Prajna Capital - An Investment Guide

  FLASHBACK to the start of 2008: The markets are roaring and everyone's who's been left out of the equity ride up is rushing to enter. Cut to the start of 2009: Equity is worse than a four-letter bad word by now. Nobody can get it right 100% of the time; and, at both these times, the investor would have been protected with the asset allocation approach — taken out profits when his weightage of equity shot up beyond his risk-taking ability; and entered when no one dared to even look towards the markets in 2009. LOOK AT THE WHOLE PICTURE The allocation to debt is met for the salaried class through regular deductions and investment in the employee provident fund (EPF) scheme; and others create their safety net through Public Provident Fund, bank deposits, Post Office deposits, National Savings Certificates and the like. We all spend more time on analysing why we made a loss of 10% on one share, even when that share is a minuscule proportion of one's total financial assets.

  There are two kinds of people, really - those who have extra money left over at the end of the month, and those who don't. I'm assuming you're one of the former, otherwise you shouldn't even be here. So what do you do with what's left over? 1) Do you put it in a bank account, and spend it whenever you have a big purchase like an LCD TV, an iPod, a camera? 2) Do you make a fixed deposit every month (or once you have a large sum)? 3) Do you buy mutual funds, shares, or other investments? 1) is a Saving. 2) is an Investment. 3) is "saving" according to me (but others will think of it as an investment) There's a difference. An Investment is where you can grow your money significantly above inflation, after tax is applied. Remember that quoted inflation is around 5% but for real terms, it's around 6.5% a year. That means your money needs to grow ABOVE That for any real returns. An investment MUST carry some amount of risk; assured returns

  The uncertainties associated with stock market have kept many a retail investor out of it.    THERE are many investors who after witnessing sensational stock market crashes in the past have a mortal fear of investing in equities. However, with returns from traditional fixed income products turning unattractive, investing in equities is perhaps the only way to beat inflation. In such a scenario, what are the choices that such an investor has? Fund managers have come out with innovative schemes as the answer to the dilemmas faced by such investors. CAPITAL PROTECTION STRATEGY If you desire better return on capital and at the same time you are concerned about the return of capital, this is the scheme for you. These are close-ended debt mutual funds. The fund invests a part of your subscription into high-quality fixed income instruments that by the end of the term of the scheme reaches at least the original sum. Rest of the money is invested in equity with the sole objective to enha

  Being at the dawn of a new decade, it's advisable to draw up an investment strategy before allocating funds.    THE events over the past one-and-a-half years have underlined the need to block the noise around you and remain focused on your investment goals. Sticking to your asset allocation, which needs to be devised after taking into account factors such as goals, age and risk appetite, is key to tiding over turbulent times. As the world steps into a new decade, here are some old, tried-and-tested tips you could bear in mind while chalking out your investment strategy: Investor profile: 25-30 years old. Minimal responsibilities Equity Allocation 60-80% Must have: Health insurance If you are below 30, with minimal family responsibilities, equities are for you. Life insurance may not be a top priority but health insurance is a must, even if you are covered under corporate mediclaim. You would do well to direct a major part of your savings (roughly 40% of your income) into

You may have settled your dues with your bank. But make sure the bank lets the CIBIL know about it, lest you are branded a 'defaulter',     THANKS to the advent of credit information companies, banks and lending institutions in India have managed to enhance their ability to prudently assess loan applicants' creditworthiness. However, on the flipside, many borrowers are complaining of having got the short end of the stick. GRIEVANCES GALORE One of the chief grouses aired by borrowers is that of lending institutions branding them defaulters despite their having cleared their outstanding dues, particularly in case of compromise settlements. Instead of considering the loan account to be 'closed', many lenders resort to the practice of treating the forgone amount as a 'written-off' portion.     Though banks are required to revalidate the data submitted to credit information companies like Credit Information Bureau (India) ( CIBIL ) within 30 days, many fail

