Prajna Capital - An Investment Guide

The securities market regulator, SEBI, has proposed radical changes in the way mutual fund distributors are compensated. SEBI seems set to enforce complete flexibility and transparency into the commission paid to the distributors. The changes are long-anticipated and many ways logical. However, they are likely to lead to a deep transformation in the way mutual funds are sold, and I think many distributors will find it difficult to adjust to the new regime. Mutual fund distributors (who are now euphemistically called Independent Financial Advisors-IFAs) are currently paid a commission by the Asset Management Company ( AMC ) whose funds are being sold. This commission is generally around 2-2.25 per cent for equity funds. This is deducted from the invested amount and the investor gets allotted that many fewer units of the fund. The distributor gets the commission from the AMC. Distributors are not permitted to refund any of the commission back to the investors. However, it is an open secr...

How does a Mutual funds works? A mutual fund is managed by an Asset Management Company ( AMC ). Professional investors, who study where and when to make investments staff the AMC. The AMC creates a mutual fund, and invites the public to subscribe in the mutual fund with their investment. The funds collected are then invested by the AMC and are continually managed. Unlike other investments, the mutual fund itself is not traded nor does it offer guaranteed returns like a deposit. The mutual fund's Net Asset Value ( NAV ) determines the value of the investment. Investors redeem their investments in the mutual fund on the basis of the NAV from the mutual fund itself. Equally, when investors want to buy, they buy into the mutual fund on the basis of the NAV.The investments are managed by professionals who know more about deciding what to buy and sell and when to buy and sell The risks and rewards of investments are spread across a large number of individuals, so losses are minimizedAcc...

The stock market is on a down hilll trek & the sentiment is gloomy. You may be looking for better options, but there are some segments you should steer clear from at the moment AVOIDING bad investments is as important as finding good ones. Post market crash, portfolio’s worth toady is not even a third of investments. With some genuine advise, people could have saved from investing at a wrong time. To make sure that you don’t fall into the same trap, we prepare a list of five segments you should refrain from investing in right now. REALTY & TECH STOCKS Stock market is a place where people with experience get money and people with money get experience. Words of wisdom, undoubtedly. But what should be your approach when it comes to where not to invest on Dalal Street? If analysts are to be believed, realty and technology sector stocks should be treated with extreme caution. The key to investing in the stock market is to avoid relying on hearsay. Given the volatility in the rupe...

Here’s an insight into the world of arbitrage funds — what you must know before taking exposure in such funds. HOW IT WORKS For starters, an arbitrage fund tries to take advantage of price discrepancies for the same asset in different markets. For example, if the stock price of ABC Ltd is quoting at Rs 100 and its future price is Rs 110 in the derivatives market, then the arbitrage fund can buy the stock in the spot market and sell it in the futures market and gain Rs 10. Put simply, arbitrage funds are fixed income products that are free from equity risk. They are affected by the stock market trend (bullish or bearish) to the extent that the demand for stocks and liquidity in the markets is impacted, which in turn affects the arbitrage opportunities. Another factor that affects the arbitrage funds is interest rates. Fund managers believe that when interest rates are high, people instead of buying stocks upfront prefer to deal in the futures market as it requires only a fractio...

At a time when the equity markets are in choppy and interest rates are stabilizing, it is natural for investors to gravitate towards debt instruments. At the same time, there are a few who believe that the market has bottomed out. So neither do they want to miss on the upside, should the market take a U-turn. The AMCs have found a way out by introducing equity-linked fixed maturity plans ( FMPs ), which will invest in equity-linked debentures. Unlike a normal debenture, where the interest rate ( coupon rate ) is fixed, in these debentures, the interest rate depends on an underlying basket of stocks. These stocks could be a select few chosen by the fund manager or it could be an index. Depending on the performance of the stocks, the return on the debenture is fixed. So how is this figure arrived at? Simply by looking at the Participation Ratio. Let's say that the debenture is linked to the Sensex at a 100 per cent Participation Ratio . Should the Sensex rise by 10 per cent, then th...