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 ...

It is advisable to make bonds a part of your investment portfolio if you need a steady income stream. So lets understand what are bonds and how it can help to generate returns. Bonds were almost a forgotten word in the last few years. The stock markets were exciting and were giving anywhere between 25 to 50 percent returns per annum. Stories of investors gaining great wealth in the stock market were dime a dozen. Generating returns on an equity portfolio seemed a cakewalk. Bonds, on the other hand, did not have the same appeal. Bonds were boring during bull markets when they seemed to offer an insignificant return compared to stocks. However, with the crash in equity markets, investors saw their capital erode by almost 50-75 percent in less than six months. Scorched by the experience, investors are now looking at other options to park their surplus funds. All it took was a bear market phase to remind investors of the virtues of a bond's safety and stability. What are bonds? ...

What is Net Asset value? The Net Asset Value of a mutual fund is the total market value of the holdings of the mutual fund less its liabilities, such as expenses, management fees, etc. This is calculated on a daily basis. What this means is, if the mutual fund were to be dissolved or liquidated, by selling off all the assets in the fund, on that specified date, the Net Asset Value is what all the holders of the mutual fund will collectively own and will be given this amount in proportion to their holdings. You can estimate your share of the holding of the mutual fund by the Net Asset Value per unit. This is the value represented by the ownership of one unit in the fund. It is calculated simply by dividing the Net Asset Value of the fund by the number of units. Commonly Net Asset Value is always referred by its unit value rather than by the total Net Asset Value of the fund. How is Net Asset value calculated? Net Asset Value is calculated as follows: Net Asset Value = (Market value of...

What is a Mutual Fund? A mutual fund is a pool of money put together by a group of investors, who stand to benefit or loose from that pool to the extent they have invested. This pool is created since small individual investments have limited power and ability to influence the outcome of the investment. On the other hand, when the investment is large, the investor can have greater control on the outcome of the investment. Thus, many small investors gather their individual small investments into a larger investment to take advantage of the opportunities offered by large investments. This is called a mutual fund. What does the Mutual fund invest in? Mutual funds can be created for investing in anything. The investments that the mutual fund is going to make are discussed in the mutual fund's offer document. Typically, mutual funds invest in investment opportunities that have a trading market around it, such as stocks and shares, bonds and debentures, etc. How does the investors benefit...

IS INVESTING an art or a science — this has long been a topic for debate? For an investor, the argument only adds to the ever prevailing dilemma that one is faced with in the world of savings, investments and returns. Here’s a sample of typical questions that an investor could ask: what is the right way to save money? How much do I need to save? Where do I need to invest? Who can I turn to for investment advice? How do I ensure that I can get my money back when I need it? And if these are not complex enough, things get more complicated when one sees a boom in the stock markets or the property markets — every investor starts to “evaluate” his or her strategy and new doubts begin to appear about what they have been doing. As in every complex problem, the solution lies in the simplicity of the investing process. There is no “one” right way to create an investment strategy and every investor needs to follow the same simple rules for success. An investor needs to focus not on the shor...

This article explains how hedge funds use different strategies to mitigate risk Hedging means managing risk. A fund manager employs a particular hedging technique in order to mitigate a particular type of risk. For example, a market risk can be hedged against by selling a broad collection of securities short, in equal proportion to one's long exposure or by buying put options on an index. You can hedge against interest rate, inflation, currency etc. Tools for hedging include raising cash, selling short, buying or selling options, futures, commodity and currency futures etc. A hedge fund is a private investment partnership. Hedge funds tend to be skill based investment strategies that attempt to obtain returns based on a unique skill or strategy. The primary aim of most hedge funds is to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions. It designs a strategy to reduce investment risks using call optio...

Examine Sector Weightings and the Fund's Concentration: The funds that have large stakes in just one or two sectors are expected be more volatile than the evenly diversified funds. A concentrated portfolio may also get more successful if its stocks are performing better. You may add a concentrated fund in your portfolio but mostly the concentration should be in a diversified fund which is more predictable. Invest in a few funds and develop a Plan: But it would not mean you should invest only in one fund. Even though the funds are diversified, many funds go though a few years of poor performance. When you invest in only one fund, you might lose heavily. On the other hand, investing in too many funds may lead to duplication of many securities and a portfolio with no focus. For the long-term financial goals, equities are the best option. Keep It Simple: To keep the selection of fund simple, you should stick with well diversified and well established equity funds, an index fund for equ...

