doubt started growing in my mind as I read more of such stories. Then came the crash of May 2006 and just before that I redeemed the whole holding of this fund. I still do not know for sure why I did that and the rest is history. If I had stayed invested in this fund, today I would have reaped rich dividends by sticking with my convictions.Moral of the story: Be long term greedy and go with your convictions
Friday, November 23, 2007
Building your own portfolio
While mutual funds are popular and attractive investments because they provide exposure to a number of stocks in a single investment vehicle, too much of a good thing can be a bad idea.
The addition of an increasing number of funds simply creates an expensive index fund. This notion is based on the fact that having too many funds negates the impact that any single fund can have on performance, while the expense ratios of multiple funds generally add up to a number that is greater than average. The end result is that expense ratios rise while performance is often mediocre.
Although there are hundreds of mutual fund offering in Indian mutual fund industry, there's no magic number for the "right" number of mutual funds in a portfolio. Despite the lack of agreement among the professionals regarding how many funds are enough, nearly everyone agrees that there is no need for dozens of holdings. In fact, even many mutual fund houses are now promoting life-cycle funds, which consist of a mutual fund that invests in multiple underlying funds The concept is simple: pick one life-cycle fund, put all of your money into it, and forget about it until you reach retirement age. These funds, also referred to as "age-based funds"(Fund of funds20-30-40-50) have an intrinsic appeal that's hard to beat.
If you prefer to build your own portfolio, there are simple steps you can take to limit the number of funds in your portfolio while still feeling comfortable with your holdings. It begins by considering your objectives. If income is your primary goal, that international fund may not be necessary. If capital preservation is your objective, a mid-cap fund may not be needed either.
Once you've determined the mix of funds that you wish to consider, compare their underlying holdings. If two or more funds have significant overlap in holdings, some of those funds can be eliminated. There's simply no point in having multiple funds that hold the same underlying stocks.
Next, look at the expense ratios. When two funds have similar holdings, go with the less expensive choice and eliminate the other fund. Every rupee saved on fees is one more rupee working for you. If you are working with an existing portfolio rather than building one from scratch, eliminate funds that have balances that are too small to make an impact on overall portfolio performance. If you've got four large-cap funds, move the money to a two best performing funds. The amount spent on management-related expenses is likely to decrease and your level of diversification will remain the same.
Happy Investing.
The addition of an increasing number of funds simply creates an expensive index fund. This notion is based on the fact that having too many funds negates the impact that any single fund can have on performance, while the expense ratios of multiple funds generally add up to a number that is greater than average. The end result is that expense ratios rise while performance is often mediocre.
Although there are hundreds of mutual fund offering in Indian mutual fund industry, there's no magic number for the "right" number of mutual funds in a portfolio. Despite the lack of agreement among the professionals regarding how many funds are enough, nearly everyone agrees that there is no need for dozens of holdings. In fact, even many mutual fund houses are now promoting life-cycle funds, which consist of a mutual fund that invests in multiple underlying funds The concept is simple: pick one life-cycle fund, put all of your money into it, and forget about it until you reach retirement age. These funds, also referred to as "age-based funds"(Fund of funds20-30-40-50) have an intrinsic appeal that's hard to beat.
If you prefer to build your own portfolio, there are simple steps you can take to limit the number of funds in your portfolio while still feeling comfortable with your holdings. It begins by considering your objectives. If income is your primary goal, that international fund may not be necessary. If capital preservation is your objective, a mid-cap fund may not be needed either.
Once you've determined the mix of funds that you wish to consider, compare their underlying holdings. If two or more funds have significant overlap in holdings, some of those funds can be eliminated. There's simply no point in having multiple funds that hold the same underlying stocks.
Next, look at the expense ratios. When two funds have similar holdings, go with the less expensive choice and eliminate the other fund. Every rupee saved on fees is one more rupee working for you. If you are working with an existing portfolio rather than building one from scratch, eliminate funds that have balances that are too small to make an impact on overall portfolio performance. If you've got four large-cap funds, move the money to a two best performing funds. The amount spent on management-related expenses is likely to decrease and your level of diversification will remain the same.
Happy Investing.
Sunday, November 4, 2007
Wealth Management for NRI's
Hi, all bloggers out there.
I have just created my blog to help and create steady wealth by introducing you to the India growth story and be a part of it. Do not feel left behind and enjoy the rich benefits India is offering to all of us. I can be your unbiased financial advisor with a small price, but rest assured by the time the whole portfolio building is over, one can see the fabulous above inflation returns it will generate.
if confused and want to enhance your returns, please contact me through this blog or call 0507886539
Happy Investing.
Wadia
I have just created my blog to help and create steady wealth by introducing you to the India growth story and be a part of it. Do not feel left behind and enjoy the rich benefits India is offering to all of us. I can be your unbiased financial advisor with a small price, but rest assured by the time the whole portfolio building is over, one can see the fabulous above inflation returns it will generate.
if confused and want to enhance your returns, please contact me through this blog or call 0507886539
Happy Investing.
Wadia
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