Monday, June 29, 2009
Mutual funds are one of the most efficient and popular investment options for people looking to invest for wealth creation.There are thousands of funds to choose from, yet most investors really don’t need more than four or five funds. Sifting through all of the choices can be rather daunting.
There are thousands of funds to choose from, yet most investors really don’t need more than four or five funds. Sifting through all of the choices can be rather daunting.
HOW DOES A MUTUAL FUND WORKS
A mutual fund is a fund where money is collected from all the investors investing in that fund, and is invested by a qualified fund manager on behalf of all the investors. The fund manager manages the investment and aims to beat the benchmark returns like BSE 100, Nifty 50 etc. Each of the funds will have a investment goal and strategy and the fund manager is required to invest according to that mandate. There are 3 kinds of mutual funds basically on the nature of its investments
1. Equity based mutual funds
2. Debt Based mutual funds
3. Balanced or hybrid mutual funds
Mutual funds are also classified as active funds and index funds. Active funds are the funds where the fund manager actively trades the stocks to generate maximum possible returns , while in an index fund the investment is made in stocks representing that particular index like nifty or sensex , in the same proportion. The active funds can have greater returns but also have higher costs, while index funds have lower costs and believe in "buy and hold"strategy.
HOW TO EVALUATE A FUND?
First, you need to figure out what type — or style — of fund you need, which is based on your investment goals, time horizon, tolerance for risk, among other factors. After deciding what types of funds you need — like an international stock fund or a fund of small companies — you will want to evaluate the funds in each category using the following criteria:
1. Costs - First, find out if there are any suitable index funds — they have the lowest costs and typically beat their actively managed counterparts over time. The average active mutual fund charges about 2.25 percent of your investment each year — this charge is known as a fund’s expense ratio — while the average index fund costs 0.50 percent.Pay close attention to other fees. You want to avoid funds that charge loads, which are sales charges levied when you buy or sell a fund.
2. Company - Do business with companies that have long track records. The same goes for portfolio managers. Find out how long they have been running the fund, and what they have done in the past. Web sites like Morningstar.com and valueresearchonline.com track this type of information.
3. 5 star or 4 star funds only - Morningstar and valueresearchonline rate the funds depending on their relative performance over years. The 5 star rated funds are supposed to be best performing fund and one must look to invest in those only.
4. Performance over long term - Don’t put too much weight on fund performance over recent past. Often, this year’s star funds are next year’s worst performers. Check the fund’s performance over three-, five- and 10-year periods. If the fund is actively managed, compare how the fund has performed versus its benchmark, especially during market downturns. Be sure to stack it alongside its peers, or funds of the same style, too. Choose a fund with relatively consistent returns.
5. Portfolio turnover - This is a measure of how often a fund manager buys and sells the securities it holds. If a fund has a portfolio turnover of 100%, that means it has bought and sold its entire portfolio within the last year. The higher the turnover, the higher the trading costs -- and the more likely the fund will generate capital gains. Lower turnover means the portfolio manager is adhering to a longer-term buy-and-hold strategy, which should translate to higher returns. Index funds have a very low turnover ratio. For funds held in taxable accounts, it is best to choose a fund with turnover of less than 25 percent.
WHERE TO BUY MUTUAL FUNDS FROM
One can buy mutual funds from various distributors of the AMCs. Most of the banks and FIs act as agents or distributors for the mutual funds company and one can buy it from them. Mutual fund company have direct sales offices and representative as well. There are AMFI certified agents as well who sell mutual funds. One can buy it from them as well.
Sunday, June 28, 2009
Friday, June 26, 2009
Thursday, June 25, 2009
Wednesday, June 24, 2009
Tuesday, June 23, 2009
Let us examine this in detail . Now, the question that we need to answer is this : Do we invest in a fund to make more money /return or to buy a unit at lower NAV? the answer is obvious. There are various drawbacks of a NFO , some of which are mentioned as under:-
Now, let us take an example of Rs 1000 being invested in 2 funds . One is an NFO offering units at NAV of Rs 10 while the other one is an existing fund with NAV of 12. So the units that one gets in both the fund will be
NFO - 1000/10 = 100Existing fund - 1000/12 =83.33
Now , assuming at the end of 1 year the NAV of these funds are as under
NFO - 12Existing fund- 15
The returns in both these funds at the end of 12 months
NFO = (2/10)X100=20%Existing fund = (3/12)X100=25%
Total fund value at the end of 12 months
NFO = 100X12=1200Existing fund = 83.33X15 = 1249.50
So , you can see that in the existing fund, the returns are more than the one in NFO even though the NAV of NFO at the time of entry in the fund was lower than the NAV of the other fund.This establishes the fact that the return on your investment does not depend on the NAV of the fund when you enter into it. It depends on the growth in NAV during the time you enter and the time you exit. Hence, the notion of NFO being a better option simply because they offer NAV of 10 is completely false one.
