Mutual Fundas

Investing in Mutual Funds through Demat Account

Yogi — Tue, 19 Apr 2011 11:52:00 GMT

At InvestmentYogi, we get a lot of queries on whether it is mandatory to have a Demat Account to invest in mutual fund schemes. The answer is NO. It is not mandatory to have a Demat Account to invest online on mutual fund schemes. Out of the many channels to invest online in mutual fund schemes like net banking, through respective Mutual Fund websites, online mutual fund platforms, through Mutual Fund registrars such as CAMS/Karvy, etc. owning a Demat account is one option.

Stock broking companies have come a long way since providing Demat facilities for stock investors and traders. Today they are offering a wide range of services including IPO/FPO subscription, mutual fund trading, investment in Gold through Gold ETF, investment in tax saving infrastructure bonds (under section 80CCF), trading in international stock exchanges, apart from the regular stock broking facilities. One can also use Demat Account to hold post office savings schemes such as NSC and KVP (now available in select cities only).

The procedure to invest in mutual fund schemes using a Demat Account is much similar to investing in stocks. Upon application for subscription (and KYC compliance fulfilment), the respective Asset Management Company (AMC) or Registrar and Transfer Agent (RTA) will credit the mutual fund units to your Demat Account.

The advantages and disadvantages of holding Mutual fund schemes in Demat Account are summarised below:

Pros:

Convenient and Paperless transactions: You can centralize your mutual fund and stock investments at one place and/or have multiple schemes spread across fund houses. Also, there would be no tiresome process of form filling or giving documents every time you buy MF.
Simplifies the nomination requirements for your investments: This is true in case of a single nominee for all your investments.
Convenient in case of change in contact information: This consolidated platform Demat Account helps if the investor changes his address or mobile number. Instead of multiple applications to different Fund Houses requesting for change of address, you need to give just one application for the multiple investments you hold. Once the change in contact information is updated with your depository participant (DP), the same will get registered electronically with all the AMCs and RTA.

Cons:

Higher charges: Trading and holding mutual funds schemes through Demat Account is a bit expensive compared to the same done through independent online mutual fund platforms such as FundsIndia and FundsSuperMart. Most Brokerage houses charge a flat fee for both lump sum and SIP investment in mutual fund schemes unlike the online mutual fund platforms who offer the same service for zero fees.
Advantageous if you are a Stock Investor: Investment in mutual fund schemes through Demat Accounts is useful and cost effective for those who also invest/trade in direct stocks. Otherwise, you are better off investing in mutual funds through other channels.
Not all schemes offered under Demat Account: You can purchase and hold units of mutual fund schemes of only those AMCs with which your Brokerage House has tie-up with. If you wish to invest in schemes of other AMCs, you may have to consider other channels (as listed above).
No Joint Account holdings: Joint account mutual fund investments cannot be held in a single holder Demat Account, and vice versa.

Conclusion: For all kind of online investment you need to have a bank account with online funds transfer facility. Choose the channel of mutual fund investment wisely as per your requirement and convenience.

Written by Priya Rao who is a CFP certified Financial Planner

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10 Best Performing Mutual Funds in 2010

Yogi — Thu, 23 Dec 2010 12:04:11 GMT

InvestmentYogi takes stock of best performing mutual funds in the year gone by. We have selected 3 different categories most relevant to you.

Best performing ELSS Schemes

1. Fidelity Tax Advantage: with 1 year return of 30.69% it has been a star among the tax saving funds. It was launched in Jan 2006 and has an asset base of 1,296 crores. In last 1 year it has consistently beaten its category (equity tax planning) in the ups as well as downs of the market. Top holdings include RIL, Infy, HDFC Bank, ITC and SBI. The fund clearly has a large cap bias.

2. HDFC Taxsaver: It is one of the oldest ELSS schemes around and has a track record of good returns. It has delivered a return of 26.71% since last 1 year and its 5 year annualised return stands at 17.54%. Top holdings are ICICI Bank, Crompton Greaves, Infy, SBI and Sun Pharma.

3. ICICI Prudential Tax Plan: This fund again is one of the veterans and has been around since Aug 1999. Last 1 years return has been 26.19% and 5 year annualised return is 15.31%. Between 05/03/2009 and 05/03/2010 this fund returned a stellar 158%. Top holdings are Infy, Bharti Airtel, Cadilla, RIL and ICICI Bank. About 41% of the allocation is towards mid and small caps.

