Prajna Capital - An Investment Guide

After bringing good returns for investors late last year, gold exchange traded funds ( ETFs ) and gold funds are making a slow retreat. With prices of the yellow metal softening, returns from gold ETFs and funds have declined in the last two months. While gold ETFs have declined by 2.2% to 2.4%, gold funds that invest in stocks of gold mining companies have fallen by 3% to 7.8%. Gold is in a consolidation phase now. Trends are favouring the dollar on a short-term basis and so there is some sluggishness in gold. After hitting a record high of $1,226.1 an ounce in December, gold prices have come down to around $1,100 now. Even though gold has had a good run recently, economic recovery has started picking up and this means the yellow metal can give only little more than " inflation plus " returns. While a large number of diversified equity MFs and broader market indices have given more than 100% returns since March - the beginning of the current rally - gold ETFs have ...

A well-known fact about equity investments is that it doesn't rob you of your returns in the long run. In fact, equity has always been kind to those who have showed patience and the perseverance to be invested during tough times. While such a strategy is gainful in the long run, it also needs a careful selection of funds. Diversification of risk among different schemes is an unwritten rule for a perfect investment strategy. In addition, one has to follow a few tips for building a good equity portfolio. Diversify according to risk appetite While diversification is a prerequisite, divide your portfolio according to your risk appetite and investment horizon for the portfolio. For instance, splitting the corpus among five diversified funds will be meaningless as all funds will have similar investment strategies. Hence, diversification has to be according to your needs. One of the smarter options could be to divide the portfolio into short-term and long-term, and then choose funds accor...

IF the bull run during the last few years had encouraged retail investors to shed their apprehension regarding equities, the subsequent downturn has made them retreat to traditional safe havens like gold and fixed deposits. While it’s not surprising, this short-term view may prove to be detrimental when investing for a long-term goal such as creating a retirement corpus, which necessitates an investment horizon of at least 15-20 years. For those who are comfortable with this kind of horizon, there is no need to look beyond equities, as it is the ideal wealth creation tool, feel market experts. As per data provided by IDFC Mutual Fund, top-rated diversified equity funds have outperformed other asset classes over a period of 15 years. Between January 1994 and January 2009 , they delivered a return of 14.22% against 6.09% from gold, 8.64% from fixed deposits and 9.97% from real estate. Equities have always earned a premium over other investments options over a longer period of ti...

Investing in gold may be a good option to hedge against inflation and extreme crisis. It can be done in two ways. One can either hold gold in physical form or can make investment in Gold ETF. If you are over cautious and always play on the safe side, then it would be better to keep physical gold but you have to bear the risk of purity and safety of gold. There is a possibility that due to national calamity or extreme difficult condition of the economy, it may be difficult to liquidate Gold ETFs. But such an occurrence would be rare; you can enjoy the same benefits by investing in Gold ETF without taking the risk of the quality and safety of the physical gold. ul

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...

Use GOLD FUND to Capitalize on rising gold price - How Gold Fund works for investors keen on exploiting the yellow metal’s potential With the recent spurt in the price of gold, gold funds are looking brighter. Recently, a gold exchange-traded fund ( ETF ) touched its all-time high of Rs 1,504 on the National Stock Exchange and closed at Rs 1,503 per unit. Other gold ETFs have touched new highs as well. There has been higher buying interest in gold ETFs. The price of gold here crossed Rs 15,000 per gram. The international price is around USD 962 per ounce. Higher global gold prices, combined with the rupee going below 49 to a dollar, helped in the surge in gold prices here. Gold ETFs have delivered a handsome return of about 30 percent over last one year. Gold ETFs have the basic characteristics of mutual funds. They are traded like stocks on the exchanges. The fund is available for investments on the stock exchange, and it can be bought and sold like any stock. An ETF is norm...

THE EVENTS of the last few days have caused almost everyone to reflect on the security provisions that are available in the country. In retrospect, the sheer lack of preparedness to cope with acts of terror like that experienced in Mumbai hits you in the face. The realisation, however, has only come after the dastardly event took place. Retrospection on your portfolio may not be the first thing on your mind currently but in a sense, investors need to be reminded that preparations need to provide a certain degree of stability to your portfolio. And diversification is clearly the mantra that financial experts recommend. One step towards achieving this diversification could be by investing in Exchange Traded Funds ( ETF ). WHAT ARE ETFs? Technically speaking, ETFs are collective investment funds , which have underlying assets such as gold, stocks etcetera. However, what is significantly different about ETFs is that they are traded on the stock exchange in the same way that a share is t...