Here are some tips to help you choose the ideal insurance policy that meets your needs Numerous insurance products such as children's education plans, life insurance plans with huge death benefits, and accident insurance covers are marketed aggressively. Often, people aren't aware of the actual insurance coverage. They jump onto the bandwagon, without reading the fine print. Tax payers make hasty last-minute insurance purchases to avail tax benefits under Section 80C. Though you may be saving a small amount of tax money, you could be stuck to a worthless policy for long years. Here are a few points to ponder over while buying an insurance policy: Insurance is not investment Insurance products are designed to provide protection. A term cover usually offers insurance protection but no benefit in case the insured survives the term of the policy. A unit-linked insurance policy ( ULIP ) on the other hand provides dual benefits of insurance protection and a flexible inves...

It is time to evaluate your asset allocation and balance your portfolio again The five-year bull run which we saw prior to 2008 had made concepts like debt, asset allocation, and financial planning quite unfashionable. The only investment destination one could think of was equity, thanks to the soaring stocks markets. Times have changed and so has the thinking. Investors are now giving more relevance to asset allocation and planning of investments keeping in mind the long-term financial goals. A strategy which always works well in the long term is asset allocation. Asset allocation essentially means diversifying your money among different asset classes such as equity, debt and cash. This would depend on an individual's risk tolerance level and return expectations. The strategy also works well because different asset classes have a tendency to behave differently. While stocks can offer potential for growth, fixed income instruments can offer stability and income. This augurs w...

The relation between the Fed’s interest rates and the markets here The US Federal Reserve has decided to leave the interest rates unchanged. However, it has expressed concerns on the escalating crisis. The unanimous decision left the benchmark overnight rates at two percent. The Fed has said, 'strains in the financial markets have increased significantly and labour markets have weakened further' . The central bank said it also remained concerned about the inflation pressures. The Fed said the downside risks to growth and upside risks to inflation are of significant concern to the committee. The move is expected to enable banks in the US to borrow money for the short term from the Fed as well as lend to each other at the same rate as before. In the past few months, the Federal Reserve had been cutting US short-term interest rates amidst concerns that the economic growth will slow down in the coming months. The effort was to stimulate economic activity and keep the country ...

Mr & Mrs Achar, both in their early thirties, have a long list of want to-do things post-retirement. While Achar, a private banker, wants to travel a lot and write a book, Mrs Achar wants to look after their children and do some social work. The interesting part, however, is that they want to do this after 10 years, when they plan to retire! Yes, you are right, they do want to retire in their early forties and wish to pursue their passions. Wait a minute... did we hear similar voices from you too. Alright, so let's see how this can be achieved with systematic planning that includes having reasonably aggressive investment plan, regular savings and may be a slight change in lifestyle to ensure a better and safe tomorrow. Early retirement is essentially a lifestyle issue and is proportionate to one's income and consumption pattern. To retire early one needs have to do careful planning and calibrated thinking. Before making any retire plan, one should first prepare a balance sh...

PUT simply, short selling involves the selling of financial assets or securities (stocks, bonds) that do not belong to the person selling it but have been borrowed generally from a broker or a brokerage firm. Short selling works on the premise of making money over the fall in the price of the asset. The process can be explained using the example of stocks. There are always certain stocks in the market, which are overvalued and overpriced owing to different reasons. A short seller predominantly looks out for such stocks, which are sooner or later, expected to see a fall in their prices. The short seller then borrows these stocks from a lender and sells them when the prices are still high. The short seller then waits for the prices to dip after which he buys back the same stock and returns it to the lender. The short seller thus makes a profit as he manages to buy the stock back at a rate, which is lesser than what he makes out of the sale of the stock. WHAT ARE THE REGULATIONS ON SHORT ...

With the upswing in the rate of inflation and the high rate of interest, investors are finding it tough to invest in instruments that give them a good rate of return. Both equity and debt market have been quite volatile for the past few months. Debt options like fixed deposits are not giving good returns and most banks on an average offers 8%-9% returns. So what should an investor do in such a scenario? Look for debt instruments that give a good return even if inflation is high or the market is down. Wealth managers feel debt funds can be a good option to invest as it help during times of high inflation since interest rates also go up at such times. Debt funds helps in preserving capital and the returns you get from it are sufficient to keep up to inflation but not beat it. Investing in debt funds also offers tax advantage compared to interest bearing instruments like deposits and bonds. The frequent fluctuation in the stock markets has led to a new interest in debt funds. A debt fund...