2. NFOs have higher charges - NFOs have higher charges than an existing fund since they have to spend on marketing and sales promotion of the fund. A new fund is launched amidst much fanfare and all this cost money. Even the sales commission for an NFO is significantly higher than the existing fund and all this add up to increase the charges. NFOs have first year charge of 3-4% as against a charge of 2.25% for an existing fund. So, you end up loosing money in an NFO because of these unnecessary charges.
Since NFOs are in no way better than an existing fund , then the question is why are they so popular? They are popular because of NFOs offer companies to package their fund in a unique way and they also play on the mindset of investors that low NAV is better for them. An informed investor will stay away from NFOs and would invest in funds which have performed exceedingly well over 5-10 years. Why would you like to take a chance with a newcomer when you have a veteran ready to take care of your money.
Monday, June 22, 2009
Sunday, June 21, 2009
Saturday, June 20, 2009
Friday, June 19, 2009
Thursday, June 18, 2009
Wednesday, June 17, 2009
Tuesday, June 16, 2009
Monday, June 15, 2009
I am an ardent admirer of Rakesh Jhunjhunwala for his acumen and smart investment startegies over last 2 decades. He made a fortune for himself by investing in Indian Stock Market. This was at a time when investing in stock markets was still considered akin to gambling. But, as he proved , investing in stock markets require a strategy, deep understanding of the business fundamentals of the company you are investing in and loads of patiences. So , thought of checking on what Mr. Jhunjhunwala is doing today . How is he investing his money in these times and how does his portfolio lok like.
Over the past five quarters between January 2008 and March 2009, 48-year-old Rakesh Jhunjhunwala’s portfolio of publicly traded stocks, of firms in which he owns at least a 1% stake, has underperformed the benchmark index. His portfolio has dropped at least 60% in value, according to data from exchanges, while the Bombay Stock Exchange’s (BSE’s) benchmark equity index Sensex dropped around 52% over the same period.The Sensex has climbed back about 45% since, while Jhunjhunwala’s concentrated portfolio, which has largely been kept undisturbed, gained only about 15% over the same period.Jhunjhunwala, the founder of proprietary trading firm Rare Enterprises—named using the first two letters of his and his wife Rekha’s names—twice declined to speak for this story. Most of his portfolio picks are held under this firm, by himself and in the name of his wife.The most visible, albeit minor, changes made by Jhunjhunwala to his portfolio indicate a trend towards defensive sectors.
Top Holdings as on March 09
1. Aptech - 31.7% - Worth Rs 122.9 Cr.
2.Viceroy Hotels - 11.20% - Worth Rs 7.5 Cr
3. Titan - 8.8% - Worth 280 Cr
He purchased an additional 0.65 million shares in software firm Geometric Ltd, where he now owns a 7.27% stake, and 0.3 million shares of Agro Tech Foods Ltd, in which he held a 7.8% stake at the end of December. He also purchased 0.17 million shares of Karur Vysya Bank Ltd and 0.13 million shares of drug maker Lupin Ltd.On the other hand, he has cut his exposure to Hindustan Oil Exploration Co. Ltd, selling 1.4 million shares during the quarter ended March. Jhunjhunwala also sold about one million shares of Hyderabad-based Nagarjuna Construction Co. Ltd. He reduced the ownership in Pantaloon Retail (India) Ltd by 0.43 million shares and in Titan Industries Ltd by 0.12 million shares.