Best Performing Equity Diversified Funds*

When we looked at the funds with best returns in last year it was not surprising to see a host of mid cap and small cap funds. There has been a sharp recovery in this space in last 1 year and these funds have clearly benefitted.

4. DSPBR Micro Cap Reg: It’s a small cap oriented growth fund which has given a return of 49.60% in last 1 year. The fund has 75% of the allocation in small cap and rest in mid cap. Top holdings are stocks like Hindustan Dorr, Jyothi laboratories, TTK Prestige, Sundaram Finance and eClerx. It’s a volatile fund and witnessed steep fall during the market fall in 2008.

5. IDFC Premier Equity Plan A: It has been a great year for this fund. It has consistently beaten its peers during the ups and downs of the market. 1 year return has been 33.83% and 5 year annualised return has been 27.91%. The fund has mid cap exposure of 57.28%, large cap exposure of 25% and the rest in small cap. Top sectoral allocation has been into services, FMCG and chemicals.

6. HDFC Mid-Cap Opportunities: With a 32% return the best performing fund from the HDFC stable is Mid-cap Opportunities. Close to 49% of the allocation is in mid caps, 38% in small caps and the rest in large cap. It was converted to open ended in June this year.

7. Tata Dividend Yield: It is a fairly diversified fund with 40% large cap, 33% mid cap and 26% small cap exposure. Last 1 year return is 33% whereas annualised return for last 5 years has been 18.50%. Top stocks in its portfolio are Glaxo Consumer Healthcare, CRISIL, Hindustan Unilever, Navneet Publications and Nestle India. As the name suggests this fund tries to invest in stocks with good track record of dividend payout.

Best Performing Debt Funds

In a rising interest rate regime the debt funds are increasingly becoming popular. Here are some top performing pure debt funds in 2010.

8. Birla Sun Life GSF Long-term: The return for last 1 year has been 9.22 % and the annualised return for last 5 years is 8.16%. About 93% of the allocation is into different medium and long term Government of India securities and balance in cash/current assets.

9. SBI Dynamic Bond: Return of 7.37% in last one year however the annualised returns for past 3 and 5 years stand at 1.81% and 2.17 % only. 81% of the investments are into Govt of India securities.

10. BNP Paribas Bond Reg: The last 1 year return for this fund has been 7.21%. The fund has 52% of its portfolio in Debentures which makes it riskier than the previous 2 funds.

Disclaimer: This source of data in this report is Value Research as per Dec 22, 2010. The report is just to showcase some best performing funds in last 1 year only and it should not be taken as an investment advice. The past performance of a fund is no guarantee of its performance in future. You should take investment decisions as per your financial plan which is based on risk profile and unique financial situation. You can get a financial plan online by clicking here.

*Excluding the sectoral and thematic funds

What is Fund of Funds (FoF)

Yogi — Fri, 27 Aug 2010 05:20:03 GMT

Mutual fund investments have gained a lot of popularity in the last two decades, primarily for its ability to reduce risks, provide greater diversification and beat market volatility to a certain extent. But with a plethora of schemes available in the market, how does one choose the right one or diversify among the different schemes? The answer could well be in a scheme called Fund of Funds offered by some fund houses. Investment Yogi brings out the key features of this product, to help investors understand its working and the value it could bring for them.

What is a Fund of Funds (FoF)?

In simple words, a Fund of Funds is a mutual fund which invests in other mutual fund schemes. Where a traditional mutual fund comprises of a portfolio of shares, a Fund of Funds comprises of a portfolio of different mutual fund schemes. The units held by a FoF scheme would be similar to a traditional mutual fund scheme, with the difference that, they are invested in units of other mutual funds, instead of direct stocks. A FoF helps the investor to reduce his chances of selecting the wrong mutual fund.

How does a Fund of Funds work?
The process of investing in Fund of Funds is similar to investing in other mutual funds. For the amount invested, units are allocated on the basis of the NAV of the scheme. The performance of the FoF is linked to the NAV movement of the underlying mutual fund scheme, in which the FoF has invested.

