Prajna Capital - An Investment Guide

When it comes to Mutual Funds there are different schemes or funds available for an investor to choose between. One can choose a particular type of fund based on his investing needs and risk profile. The schemes can be classified as: Growth Funds : They promise pure capital appreciation with equity shares. They buy shares in companies with high potential for growth (some of which might not pay dividends). The Net Asset Value - NAV of such a fund will tend to be erratic, since these so-called growth shares experience high price volatility. They also make quick profits by investing in small cap shares and by investing in initial public. However, growth strategies may differ from one fund to another. Not all growth funds operate similarly. Income Funds : They aim to provide safety of principal and regular (monthly, quarterly or semi annually) income by investing in bonds, corporate debentures and other fixed income instruments. The Asset Management Company(AMC) in this case will also...

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 ...

In the current financial turmoil, lets take a look at different investment options for NRIs The financial turmoil in the West has resulted in the 34-yearold non-resident Indian ( NRI ) losing more than $1 million in investments in the last six months. A financial consultant by profession, Sharma has now decided to change his asset allocation to diversify its portfolio. Keen to make investments in India, he is unsure of which asset class to park his funds with. Sharma isn’t alone. There are many NRIs who are now wondering what they can do in the current scenario. Here’s an insight into investment avenues for NRIs in the present market situation. FIXED INCOME For risk-averse investors, traditional fixed income products such as Foreign Currency Non Resident ( FCNR ) fixed deposits and Non Resident External ( NRE ) fixed deposits are the safest bet. While FCNR account can be opened in foreign currency, the NRE deposit account is maintained only in Indian rupee. It is advisable to inv...

Where should I park my money? That’s a question many are asking wealth advisors today. Looking at the current market condition it is important to invest across asset classes. With the hardening of interest rates financial advisors say over the next 6 to 12 months income funds are a good option to consider. The income funds have generated a return ranging from 5% to 15% on a one-year basis. The returns have been divergent across the schemes depending on the interest rates view taken by the fund managers. How safe are debt funds Debt funds are less volatile and the risks are lower. However, there are some risks like interest rate risk and credit risk. While interest rate risk is a macro level trigger and cannot be controlled, credit risk can be controlled by prudent portfolio construction and active portfolio management. Fund managers’ say in the current scenario both income and gilt funds are becoming popular on expectations that the interest rate would be heading lower. However, nea...

Take SIP route for better long-term returns A systematic investment plan ( SIP ) is an investment option that involves investments on a systematic basis over a period of time. Under a SIP option, an investor commits making a regular investment in a particular mutual fund or deposit. Investing in mutual funds through this route is much easier, more efficient, and is one of the best ways to see your investments grow over time. In a SIP, the investor invests a specific amount of money for a continuous period, at regular intervals. By doing this, you can compulsorily save a fixed amount each month. Further, you can avail the advantage of rupee cost averaging. This is because you automatically participate in the market swings. The amount of investment remaining the same, you buy more units in a declining market and less in a rising market. By consistently investing the same amount at regular intervals, your average cost per unit will be lower than the average market price, irrespect...

WE ARE all aware of the term personal financial planning as we have heard about it either on television, read in newspapers or had our advisers use it before us. Earlier, we could afford to ignore it as “earning returns” was not that complicated. But in the prevailing times, when economies world over are struggling to overcome recession, boost demand and accelerate growth, financial planning gains much prominence. It is more a need and necessity than being a matter of choice. While financial plans differ from individual to individual and situation to situation, one recommendation that is uniformly maintained is the need for maintaining an emergency fund, a contingency reserve that can come in handy if situation demands. It was a common trend to find most people take this part of the plan lightly and not abide by this recommendation, thinking that they could always swipe their debit/credit cards and access liquidity as and when required. But times have changed. There is an incr...

Kotak Mahindra Asset Management is a wholly owned subsidiary of Kotak Mahindra Finance, a leading financial services group. In its initial years, it derived its strengths from debt fund management. Kotak Mahindra Mutual Fund is credited with launching the first ever gilt fund of the country- Kotak Mahindra K Gilt Unit Scheme 98. Till a couple of years back, the fund house still held an edge as far as gilt funds were concerned, with two 5-star gilt funds. Not any longer. Today it has three gilt funds - two are 3-star rated and the other, 2-star rated. Even its debt funds have dipped. Just two have a rating of 4-star and above, a far cry from the earlier statistics. It was only in 2004 onwards that the fund house began to get aggressive on the equity fund. Now they do have a range of equity funds but only two have really impressed - Kotak 30 and Kotak Opportunities. Kotak Mid-Cap did show promise soon after its launch but has turned out to be a below-average performer.

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...

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...