Prajna Capital - An Investment Guide

Alpha, the net performance of a component against the benchmark is an overlooked tool   Absolutely speaking, any bounce back now on markets should be the last for the year. We offcourse can be wrong and prefer to be judged on alpha (relative performance) as relative accountability is fine with us. According to Alpha India, the top outperformers in the weeks ahead should be Reliance Communications, Reliance Infrastructure, SBI, HDFC, ONGC, Larsen, Jaiprakash Associates, Maruti, Bharti and DLF. On the short side (reduce side), we have Ranbaxy, ACC, Sail, Tata Steel, Wipro, Tata Motors, Sun Pharma, TCS, M&M and Infosys.   Performance like everything follows the 80-20 rule, 80 per cent of your gains are going to come from 20 per cent of your portfolio. So why not give it a thought? The importance of alpha If alpha was so important, then why don ' t newspapers and websites publish it? Why alpha gets featured annually but not as intraday or daily event? Why don ' t we c...

PRIVATE non-life insurer ICICI Lombard General Insurance has introduced two add-on covers — Zero Depreciation and Consumable items — in its motor insurance portfolio. In case of the former, depreciation in auto parts will not be deducted from the claim amount payable to the insured. Other general insurers including Tata-AIG General and Bharti-AXA General Insurance also offer a similar cover. The other add-on promises to ensure that the claim amount is not reduced by the value of consumable items, which would be the case otherwise. This cover includes items such as nut & bolt, screw, grease, lubricant, air-conditioner gas, bearings, engine oil, oil filter, fuel filter and brake oil.

   Portfolio management strategies could be aggressive or defensive . The balanced approach of having a good mix of both works well in all times. In order to strategically align portfolios to the market cycles, investors must link portfolio management with both the returns.    Another key parameter of a balanced portfolio management strategy is the diversification of the portfolio. A well-diversified portfolio comprises both low risk low-return fixed income securities like government bonds and bank deposits, and high-risk high-return securities like equity and mutual fund investments. Some hedging instruments like derivatives and insurances may also be held.   A diversified portfolio will also typically include a good mix of investments in and development of capital markets by adopting hybrid approaches that mix elements of active portfolio management strategy of the top-down and bottom-up models.   A) Top down approach - The top down approach looks at the market as a whole ...

The ICICI Pru Banking & Financial Services Fund has yet to make a mark. If you look at its year-to-date or 1-year return (as on November 30, 2009), the fund underperforms its benchmark. On the other hand, it’s fairly good in a peer comparison. Benchmarked against the BSE Bankex, the majority of the fund’s investments are not components of this index. Currently the fund has 64 per cent of its assets in such stocks while the average allocation since launch is 61 per cent. That would explain the underperformance in comparison to the benchmark. It would also explain why the fund fell by a lesser amount in the December 2008 and March 2009 quarter. HDFC, IDFC, Srei Infrastructure Finance, Sundaram Finance, Max India, Aditya Birla Nuvo and Reliance Capital are some other stocks that have made an appearance. While he refused to comment on individual stocks Launched in August 2008, it seemed natural that the fund manager would hold onto cash till the crisis tided over. But surprisingly, the...

    Deutsche Mutual Fund will launch DWS Global Agrobusiness Offshore Fund ( DGAOF ), an open-end foreign fund of fund ( FOF ). The fund will largely invest in DWS Invest Global Agrobusiness Fund based in Luxembourg and similar mutual funds. The fund can also have a maximum 20% allocation to debt.   DWS Invest Global Agribusiness Fund invests all the way from agricultural commodities to consumer products. The fund invests into companies in land and plantation seed and fertilizer, planting, harvesting, protecting and irrigation, food processing and manufacturing companies, offering investors the opportunity to capture value at various points along the "food chain". DGAOF will be benchmarked against MSCI World Index.   There are two other funds on roughly similar theme – JM Agri & Infra, a close-ended fund and Birla Sun Life Global Agri fund, an open ended fund which also invests in global agri companies besides Indian stocks.   The fund offers both dividend and ...