Fund of Funds, invest in mutual funds on the basis of an investment objective, such as aggressive, conservative etc. The right fund to invest in is chosen by the fund manager. The primary objective of FoF is to provide greater diversification, at reduced risks and ease the process of fund selection for investors. Fund of Funds however bears all the risks of the underlying mutual fund they invest in.

Advantages of Investing in Fund of Funds
Here is why investing in Fund of Funds would be beneficial to investors.

• Diversification - Investing in a FoF scheme provides the investor greater diversification. A single investment could get the investor a diversified portfolio comprising of equity, debt, money market, bonds or Gold. With greater diversification, a FoF scheme hedges investor risk across various sectors. In principal, all eggs would not be put in one basket.

• Switching between Funds - In a traditional mutual fund investment, any switches or rebalancing between funds would attract a capital gains tax and an exit load for the investor. In a FoF investment, the investor would not be burdened with such costs, as the Fund manager would automatically switch between funds, in line with the investment objective of the scheme.

• Simplicity of Investing - An investor need not keep track of multiple mutual fund schemes and their performances. Investors would have only one folio to maintain and one NAV to keep track of.

• Affordable Investment - New or first time investors, who do not have a large capital for a diversified portfolio, could now diversify from among thousands of funds and stocks, with a small amount of money.

• Benefits from Institutional Investments - Many funds are generally not accessible for retail investors such as top tier funds or closed ended funds. With the FoF scheme, an investor gets access to such funds which are otherwise off limits for small investors.

• Reduced Risk - In a traditional mutual fund investment, it is the capability of the fund manager to choose the right stock to invest in, for the fund to perform well. With a Fund of Fund investment, this risk is reduced for investors who now have their portfolio exposed to investment strategies of various fund managers.

Disadvantages of Fund of Fund

• Cost to Investor - Expense fees and management costs are higher than normal mutual funds, as the cost structure will include the fees of the underlying mutual funds, as well as the FoF.

• Investments in Same Stocks - The schemes in which the FoF invests in, in turn invest in different stocks. There is a possibility that the FoF may be holding the same stock through different funds it has invested in. Thus any adverse movement of this stock could affect the FoF performance.

• Tax Implications - The tax treatment on Fund of Funds is similar to investments made in debt mutual funds, even if the scheme is investing in Equity based mutual funds. The investor will have to bear a dividend distribution tax similar to a debt mutual fund.

Thus, if you are a mutual fund investor and are unable to take informed decisions then Fund of Funds could be the ideal choice for you. Many investors lack the time, inclination and expertise to monitor the market or mutual funds. In such cases too, Fund of Funds comes as the perfect investment tool.

To help determine if a fund is right for you go to InvestmentYogi’s Financial Planner. Our Financial Planner will carefully analyze your financial details and recommend a road map for achieving your long term goals.

*Past Performance of a Few FoF Schemes (as on 18 August 2010)

*Source: www.myiris.com

Written for InvestmentYogi by Ramya Ramachandran

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Top SBI Mutual Funds

Yogi — Thu, 05 Aug 2010 02:30:23 GMT

Introduction to SBI Mutual Fund:

InvestmentYogi: Provides you a detailed review of best SBI mutual funds for investments.

SBI mutual fund was setup on June 29th, 1987 and incorporated on February 7th, 1992. It is a result of joint venture between State Bank of India and Societe Generale Asset Management of France. This is a bank sponsored mutual fund and has a base of 3.5 million investors (approx). Over the years it has carved a niche for itself through prudent investment decisions and consistent wealth creation for its customers. They offer Mutual Fund products in Equity Funds, Index Funds, Balanced Funds, Debt Funds, etc.

The assets under management are Rs 33,727.90 crores as of June, 30, 2010.

InvestmentYogi analyses the best performing SBI mutual funds in the Balanced Fund, Equity Fund and Equity Linked Savings Scheme (ELSS) categories.

Best performing “Balanced Fund/Hybrid Fund” is:

SBI Magnum Balanced fund: The objective of the scheme is to provide its investors growth through capital appreciation and provide periodic income through declaration of dividends. This scheme was launched on October, 9th 1995. The top sector allocations are BFSI, Energy, Engineering. This fund has given 18.24% returns from its inception date. The fund managers are Mr. Dharmendra Grover and Mr. Sankar V. B. Chebiyyam.

