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Background: ICICI Asset Management Company Ltd manages ICICI prudential Mutual Fund. A joint venture between Prudence Plc, UK's leading insurance company and ICICI Bank Ltd. India's premier financial institution. ICICI Prudential Mutual Fund house has Rs.50369.93 crore assets under management at the end of September 2007.
ICICI Pru Technology Fund (G) is an open-ended sectoral scheme launched in January 2000. The objective of the scheme is to generate long-term capital appreciation by investing in equity/ equity related securities of technology intensive companies. The minimum investment amount is Rs 5000 and in multiples of Rs 500 thereafter. The unit NAV of the scheme was Rs.14.53 as on 30 October 2007.
Portfolio: The total net assets of the scheme decreased by Rs.8.27 crore to Rs.144.70 crore in September 2007.
ICICI Pru Technology Fund (G) took fresh exposure to one stock in September 2007. The scheme has purchased 30,029 units (0.98%) of Patni Computer Systems in September 2007.
The scheme completely exited from Infosys Technologies by selling 12,204 units (1.48%) in September 2007.
Sector-wise, the scheme took no fresh exposure in September 2007.
Sector-wise, the scheme has not exited from any sector in September 2007.
The scheme had highest exposure to Deccan Chronicle Holdings with 7.32 lakh units (10.19% of portfolio) followed by Allied Digital Services with 2.83 lakh units (7.41%) and Tata Consultancy Services with 93,164 units (6.80%) among others in September 2007.
It reduced its exposure to Nucleus Software Exports by selling 80,981 units to 1.19 lakh units (by 1.91%), Firstsource Solutions by selling 1.79 lakh units to 2.21 lakh units (1.03%) among others in September 2007.
Sector-wise, the scheme had highest exposure to Computers - Software - Medium / Small at 53.86% (52.01% in August 2007) followed by Computers - Software - Large at 14.02% (14.96%) and Entertainment / Electronic Media Software at 10.19% (13.81%) among others in September 2007.
Sector wise, the scheme had reduced exposure from Entertainment / Electronic Media Software to 3.62% (by 26.21%) in September 2007.
Performance: The scheme underperformed the category average over all time periods. It has underperformed the Sensex over all time periods.
Over three-month period ended as on 30 October 2007, the scheme posted negative returns underperforming the category average. It underperformed the Sensex during the same period.
How much can a regular investment of Rs 5,000 per month in an equity mutual fund become over a period of five years? If you had invested Rs 5,000 monthly in the SBI Magnum Contra Fund, you would be sitting on Rs 14.81 lakh now. A return of 69 per cent per year.
Yes, Rs 3 lakh (Rs 5,000 x 60 months) that you invest over a period of 5 years would have amounted to almost Rs 15 lakh by now. Nearly five times the money, in five years. That's the power of investing in a mutual fund through the systematic investment plan (SIP) route.
Naysayers will say a one-time investment would have worked better. Yes, it would have. A one-time investment of Rs 3 lakh into the SBI Magnum Contra Fund on November 2, 2002, would have grown to Rs 42.55 lakh by now. However, back then in 2002, how many people really knew that the Indian stock market would perform the way it has. In addition, it is easier to keep investing Rs 5,000 every month, rather than invest Rs3 lakh at one go.
SBI Magnum Contra Fund is now a top performing scheme. But back in 2002, an investor wouldn't have known that this scheme would turn out to be a leader of the pack. The question is whether regular investing works only for the best performing schemes. The answer is no.
Let us say an investor had put Rs5,000 every month for the last five years in DBS Chola Opportunities Fund, which has been the worst performing equity fund in the Indian stock market over the last five years. The total investment of Rs3 lakh over a period of 5 years would currently be valued at Rs8.89 lakh. The performance is not as good as the SBI Magnum Contra Fund, but it's not too bad either.
What is it that makes SIPs a good way of investing? "Three big things: averaging, convenience, and discipline" says Akhilesh Tilotia, Director, PARK Financial Advisors Private Limited. "Due to the SIP amounts being debited through the electronic clearing system (ECS), convenience is a major factor: the investor is not troubled every time he wants to invest. Again, SIP enforces discipline of savings and takes away the habit of trying to time the market," he adds.
"SIPs bring in fiscal discipline to one's finances. A specified amount is committed, so the expenses are met with whatever is available after that. It's a forced saving. Also, some investors tend to think that SIP investments can't be taken out while the investments are going on, and hence do not touch it. This helps them accumulate a decent corpus," says Suresh Sadagopan, certified financial planner who runs Ladder 7 Financial Advisories.
As Tilotia points out, one big advantage of SIPs is the fact that it brings rupee cost averaging into play. When markets are doing well, the price of a single unit of a mutual fund goes up. In an SIP, an investor invests an equal amount every month, and when the price goes up, he ends up buying a lesser units. Vice versa, when the stock market is not doing well: the price of a single mutual fund unit falls and hence the investor ends up buying more.
This ensures that investors limit their purchases when the markets are doing well and buy more when the markets are not doing well, thus following the quintessential principle of buying more when the markets are low. Left on their own, most individual investors decide to enter the markets only when the markets are doing well and hence go against the principle. "It is easier for people to go with the flow, better to be wrong with the herd, rather than be wrong alone," says Tilotia. "It is easy to feel confident about the market when it is going up as you feel others are buying and I might miss the boat. The same logic works when the market falls. I need to exit the boat before it rocks. It's nothing but emotions such as fear and greed that play a role in an investor's life," says Amar Pandit, financial planner who runs My Financial Advisor.
