Prajna Capital - An Investment Guide

This is an open-ended balanced scheme and did well in recent times. Its five-year annual returns are 21 per cent five per cent higher than its category. However, the fund had its ups and downs. The fund takes contrarian stands occasionally and focuses on growth stocks. Half the equity portfolio comprises mid and small-cap stocks, but the fund manager plays safe by ensuring that the portfolio is not concentrated. It has had an average of 42 stocks in the past one year with no stock holding more than six per cent of the portfolio. On the debt front, the fund opts for G-Secs and bonds. The debt portfolio is actively managed, but the fund manager likes to stretch the maturity and go for duration calls. By its mandate, the fund keeps its equity allocation between 50-75 per cent. The upper limit was tested a few times, but averaged 69 per cent in the past year. The equity portfolio has never fallen below 55 per cent. It is used to earn returns, while debt is used to safeguard in testing tim...

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...

Open ended fund In an open-end fund, the units of a mutual fund are bought and sold by the fund company itself. The price at which you buy this fund is usually higher than the price at which you can sell the fund to the fund company. In this mutual fund, there are no restrictions on the amount of shares the fund can or will issue. Depending upon the demand, the fund continues to issue shares no matter how many investors there are. In this case, the fund companies also give option to the investors to buy back their shares when investors wish to sell. Mostly mutual funds are open-end funds and they are more conservative and provide consistent returns. Generally, Open-end funds are managed actively and are priced according to their net asset value. Closed ended fund Unlike an open-end fund, where the buying and selling of funds are conducted by the fund company itself, the units of close-end funds are traded on a stock exchange. The market price of the shares in closed ended fund is det...

It started as a middle-of-the-road performer and began to take on competition in 2006 because of its sector selection. Last year, the scheme earned 120 per cent, 22 per cent over its category. Though the portfolio is churned frequently, it avoids concentration. Since 2005, no sector, the scheme invested in, has breached the 20 per cent mark, nor has a single stock crossed 6 per cent allocation. Therefore, the portfolio is sometimes packed with as many as 65 stocks. But, that could also be due to portfolio transition. When the scheme shifts between themes (like defensive or growth), it takes time to offload those stocks. In 2008-end, the fund was heavily into debt, which it offloaded completely in early 2009 and moved into cash. Just before the 2009 rally, its large-cap allocation was 25 per cent and then dropped to just one per cent in two months. This fund earns during rallies, but, does not stray drastically from the category average during downturns. The good part is that the invest...

The securities market regulator, SEBI, has proposed radical changes in the way mutual fund distributors are compensated. SEBI seems set to enforce complete flexibility and transparency into the commission paid to the distributors. The changes are long-anticipated and many ways logical. However, they are likely to lead to a deep transformation in the way mutual funds are sold, and I think many distributors will find it difficult to adjust to the new regime. Mutual fund distributors (who are now euphemistically called Independent Financial Advisors-IFAs) are currently paid a commission by the Asset Management Company ( AMC ) whose funds are being sold. This commission is generally around 2-2.25 per cent for equity funds. This is deducted from the invested amount and the investor gets allotted that many fewer units of the fund. The distributor gets the commission from the AMC. Distributors are not permitted to refund any of the commission back to the investors. However, it is an open secr...

What is a Mutual Fund? A mutual fund is a pool of money put together by a group of investors, who stand to benefit or loose from that pool to the extent they have invested. This pool is created since small individual investments have limited power and ability to influence the outcome of the investment. On the other hand, when the investment is large, the investor can have greater control on the outcome of the investment. Thus, many small investors gather their individual small investments into a larger investment to take advantage of the opportunities offered by large investments. This is called a mutual fund. What does the Mutual fund invest in? Mutual funds can be created for investing in anything. The investments that the mutual fund is going to make are discussed in the mutual fund's offer document. Typically, mutual funds invest in investment opportunities that have a trading market around it, such as stocks and shares, bonds and debentures, etc. How does the investors benefit...

Though the stock market is on a slide, disciplined investors need not worry if they go for value picks The US bailout package was expected to cheer the market. Many investors were hoping that it may give a fillip to the market sentiments world-over. However, no such luck for investors on Dalal Street. Most market participants believe that foreign investors are likely to withdraw more money from the market. They also believe that the credit crisis in the US is far from over and it may soon lead to a global recession. The bailout package is not the end of our woes It is still not clear what will happen next. Investors have to be patient for some time So, are we really looking at the end of capitalism as some doomsday experts predict? Will the US financial crisis lead to a prolonged global recession? The economic slowdown in the US and Europe is a reality But to think that the stock market is never going to recover is illogical. The market will definitely rebound, but when that w...

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 ...

This post, will give a rough outline of the different categories of mutual funds and the approximate risk inherent with each. There are thousands of mutual funds with almost countless sub-categories. But to keep it simple, lets discuss just some of the main categories. Lets going to start with the higher risk categories and work my way down to lower risk options. 1) Aggressive growth fundsThe highest risk is experienced with aggressive growth funds. These funds attempt to achieve the highest capital gains in exchange for high risk. Investments held in these funds are in companies that demonstrate high growth potential, usually with a lot of share-price volatility. 2) Growth funds Next are growth funds, which are designed to provide capital appreciation by investing in stocks with growth potential. Their goal is to provide gains over the long term, usually with less risk than their aggressive fund counterparts. 3) Growth and income funds Next in line are growth and income funds. They...

