Prajna Capital - An Investment Guide

Where should I park my money? That’s a question many are asking wealth advisors today. Looking at the current market condition it is important to invest across asset classes. With the hardening of interest rates financial advisors say over the next 6 to 12 months income funds are a good option to consider. The income funds have generated a return ranging from 5% to 15% on a one-year basis. The returns have been divergent across the schemes depending on the interest rates view taken by the fund managers. How safe are debt funds Debt funds are less volatile and the risks are lower. However, there are some risks like interest rate risk and credit risk. While interest rate risk is a macro level trigger and cannot be controlled, credit risk can be controlled by prudent portfolio construction and active portfolio management. Fund managers’ say in the current scenario both income and gilt funds are becoming popular on expectations that the interest rate would be heading lower. However, nea...

An aggressive portfolio with 12 funds and 12 stocks. Mid and small caps account for 52.5 per cent of the overall portfolio. 43.67 per cent of the portfolio is invested directly in equities with most of the stocks being of small and mid cap companies. The remaining portfolio consists of riskier funds which predominantly invest in small and mid cap exposure. Standard Chartered Premier Equity and DSPML Tax Saver are two such funds. The stocks portfolio too is dominated by small and mid cap picks like Tantia Construction, Asian Electronics and Rico Auto Industries. 8 of the 12 mutual funds have a portfolio allocation of less than 5 per cent. Such small holdings would add no value to the overall portfolio. When the stocks invested in directly and the stocks that the mutual funds invest in are clubbed, the overall portfolio gets spread over 744 stocks! And 160 of these stocks have a meagre allocation of less than 1 per cent. On the other hand, the portfolio has negligible exposure to debt (1...

Now that we know about your portfolio, here are a few pointers about what you should be doing... Small allocations would not add any value to the overall portfolio. If a fund outperforms but has a meager allocation, the portfolio would not benefit from it. Make sure you allocate a significant part of the portfolio to a stock or a fund. Avoid speculating and stick to funds that have proved their mettle. Invest in well rated funds. Look at a 3-5 years performance history and ratings before investing. Quality is more important than quantity . Investing and managing so many funds can become a tedious task. Invest in fewer funds and do not get lured to the new fund offerings. Add a new fund to your portfolio only if it adds a unique diversification. Some significant component of debt is always helpful to a portfolio. Debt plays a major role in a bearish stock market and provides the cushion when markets tank. Ensure that the portfolio has a healthy debt component irrespective of the r...

Guidelines applicable to portfolio managers as prescribed by SEBI A portfolio manager advises his client on the management or administration of his investment portfolio. He may either be a discretionary or non-discretionary portfolio manager. A discretionary portfolio manager individually and independently manages the funds of each client in accordance with the needs of the client. A non-discretionary portfolio manager manages the funds according to the directions of the client. An applicant for registration or renewal of registration as a portfolio manager is required to pay a non-refundable application fee of Rs 1 lakh. Every portfolio manager is required to pay a sum of Rs 10 lakhs as registration fee at the time of grant of certificate of registration by the SEBI. SEBI takes into account all matters which it deems relevant to the activities relating to portfolio management. The applicant has to be a body corporate and must have necessary infrastructure like adequate office space, e...

Go for equity or MF based on risk appetite Some tips for investors in these volatile times when it is difficult to choose between equity investing and safer options The domestic stock markets have seen a historic bull run over the last four years. From the beginning of 2008, the markets are in a correction phase due to weak investor sentiments in the local as well as global markets. We have witnessed unprecedented volatility in the markets in the last few months, especially over the last 4-5 months. In fact, the domestic markets are among the most volatile markets in the world (volatility in the Indian stock markets is much higher than markets in developed economies like Dow Jones , NYSE, Nikkei, FTSE etc). There were many days when the Sensex recorded more than 1,000 points (above five percent) intra-day swings. The rise and fall of share prices (market direction) depend of various market forces. In fact, the factors that affect stock markets have increased significantly over the la...

Fixed deposits ( FDs ) are a safer investment option when compared to debt funds. Debt funds are sensitive to interest rate fluctuations unlike an FD which offers a fixed interest rate for a fixed tenure. But the most important difference between these two is the tax treatment on gains. The interest earned on a fixed deposit is to be added on to your income irrespective of the term of the FD. Further, there is no distinction between short or long term capital gains tax in FDs. This overall reduces the yield of a fixed deposit, especially if you fall in the 30 per cent tax bracket. What makes debt funds a better choice is the tax treatment on its gains. Just like FDs, if you redeem a debt fund within one year then you need to add the gains to your income (Short term capital gains). In case you redeem the investment after one year (long term capital gains) you can avail the indexation benefit.

They can be bought and sold throughout a trading day like any stock An exchange-traded fund ( ETF ) is a basket of securities that are traded on an exchange. They first came into existence in the US in the early 90s. Initially, these were looked upon with suspicion. However, of late, these funds have been attracting the interest of investors globally. ETFs are different from mutual funds. ETF units are not sold to the public for cash. Instead, the asset management company that sponsors the ETF takes the shares of companies comprising the index from various categories of investors like authorized participants, large investors and institutions. In turn, it issues them a large block of ETF units. In case any dividend is accumulated for the stocks at any point in time, a cash component to that extent is also taken from such investors. A large block of ETF units called a 'creation unit' is exchanged for a 'portfolio deposit' of stocks and the 'cash component' . Unl...

Take stock of your risk appetite and diversify across sectors in these conditions Someone recently asked what it takes to be an equity investor. The question was not out of place considering the current market scenario. As the index has been hitting a low at regular intervals, the time has come to define the attributes required to be an equity investor. To simplify, just check out if you have these qualities to consider yourself a good stock market investor in these conditions. Long-term thinking Wealth creation is all about systematic approach and that automatically requires patience and discipline. While short-term investment strategies can prove profitable in the short term, it is the long-term planning which helps an investor in capital appreciation. As a result, one needs to look at equity as a long-term investment option and more importantly, an investor needs to stick to his long term approach. Not only will it bring in the much-needed focus but will also insulate the investor f...

A considerable proportion of people investments are in the form of the stock options. As it happens, this company is prone to periodic rumors about being in trouble of one kind or the other. In recent weeks, just as all of peoples' investments have fallen, those of his employer (and other potential employers) have fallen the most. Then there are many couples who both work in a large IT company. Predictably, a good amount of their investments are in the form of their own company's stock options. They are now coming to grips with the possibility that if the rupee keeps gaining strength, employment growth in the IT industry could slow down and perhaps even sharply reverse. That's a double problem . 1) Realization dawns that the permanently bright future that their industry was supposed to have may not exist. 2) And, at the same time, their investments in their own employer have declined to less than half in about an year's time. Like many IT stocks, their employers' st...

Is Gold A Golden Investment? There is considerable action in the other non-financial fund category, namely, gold. There are two kinds of gold-related funds in India. One is the so-called gold ETFs, which act as proxies for holding gold in physical form. Fund companies that run gold ETFs invest all of the investors' money in gold. Thus, the money invested in such funds makes profits or losses exactly in line with the price of gold, after charging around 1 per cent per annum as expenses. In the year or so since the first gold ETF was launched these funds' number has grown to five with few more in the pipeline. For a niche fund type, they've proven reasonably popular and hold assets of Rs 550 crore. However, when one compares these funds to the amount of gold that is traded in the commodity markets, this is a pittance. However, it's the other kind of gold fund that is having a more interesting time. These are funds that invest in the stocks of gold mining, refining and ma...