Other than this, there is a set of investors who try to time the market on the basis of where it is headed. Investors who buy into this theory spend a lot more time trying to figure out which way the market is going. Because they get it right a few times, they assume they'll keep getting it right. "You might get the timing right sometimes, but not always, and you will miss the bus at some point. It might work once or twice, giving you false precision, but I'm yet to meet somebody who has done this consistently," says Pandit.
"The fact is that timing the markets is easier said than done," says Sadagopan. And those who try to time the markets may miss out on stock market rallies. "How many people have really participated in the rally from 14000 to 19000?" asks Pandit. "I think very few, because more money is lost waiting for corrections than in corrections themselves." The SIP route ensures that an investor doesn't try to time the market, and keeps investing.
It is true that the equity market has done pretty much well in the last few years. It is true that long-term investors in stocks are more or less a satisfied lot. It is also true that equity funds of all hues had given fairly decent returns in the recent past. Why then, in this feel-good world, are some sections so obviously disheartened - so clearly unhappy with the kind of returns they have got?
To find the answer to that question, you need not go far. Just check out some of the laggards and the performance they have delivered over three or even five years. Take, for instance, the list of laggards that Value Research so diligently turns out every month. Considering a three-year period (as of September 30), UTI Master Value and LIC MF Equity have both given a modest 30 per cent. Actually, it is even less, but for the sake of simplicity, we will stick to this number. And, that’s not all, given the fact that Birla Dividend Yield Plus, Birla India Opportunities and LIC MF Growth have all given barely more than 30 per cent.
Now, before that figure shocks you more, consider the pedestrian performance dished out over a five-year period by the hikes of UTI MNC, Birla MNC and Kotak MNC. In each case, the score is in the 34-39 per cent range. This, when the best products have given their investors a lot more during this stretch.
Stock-picking strategy
Why does a fund fail to impress when the leading players in its category have handed out superlative performances in comparison? Clearly, the fund manager concerned has slipped up on his stock-picking strategy. (It will pay to remember have that there may be some genuine reasons MNC stocks are not doing too well lately, and this has impacted MNC funds too. Ditto for dividend yield funds, which have mostly turned out abysmal scores in recent times).
Let us now turn our attention to some of the surprises - we are not necessarily referring to the chart busters of the day. Instead, we are talking about some ‘unique products - their singularity derived from the investment themes they nurture. And it so happens that these are decent performers too.
Here’s a small list (in no particular order) of such funds for you: SBI Magnum COMMA, Sundaram BNP Paribas CAPEX Opportunities, DSP Merrill Lynch T.I.G.E.R., Standard Chartered Premier Equity and JM Basic. Several others could have made it to this list, but we are not mentioning all of them here. Coming back to our main topic, the question we wish to ask is this: is there a special reason why investors should stay with any of the poor-performers any longer? While past performance is not strictly a major determinant, we think the answer is a loud No. There is no point in staying with a laggard for far too long, forever hoping that good times will come soon.
ABN Amro Future Leaders Fund is positioned as a scheme that invests in mid-cap and small-cap stocks, with a bias towards growth stocks. It is positioned in the high risk-high return category.
The investment objective of the scheme is to aim for long-term capital appreciation by investing in companies with high growth opportunities in the middle and small capitalization segment, defined as 'Future Leaders'. The offer document defines 'Future Leaders' as companies with a market capitalisation below that of the 99th stock in BSE 500 Index - it may or may not be a constituent of the BSE 500 index. 65-100 per cent of the investments will be in the 'Future Leaders'.
The scheme is benchmarked to CNX Midcap, and has underperformed its benchmark. The scheme was launched in April 2006, just before the market crashed in May-June 2006, which affected its performance. To compound the problem, the midcap segment took a longer time than the bluechips to recover. The scheme was not sitting on too much of cash and had already deployed around 82.4 per cent of its net assets into equities at the time of the crash, leaving little opportunity for bottom-fishing.
The markets have witnessed three corrections since the scheme's inception. The Future Leaders Fund was able to recover well from the corrections in May-June 2006 and February-March 2007, and closely tracked the returns generated by the CNX Midcap index. However, the correction in July-August 2007 has dealt a body blow to the scheme.
The recent correction has hurt more because of the scheme's IT-biased portfolio. Midcap technology scrips have become the mainstay of the portfolio. Northgate Technologies (8.77 per cent), Satyam (3.72 per cent), Tanla Solutions (3.08 per cent), MphasiS (2.19 per cent), Infosys Technologies (2.15 per cent), NIIT Technologies (1.81 per cent), Nucleus Software Exports (0.81 per cent) and KLG Systel (0.59 per cent) are the scheme's holdings in the IT sector. Pharma is another sector the scheme is bullish on and that has also not performed too well.
The churning rate for the scheme is quite high. Housing and construction enjoyed a high exposure during the early days. Thereafter, the exposure was trimmed significantly and the opportunity to reap the full benefits was lost.
Among the new themes, the scheme has been bullish on media and entertainment since the beginning of this year. The scheme has no exposure to some of the sectors which have been the major contributors of the current rally like banks, metals and oil & gas.
This seems to be one of the reasons why it has lost out on the current stage of the bull run. That also explains to a large extent why the scheme has underperformed the category of diversified equity schemes in year to date by over 20 per cent. The year to date, average returns of diversified equity schemes as on October 26, 2007 was 38.15 per cent. In comparison the scheme has delivered 18.21 per cent.