While Top Equity Funds Gave 16-18% In 3 Yrs, SIPs Delivered 25-28% WHOEVER said volatility is bad for equity investments? Those who invested in mutual funds through the systematic investment plan ( SIP ) route have benefited the most from fluctuating share prices over the past 2-3 years. While top equity diversified funds have returned 16-18% in three years, SIP investors have earned returns in the range of 25-28% (investing into the same funds) during the same period. Supposing an investor has invested Rs 1,000 every month (between November 23, 2006 and November 23, 2009), he would have pocketed a 31% return on his Sundaram BNP SMILE Fund, 29% each on ICICI Prudential Discovery Fund and Birla Sunlife Dividend Yield Fund and 28% on his HDFC Equity Fund. The investor would have made more ‘risk adjusted’ money than investing directly into stocks (Sensex three-year return being 25% on a compounded basis). In all cases, the investor would have made more money than any high networth in...

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 ...

Many people today find that they are deluged with information about investing. News programs provide updates on the stock market several times a day. Through the Internet, individuals can check on the performance of their investments at the click of a mouse. But one of the key sources of investment information, and one that some investors may be tempted to overlook, is the Mutual Fund Offer Document . A mutual fund offer document is a legal document that must adhere to standards set forth by the Securities Exchange Board Of India ( SEBI ), the regulatory agency that oversees the Indian Mutual Fund industry. The information contained in the prospectus is intended to help you understand what types of securities a fund invests in and the investment philosophy that the Investment Manager uses in selecting individual securities for the fund. The offer document will also provide information on the fund’s income and expenses, a review of historical performance, and information about your abil...

It's like having two AMCs under one roof; a large, well-run fixed income one and an average equity one. The fund house has been quite aggressive in its product launches. In the equity segment itself it came out with three schemes this year. By and large, it offers a lot of variety to investors. Unfortunately, its performance in equity does not match up to its debt funds. From its inception a decade ago, it has created history in the fund management industry. It followed a path of aggressive growth and reached the number two position in just five years. But ICICI Prudential is more dependent on institutional investors and debt assets. Out of its asset base of Rs 49371.12 crore, around 28 per cent comes from cash funds and almost 20 per cent from Fixed Maturity Plans ( FMPs ). The fund house is credited with running the largest ultra short-term fund and floating rate short-term fund. ICICI Mutual Fund was promoted by ICICI and later US-based investment bank JP Morgan acquired a stake...

One of the ways in which the investing preferences in India are radically different from many of the first-world markets is our lack of interest in index funds. In the US, nine per cent of the money invested in mutual funds is in index funds, in India, this number is less than half a per cent, or about Rs 2,700 crore. However, among the investing community, index funds take a mindshare that is out of all proportion to their size. The reason is that the concept of index investing is important, and so is the availability of index funds as an option for investors. Index funds are mutual funds that aim to replicate the performance of a market index. Thus, an index fund that is based on the BSE Sensex should have exactly the same 30 companies’ stocks that the Sensex has in exactly the same proportion. Thus, investors who put their money in such a fund would find their money gaining and losing in exactly the same proportion as the BSE Sensex does. In some senses, an index fund completely rev...

Beta is a statistical term ; it measures the volatility of stock (or fund) relative to the market (or the benchmark). The value of beta of a stock or mutual fund is always stated against its benchmark. The beta of benchmark or market is always equal to 1. If a stock is benchmarked against Sensex and has a beta value greater than 1 (say 1.5), this indicates that the stock is 50 percent more volatile than the market as the beta of Sensex is 1. The stated stock will deliver 15 percent return if the market has delivered a 10 percent return in same time period. Its opposite is also true if Sensex delivers 10 percent negative return, then the stated stock will fall by 15 percent in the same time period. A beta of less than 1 implies lesser volatility. The desirable value of beta depends upon the individual risk bearing capacity. So while you can expect a high return from a stock that has a beta of 2, you will have to expect it to drop much more when the stock market falls.

THE impending realignment of NSE indices on the basis of free-float market capitalisation has put index funds and exchange traded funds in a spot of bother. According to mutual fund analysts, the exchange-proposed changes in stock weightages will result in widening of tracking error in index funds. Index funds are passively-managed funds wherein the fund manager attempts to mirror the performance of a benchmark index, by investing the corpus in the index components in proportion to their weightage in the index. Tracking error is the difference between returns from the index fund to that of the index. Lower the tracking error, closer are the returns of the fund to that of the target index. Funds with tracking error lower than 1% are good performers, according to mutual fund analysts. The NSE-proposed shift in stock weightages could deviate fund returns (from index returns) in the range of 6-10%, industry sources said. There could be some tracking error as weightage realignment ...

IN a move that could revolutionise sale and purchase of mutual fund units by investors across the country, the Association of Mutual Funds in India (AMFI) is working towards setting up an electronic platform. This would not only benefit unit holders, but also distributors and fund houses. The electronic platform will bring paperwork to a bare minimum, improve operational efficiency, provide transaction convenience and reduce cost. The proposed electronic platform will help investors trade even in open ended-mutual fund scheme units, like in the case of shares, switch between schemes of different fund houses, and also enable mutual fund investors to view their entire portfolio on a single portal. The modalities of the platform are being worked upon by an Amfi-appointed committee. At present, if an investor wants to buy units of a scheme, online, he has to go to the web site of that fund house. He can switch between the schemes of that particular fund house, but not among schemes of d...