Source: Value Research Online - Data as of June 30, 2010

The annualized returns for this fund seem to be volatile. Returns had drop to 9.16% for the last three years due to the recession but it’s commendable. When the markets recovered in the last one year the fund delivered 20.08% returns. This seems attractive for investments in balanced fund category.

Best performing “Equity Funds” are:

SBI Magnum Global Fund 94: The objective of the scheme is to provide growth opportunities through investment in equities. This scheme was launched on September, 30th 1994. The benchmark index is BSE 100. The top sector allocations are Engineering, Information Technology and Automobiles. This fund has given 14.50% returns from its inception date. The fund manager is Mr. R. Srinivasan.

SBI Magnum Contra Fund: The objective of the scheme is to invest in under value stocks which are currently out of favor but have potential to grow in the long term. This scheme was launched on July, 5th 1999. The benchmark index is BSE 100. The top sector allocations are BFSI, Energy. This fund has given 14.48% returns from its inception date. The fund manager is Mr. Pankaj Gupta.

Source: Value Research Online - Data as of June 30, 2010

The annualized return for SBI Magnum Global Fund 94 is volatile. During the recession (in last 3 years) returns of this fund dropped drastically to 5.21%. Now, when the markets have been recovering the fund has managed to recover quickly and it’s giving 40.96% returns.

On the other hand, the SBI Mangum Contra Fund had delivered 9.78% during recession which is 4.57% higher returns while comparing with SBI Magnum Global Fund 94. But, when the markets were recovering there was only nominal increase in returns of SBI Mangum Contra Fund by comparing to other fund.

In the long term, the annualized 5 year return is 2.61% higher for SBI Magnum Contra fund while comparing with SBI Magnum Global Fund 94.

Best performing “Tax Saving Schemes” are:

SBI MAGNUM TAXGAIN SCHEME: The objective of the scheme is to invest in a portfolio of equities and offering tax benefits to investors. This scheme was launched on March, 31st 1993. The benchmark index is BSE 100. The top sector allocations are Engineering, BFSI, Oil and Gas. This fund has given 19.40% returns from its inception date. This is an open ended scheme. The fund manager is Mr. Jayesh Shroff.

SBI Tax Advantage Fund - Series 1: The objective of the scheme is to generate capital appreciation in the long term by investing in large cap, mid cap and small cap companies. Also, offering income tax benefit to its investors. This scheme was launched on March, 3rd 2008. The benchmark index is BSE 100. The top sector allocations are Engineering, BFSI, Information Technology. This fund has given 8.95% returns from its inception date. This is a close ended scheme. The fund manager is Mr. Dharmendra Grover.

Source: Value Research Online - Data as of June 30, 2010

The SBI Tax Advantage Fund - Series 1 mutual fund scheme was launched in Mar, 2008 when the markets were recovering from recession. In the last one year the returns for this fund had been 3% higher while comparing with SBI Magnum Taxgain scheme.

There are various schemes under SBI Mutual Funds to invest other than schemes discussed above. Use InvestmentYogi’ financial planner to analyze your needs and goals. Then take a vital decision of investments into specific mutual fund schemes considering your risk taking ability.

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Written for InvestmentYogi by Hiral Thanawala, CFPCM

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Top UTI Mutual Funds

Yogi — Thu, 05 Aug 2010 02:17:34 GMT

In 1963, the Unit Trust of India (UTI) was set up. This is the birth year for Indian mutual fund industry. In 1964, UTI mutual fund had launched US 64 scheme which went on to become the most popular scheme to invest in among investors till the government allowed public sector banks to start mutual funds in 1987. In 2001, UTI mutual fund was on the verge of collapse. It was bailed out by the government and the fund was restructured. It was then incorporated on 14th Nov, 2002. After, restructuring the fund has managed to redeem its credibility. It is due to the professional team of management looking after the operations. Now, they offer mutual fund products in Liquid Funds, Income Funds, Asset Allocation Fund, Index Funds, Equity Funds and Balanced Fund.

The assets under management are Rs 64445.65 crores as of June, 30, 2010.

InvestmentYogi analyses the best performing UTI mutual funds in the Balanced Fund, Equity Fund and Equity Linked Savings Scheme (ELSS) categories.

