Prajna Capital - An Investment Guide

Ultra short-term funds: They invest in debt and money market instruments with a maturity ranging from 90 days to one year. Though they are riskier than liquid funds, investors get better and more tax-efficient returns. Short-term bond funds: They invest in debt and money market instruments for one to two years. Medium -term debt funds: They invest in bonds, debentures, government securities and money market instruments. They are more volatile in nature as their portfolios have instruments with longer maturity duration. But returns can be better. Gilt funds: They primarily invest in government securities issued as a part of the government’s borrowing programme. Suited for those who are seeking safety and liquidity, the downside is that their prices fluctuate sharply due to higher sensitivity to interest rate movements. Arbitrage funds: They aim to take advantage of the arbitrage opportunities that exist between the cash and derivatives markets. They buy in the cash market and sell ...

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...

People usually underestimate how much they need and over-estimate how much they have. This blog post explains why this is more important while financial planning for retirement IF RETIREMENT planning is crucial to providing you and your loved ones a secure future, the same holds true for post-retirement planning as well. Particularly if you don’t want to run out of money in the sunset years, even while maintaining a comfortable standard of living when you are no longer earning. The ultra-high standards of living that people achieve today using credit cards and other types of credit are based on the assumption that they will have an unlimited future during which they’ll tighten their belts and pay all the borrowed money back. Unfortunately, people can’t carry this lifestyle into retirement unless they become rich, and that’s unlikely. Post-retirement planning, thus, acquires added importance because people usually under-estimate how much they need and over-estimate how much the...

Arbitrage Funds aim to capitalize on the opportunities arising from a pricing mismatch between the spot and the future markets . They constitute an asset class whose returns are not linked to the stock market. Their strategy to profit from the difference between the prices of a stock in different markets makes them immune to upswings and downswings of the stock market. They are undoubtedly less risky as compared to equity funds. These funds are suitable for risk-averse investors as they are the least volatile in comparison to all other types of funds. Moreover, these funds are more tax efficient than debt funds as they are treated in line with equity funds. The performance of arbitrage funds depends on the availability of arbitrage opportunities and volatile markets carry a higher potential of mis-pricing between the spot and derivatives markets. Hence, during such volatile times they form a good option to invest in.

Of late, there has been an avalanche of bad news flowing out of the Indian stock markets. The Sensex tottering around the 14K mark, the Nifty around the 4K mark, the plummeting stock prices of most companies, mutual funds failing to garner any positive returns... the list seems to go on and on, and on. Amidst all of these sob stories, we have become almost desperate for some positive information. Well, look no further. While the markets have been crashing around us, there has been one category of mutual funds that have actually generated returns in the green. They are the Arbitrage Funds . Quite often referred to as equity-and-derivative funds, arbitrage funds are an ideal way of earning a reasonable income from equities with the modest amount of risk, And here's how. The objective of an arbitrage fund is to capitalise on a stock's price difference between the spot market (cash segment) and the derivatives market (futures & options segment). These funds basically generate...

Looking for ways and means to insulate your investment from rising prices? Here are some strategies to stay tight and right CHECKED your transport, grocery and utilities bills recently? You’d sure be losing sleep over ever-increasing prices. What’s worse, inflation figures look alarming and have already notched new peaks, fuelled by the recent hike in crude oil prices. The spiralling affect of inflation can not only derail your investment approach but also dwindle your returns. Here’s an investment guide on how you can insulate your portfolio against the menace of inflation. CHANGE STANCE In the current scenario of rising prices, analysts feel there is a need to review your financial plans and investment portfolio as the expenses and corpus required to achieve financial goals may increase. You need to shuffle your portfolio in such a manner that it can generate better inflation-adjusted returns. Also, you should avoid investments in illiquid assets with fixed returns as these restrict ...

Investing money for short-term, say up to 1-11/2 years has generally been an issue. As it is the interest rates / returns are quite low. On top of this, there could be taxation issues, which will further reduce the effective returns. Equity/equity funds may not be a prudent option for short-term. Therefore, we need to consider mainly the interest-based investment options. What do we usually do? Since it is quite convenient, very often the money keeps lying in the Savings A/c itself (also, maybe it is psychologically satisfying to see a big balance in one’s account). But don’t forget - this earns you just 3.5% p.a. interest and that too taxable. Hence, it is not good to keep too much money in the Savings A/c. The next common thing to do is to make a Fixed Deposit ( FD ). This may earn you 6-9% interest depending on the tenure. But this too is taxable (if you are in the highest tax bracket, even a 9% FD will fetch you just 6.3% post-tax returns). So, given the fact that there are better ...