Apart from large investments in a concentrated portfolio and smaller investments in a larger portfolio of listed firms, Jhunjhunwala owns sizeable chunks of equity in several closely held entities through his private equity and venture capital- style investments.According to data published at the end of December, he owned at least a 1% stake in 31 firms, valued at about Rs1,466 crore.And at the end of March, he owned at least 1% in 27 companies traded on BSE that declared their latest shareholding details. Some of his portfolio stocks, including the pharmaceutical services provider Bilcare Ltd, pharma firm Zenotech Laboratories Ltd, publisher Infomedia 18 Ltd and water treatment firm Ion Exchange India Ltd, are yet to update shareholding details.Jhunjhunwala’s holdings in at least a dozen non-listed entities include the 16% stake in Diwan Rahul Nanda’s Tops Security Ltd, New Delhi-based A2Z Maintenance and Engineering Services Pvt. Ltd, Dharti Dredging and Infrastructure Ltd, Inventurus Knowledge Solutions Pvt. Ltd, Maneesh Pharmaceuticals Ltd, Nandan Biometrix Ltd and Concord Biotech Ltd, among others.
To be sure, Jhunjhunwala’s portfolio consists mainly of mid-cap stocks while the Sensex is composed of large caps.And, despite the beating his portfolio has taken during the downturn, people who have worked with this whisky and cigar aficionado vouch for the soundness of his overall strategy.“He has tonnes of patience and the temperament that makes him a rare stock market investor,” says Alok Agarwal, a Mumbai-based funds adviser who owns at least 2% in Aptech Ltd, a venture he started to provide computer education. At the end of March, the Jhujhunwalas held a 31.7% controlling stake in Aptech, valued at around Rs123 crore.It is this so-called temperament that, starting with Rs5,000 in 1985 has allowed him to achieve almost cult status with investors in a country where only 3% of the 1.2 billion population invests in equity markets.His investment strategy, followed closely by many individual investors, involves maintaining a steady portfolio of stocks with a long-term view while committing smaller amounts to the high-beta activity of equity trading such as day trading that tends to be highly volatile.Source:livemint
Saturday, June 13, 2009
1. Who needs to file the tax returns - All corporates and individuals whose income is within the taxable income slab need to file income tax. For those individuals whose total annual income is less than the taxable income (currently Rs 1.5 lakhs pa for men and Rs 1.8 lakhs for female) need not file income tax returns. However, in case your net tax liability is 0 after availing the various income tax deductions under Sec 80C and Sec 80D etc, then you are required to file your income tax returns.
2. When is the last date for filing your income tax returns? For all those who have tax liability yet to be paid , have to file their income tax returns by 31st July . However, if you are a salaried person and have all your tax liability already paid via TDS , then you may file your tax returns till March 31st 2010.
3.What if you fail to file your returns within the stipulated time? If you fail to file your tax returns by March 31st 2010, then you will have to pay a fine of Rs 5000 as per IT Act. So, please stick to the time lines to avoid this.
4. What are the documents required? For , salaried people, the Form 16 provided by the employer is the most important document which is required for filing income tax returns. In case of interest income from FD, investment in shares etc, the documents supporting that needs to be submitted.
5. How can you file your returns? You can file the income tax returns yourself by filling the relevant documents and forms. However, in case you are not very comfortable with the accounting principles etc, then you may take the help of a qualified CA as well. CA will take care of end to end process of filing tax returns for you. They may charge anywhere between Rs 200 to Rs 1500 for this purpose.
6.Where else can I get help? There are around 3,500 registered TRPs in India who are authorized to file tax returns of any individual whose income is not subject to a tax audit.Though they get a nominal amount from the taxman for filing of returns, many TRPs charge clients for their services.
7. Can I file IT Returns online ? Yes. You can also file your Income tax returns online . You will need a digital signature for this purpose .Tax websites can help you generate the ITR form once you enter particulars of your earnings and savings in the web-based form. These websites offer various packages, ranging from 100 - 750 rupees, depending on the type of income declared and mode of submitting the return finally, electronic or manual. There are various sites which you may use for this purpose like myitreturn.com, myitfile.com, taxsmile.com, taxspanner.com, filemyreturns.com.
8. Why Filing Income tax returns is necessary ? Income tax returns are necessary for each one of us to file because it is mandatory exercise for all of us . Government of India requires everyone whose income is within taxable income bracket to file their returns. Besides the legal requirement, your Income tax returns will come handy as your income documents while applying for a loan with banks. Most of the banks will ask for Income Tax returns as your income document when you apply for a home loan or personal loan etc with them. Income tax returns also is needed to arrive at your life insurance cover limit when you go for a term plan.