Best performing “Balanced Fund” is:

UTI Balanced Fund: The objective of the scheme is providing capital appreciation to its investors. This scheme was launched on Jan, 1st 1995. The top sector allocations are BFSI, Engineering, Oil and Gas. This fund has given 18.24% returns from its inception date. The fund managers are Mr. Amandeep Chopra and Mr. V. Srivatsa.

Source: Value Research Online - Data as of June 30, 2010

The annualized return in last 3 years for UTI balanced fund had dropped due to recession. But, it has recovered immensely in the last one year and it’s giving 23.05% returns. Also, the return in the last five years is commendable for this fund. It seems to be a good investment scheme for conservative investors.

Best performing “Equity Funds” are:

UTI Opportunities Fund: The objective of the scheme is to generate capital appreciation by investing in equity shares and equity related instruments across different sectors as per market trends and economic factors. This scheme was launched on Jul, 20th 2005. The benchmark index is BSE 100. The top sector allocations are Oil and Gas, BFSI and Automobile. This fund has given 20.11% returns from its inception date. The fund manager is Mr. Harsha Upadhyaya.

UTI Equity Fund: The objective of the scheme is to generate capital appreciation by investing in equity shares and equity related instruments, convertible debentures, derivatives in India and also in overseas markets. This scheme was launched on April, 20th 1992. The benchmark index is BSE 100. The top sector allocations are Oil and Gas, BFSI, Information Technology. This fund has given 12.23% returns from its inception date. The fund manager is Mr. Anoop Bhaskar.

Source: Value Research Online - Data as of June 30, 2010

The annualized return for both the funds was fine during recession phase i.e in last three years. UTI opportunities fund outperformed UTI Equity Fund in returns in this phase and gave 3% (approx) higher returns.

Whereas, in the last one year when markets were recovering the returns for UTI Equity fund managed to generate 5% (approx) higher returns while comparing with UTI opportunities fund.

In the long run i.e for 5 years annualized return is mere 1% higher for UTI opportunities fund while comparing with UTI Equity Fund.

Best performing “Equity Linked Savings Scheme” are:

UTI Long Term Advantage Fund- Series I: The objective of the scheme is to provide capital appreciation along with income tax benefit. This scheme was launched on December, 21st 2006. The benchmark index is BSE 100. The top sector allocations are Oil and Gas, BFSI, Information Technology, Engineering. This fund has given 7.34% returns from its inception date. This is a close ended scheme. The fund manager is Mrs. Swati Kulkarni.

UTI Equity Tax Savings Plan: The objective of the scheme is to provide capital appreciation by investing in equities and equity linked securities along with income tax benefit. This scheme was launched on December, 15th 1999. The benchmark index is BSE 100. The top sector allocations are Oil and Gas, BFSI, Information Technology, Engineering. This fund has given 18.57% returns from its inception date. This is an open ended scheme. The fund manager is Mrs. Swati Kulkarni.

Source: Value Research Online - Data as of June 30, 2010

The annualized returns for both the funds showcase a mere 5% (approx) returns during recession phase (last three years). When markets recovered in last one year both the fund generated 25.5% (approx) returns. This conveys that both funds seem to give equivalent returns.

There are many UTI Mutual Fund schemes in each category other than the schemes discussed above. Be a well-versed investor. Perform your own research and analysis across various schemes considering personal goals and risk of investments. Then take a sound decision of investing in any mutual fund schemes after consulting your financial planner.

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Written for InvestmentYogi by Hiral Thanawala, CFPCM

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Top HDFC Mutual Funds

Yogi — Thu, 29 Jul 2010 04:46:30 GMT

Introduction of HDFC Mutual Fund:
InvestmentYogi: Provides you a detailed review of best HDFC mutual funds for investments.

HDFC mutual fund was incorporated on December, 10th 1999. It was setup on June 30th, 2000. In 2003 HDFC Asset Management Company had entered into an agreement with Zurich Insurance Company to acquire the asset management business. Consequently, all the schemes of Zurich Mutual Fund in India had been transferred to HDFC Mutual Fund. The HDFC AMC now offers Equity Funds, Balanced Funds and Debt Funds. They have been the best performing mutual funds in the last several years.