In a growing economy like India, it's extremely hard to lose money over a long period OVER the past few months, one after another, a number of insurance companies have launched Ulips, which promise to repay investors on the basis of the highest NAV that the fund has achieved. The pitch is that these funds' NAVs effectively do not drop. Once a level is achieved, then the investor is assured of getting at least as much, no matter what happens to the market. It's certainly a very attractive idea. From the way insurance companies are stampeding into launching such products, I'm sure investors must be putting in their money in good numbers. Within a couple of months, six insurance companies have launched such products. Any investor who is told of this concept will immediately start salivating at the thought. Imagine how rich you could have been had you been invested over the past 10 years and had been able to lock your investments at the magical value that the markets achie...

Indian investors will soon be able to buy a foreign exchange-traded fund (ETF) listed on the National Stock Exchange (NSE). The coming Monday will see NSE list the Hang Seng BeES, an open-ended index scheme, which tracks the Hang Seng on a real-time basis. Promoted by Benchmark Mutual Fund, this will be the first foreign ETF which will enable investors to take exposure to a hitherto closed market like China. "All the regulatory approvals are in place and we will go live from February 15," Sanjiv Shah, ED, Benchmark Mutual Fund, told ET confirming the development. "Hang Seng BeEs will enable an Indian investor to buy into the largest manufacturing economy in the world (China)," he added. ETFs are just what their name implies: baskets of securities that are traded, like individual stocks, on an exchange. Unlike regular open-ended mutual funds, ETFs can be bought and sold throughout the trading day like any stock. Most ETFs charge lower annual expenses than index mu...

HSBC Equity has fallen short of expectations when its peers are rewarding their investors with much higher returns THE largest scheme from the HSBC basket, HSBC Equity Fund manages an average asset base of about Rs 1,377 crore. Launched in December 2002, the scheme is not only the oldest but also one of the most popular schemes from HSBC. Having run high on the popularity charts of the overall mutual fund ( MF ) industry during the few initial years of its launch, HSBC Equity has, however, failed to keep pace with the markets for quite some time now. PERFORMANCE: HSBC Equity started its innings in 2003 on a high not. In its first year, it beat its benchmark index the BSE 200 by extremely generous margins as it net asset value ( NAV ) jumped by 160% much higher than 95% rise in BSE 200 and a 72% return each by the Sensex and the Nifty that year. It maintained its winning streak in the following two years to emerge as one of the top performing funds of its time. But having said that, t...

This article explains how capital gains tax can be saved by depositing the amount in specified bank accounts Capital gains tax is levied on sale or transfer of a house. The capital gains tax is computed on the indexed cost of the house purchased, which is deducted from the consideration received. The indexed cost is computed according to the indexation rates notified by the Income Tax Department for each year. You can reduce the capital gains tax payable by complying with the provisions specified under the Act. The benefit is available only to individuals and a Hindu Undivided Family ( HUF ). No other category of assessees are eligible for this concession. The house may be self-occupied or rented out. It must be held for a period of more than 36 months before the date of sale or transfer. The asset transferred should include a building, or land appurtenant to it and a house. The income of the house should be chargeable to tax under the head 'Income from House Property'...

HDFC Bank has revised the average quarterly balance ( AQB ) requirements of various deposit accounts. In case of regular savings account, the minimum AQB to be maintained will be Rs 10,000 and Rs 5,000 for urban and rural branches, respectively. For kid’s advantage accounts and senior citizen accounts, this figure stands at Rs 5,000 across branches. These changes will come into effect from April 1, 2010, for its existing accountholders. Earlier, the bank had revised rates for its new customers as well.

Owing to the uncertainties of life, getting insurance cover is an utmost important exercise to ensure a secured future. However, few are aware of the intricacies of the insurance policies    Most people have never sat down with an insurance broker. So they're not aware of the products that might benefit them. People hear negative instances from acquaintances and believe them to be true but the fact is they should go to experts who really know about insurance and can really guide them with good advice and to take better care of their money and future. Some may feel that the advisor is just there to push products, and many probably are, but the primary purpose of having a consultation with an insurance broker is to have an overview of your financial picture and determine what needs may be met, if any or what improvements on any existing coverage can be rendered.    First, life insurance is ideal for people who are married, have children, own assets, need business protection, or ...