The fund manager of the scheme has recently changed. A new fund manager has taken over. It remains to be seen that how soon is he able to get the fund into the performance mode.
The only stocks which have featured in the portfolio consistently since its inception are DS Kulkarni Developers, DCM Shriram, Deepak Fertilisers, Phoenix Lamps and TV18. Currently it has exposure to 36 scrips spread across 15 sectors. ABN Amro Future Leaders manages a corpus of Rs 117.49 crore, which has seen a decline over the quarters.
Background: DBS Cholamandalam AMC Limited is an assets management company, which offers mutual funds to retail and institutional investors. The company was set up in 1996, as a joint venture with Cazenove Investment management of the UK. In 2001, the Muragappa Group acquired Cazenove’s stake in the company; today CAMC is a subsidiary of Cholamandalam Investment & Finance Company Limited (CIFCL). CAMC is known for its prudent philosophy in fund management. DBS Chola Triple Ace, India’s first AAA-rated mutual fund scheme, has not only retained its rating since inception, but also has a consistent track record of dividend payments, Based in Mumbai. The fund house manages over Rs. 3829.35 crore of assets as on September 2007.
DBS Chola Multi-Cap Fund (G) an open-ended equity diversified scheme launched in December 2004. The objective of the scheme is to provide long-term capital appreciation by investing in a well-diversified portfolio of equity & equity related instruments across all ranges of market capitalization. The minimum investment amount is Rs.5000 and in multiples of Rs.1000 thereafter. The unit NAV of the scheme was Rs.22.23 as on 26 October 2007.
Portfolio: The total net assets of the scheme increased by Rs.1.08 crore to Rs.36.75 crore in September 2007.
DBS Chola Multi-Cap Fund (G) took fresh exposure to ten stocks in September 2007. The scheme has purchased 9,955 units (2.88%) of ICICI Bank, 8,977 units (2.34%) of Oil & Natural Gas Corpn, 34,900 units (2.30%) of Oriental Bank of Commerce, and 30,124 units (1.65%) of Deccan Chronicle Holdings in September 2007.
The scheme completely exited from Bank of Baroda at 27593 units (2.07%), NIIT Technologies at 16518 units (1.43%), and Birla Corporation at 16448 units (1.34%) in September 2007.
Sector-wise, the scheme took fresh exposure to Banks - Private Sector at 2.88%, Oil Drilling / Allied Services at 2.34%, Chemicals at 1.63%, Electronics – Consumer at 1.52% in September 2007.
Sector-wise the scheme completely exited from Cement - North India at 1.34% in September 2007.
The scheme had highest exposure to Reliance Industries with 8,594 units (5.37% of portfolio size) followed by Bharti Airtel with 16,438 units (4.21%), Mahindra & Mahindra with 16,477 units (3.37%) among others in September 2007.
It reduced its exposure to Siemens by selling 6,987 units to 1,005 units (by 2.50%), Ranbaxy Laboratories by selling 14,961 units to 6,005 units (1.59%), Hindustan Unilever by selling 19,775 units to 30,157 units (1.12%) among others in September 2007.
Sector-wise, the scheme had highest exposure to Computers - Software – Large at 8.73% (9.63% in August 2007), followed by Telecommunications - Service Provider at 8.63% (8.38%), Banks - Public Sector at 7.45% (6.65%) and Refineries at 5.37% (4.40%) among others in September 2007.
Sector wise, the scheme had reduced exposure to Electronics – Components to 2.50% (by 87.11%), Pharmaceuticals - Indian - Bulk Drugs & Formln to 1.93% (by 40.12%), Computers - Software - Medium / Small to 1.72% (by 36.75%) among others in September 2007.
Performance: The scheme underperformed the category average over all time periods. It has underperformed the Sensex over all time periods.
Over three-month period ended as on 26 October 2007, the scheme posted 9.75% of returns underperformed the category average of 15.65%. It underperformed the Sensex during the same period.
The past one month has been like a dream run for Indian investors as stocks shot up to a new high at a speed never seen before. But the last week has been like a roller-coaster ride.
During the rally, the index funds, which invest money only in the stocks comprising a chosen index, have outperformed the active fund managers, who constantly try to beat the index by following different strategies.
Between 27 September 2007 and 15 October 2007 the benchmark 30-stock index Sensex rose from 17,000 to 19,000, giving a return of 11%. Index funds too gave an average return of 12%, whereas the diversified equity funds gave an average return of 9%.
These funds found it tougher to beat the S&P CNX Nifty Index, which comprises 50 stocks that gave a return of 13% during the period. Only 14 funds could outperform this benchmark index.
It’s only a few index stocks which have led this rally, and that’s one of the reasons why index funds have done better than the actively managed equity funds.
But the sharp dip in stock prices between 15 October and 18 October 2007 took away almost half the gains made by the two fund categories. On an average, index funds were down by 6% and the diversified equity funds were down by 4%. The benchmark indices, Sensex and Nifty, lost 6% each.
Diversified funds put up a better show during this period as only 18 of the 174 funds lost as much as the benchmark indices or more. As a result, the top gainers during the rally were among the top losers also. Three funds from Sundaram BNP Paribas Mutual Fund—the Select Focus, Leadership, Growth, were among the top 10 gainers as well as among the top 10 losers. During the run-up, these funds gave an average return of 16-20% but lost an average 7-8%. Other losers included LIC MF Equity Fund, which was up by 17% but lost 8% during the fall.