For building long-term wealth, financial planners always advise that the systematic investment plans ( SIPs ) in equity funds is the best way. But if one takes a 5 or 10-year horizons, there will be many times when there is surplus with the investor because of a rise in income or windfall. In such circumstances, one could start anew SIP (in case of a rise in income) or investment lump sum (in case of a windfall). But having too many SIPs in your portfolio can be a problem because it clutters the portfolio. A better option in such circumstances is to go for the top-up option. This option allows you to invest an additional amount in the same scheme. ICICI Prudential Asset Management Company launched SIP with an attractive feature of a 'top up' two years back. According to the mutual fund house, investors should have an easier option to increase their small investments when their monthly income increases. With this product investors can grow their wealth in tandem with their

    MOST mutual fund investors end up investing in three-four schemes with the investment split between systematic investment plans ( SIPs ) and lump sum. This means that while one has a portfolio of mutual funds -there is a hardly any strategy to manage that fund portfolio. Financial Chronicle talks about how to manage a mutual fund portfolio by walking through the most common strategies and discusses with experts each strategy's pros and cons. The first and most commonly used mutual fund strategy is one where the investor basically has no plan or structure: Blind strategy. This happens when the investment amount and funds, as well as goals, are not set. The investor blindly puts in money into three-four funds and expects big re turns. If you already have a plan, then adding money to the portfolio is really easy. But you see easy. But you see in this strategy, nothing is fixed, which is the reason why this strategy will have the least success. Most investors start off their

     GIVEN the proliferation of mutual funds, there are many investors who have invested in a host of schemes without any particular strategy. Some of the units may have been purchased by subscribing to a new fund offer ( NFOs ), while some may have been purchased from an existing scheme.    For such investors who wish to have guidance on their portfolio and at the same time want to invest in mutual funds, a portfolio management scheme ( PMS ) in mutual funds makes sense. Based on your risk profile, a professional fund manager will run a portfolio of mutual fund schemes for you. By offering you a PMS through mutual funds, the advisor provides a value addition and hence charges you an advisory fee.    The approach is similar to that of a fund of funds concept. However, under PMS, brokerages and professional portfolio managers hand pick funds for your portfolio based on your specific needs. The various offerings available to investors are: MUTUAL FUND PMS With entry load having be

Similarly, papers of his investments in stocks, mutual funds and gold existed in the bank lockers. But the family was not aware of it. Importantly, Sharma has not created a will that would have specifically identified the heirs to his property. All the family got to know in the initial months was that Sharma had taken bank loans to expand his business. Soon the family found itself in a severe fund crunch. Loans were paid back from the proceeds of the life insurance policy. But two of his properties went into litigation – a serious money guzzler for a family strapped for cash. Finally, Sharma's wife decided to let go of two flats to his extended family and sold the plot of land. To her relief, the chartered accountant was able to locate the missing investment papers. And after over one year, the family was able to settle down. Sharma's case is not is isolated, especially in small business families, and even among professionals. While people like Sharma create wealth, the

Banks might reject your loan application if you defaulted on your telephone or electricity bill, soon. The Reserve Bank of India, in its Annual Monetary Policy, allowed four more credit information companies ( CIC ) to start operations. This will strengthen the credit appraisal system. Bankers felt that soon electricity bill, telephone bill and other payments would become part of the credit appraisal system that banks use before sanctioning a loan to the customer. Just like in developed markets, such as the US and the UK, banks will get to evaluate a loan application based on transactions, other than banking. Currently, there is just one such agency, Credit Information Bureau (India) Limited ( Cibil ), that provides information to banks on a person's loan and credit cards. The country's largest bank, the State Bank of India, Housing Development Finance Corporation ( HDFC ) and ICICI Bank are shareholders in the company. Of the four companies planning to set up business

     KIRANA store owners may emerge as the new bankers for rural India with commercial banks lining up to enlist them as business facilitators to increase their reach. The local grocery storekeeper has good information about the financial well-being of the houses he serves and has emerged as the most viable among a number of options to help increase financial inclusion. "Kirana stores look like a very viable option," said S C Sinha, executive director, Oriental Bank of Commerce, adding the bank had got the required approvals.    The proposal of using local storekeeper has been around for a while, but regulatory frame work for appointing banking correspondents came only in November 2009. The RBI has allowed banks to explore tie ups with local operators such as kirana stores, medical shop owners and public call office operators, agents selling small savings schemes, petrol pump owners and retired teachers to further the cause of financial inclusion.    The real push has c

