Skip to main content

Choose MF with a mix of asset classes

 

 

THERE are a lot of mutual fund (MF) schemes that have a mixture of various asset classes. When choosing to invest in these MFs, certain factors have to be kept in mind.

In recent times, several funds have entered the market that invest in a mixture of debt, equity and gold.


These funds have several distinguishing features and hence the investors must be able to take a clear decision.


Here are a few factors that investors can consider while making a decision.
Nature of fund: The nature of the funds, which invest in debt, equity and gold, seeks to achieve several objectives for investors. Majority of the investments in these funds are in debt, which defines the basic nature of the fund to provide a steady stream of earnings for the investor. In addition, there is a small part that is allocated to equity for the purpose of increasing returns for the funds.


This is similar to several monthly income plans that are present, but the major distinguishing factor is that there is also a small allocation that is made for gold.
This adds a third dimension to the entire investment and hence, gives a different nature to the fund.


Manner of fund allocation: The first thing that an investor has to decide is the route that they take while making the investment. The first route involves putting money in a particular fund where the fund manager chooses asset allocation.

In this case, the investor relies on the manager for the purpose of making the call on the proportion in each asset class and also when to remain in cash and when a change is desired.

The other option is to decide on asset allocation themselves by choosing funds that invest in a single asset class. What the investor does is select pure equity or pure debt funds and then allocate the required percentage of their portfolio to these funds. So an investor who also wants gold exposure, will select a gold exchange-traded fund (ETF) for investment. The difference from the earlier case is that there is not a single fund where a mixture will be involved.


The benefit here is that the investor can select a specific nature of the fund for each asset class.


Investment objective: The investor also needs to be clear about what they actually want to achieve when they are investing in a fund that has several asset classes.

The nature in which the i e portfolio of the fund is constructed will determine the a returns generated. For ex. ample, when it comes to the e question of the fund with the three asset classes of r debt, equity and gold, there is a clear demarcation.
e The debt will provide stability, while equity will pro l vide higher returns and gold y will act as a hedge against inflation. However, one needs to look at the actual situation e and determine whether this is correct and if the objectives can be achieved.

A careful study will show A that in the past few years the behaviour of gold ha been different from what was witnessed earlier and due to this reason, there is varied manner in which the entire portfolio will behave This needs to be taken into consideration because this will be the determining factor about the nature o the investment. An investor who expects gold and equity to behave in an investment, might realise that they are actually moving similarly requiring them t change their decision.

Finally, the investor also has to realise that mixing far too many asset class together might result in difficulty in understanding f what is actually happening e Gold exposure: The working of monthly income plans and how equities and debt interact to provide re d turns is well known to investors due to their past experience with these funds.

n There are different type s of impact depending upon the nature of exposure of equity in the portfolio. The investor needs to look at the exposure that will be allowed to gold and then ask questions about its effectiveness.

Some of these would relate to the extent of gold exposure in the portfolio and then looking at whether this has a meaningful impact on overall returns. For example, what is the maximum exposure to gold that the fund will have is important.

A very low exposure might be insignificant in the overall scheme of things. In addition, the fact as to whether there will be a permanent exposure to gold or whether this will vary depending upon the viewpoint of the manager is important.

This happens because in the latter case, it could be that for a long time period there is no gold exposure whereby the scheme then resembles a monthly income plan that is what the investor might not have wanted in the first place.

 

Popular posts from this blog

Equity investors should track market developments

The stock markets have been volatile over the last few days. They are in a sideways movement and trying to find the bottom after a fall of 20 percent a week ago. The market sentiments are not very positive at the moment and the recent developments are expected to dampen them further. Globally, governments and central banks are trying to cut rates and announce packages to improve business sentiments. These are some of the major developments in the markets last few month: A) Global On the global front, another large US bank went into a financial crisis. The US government took quick measures to avoid the spread negative sentiments in the markets. The US government announced a bail-out package and agreed to shoulder the losses on the bank's risky assets. China announced a large cut in interest rates and reserve ratio to boost the investor sentiments in the markets. Recently, the World Bank announced China's growth rate next year will come down to 7.5 percent. The European ...

TDS Rate and Personal Account Number(PAN)

    The TDS rate doubles to 20% from 10% if you fail to mention your Personal Account Number   IF you run a glance through your pay slip, you will come across something called TDS, which is tax deduction at source. In most cases, the employer deducts this amount at the time of payment of salary itself and pays the total tax amount to the government on behalf of all the employees. If you are a self- employed or practicing professional s, you have to pay this amount yourself.    Tax deducted at source is one of the modes of income tax collection by the government. Under the income-tax laws, income tax at specified rates is required to be deducted while making certain payments.    The rate of deduction of tax at source on interest and rent payment is 10%. For salary payments, the employers deduct income tax at source on a monthly basis after computing income tax liability on estimated annual taxable income of the employee. Tax benefits on housing loan, investments, etc are consid...

Tax Planning: Income tax and Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:   Provident Fund (PF) & Voluntary Provident Fund (VPF) Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free. Public Provident Fund (PPF) An account can be opened wi...

Fortis Mutual Fund

Fortis Mutual Fund, a relatively new player, it is still to prove its case and define its position in the industry. In September 2004, it came onto the scene with a bang - three debt schemes, one MIP and one diversified equity scheme. And investors flocked to it. Going by the standards at that time, it had a great start in terms of garnering money. Mopping up over Rs 2,000 crore in five schemes was not bad at all. The fund house has not been too successful in the equity arena, in terms of assets. Though it has seven equity schemes, it is debt and cash funds that corner the major portion of the assets. Most of the schemes are pretty new, and the two that have been around for a while have a 3-star rating each. The last two were Fortis Sustainable Development (April 2007), which received a rather poor response, and Fortis China India (October 2007). Fortis Flexi Debt has been one of the better performing funds, after a dismal performance in 2005. It currently has a 5-star rating. None ...

Gold: It is safe & secure

RETURNS ON GOLD & ITS ETF’s RISE WHILE most of the popular asset classes are going through bad times, the yellow metal shines on. In fact, in the last one year, gold has given a return of more than 25% and currently trades at Rs 14,695 per 10 gm. Even gold exchange traded funds ( ETFs ) have appreciated substantially. Gold Gold Benchmark Exchange Traded Scheme ( BeES ) and Kotak Gold ETF have given more than 25% returns each in the last three months. Even as the equity markets have taken a hit with the Sensex losing around 46% in the last one year and real estate prices also witness a correction, investors’ preference has shifted to safe havens such as gold. On an average, most of the diversified equity mutual funds have fallen and real estate developers are offering discounts. Thus gold remains the safest bet. The appreciation in the gold prices is mainly due to its safe haven status. The key reason for gold to go up is lack of other investment opportunity. There is also a risk in...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now