Fund managers also admit that it’s getting tougher to beat the benchmark indices. It’s becoming difficult as there are more players; more people are searching for stocks. Further, in a bull market, particularly with large doses of foreign capital, which has at times a different way of looking at things and is sometimes not very well-informed, excesses are bound to be created that can result in underperformance over short- to medium-term.
UTI Asset Management Company is planning a private placement of equity ahead of its public offer. “We plan to offload 20% through private placement that will be carried out by expanding the equity base,” UTI AMC chairman U K Sinha. No single investor would get more than 5% in the proposed sale through this route, he said.
At present, the company has a base of 5 crore shares. Out of this, one crore would be offloaded through private placement and 1.94 crore through IPO. The government nominees would hold 51% after the listing. Current equity holder in the AMC are State Bank of India, Punjab National Bank, Life Insurance Corporation and Bank of Baroda. They hold 25% each. The company board and the government has already approved expansion of its equity base. The IPO is expected to hit the markets in January.
Pre-IPO private placements have increasingly become common and set a benchmark for the company’s valuation during the IPO.
Industry sources said the fund house could raise about Rs 4,000 to 6,000 crore through a combination of private placement and public offer. This is because valuations in the mutual fund industry have been very upbeat. For a mutual fund, valuation is typically calculated as a percentage of assets under management, typically 5-7%, though the figure could be higher in some cases. UTI AMC has assets under management of Rs 40,000 crore.
UTI AMC was created in 2003 after the operations of India’s first mutual fund Unit Trust of India was split. The government had transferred the net asset value-based schemes to the AMC. The four sponsors had spent Rs 1,200 crore towards equity after its valuation by the government in 2005. This stake sale through both private placement and IPO will allow them to unlock value.
HDFC Core & Satellite Fund is essentially a large-cap fund which, under normal conditions, will not have a large-cap exposure just below 60 per cent of the total net assets. The remaining assets can be invested in the small-cap and mid-cap space to generate above-average returns. The asset management company, in its offer document, defines a large-cap company as one with a market capitalisation above Rs 2,500 crore, and small and midcap companies as those with a market capitalisation below this.
The scheme has a mandate to remain invested at all times, and at least 90 per cent of the assets should be in the equity asset class. The scheme has maintained its mandate since its inception and has not played with its asset allocation a lot.
This is very helpful for an investor as he can reap the maximum advantage out of the equity markets. More importantly, he/she can decide upon his overall asset allocation more astutely.
The average allocation to equities is 96.73 per cent of the net assets (not considering the initial two months which the scheme took to deploy its assets), which reflects the aggressive nature of the scheme. The allocation to the 'core' group has also been disciplined, ranging between 60 per cent in April 2005 to 85.85 per cent in May 2007. The 'satellite' group allocation has ranged from around 40 per cent in April 2005 to 12.72 per cent in August 2007.
The scheme has been managed by three different fund managers at different points of time. It is currently managed by Vinay Kulkarni. The change of guard has certainly not affected the scheme's investment processes.
However, the discipline in the investment processes has not translated into a good absolute performance, which is disappointing. The scheme has underperformed both in the short term as well as long run.
In the last one year, it has underperformed its benchmark BSE 200 by 18.30 per cent. In terms of three-year returns, it has managed to barely match the returns generated by the benchmark.
Considering the rally in recent times (which has been led by large-cap stocks), the underperformance of the scheme comes as a surprise.
The scheme follows an investment strategy to invest in companies which are trading below their intrinsic value for the 'core' part of the portfolio, and is a value fund. Most of the value funds have not been very successful in India from the returns perspective as high-growth companies have been the chief driver of the rally so far.
HDFC Core & satellite Fund currently manages a moderate corpus of Rs 586.57 crore, which has seen steady redemptions in the last few quarters.
The portfolio has seen some changes in the last two quarters - positions in the technology space have been pruned after the disappointing show in the last quarter. Currently, the scheme has exposure to only Satyam, TCS and Infosys Technologies which together account for only 7.87 per cent of the net assets. Exposure to metals has also been brought down substantially whereas exposure to the banking sector has gone up in the last two quarters.
The scheme has also completely pulled out of the housing & construction space, where it had a decent exposure in the beginning of the year. The new theme which the scheme has invested into is media & entertainment through scrips like TV Today (1.49 per cent), HT Media (2.10 per cent) and ZEE Entertainment (1.79 per cent).
The portfolio seems to be optimally diversified across 32 stocks, where top 10 holding account for half the net assets.
In spite of having the right recipe for success, the scheme has been a laggard.
Considering its three-year track record, investors would be advised to include the scheme only as a support in their overall portfolio.
New Delhi: Taurus Mutual Fund is looking to mobilise about Rs 50-Rs 100 crore under its ‘The Starshare scheme’, an existing open-end equity growth scheme, during October-December, according to R.K. Gupta, Managing Director, Taurus Asset Management Co. Ltd.
Performance
“We are marketing the Starshare growth scheme as a focused fund (sort of re-launch) during October-December. We want to regain the confidence of investors, which was somewhat lost during the late 90s, by showing our performance in recent years,” Gupta told Business Line.
He said that the assets under management of the scheme, launched in 1994, were about Rs 230 crore as on date and the Net Asset Value (NAV) was about Rs 60 per unit of Rs 10.