  BAJAJ Finserv ( BFS ), the financial services arm of the Bajaj Group is likely to start its mutual fund company by December 2010. "The application is still with Sebi. The asset management company should be operational by the end of this calendar year," Bajaj Finserv managing director Sanjiv Bajaj said.    Allianz Global Investors and Bajaj Finserv will hold a 51% and 49% stake, respectively, in the equally managed proposed venture, he said.    Bajaj Finserv already has a partnership with the Allianz Group of Germany for its life insurance and general insurance businesses.    Besides, the financial services firm is into vehicle finance through its subsidiary Bajaj Auto Finance. For the third quarter ended December 2009, Bajaj Finserv posted a nearly threefold jump in net profit at Rs 34.88 crore against Rs 12 crore in the same quarter a year ago.    Income from operations rose to Rs 119.25 crore for the third quarter, against Rs 85.85 crore in the same period last

  The fund has accomplished what it stated it would do and has made money for its investors. Launched in July 2005, it got off to a weak start. It delivered a meagre 11 per cent in 2006, underperforming both, its category and benchmark by huge margins. But, come 2007, the fund began to make up for lost ground. Upadhyay took over in March 2007 and since then, the funds performance has been more than impressive. Over the three-year period ended February 28, 2010, it was the best performing fund in its category, with an annualised return of 20 per cent, double its benchmark (10.3 per cent) and category average (10.32 per cent). The mandate of this fund requires Upadhyaya to dynamically shift between sectors, depending on the macro economic outlook and opportunities available in the market. By and large, Upadhyaya attempts to keep around 65-75 per cent of his portfolio in four to five select sectors, which he believes will outperform the broader market in the short to medium term. H

  Air miles are considered the world's largest currency. Yet trillions of air miles go waste due to inadequate information.    Frequent flying may mean at times stiff limbs and a severe jet lag, but it also offers an opportunity to travel free. Airlines are nowadays aggressively pitching their frequent flyer programs (FFPs or air miles) to earn passenger loyalty. The funda is simple—while passengers fly more than usual to earn a free journey, the airline gets to boost its revenue kitty and brand image.    Yet, with personal lives becoming busier than ever before, it's practically impossible for travellers to keep track of air miles. A person in the corporate world works for at least eight hours a day, travels two times a month, manages family's money matters—so, how can one expect them to be aware of what airline loyalty programs have on offer and how can they maximise the travel experience at minimal expense.    Today there are over 70 airline FFPs worldwide, and a c

  This ones a winner. If compared with the benchmark, it has had just one annual underperformance (2003) in seven years. From a relative point of view, it began to beat the category average only from 2006, a result of Patil taking over the fund in November 2005. In 2009, it delivered 90.45 per cent (category average, 80.3 per cent). Its performance has not gone unnoticed. As assets under management (AUM) swelled, the outcome has been a more diversified portfolio, with around 60 stocks (up from 35 in January 2009). Since 2008, apart from RIL, Bharti Airtel and Infosys Technologies, no stock has accounted for more than five per cent of the portfolio. This fund attempts to target the same sector weights in its portfolio, as is found in its benchmark – BSE 200. But, that does not mean the fund manager is restricted to the benchmark universe. His individual stock selection is totally flexible and there is some flexibility in computing the sector weights; either plus or minus 25 per cen

    DSP BlackRock Small and Midcap Equity Fund has been generously rewarding its investors since last year and is running high on confidence   0SINCE the revival of the equity markets over the past one year, it is the small and the midcap stocks that have outperformed the broader market. Even as the Sensex and the Nifty gained about 56% and 51%, respectively, in the past one year, the BSE Midcap and Smallcap surged by 96% and 119%, respectively during the period. No wonder that most small and midcap-oriented mutual funds have delighted their investors with extremely generous returns and have beaten the funds that played safe and maintained a large exposure in large cap stocks. The DSP BlackRock Small and Midcap equity fund has been one of front-runner in its category and is running high on confidence these days. PERFORMANCE: For a small and midcap fund, a launch in 2006-07 would have ideally meant a strong performance right from the start. However, for DSP BlackRock Equity, succe

