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...

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...

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...

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 ...

An ETF is like an index fund in terms of its portfolio. The basket of stocks is in the same proportion as the pre-decided index. The initial participants give the fund the basket of stocks and in turn take units of the fund in exchange. These units are then traded on the stock exchange through stock brokers. So investors who wish to take up units of an ETF require a demat account. The price of an ETF fluctuates with the fluctuation in the underlying index throughout the trading day. The NAV is usually a fraction of the value of the index, like one-tenth or one-hundredth. But the value at which it is traded is a function of its demand and supply. So ETF units can trade at premium or at discount. The benefit of an ETF to an AMC is more or less the same as it would be in case of any other mutual fund. But since it tracks an index, it doesn’t require active management of the underlying portfolio.

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...

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...

The Securities and Exchange Board of India in its board meeting decided to fix the structural flaw in fixed maturity plans. It was decided that no early exit will be allowed in any scheme of mutual fund in the nature of a closed-end scheme. The schemes which have been approved earlier but not yet launched will also have to be amended accordingly. It will be obligatory for the asset management company to list the close ended schemes. The board also decided that for such close ended schemes the underlying assets will not have a maturity beyond the date on which the scheme expires. This regulatory obligation will save fund managers from distress sale if investors decide to redeem their money before maturity. This is with an intent to guard the interest of the remaining investors. The order will also drive fund managers to be disciplined in building their portfolio as fund have been debarred from buying bonds of longer maturity than their own. For investors, the order will mean a comprom...

An insight into real estate mutual funds that allow small investors to benefit from the healthy returns investments in the real estate sector offer Real estate mutual funds ( REMFs ) make it possible for everyone to use the real estate boom to earn handsome returns. You don't need to buy property to actually benefit from the high capital gains it offers. You can go the real estate mutual funds way. Advantages of REMF Retail investors will be able to participate in the real estate sector. In case of venture capital funds, the minimum investment size is around Rs 1 crore. For REMFs, this is expected to come down to about Rs 10,000. Retail investors will have one more investment option to diversify their portfolio. Institutional investors will get a good exit option by way of transfer of assets to REMF. Real estate as an asset class provides excellent risk adjusted returns along with low correlations with other asset classes. The real estate sector will get an additional source of cap...

Here are some parameters that give you an indication of a fund’s performance The performance of a mutual fund scheme is reflected in its net asset value ( NAV ) which is disclosed on daily basis in case of open-ended schemes and on a weekly basis in case of close-ended schemes. The NAVs of mutual funds are required to be published. All mutual funds are also required to put their NAVs on the web site of the Association of Mutual Funds in India ( AMFI ). Investors can access NAVs of all mutual funds at one place. The NAV is the most common denominator which summarizes the entire performance of the fund. The mutual funds are also required to publish their performance in the form of half yearly results which also includes their returns/yields over a period of time i.e. past six months, one year, three years, five years and since inception of schemes. Investors can also look into other details like expenses as a percentage of total assets as this has an affect on the yield. In addition, mut...

If you had invested Rs 1 lakh in a mutual fund five years back at an NAV of Rs 20. Now the NAV is Rs 70. How should youcalculate my returns on an annual basis ? Compound annualised growth rate ( CAGR ) will be used here to calculate the growth over a period of time . The gain of Rs 50 over five years on the initial NAV of Rs 20 is a simple return of 250 per cent (50/20 * 100). However, it should not be construed as 50 per cent average return over five years. Formula: CAGR = {[(M/I)^(1/N)] ? 1} * 100 Type in: =(((70/20)^(1/5))-1)*100 and hit enter. M: maturity value; I: initial value; N: time in years. CAGR here is 28.47%. Also used for: Calculating the annualised returns on a lumpsum investment in shares.

The three options available in mutual fund schemes to help you choose one. Most mutual funds offer an option to investors to either receive the dividends or to have it reinvested in the fund. This is an interesting choice that investors have to make while making investments in mutual funds. The investor has to decide whether he wants to receive the amount of income earned in the form of dividends or to accumulate the gains through the growth option. The option of dividend reinvestment can be used favorably by investors depending on their specific needs. There are three options available for an investor: • Dividend option • Growth option • Dividend reinvestment option Dividend option Under the dividend option with a payout facility, the investor receives regular income in the form of dividends as and when the fund declares dividends. In case the investor opts to take dividends, he gets a current income. Also, he gets tax benefits on such a payout. As per the current income tax rules, ...

The Securities and Exchange Board of India ( SEBI ) has given its final go-ahead to Mutual Funds to launch 'Real Estate Mutual Funds' (henceforth referred to as REMF ). 1) According to the newly issued guidelines, existing Mutual Funds are eligible to launch REMF, if they have adequate number of experienced key personnel/directors. 2) Add to it, sponsors willing to set up new Mutual Funds, for launching only REMF should have been carrying on business in real estate for a period not less than five years. 3) Besides, they have to abide by other eligibility criteria applicable for sponsoring a mutual fund. 4) All REMF shall be closed-ended and their units shall be listed on a recognized stock exchange, thereby providing investors, much needed liquidity. The regulator took a daring step by asking fund houses to declare NAVs of such schemes daily. 5) As far as the composition is concerned, at least 35% of the net assets of the scheme shall be invested directly in real estate assets....

In this section an attempt is made to analyze and highlight the implications of Budget on common man under various heading. Home is where many tax saving options still dwell Buy a home, go for joint ownership if you are two salaried persons, buy a second property, or even sell the existing one...if you plan well, there are various options to save tax on hard-earned money THE Indian economy has been witnessing a boom in the recent past. However, rising property prices and growing interest burden on home loans are worrying buyers. The Budget has not offered any relief, but you can still make ample use of the existing provisions to save substantially on property investments. Here’s how…. BUYING A HOUSE Owning a house is not just a dream but a necessity, and there are several tax benefits as well. However, when buying a house, you would do well to consider the following. (a) It’s always advisable to go in for a housing loan. Interest paid on home loans can be deducted from your taxable in...

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...