More awareness
Taurus Mutual Fund has also embarked on some advertising for the scheme and chosen the Metro Rail in Delhi and other cities for creating more awareness among investors, Gupta said.
He also said that there were no plans for rebalancing the portfolio of the Starshare Growth scheme, stating that it was already “well balanced”.
The pain continued in equity diversified NAVs as it ended lower with negative advance:decline ratio of 2:176 as the markets finished with big loss. The Sensex was down 717.43 points or 3.83% at 17998.39, and the Nifty down 208.30 points or 3.75% at 5351.00.
On the sectoral front, auto, banking, FMCG and pharma funds declined while technology funds closed mixed. The BSE Auto, Bankex, FMCG and Healthcare indices lost 1.51%, 5.96%, 0.72% and 0.12%, respectively. The BSE IT Index closed flat.
* Equity diversified NAVs end lower
* Auto, banking, FMCG and pharma funds decline
* Technology funds close mixed
A section of asset management companies is learnt to have approached the Securities and Exchange Board of India, seeking changes in the existing distribution fee structure in line with some of the advanced markets. The proposal, coming on the heels of the SEBI's plan to waive the entry-load, involves introduction of variable fee for the distributor's services to an investor buying. The proposed model, which is similar to the structure prevalent in the stock-broking industry, allows distributors to add value to its services to clients, without impacting the net asset value (NAV). In August, the market regulator had proposed that investors who approach the mutual funds directly, rather than the existing practice of routing their investments through distributors, should not be charged the entry load of 2.25% for equity funds. Entry load is the commission a mutual fund charges an investor to meet its expenses in selling a scheme. The proposal, if implemented, is expected to boost investor returns. At present, an investor hands over an amount to a distributor who gives it to the fund house. The fund house deducts the entry load from the amount and gives it to the distributor, who unofficially parts with a small portion of this money to the investor. So, hypothetically speaking, if an investor puts Rs 1000 in a scheme and the entry load is 2%, he would receive units worth only Rs 980. In the current structure, it is felt, investors are being denied the entire benefits of the investment.
In the proposed variable fee-based structure, the client pays the distributor a certain fee for the advice, over and above the investment amount. So, hypothetically, if an investor intends to invest Rs 1,000 in a scheme, he gets units worth the entire investment amount, rather than Rs 980 worth of units. This is because the investor pays a separate fee to the distributor for his services. A key aspect of this structure is that the payment of commission to a distributor varies from one investor to another. That is, the commission depends on the kind of services that the distributor provides to the investor. The stock broking industry follows a fee-based structure where an investor pays the broker a fee for the services offered to him. The fee, known as brokerage, varies from client to client.
AIG Investments today announced the launch of the AIG SIP Calculator - a first-of-its-kind service, which can be downloaded on any GPRS, enabled mobile phone having Internet access. The AIG SIP Calculator will be activated from Tuesday 16 October 2007. To activate this service on one's mobile phone, all a person needs to do is to simply SMS 'AIGSIP' to 56767 or visit www.aiginvestments.co.in. Once downloaded, the AIG SIP Calculator will continue to reside on one's mobile phone, just like any other application, and can be accessed anytime, anywhere. Through this service, an investor can calculate the future value of his investment based on key inputs like installment amount, expected rate of return, frequency of investment and number of years. He will also be able to calculate the monthly contribution required in order to achieve his targeted goal. The service will also benefit distributors since they will now have the added convenience of advising clients by simply accessing the AIG SIP Calculator on their mobile phones anytime, anywhere.
SBI Mutual Fund has launched its SBI Capital Protection Oriented Fund Series-1, its first capital protection fund. This close-ended fund, with a five-year maturity period will be benchmarked to Crisil MIP Blended Index. The minimum investment limit of the fund is Rs 5,000 and in multiples of Rs 1 thereafter. The NFO, which opened on 15 October 2007, closes on 23 November 2007.
This scheme is aimed at those with a low to medium risk profile, high net worth individuals, corporate and institutions investing in fixed income products and first time mutual fund. The main objective of the scheme is to protect the capital invested through focused investments in debt and money market instruments, as well as equity. The constitution of the scheme would be 73% debt, with it being close-ended, and 27% equity will be dynamic and the investor can invest in the BSE-100 stocks. Total target for the scheme is estimated at Rs 300 crore, and depending on the success of the series they plan on continuing with the series, said the SBI representatives at a meeting.
Looking at the three-month performance, gold ETFs (exchange traded funds) are coming up the value chain, a trend that has caught the attention of investment circles. However, diversified equity funds, in comparison, outperformed Gold ETFs. Gold ETFs, which had trailed almost all other categories of funds with sub-1% returns for the six-month period ending 12 October 2007, have sailed ahead in recent months - their three-month score turning out to 8.5%. Diversified equity funds have provided 14.55% and 35.08% over three- and six-month periods respectively.
Gold ETFs, a new-generation category spawned with the help of recent regulatory sanction, have remained a small group, with only three products making it to the list. These are managed by UTI, Benchmark and Kotak. UTI's Gold ETF and Gold Benchmark ETF have provided 8.58% and 8.54% respectively during the three-months ended 12 October 2007. The Kotak fund, which was launched in July, has given about 2.85% in the past one month or so. The market has not taken aggressively to gold ETFs, investment circles suggest, while referring to their relatively small asset sizes. This, they feel, indicates that there have not been too many takers compared to that of certain other categories. The UTI scheme, for the record, had about Rs 143 crore under management in September, the benchmark fund Rs 128 crore and Kotak Rs 52 crore. That gold ETFs are increasing in number is clear from recent filings by fund houses. The latest to do is Quantum MF - the proposed Quantum Gold Fund will be listed on the stock exchange in the form of an ETF tracking domestic prices of gold through investments in physical gold.