SILVER, which in European folklore, is believed to have saved the lives of many people who were attacked by vampires and monsters, now has the power to give investors good returns. And going forward, it is expected to outperform gold in terms of price appreciation. In fact, silver had been beating gold till recently. Up to 2008, silver outperformed gold in terms of one, two and three-year compound annual growth rate (CAGR). Last year on March 11, silver registered a three-year CAGR of 131% against 106% CAGR posted by gold. GOLD-MANIA HITS SILVER PRICE In the last one year, gold prices have moved up sharply and beaten silver. Since March 11 last year, gold has appreciated by around 18%, while silver prices have corrected by around 12%. This is mainly because of the global financial crisis and weak performance of most of the other investment classes. Investors have been flocking towards gold, as it provides a hedge against uncertainty, which in turn fuelled gold prices to touch new hi...

Background There are mainly two approaches to asset allocation — The Bandwagon Approach and The Contrarian Approach. In the bandwagon approach - one chases the best performing assets and broadly follows the crowd. In the contrarian approach one focuses more on core value and enters assets that may be out of favour. The contrarian approach to asset allocation, if followed judiciously, can be rewarding. It combines a full range of fundamental and technical analysis, evaluating assets continuously — in the search for assets that are likely to reverse its past trend . It is not about just blindly doing the opposite of what the market is doing. It is about identifying assets that offer true value . Rationale One of the key reasons for using a contrarian approach to asset allocation is the cyclicality of asset classes. There are also some asset classes that are complementary to the others. For instance, when interest rates go up, it hurts the bottom line of companies and hence equitie...

The yellow metal is a good avenue now for short-term investors Every time equity and other markets turn bearish, investors turn to the yellow metal to park funds. It has been no different this time as gold has turned the new safe haven for many. As would happen in every boom market, investors chase an instrument even if it is on the rise on a continuous basis. In fact, it has happened with various other instruments like equity, property, crude oil, and it seems to be the turn of gold which has been scaling a new peak at regular intervals. Expectedly, new highs are being projected for the yellow metal. Needless to say, investors need to be slightly cautious with their investment strategies as it is easy to get carried away by the current environment. While gold is definitely an option for the next 12-24 months, the instrument too carries its baggage of risks at the current levels. More importantly, rather than demand, other factors such as growing comfort of investors and increasi...

Investors are slowly warming up to the idea of exchange traded gold schemes from mutual funds. This isn’t surprising since they have given an impressive 20%-plus returns in the last one year. The uncertainties in the economic environment is another reason why investors are parking money in gold, as it has always been considered a hedge against uncertainty in troubled times. Investor interest in gold ETFs is slowly picking up. I won’t say there are huge inflows, but we have certainly seen incremental flows into the fund. In between, there was lull when gold prices peaked. We are getting a lot of enquiries on gold ETFs. This is mainly because of excellent returns in the last one year, which is almost double than that of debt schemes. Also, people are not able to take a call on the stock market. They want to park their money in a safer place till they are confident about the future course of the market. However, investors should be realistic about expectations on gold ETF returns...

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...

Although gold ETFs and gold mutual funds belong to two asset classes, both offer good investment options This article gives you a low down on how to buy Gold Exchange Traded Funds ( ETFs ) and gold mutual funds. DIFFERENT ASSET CLASSES The basic difference between gold ETFs and gold mutual funds are that they belong to two different asset classes. Gold ETFs give the investor the opportunity to invest in units of gold, which are then traded on the exchange as a single stock. The units issued under the scheme represent the value of gold held in the scheme. Gold ETFs hence fall into the category of commodities. Gold mutual funds, however, fall into the equity category as they invest in equity and equity-related securities of gold mining companies. Since gold mining companies are not listed on Indian stock exchanges, the gold mutual funds invest in world gold funds that invest in gold mining companies across the world. RETURNS AVAILABLE The predominant criterion for all investment remain...

When it comes to investing, it is commonly observed that investors tend to replicate the investment strategy followed by their colleagues, friends or relatives. It is generally believed that an investment strategy that has worked for one will also work for others. However, this is the wrong approach, simply because 'one size does not fit all' while investing. Instead, investors need to build an investment portfolio that is right for them. Building an investment portfolio requires the investor to put in a fair degree of thought and time. The need for the latter is only accentuated in light of the overwhelming choices available. In this article, we present a 4-step strategy that will help investors build an investment portfolio. 1) The investment objective The first step should be to identify the investment objective and tenure. In our view, no investment must be undertaken without defining these parameters. For this, you need to ask yourself - "what am I investing for"...

