Prajna Capital - An Investment Guide

Investors can Exploit Cut-Off Timing To Make Fast Buck MANY companies have perfected the art of making a quick, cool return from mutual funds ( MFs ) without investing anything. They do this by playing around with the cut-off timings set by fund houses for accepting cheques from investors. It works like this: Companies and some high net worth investors give cheques to buy units of “ liquid-plus ” MF schemes just before the weekend, when there is no money lying in their current accounts. They enjoy a free return for two days, fund their accounts on Monday morning, stay invested for a few more days and then switch to a new scheme to play the game all over again. For mutual funds, it is like offering the net asset value ( NAV ) of the scheme to the investor without receiving any money from it. It is similar to a bank paying interest on a non-existent deposit. Fund houses know the game, but are unwilling to spoil their relationship with big investors. Here is a typical sequence of events: ...

Of late, there has been an avalanche of bad news flowing out of the Indian stock markets. The Sensex tottering around the 14K mark, the Nifty around the 4K mark, the plummeting stock prices of most companies, mutual funds failing to garner any positive returns... the list seems to go on and on, and on. Amidst all of these sob stories, we have become almost desperate for some positive information. Well, look no further. While the markets have been crashing around us, there has been one category of mutual funds that have actually generated returns in the green. They are the Arbitrage Funds . Quite often referred to as equity-and-derivative funds, arbitrage funds are an ideal way of earning a reasonable income from equities with the modest amount of risk, And here's how. The objective of an arbitrage fund is to capitalise on a stock's price difference between the spot market (cash segment) and the derivatives market (futures & options segment). These funds basically generate...