London: Fund management group Schroders plans to launch a range of funds in India and is in talks with possible partners, a British daily has said.
"Schroders Indian operation will offer a range of funds targeting domestic investors, offshore funds and discretionary fund-management accounts," 'The Times' reported.
The move into India is part of its international expansion plans. "The fund manager is understood to be in talks with a number of possible partners for the venture," says the report published on Sunday.
Schroders already has a strong presence in the Asia Pacific region, where it manages £29 billion in assets, nearly a quarter of the group's £137 billion funds under management.
According to the daily, S V Prasad, former chief executive of Birla Sun Life Asset Management, has been appointed as managing director of Schroders' Indian operations.
"India has strict rules for foreign firms that want to launch investment funds in the country. Start-up firms capitalised beneath a certain level, such as the Schroders venture, must tie up with a local partner, which will hold a 25 per cent stake in the business," adds the report.
Last year, it made profits to the tune of £290 million pounds. The group has offices in Australia, Indonesia, Singapore, Hong Kong, Taiwan, Korea and China.
Nothing works like a systematic investment plan, provided you start early.
We all want our children to get the best education possible. By having a plan in place for them, you can make it possible for your child to have better options, both in terms of deciding the type of education as well as selection of colleges. Professional and quality education is crucial to success in today’s job market. These days, education, right from pre-school, takes away a major share of income. However, the biggest jerk comes when the child is in the age bracket of 15-22.
Here are some tips on investing for your child’s education.
Set your goals: Each investment objective needs to be converted into monetary terms. If one wants to provide for his children’s education, he needs to be aware of the money to be set aside for this task, the time after which he would be requiring the amount and also the amount required, which should be in today’s value. Also, if the money is required more than once on a regular basis, even that should be penned down.
Start saving when the children are young: Children grow up quickly. That’s reason all the more to start saving for their education when they’re still young. If you begin early and invest on a regular basis, you can put the power of compound interest to work for building a corpus for your children. Since the requirement is a big amount, you can select any investment with good returns in the long run. One way to plan for your children’s education is to set aside a specific portion of your savings for that purpose. As the adage goes, a stitch in time saves nine. The earlier you start, the better. Otherwise, you will have to give up on some goals entirely.
Time horizon and inflation: The most important thing is the time horizon you have; the more time you have on your hand, the lower would be the contribution required to have the same corpus. This also opens up your options in various investments. Equity as an asset is comparatively less risky over the long term as volatility is evened out. Equity or equity related mutual funds not only beat inflation but also provide growth in capital. This benefit could be taken only if one has a long-term horizon.
Investment alternative: By starting the investment process early, you can afford to take a moderately higher risk investment alternative, which gives a higher return. Options can be chosen from any good mutual fund - debt, equity or balanced.
A plain vanilla balanced mutual fund (not branded as a children’s scheme) may be a good option for an investor who does not wish to rebalance his investment from time to time. Here, the investor may be better off allocating his own assets between equity and debt.
I cite here the case of one of my clients, Amit Gangar, 32, who has realised the importance of saving early and started when his kid is just 3 years old. He has certain goals in mind for his son, Dipen.
Providing for Dipen's education: As the table shows, to achieve the required future value for the educational needs of Dipen, Amit needs to invest Rs 7,020 per month, which should grow at 12 per cent p.a. Alternatively, he can invest Rs 7,06,935 as a lump sum amount, which should grow at 12 per cent p.a. The mode of investment should be through systematic transfer plan for a period of 2 years at least.
Recommendations: To meet you children’s education needs, a systematic investment approach through mutual fund is the best possible option currently available in the market. You should put an equal amount in different diversified schemes. This would not only ensure that you save regularly, but also help avoid any adverse impact of stock market volatility on the corpus.
On FY ’09 basis and beyond, select stocks (not sectors as a whole) in all types of market capitalisation are attractive. (But) capacity constraints and effect of higher interest rates on earnings will cease to be significant variables.
The expansion in the universe of large-cap stocks to more than 100 from about 30 three years ago, the deepening of the mid-cap category, now straddling a multitude of sectors, and an increasingly robust small-cap universe have enhanced the attractiveness of India for foreign portfolio investors.
It does not matter whether the BSE Sensex is at 15,000 or 30,000 - what matters are the fundamentals on the economic and corporate fronts, which remain on a solid footing.
What you just read are three seemingly different thoughts, courtesy missives sent recently to unit holders by various fund houses. For all the difference, you may well feel that an invisible cord ties all three together. Thoughts such as these are coming thick and fast these days, all of them perhaps leading to one question: Will the bull run sustain?
That question, as fund circles see it, may be asked a bit differently. As Franklin Templeton puts it, investors all over want to know whether they need to book profits or whether they should modify their asset allocation.
There is, in fact, one readymade answer, and that applies to investors with a long-term perspective. This set, it has been advised, need not necessarily fine-tune their plan just because the market has gone up so much. Nevertheless, one can consider options, considering the finer and positive aspects of investing in fixed-income products.