The assets under management are Rs 86,648.10 crores as of June 30, 2010.

InvestmentYogi analyses the best performing HDFC mutual funds in the Balanced Fund, Equity Fund and Equity Linked Savings Scheme (ELSS) categories.

Best performing “Balanced Funds” are:

HDFC Prudence Fund: The objective is to provide periodic returns and capital appreciation over a long period of time, by investing in equity and debt investments, with an aim to minimize any capital erosion. This scheme was launched on December 16, 1993. The top sector allocations for this fund are BFSI, Pharmaceuticals, Oil and Gas. The fund manager is Prashant Jain.

HDFC Balanced Fund: The objective is to generate capital appreciation along with current income from a combined portfolio of equity, debt and money market instruments. This scheme was launched on September 11, 2000. The top sector allocation for this fund is Pharmaceuticals. The fund manager is Chirag Setalvad.

Source: Morningstar Direct Data as of June 30, 2010

The annualized return for both the funds during the last three years is equivalent to 16% (approx). This shows both funds performed equally well during the recession period. When markets were recovering in the last one year the returns for HDFC Prudence showed 4% higher returns while comparing to its peer fund HDFC Balanced. Also, in the last five years HDFC Prudence has managed to outperform HDFC Balanced fund.

Best performing “Equity Funds” are:

HDFC Equity Fund: The objective of this fund is to provide capital appreciation through investments in equity oriented securities. This scheme was launched on December 8, 1994. The benchmark index is S&P CNX 500. The top sector allocations for this fund are BFSI, Pharmaceuticals, Oil and Gas. The fund manager is Prashant Jain .

HDFC Top 200: The objective of this fund is to generate long term capital appreciation by investing in a portfolio of equities and equity linked instruments drawn from the BSE 200 Index. This scheme was launched on August 19, 1996. The benchmark index is BSE 200. The top sector allocations for this fund are BFSI, Oil and Gas. The fund manager is Prashant Jain.

Source: Morningstar Direct Data as of June 30, 2010

The annualized return for HDFC Equity Fund was 46.5% in the last one year. These returns are much higher by comparing it with its peer fund HDFC Top 200. This shows when markets were recovering, the fund manager made the right investment decisions and managed to generate better returns for their investors in HDFC Equity Fund. Whereas, when you compare the returns for the last three years (i.e during the global slowdown) its HDFC Top 200 fund generated 2% higher returns by comparing it to HDFC Equity Fund. In the last five years both funds have given equivalent returns of 28% (approx).

Best performing “Tax Saving Funds” are:

HDFC Long Term Advantage Fund: The objective is to generate long term capital appreciation from a portfolio that is predominantly in equity and equity related instruments and providing tax benefits to investors. This scheme was launched on January 2, 2001. The benchmark index is BSE Sensitive Index. The top sector allocations for this fund are Information Technology and Pharmaceuticals. The fund manager is Chirag Setalvad.

HDFC Taxsaver: The objective is to provide tax benefits along with capital appreciation. This scheme was launched on December 18, 1995. The benchmark index is S&P CNX 500. The top sector allocations for this fund are Information Technology, Pharmaceuticals and BFSI. The fund manager is Vinay Kulkarni.

Source: Morningstar Direct Data as of June 30, 2010

The annualized return for HDFC Taxsaver is much better while comparing to its peer fund HDFC Long Term Advantage Fund. As, you can analyze HDFC Taxsaver fund has outperformed in the 1st and 3rd year, as well as in the 5th year returns. In the last three years of global slowdown, which had impacted Indian stock market, HDFC Taxsaver fund managed to deliver 11.7% returns. This is quite appreciable. Also, during the recovery phase in the last one year, HDFC Taxsaver has managed to generate 48.7% returns for their investors.

There are many HDFC Mutual Funds in each category other than the schemes discussed above. An investor needs to identify their own risk taking ability, time-frame of investments and goals while taking a decision to invest in any particular mutual funds.

You may use financial calculators and planners to help achieve your financial goals for the future:

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Written by InvestmentYogi by Hiral Thanawala

Investment Options for Equity Mutual Funds

Yogi — Tue, 27 Jul 2010 08:05:36 GMT

There are many investors who are puzzled to select fund options while investing in equity mutual funds. They don’t understand the basic difference between Dividend Payout, Dividend Re-investment, Growth or Bonus options. So, let’s focus on these mutual fund concepts in depth. This will help to make an informed decision while investing.