The last date to apply for a PAN is March 31, after which you will have to pay higher TDS,    From the new financial year, assessees will have to pay a higher income tax at source if they do not have a Permanent Account Number (PAN). Tax at higher of the prescribed rate or 20 percent will be deducted on all transactions liable to tax deduction at source (TDS), if the person liable to the tax does not possess a PAN. The new provisions related to TDS under the Income Tax Act will become applicable with effect from April 1, 2010.    All those liable to pay the tax, including non-residents, need to obtain a PAN by March 31, 2010. This number has to be communicated to those liable to deduct tax before the tax is actually deducted on transactions after that date.    As such, all financial transactions without PAN will attract tax from April 1, 2010. The Income Tax Department has already made it mandatory for employers to quote PAN of their employees and parties from whom tax is deducte...

Given the rising expenses on healthcare, education and rental housing, individuals can go beyond Section 80C to avail tax exemptions    THE Section 80C of the Income-Tax Act is one of the most popular avenues for the salaried individuals devising tax planning strategy. The section allows tax deduction of up to Rs 1 lakh by investing in approved instruments and hardly anyone misses this opportunity. However, given the rising expenses on healthcare, education and rental housing; individuals can go beyond the Section 80C and avail tax exemptions. Here is a sneak preview. MEDICAL EXPENSES If there is an expenditure that can indeed burn a big hole in one's pocket, it is the medical expenditure. No wonder that the Income-Tax Act has more than one provisions to offer relief to those incurring these expenditures; notwithstanding that even these appear to be quite inadequate as compared to the actual medical costs one usually tends to incur these days. SECTION 80D The amount of premium ...

Cabinet also approves changes in Seeds Act for quality control THE centre on Thursday hiked the existing gratuity limit to Rs 10 lakh from the existing Rs 3.5 lakh. As per the Payment of Gratuity Act, 1972, on completion of five years service, employees in both private and public sector covered under the Labour Act are entitled to payment of gratuity subject to a maximum of Rs 3.5 lakh. The gratuity is an in- come for an employee equivalent to half of the last monthly basic pay drawn multiplied by num- ber of service years. How- ever, an upper limit of Rs 3.5 lakh has been there on gratuity. This ceiling has been raised to Rs 10 lakh with immediate effect. The union cabinet cleared the proposal of personnel de- partment on Thursday. The Cabinet also cleared proposed amend- ments in the Seeds Bill as per recommendations of parliamentary standing committee. Agriculture minister Sharad Pawar will move the amendments to Seeds Bill in both houses of Parliament. The pro- posed Seeds Bill, wh...

There are certain features that make houses more appealing to buyers. Go for these and enhance your house's value. They won't cost you a bomb either    HAVE you ever wondered why there is a large variation in prices between two houses? Why an apartment is often considered a cut above the rest and also commands better value and rental returns?    The location of your home and other factors like the floor that you are in are a given, but there are some features that make homes more appealing to buyers. These features are within your control and can be introduced by investing a small fraction of the house's value. Here are some tips: CLEAN & SPACIOUS This is one improvement that costs next to nothing. But a house that is spanking clean and is not cluttered with furniture or other household stuff gives an impression of space and warms the buyer to the property. KITCHEN & BATHROOM These two rooms are the ones where you can make investments that have immense utili...

In the first 10 years of its existence, 1996 to 2006, this fund beat the category average every single year. However, doubts were raised when it performed averagely in 2007 and 2008. It then silenced every sceptic by the best performance in its category in 2009. The fund manager has been at the helm of this scheme since its inception. He likes to stick to his beliefs, the current trends dont bother him. The funds mandate allows equity allocation to be between 40-75 per cent. The fund has stayed within its equity limit, averaging 70 per cent since mid-2006. The manager had a high equity allocation in 2008, most of it in lower caps. This was why the fund performed averagely in 2008, but also why it topped the category in 2009. The manager keeps the portfolio well diversified with respect to both stocks and sectors. Over the past year, the average number of stocks have been around 60. Since 2006, the allocation to the top five stocks did not go beyond 20 per cent. On the debt side, the fu...