Here is more from Franklin Templeton: “We believe that in a fast-growing economy like India, market levels are meaningless. A few years back, very few could have bet on a 15,000 Sensex level… while valuations look expensive relative to other emerging markets, one should also keep in mind that growth prospects are strong and India has emerged as an ‘asset class’ in recent years”.
Now, before you start buying this logic completely, check out some of the risks that our markets broadly face. One, there is always a possibility that the liquidity flow into India may get stalled because of changing perceptions of the overseas investor. Two, earnings recorded by local corporates may weaken because of systemic changes (interest rates?) within the country. Three, runaway raw material prices may play the spoilsport, which again may impact corporate profitability a great deal.
Given this possible downside, what are our fund managers trying to say? Well, the asset management community is telling investors to adopt a really long-term approach. That is because the short-term scenario can be severely volatile.
Let us at this stage refer to another interesting school of thought. This relates to the sustenance of the bullishness. Equities, we are being told, have been scaling up for the last four years or so. Will this sustain for a few more?
There is no straight answer. Fund managers, nevertheless, are advising clients to pare their expectations, at least temporarily. As a particular fund house has recently noted, investors may well consider exposures across the capitalisation spectrum, with a bias towards large-caps.
Whether you actually want to follow their counsel is for you to decide. But before you decide, here are a few wise words from Sundaram MF. “To base investment decisions on the magnitude of returns we have experienced over the past four years can lead to inappropriate selection of stocks and funds, higher transaction costs and tax effects”.
Jaimit Bhatt had always thought that wealth management and advice from leading financial services companies was for someone like his rich and illustrious neighbour Vikram Garg, who had inherited a huge family fortune. But, his outlook to life changed last Friday, when his old and trusted financial advisor Ramanbhai (name changed) called him seeking an appointment.
The appointment granted, and the meeting concluded, Bhatt was suddenly exposed to an entirely new world of products. He had heard of them earlier, but never thought he had the wherewithal to invest in them.
Ramanbhai explained that portfolio management services (PMS) divisions of some local broking firms were now offering a set of alternate investment avenues for the rich, unlike the foreign private banks and wealth managers who only targeted the uber-rich.
Bhatt was told that PMS was changing tack to include, apart from equity, asset classes such as real estate and gold and some customised advice.
Over the discourse, Bhatt realised that HDFC Asset Management's PMS division was launching a fund that would invest in unlisted companies in the real estate sector. The minimum ticket size for the investment - Rs 25 lakh. Till now, Bhatt had thought such a fund was floated only by private equity players with an interest in the unlisted real estate space.
And these players normally garnered their funds from uber-rich individuals or institutions that had more than a few crores of rupees to spare.
ICICI Prudential's PMS division had also launched such a real estate fund early this year, managing to mop up around Rs 900-1,000 crore. According to Ramanbhai's sources, the fund house is on the verge of launching a 3-year product, with gold as the underlying asset, under its PMS division.
All this meant that with a sum of Rs 25 lakh or less, Bhatt could now invest in these asset classes, which were the exclusive preserve of the obscenely-moneyed class till very recently.
"PMS is now exploiting alternate investment classes to equity. Mutual funds do not allow that (except debt) and private banks offer them only to the uber-rich. So there is a need to launch such products for those who do not have crores to part with, yet have the appetite and resources to get into them," said Yogesh Kalwani, senior vice-president, product development at Motilal Oswal Securities.
In fact, Motilal Oswal has just launched a product called the Next Trillion Dollar Opportunity Portfolio. Though focused on equity - of small and mid-cap companies that have the potential to grow - the product's unique selling proposition is that it is available at a minimum investment size of Rs 5 lakh.
Meanwhile, the PMS division of Emkay, another local broking firm, has started charging clients only for advice. This is a departure from discretionary and non-discretionary PMS, where the client normally trades using the platform provided by the broker offering advice.
Discretionary PMS means the client's portfolio is constructed at the discretion of the fund manager, while in non-discretionary PMS, the client decides his portfolio mix, using advice from his PMS provider and executing his trades through him.
Akhilesh Singh, business head of PMS at Emkay, said, "Through this product, we are telling the client to execute his deals through any broker. We will only provide him advice on when to get into a stock, the potential of that, and when to exit." And the client pays for this advice, at Rs 25,000 every quarter.
But, others think this kind of a product may not work over the long run.
Ajay Padval, vice-president of PMS at KR Choksey Securities said, "We consider PMS a very personalised and aspirational service. Therefore, we wouldn't want to advise a client without knowing his risk profile and his investment needs." He probably meant that it's better to call such a product "market tips" rather than PMS.
All the same, with PMS players fighting for marketshare by introducing new products, offering newer asset classes and making this aspirational service more affordable, things are only going to look better for a client like Bhatt.
The turnaround in the performance of some the equity-oriented schemes of JM Financial Mutual Fund in recent months has not been replicated in the showing of its debt schemes.
Its long-term debt scheme, JM Income Fund, has been an underperformer in its category. The rather dull showing is largely owing to the nature of the debt market in the last few years, with hardening interest rates.
The one year returns and three year returns generated by the scheme, at 4.06 per cent and 3.94 per cent, respectively, lag the benchmark index (Crisil Composite Bond Fund index) by 1.5 per cent and 0.87 per cent, respectively.
As a result, the asset base of the scheme has shrunk considerably, and currently stands at Rs 43.28 crore. This is in contrast to the 2003-04 period, when it managed assets in excess of Rs 1,000 crore.