  We like this fund for its solid long-term record and skilled management. With a five-year annualised return of 27 per cent, it is the best performer in its category (February 28, 2010). In 2006 and 2007, investors fretted at the average performances. In 2006, it was the high exposure to defensives that pulled it down. In 2007, energy was offloaded even when the going was good, while exposure to financials did not impact as much as metals and construction, where the funds exposure was low. In 2008, the funds success in standing upright in a bear market, without resorting to debt or high cash levels, was a testimony to Jains skill, who restricted the fall to just 45 per cent, around 11 per cent less than BSE 200 and eight per cent lower than the category average. Finally in 2009, Jain silenced critics by beating the category average by a margin of 14 per cent. Low cash levels, being overweight in autos and banking and underweight in power utilities and energy (reduced exposure s

  This is an aggressive fund that has mostly generated returns to match. Its agenda is to actively vary its stance, based on the yield outlook. In the last two years, this has resulted in a volatile but satisfactory performance. The sudden monetary loosening towards 2008-end saw it go aggressively long and generate excellent returns. When the flip side started playing in 2009-mid, it made losses. However, for the investor who was looking to actively chase trends, the overall result was as desired. The main objective of this fund is to generate income through a range of debt and money market instruments of various maturities to maximise income, while maintaining an optimum balance between yield, safety and liquidity. The debt portion of the portfolio will be actively managed, based on the fund house's view on interest rates. By actively managing the portfolio, the scheme attempts to achieve its objective by way of both interest yield and capital appreciation. The portfolio may

  The fund has been in existence since September 2002, but, it made its mark only in 2008. With a return of 29.95 per cent, it was the best performer in its category, giving second highest return by any debt fund, ever. That was no stroke of luck. It performed superbly in 2009, with areturn of 6.84 per cent (category average, 0.24 per cent). This open-ended debt scheme generates income through investments in debt and money market securities of different maturity and issuers of different risk profiles. The scheme will invest in money market instruments (with unexpired maturity of less than a year) and rated, unrated corporate bonds and debentures. The allocation to debt will vary between 80-100 per cent. The fund manager actively manages the maturity of the portfolio. For most of 2008, the average maturity was less than aweek. But in September 2008, it shot up to 5.7 years and again came down to 1.25 years the next month. This nimble-footed strategy was again seen in 2009, when the

  This fund was launched in 2004, till mid-2008, it had a patchy existence. Since then, it has done a good job of fulfilling its basic goal of capturing price movements dynamically, without taking excessive risk. For instance, in 2008-end, when the Reserve Bank of India opened the floodgates of liquidity, funds that increased their maturity sharply to 10 years and above made gains of 10-20 per cent. In the next quarter, most of these funds were caught on the wrong side of the yield curve. However, Dynamic Bond stayed within limits, gaining a healthy 6.4 per cent in December 2008 and managed to stay positive with a return of 1.3 per cent in early 2009. Since then, it has been following the strategy of conservative exploitation of opportunities. The investment objective of this scheme is to optimise returns by designing a portfolio to dynamically track interest rate movements in the short-term by reducing the duration in a rising rate environment, while increasing it in a falling r

     A co-applicant is one who applies along with the borrower for a loan. A borrower has the option of having a co-applicant to a loan along with himself. The co-applicant cannot be a minor. Most banks permit a few specified relations who can be co-applicants - brothers, parent and son, husband and wife.    In contrast, a co-owner includes all the owners of a property. Banks insist that all co-owners be co-applicants necessarily. Again, a minor is not allowed to be a co-owner as legally a minor cannot enter into a contract. Consequently, all co-applicants are not co-owners but all co-owners have to necessarily be co-applicants.    Two or more persons can jointly apply for a housing loan subject to certain conditions. In the present day, when the cost of living is going up and usually both spouses work, having co-applicant becomes more of a necessity than a requirement. There is no legal requirement to have a co-applicant. However, in order to enhance the loan eligibility, a borr