Fiscal Deficit The government is taking a lot of flak these days for the 16-year high fiscal deficit in the current fiscal year. Here’s how it is: The government’s ‘non-borrowed receipts’ — revenue receipts plus loan repayments received by the government plus miscellaneous capital receipts, primarily divestment proceeds — fall short of its expenditure. The excess of total expenditure over total non-borrowed receipts is called ‘fiscal deficit’. The government then has to borrow money from the people to meet the shortfall. Revenue Deficit Revenue deficit is an important control indicator. All expenditure on revenue account should ideally be met from receipts on revenue account. Ideally revenue deficit should be zero, else the government will be in debt. Primary Deficit This is a key indicator. When it shrinks, it indicates we are not doing too badly on fiscal health. The primary deficit is fiscal deficit minus interest payments the government makes on its earlier borrowings. Deficit And ...

Till date, Religare Banking, a large-cap oriented fund, has proved to be a safe, but not exciting player. It started off well by beating its benchmark — CNX Bank Index, in the initial two quarters. But it faltered in the June 2009 quarter, when it underperformed its benchmark and the category average by a margin of around 20 per cent and 8 per cent, respectively. A part of the reason could be the delayed move to lower cash. The cash allocation was pretty high in April (20%) which got lowered by June 2009 (5%). However, Kumar feels that it was a combination of the cash allocation as well as the type of stocks. "The initial part of the recovery was with stocks that had fallen hard last year," says Kumar. "They rose sharply just coming off the trough. These were the stocks we were underweight on." Despite that lapse in performance, the fund has rallied in recent times. Its 1-year performance is pretty average but its 6-month return (as on November 30, 2009) place...

With 37 funds in play, what are the criteria that should guide investors while selecting a Mutual Fund    ALL Asset Management Companies ( AMCs ) comprise eminent board of trustees and are well regulated. We would take a holistic view on the AMC and not merely look at its size before recommending it to clients.    With a mere 5% of Indian household savings going to mutual funds, compared with more than 60% worldwide, there is a lot of headroom for mutual funds to grow.    The potential, coupled with low-entry barriers, have resulted in as many as 37 AMCs doing business in India with a few more likely to join soon. The increased competition is putting pressure on the margins of AMCs. So what are the factors that an investor should keep in mind while choosing a fund? Investment process Disciplined approach in investments over a longer period of time plays a crucial role when we choose a fund. The AMC should have a well-defined investment process. The investment decisions of the fu...

Absence of market maker that can ensure discount for investors hits fund schemes TRADING in closed-end schemes of mutual funds, which are mandatorily listed on stock exchanges following the Securities and Exchange Board of India (Sebi) order in December 2008, remains virtually non-existent with barely a handful of funds witnessing any kind of trading volume. According to Value Research data, only 13 out of 140 closed-end schemes have seen some or any kind of trading in the bourses ever since the Sebi order came into force. The average daily trading in these schemes have been just a meagre 25,000 units, according to figures available from January 2009. However, the daily trading figure swings between just one unit of a particular scheme on a particular day to over 300,000 units of some other scheme on a day. Experts say the trading in these mutual fund schemes have failed to pick up because of lack of demand in absence of a market maker that could offer the schemes to buyers at su...

Gold Fund Of Funds Seen In Demand Of Late LATE in December, Benchmark Asset Management joined a couple of other mutual funds to file its offer documents with Sebi to launch gold fund of funds ( FoF ) in India. A FoF is an investment strategy of holding a portfolio of other investment funds. A gold FoF, which invests in gold exchange-traded funds ( ETFs ) and reflects its returns, will help investors bet on the yellow metal without maintaining a demat account of a stock broker. Currently, investors in India can take exposure to gold by buying the metal physically or investing in gold ETFs offered by local mutual funds. Gold ETFs are passively-managed funds, which are listed and traded on stock exchanges, and designed to mirror the returns from physical gold in the spot market. But many investors, who don’t have a demat account, haven’t been able to transact gold ETFs, as buying or selling them can be done only through stock brokers. Gold FoF attempts to remove this obstacle f...