Consumers have been feeling the heat of rising inflation for the last few months. Though the number seem to have come down marginally to 12.14 per cent (for week ended Sep 26), there seems to be little respite. Such times force the individual to take a relook at their savings strategy and monthly budgets. The basic idea is to do things smartly to save on costs. Of course, there is a rising interest burden as well that makes things worse. In such uncertain times, your investments need to deliver higher returns to break even. For instance, if the inflation is touching 12 per cent, you will have to earn 17-18 per cent pre-tax (for the highest income bracket) so that there is no capital loss. While keeping idle cash in banks may seem like a safe and secure strategy, it can never protect the purchasing power of your money and will lead to wealth erosion. But cash certainly has its uses. It can be used to retire or reduce high-cost loans. Also, make long-term investments in gold and equities...

The inflation fire is now an inferno. It singed wallets on its way from 4.7 per cent in July 2007 to 8.86 per cent in May 2008. It did not stop there, but shot up to a 13-year high of 12.64 per cent for the week ended July. Much of this recent rise is being attributed to the pervasive impact of the increase in the state-administered prices of oil products on 5 June. That looked inevitable after international oil prices rose to an all-time high, up to $140 a barrel last month. Worse, this inflation is not expected to go south anytime soon. Why high inflation is here to stay - Oil aftershock. With little chance of increasing global supplies, higher extraction costs, production cuts and export taxes in some oil producing countries, and speculative investments in oil by large international investors has buttressed price pressures due to continuing high demand for oil. Rising food prices - A worldwide shortage is driving up food prices. In India, oil seed prices are 20 per cent higher than ...

CRUDE oil prices in recent times threatened to breach the $150 per barrel mark, and later fell to $123 levels, clocking an appreciation of almost 30% in the year. In fact, higher oil prices have been sending shivers down the stock markets worldwide, as if the recent global financial crisis was not enough to unnerve them. Back home, Indian stocks are down by around 30% in the current year. Inflation has already reached double digits at 11.98% and is showing no signs of respite, adding fuel to the fire. I would start with an interesting conversation I heard recently. I happened to be at an oil trader’s dealing room. I asked the chief dealer, “What’s happening to oil? It is down 20% from its peak. Will you buy now?” He answered: “Oil’s down due to speculative unwinding of long positions and a growth scare in developed countries, which might result in lower demand for the scarce commodity.” He then called someone in Iran, a member of OPEC , an association which controls around 40% of the g...

DSPML World Gold Fund invests in stocks of companies engaged in gold mining & production. The fund's assets have more than doubled in a span of 6 months, all thanks to the returns it earns... DSPML Gold Fund's returns have given investors reasons to cheer The previous year gave investors of the DSPML World Gold fund many reasons to smile. The fund, which listed in September, last year, has delivered 42 per cent returns since its launch. This year (till February 1, 2008), the fund, which is part of the Equity Specialty category has delivered around 8 per cent returns compared to the category's 11 per cent loss during the same period. The Sensex and Nifty were down 10 per cent and 13.4 per cent respectively during this period. In the December 2007 quarter, the fund's returns at 16 per cent were much ahead of the benchmark FTSE loss of 0.15 per cent. However this is less than the Sensex's gain of 17 per cent in that quarter. The DSP World Gold fund does not buy gol...

Is Gold A Golden Investment? There is considerable action in the other non-financial fund category, namely, gold. There are two kinds of gold-related funds in India. One is the so-called gold ETFs, which act as proxies for holding gold in physical form. Fund companies that run gold ETFs invest all of the investors' money in gold. Thus, the money invested in such funds makes profits or losses exactly in line with the price of gold, after charging around 1 per cent per annum as expenses. In the year or so since the first gold ETF was launched these funds' number has grown to five with few more in the pipeline. For a niche fund type, they've proven reasonably popular and hold assets of Rs 550 crore. However, when one compares these funds to the amount of gold that is traded in the commodity markets, this is a pittance. However, it's the other kind of gold fund that is having a more interesting time. These are funds that invest in the stocks of gold mining, refining and ma...