JM Income Fund is a veteran in the market (launched in December 1994) and was among the first three simultaneous launches when the JM Financial AMC started operations in 1994. It was called JM Liquid Fund then.
The scheme aims to provide high degree of liquidity while providing income and preserving capital.
The scheme has invested 69.85 per cent of its asset into debt instruments and 30.15 per cent in cash and equivalent. The debt portfolio is invested in good quality papers, with 31.65 per cent of net assets in AA/AA+ and equivalent papers and 38.19 per cent AAA/P+ or equivalent rated papers. The rest of the portfolio is maintained in CBLO instruments, which are highly liquid in nature.
The average maturity for the scheme has stood at 1.48 years, which is on the lower side for a long term debt product - but this is a trend across all income schemes. Fund mangers prefer to hold assets in near-cash instruments, ahead of the Reserve Bank policy review slated at the end of October.
For income oriented schemes, interest rate risk is high as these tend to invest in longer term papers. With the current outlook on interest rates is not very certain and investors would be advised to park funds in shorter maturity papers.
Mutual funds (MFs) sold shares worth a net Rs 354.80 crore on Wednesday, 10 October 2007, compared to their selling of Rs 340.90 crore on Tuesday, 9 October 2007. MFs' net sales of Rs 354.80 crore on 10 October 2007 was a result of gross purchases of Rs 1,052.30 crore and gross sales Rs 1,407.10 crore. The 30-shares BSE Sensex rose 378.01 points, or 2.07%, to 18,658.25, a record closing high on that day. MFs were net sellers of shares worth Rs 2063.80 crore in this month, till 10 October 2007.
India’s first Islamic fund scheme from a domestic mutual fund is set to be launched. Taurus Mutual Fund has entered into a tie-up with Mumbai-based Parsoli Corporation to launch Taurus Parsoli Ethical Fund, a Shariah- compliant Islamic fund, which will be a close-ended equity oriented scheme. The scheme document has been filed with Sebi for approval, reports - The Economic Times.
The Islamic fund, a first of its kind by a domestic mutual fund, will provide capital appreciation and income distribution to unitholders by investing in a diversified portfolio of equities that are Shariah compliant.
The scheme will not invest in companies providing financial services with interests in conventional banks, insurance companies or companies involved in businesses not approved by Shariah such as companies manufacturing, selling or offering liquor, pork meat, or involved in gambling and night club activities.
Parsoli Corporation is a BSE and NSE member. It offers its Muslim clients the option to trade in listed Shariah-complaint stocks. It has also compiled a Islamic Equity Index comprising the most liquid stocks of Shariah-compliant companies listed on NSE and BSE.
Under the scheme, after preliminary screening by Parsoli Corporation, each potential investment will be presented to a Shariah Board comprising Islamic scholars. The board will give guidance on the acceptability or otherwise under the Shariah of each company in which investment is recommended.
The board will conduct a Shariah review every quarter and an audit once a year. It is estimated that 360 stock out of the BSE 500 group will be compliant under the scheme, and 70 of the BSE 100 group will also be compliant.The scheme will not invest in conventional banking and companies where income from interest-related activities is substantial.
Also, companies with a debt to equity ratio in excess of 33% or whose cash and receivables exceeds 45% of total assets and whose non-operating interest income is greater than 5% of gross revenue.
It was a strong session for equity diversified NAVs, remained in an uptrend. It ended higher with positive advance:decline ratio of 186:4 as it was yet another strong session for the markets despite IT stocks bleeding on account of weak guidance from Infosys. The Sensex was up 155.82 points or 0.84% at 18814.07, and the Nifty up 83.40 points or 1.53% at 5524.85.
On the sectoral front, auto, banking, FMCG and pharma funds advanced while technology funds declined sharply. The BSE Auto, Bankex, FMCG and Healthcare indices gained 2.69%, 1.57%, 1.87% and 1.66%, respectively. The BSE IT Index was down 5.59%.
* Equity diversified NAVs end higher
* Auto, banking, FMCG and pharma funds advance
* Technology funds decline sharply
Among the equity diversified funds, the top gainers were Taurus INFRA-TIPS (G) up 3.39%, Sundaram BNP Paribas Select Focus (G) up 3.00% and Sundaram BNP Paribas Equity Multiplier Fund (G) up 2.79%. The top losers were Birla India Opportunities Fund - Plan B (G) down 1.44%, DBS Chola Global Advantage Fund (G) down 0.27% and SBI Arbitrage Opportunities Fund (G) down 0.04%.
Among the tax saving funds, the top gainers were UTI Long Term Advantage Fund (G) up 2.48%, Sundaram BNP Paribas Tax Saver (OE) (G) up 2.32% and Standard Chartered Tax Saver (ELSS) Fund (G) up 2.26%.
Among the sector funds, the top gainers were JM Auto Sector Fund (G) up 3.17%, JM Basic Fund (G) up 2.56% and Birla Sun Life Basic Industries Fund (G) up 2.40%. The top losers were Reliance Media & Entertainment Fund (G) down 0.40%, SBI Magnum Pharma Fund (G) down 0.65% and Kotak MNC down 0.81%.
Among the balanced funds, the top gainers were Kotak Dynamic Asset Allocation (G) up 2.24%, Escorts Balanced Fund (G) up 1.99% and LIC MF Balanced Fund - C (G) up 1.76%. The only loser was Birla Sun Life 95 Fund (G) down 0.54%.