Investing in commodities can be hot and volatile. It is better you don't invest all your money at one go    METALS were the best performing sector on Indian bourses in calendar year 2009. Compared to the BSE Sensex, which moved up by 81%, the BSE Metal index appreciated 234%.    Such triple-digit gains may prompt some investors to think, If commodity stocks are such hot property, then commodities should be good investments in themselves.    But returns in commodities can hardly be termed consistent.    Consider this: In 2007, those who bought into commodities such as oil and ferrous metals saw their wealth evaporate. A year later, those who kept the faith on the ability of policymakers to review demand managed to generate profits.    Data on commodities is very transparent. However, volatility is high in commodities and hence, investors must not put money in one go, but should average investments over a period of time DERIVATIVES FOR DARING Commodity futures are simple ba...

Market watchdog Sebi on Thursday standardised the risk warning that mutual funds have to display in their audio-visual advertisements, with a view to help investors better understand the message. The new rule, which will be effective from May 1, stipulates that the warning in audio-visual ads should be displayed and both the visual and the voice-over of the standard warning should be run for at least 5 seconds. Sebi has also modified the standard warning to: "Mutual fund investments are subject to market risks, read all scheme-related documents carefully" from the earlier warning that read: "Mutual fund investments are subject to market risks, read the offer document carefully before investing." Under the existing guidelines, in ads through audiovisual media like television, the warning is required to be displayed on the screen for at least 5 seconds and be accompanied by a voice-over reiteration.   "However, it has been observed that in some cases the visua...

Half Of AMCs Yet To List Schemes On Bourses; Brokers Too Less Enthusiastic ABOUT two months after their launch, activity on mutual fund ( MF ) platforms of stock exchanges remains comatose, as investors continue to stick to the age-old system of buying and selling products through distributors. One reason for this is over half of the asset management companies ( AMCs ) are yet to list their products on stock exchanges. But more significantly, most stock brokers are less enthusiastic about providing services to transact mutual fund schemes through the new platform.     Though brokers publicly maintain that trading of mutual fund products is the next big thing for them, they are slowly realising the practical difficulties of scaling up the business. Brokers earn majority of their revenues from regular trading of stocks by clients, but mutual fund schemes can't be bought or sold in the same manner as shares.     Mutual funds are trying to project their products as long-term ...

Elderly citizens can invest in the Senior Citizens Savings Scheme as it offers triple benefits of safety, liquidity and regular periodic income THE search for safe investment avenues offering regular income begins as one approaches the retirement age. Schemes that offer capital appreciation coupled with security are the most desired. Being guided by such a principle, the Government of India had announced a special scheme known as Senior Citizen Savings Scheme or SCSS in 2004 to cater to such needs of the senior citizens. In a short span it became very popular with people, however, attractive rates on bank fixed deposits last year overshadowed the scheme. Now, with falling deposit rates, the scheme could make it to the limelight again. However, the biggest shortcoming of the scheme is that the interest earned on it is taxable. If the interest income in a year is more than Rs 10,000, then the TDS (tax deducted at source) is cut. However, with the recent amendment an investment up ...

While booking, he noticed an option of domestic travel insurance on the ticketing website. The policy, available for Rs 129, offered to pay Rs 1,500 for six hours of delay. Sharma bought the policy, though he reached his destination on time. For fliers, it is difficult to ignore the domestic travel insurance policy due to its low cost. A policy is available for as low as Rs 99, and up to Rs 249. Coverage spans flight delays or cancellation to loss of baggage and personal accident. Buying a policy is an individual decision and situation-specific. If the traveller feels that weather can create problems in the journey, like the Delhi fog or Mumbai rain, it will make sense to cover oneself against unforeseen circumstances,. A frequent traveller should buy a policy which is effective for the entire year. Almost all ticketing websites and airlines offer the insurance with online bookings. Of the passengers booking domestic air tickets online, 15 per cent buy travel insurance policy. ...