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...

HSBC Equity has fallen short of expectations when its peers are rewarding their investors with much higher returns THE largest scheme from the HSBC basket, HSBC Equity Fund manages an average asset base of about Rs 1,377 crore. Launched in December 2002, the scheme is not only the oldest but also one of the most popular schemes from HSBC. Having run high on the popularity charts of the overall mutual fund ( MF ) industry during the few initial years of its launch, HSBC Equity has, however, failed to keep pace with the markets for quite some time now. PERFORMANCE: HSBC Equity started its innings in 2003 on a high not. In its first year, it beat its benchmark index the BSE 200 by extremely generous margins as it net asset value ( NAV ) jumped by 160% much higher than 95% rise in BSE 200 and a 72% return each by the Sensex and the Nifty that year. It maintained its winning streak in the following two years to emerge as one of the top performing funds of its time. But having said that, t...

Mutual funds schemes which can now be transacted through stock exchanges should not be confused with exchange traded funds ETFs allow exposure to different indices which reflect specific stocks, sectors, countries, fixed income or commodities. Mutual funds schemes have a specific investment objective based on which allocation to a particular asset or security is made. In fact, ETFs do not sell individual shares directly to investors and only issue their shares in large blocks (blocks of 50,000 shares, for example) that are known as “Creation Units.” (Source: Securities Exchange Commission). The portfolio composition of ETFs will be available to investors on a daily basis unlike mutual funds where you get to see a monthly factsheet. ETFs are traded on a real time basis which means that the prices change throughout the day as determined by the market forces while mutual funds have a Net Asset Value ( NAV ) at the end of each business day. The SEBI circular does not mention whether the NA...

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...

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 expense ratio is the total amount of annual expenses incurred by the fund. It includes: The management fee and Operating expenses like the registrar and transfer agent fee, audit fee, custodian fee, marketing and distribution fee. These expenses are divided by the assets under management. Simply put, the expense ratio is the per unit cost incurred in managing the fund. The net asset value ( NAV ) which you see daily is calculated after deducting these expenses. However, the expense ratio of a fund is disclosed only once every six months. The expense ratios of equity and debt funds differ. Since the expenses of equity funds are more than those of debt-oriented funds, the expense ratio on equity funds is greater. As per the regulations of the Securities and Exchange Board of India ( SEBI ), a mutual fund can charge a maximum expense of: · 2.5 per cent for equity funds, · 2.25 per cent for debt funds, · 1.5 per cent for index funds and · 0.75 per cent ...

Exchange Traded funds (ETFs) have advantages over other mutual fund types Exchange Traded funds ( ETFs ) are a major class of mutual funds. Though not as popular among retail investors, they have numerous advantages over the straitjacket mutual fund.The genesis of this category dates back to 1989 when the first index type ETF was traded on the American Stock Exchange. The distinguishing factor that these funds have vis-à-vis ordinary mutual funds is the manner of purchases and redemptions. This is because the units of these funds are listed on the stock exchange just like the stocks of a company. An ETF can be bought or sold over the exchange through a broker on a daily basis during trading hours. In India, ETFs where first launched by Benchmark Asset Management Company, which launched the Nifty Benchmark Exchange Traded Scheme ( Nifty BeES ) based on S&P CNX Nifty Index.In the domestic market, ETFs have not yet captured investors’ favour, which is in stark contrast to more devel...

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...

Mutual Funds growth schemes may have provided higher returns than their dividend counterparts during the bull run. But not any more! Dividends paid in the past five years have not only saved investors from the market tsunami, but also ensured higher returns Mutual fund ( MF ) houses and their distributors often use dividends as a carrot to lure investors to their schemes. Dividend, in common parlance, is understood to be a share in the profits of the company in which the investor has a stake (shareholding). However, in case of an MF scheme, dividend is nothing but a part of the capital appreciation of the investment returned back to the investor in piecemeal. It is for this reason that the net asset value ( NAV ) of a scheme stands reduced to the extent of dividend declared by the MF scheme. Dividend and growth are the two basic options that an investor can choose from while investing in an MF scheme. Unlike the dividend option, growth invests any appreciation of initial investment ...

When choices are many you could end up feeling confused; it could be over buying a cell phone or for that matter an ice-cream flavour! So imagine, when your mutual fund ( MF ) agent throws an array of questions -- Which fund do you want to invest in? or Which MF option do you want? Chances are you might end up feeling confused. A MF offers three options-- dividend payout , dividend reinvestment and growth . Each of this option has its own pros and cons. We at Wealth tip you off on what's best for you. Let's understand the three options in detail. A. Dividend payout: Assuming you have 100 units in your MF and the net asset value ( NAV ) of the unit is Rs 10. Now, the fund house declares 50 per cent dividend (a dividend is the profit made by a MF that it distributes to its unit holders. These dividends are paid in cash and are a percentage of the unit value) on the scheme. So, for every unit you will get Rs 5 (50% of Rs 10), which makes it Rs 500 for 100 units. You might rejoi...

The constraints of managing funds that invest in a select few sectors can often prove to be demanding for fund houses. As a result, it isn't entirely uncommon to find a sector/thematic fund changing/expanding its investment objective/style in due course. This bears testimony to the intrinsic inadequacy of a sector/thematic fund in terms of sustainability over the long-term. Nonetheless sector/thematic funds continue to be launched at regular intervals. Now isn't this dichotomy interesting. Why sector/thematic funds are launched in that sector/theme, there is often more to it than meets the eye. Experience suggests that fund houses find it rather easy to garner monies in new fund offers ( NFOs ) as opposed to existing funds. Maybe, it's something to do with the Rs 10 net asset value ( NAV ) that attracts investors; then again, it could be the result of the higher commission payouts on NFOs vis-a-vis existing funds. In most cases, with the exception of the investor, the NFO w...

In the last few days, investors in the stock markets have seen it all. From the Sensex highs of 21,000 to the steep fall to 15,700 in and the complete U-turn the markets took to recover. An investor who was convinced that the bear market was on and sold off his holdings would be a poor, wise man today. Similarly, a person would waited for the markets to bottom out before buying stocks would have missed out the opportunity to buy stocks at lower valuations. Probably, the only investor who has benefited by the quick fall and subsequent rise of the markets is a systematic investment plan ( SIP ) investor. SIP is a simple, tried and tested strategy designed to help in investors' wealth creation in a disciplined manner over the long term. A disciplined approach to investing will provide you with these benefits: 1) Power of compounding 2) Makes market timing Irrelevant 3) Rupee cost Averaging 4) Convenience Power of compounding Many investors delay investment decision-making, as they ca...