Dividend Payout Option - In Dividend Payout Option the fund declares dividend to their investors from time to time. As, you can observe in Illustration 1 given below:

Illustration 1:
An investor invests Rs 50,000 on 2nd Jan, 2006 in the HDFC Equity Fund (Dividend) payout option. On a regular basis the fund pays out a certain percentage of dividends to investors. On 30th June, 2010 the fund generated returns of 90.01% adding up total dividend payout and total appreciation in invested amount.

Scheme: HDFC Equity Fund (Dividend)

Date	Dividend Payout	Amount Invested (Rs)	NAV	Units	Dividend Payout (Rs)	Balance Units	Total Value (Rs)
02/01/06	Initial Investment	50,000	36.34	1375.89	-	1375.89	50,000
17/03/06	50%	-	41.88	-	6879	1375.89	57,622
07/03/07	50%	-	40.35	-	6879	1375.89	55,517
07/03/08	55%	-	45.45	-	7567	1375.89	62,534
19/03/09	30%	-	23.25	-	4128	1375.89	31,990
25/03/10	40%	-	46.95	-	5504	1375.89	64,598
30/06/10	-	-	46.55	-		1375.89	64,048
	Total Dividend Payout				30,958
	Total Returns						95,006

Source: Mutual Funds India

Now, it’s upon you as an investor to invest the dividend returns for future consumption or utilize it for your regular expenses. But, InvestmentYogi recommends you re-invest the dividend payout for future consumption.

Dividend Re-Investment Option - In Dividend re-investment option the fund declares divided on regular basis, but it’s re-invested into the same fund. So, from that amount new units are purchased for an investor. As, you can observe in Illustration 2 given below:

Illustration 2:
An investor invests Rs 50,000 on 2nd Jan, 2006 in the HDFC Equity Fund (Dividend) Re-investment option. On a regular basis the fund declares a certain percentage of dividends to investors and they are re-invested into the fund by buying new units at prevailing NAV. On 30th June, 2010 the fund generated total returns of 102.21%.

Scheme: HDFC Equity Fund (Dividend)

Date	Dividend Reinvestment	Amount Invested (Rs)	NAV	Units	Dividend Payout (Rs)	Balance Units	Total Value (Rs)
02/01/06	Initial investment	50000	36.34	1375.89	-	1375.89	50,000
17/03/06	50%	6879	41.88	164.27	0	1540.16	64,502
07/03/07	50%	6879	40.35	170.49	0	1710.66	69,025
07/03/08	55%	7567	45.45	166.50	0	1877.16	85,317
19/03/09	30%	4128	23.25	177.53	0	2054.69	47,772
25/03/10	40%	5504	46.95	117.22	0	2171.91	101,971
30/06/10	-	-	46.55	-	-	2171.91	101,103
	Total Returns						101,103

Source: Mutual Funds India

Comparison between returns of Dividend Payout and Dividend Re-investment option - There are higher returns in the dividend re-investment option as you have analyzed from Illustrations 1 and 2. This was possible because the investor re-invested the dividend declared amount into the scheme for buying new units. This generated higher return on their investment, compared to dividend payout option. By investing in the same fund for same period of time they have generated 6.41% higher returns by investing in the dividend re-investment option, compare to dividend payout option.

This was considered only for investing in one mutual fund scheme. An investor basically invests into multiple schemes. Now, if you have opted for dividend payout in all schemes then there will be much higher losses.

Growth Option - In growth option, you will not receive any payout, but the value of your holdings will be appreciated in the long term. The returns keep on fluctuating based on the net asset value of a fund. As, you can observe in Illustration 3 given below:

Illustration 3:

An investor invests Rs 50,000 on 2nd Jan, 2006 in the HDFC Equity Fund Growth option. The invested amount buys units in this particular scheme. Now, on 30th June, 2010 the fund generated total returns of 136.3%. In growth option there is no dividend declared. The return from a fund is completely dependent on net asset value into number of units at any given point of time.

Scheme: HDFC Equity (Growth)

Date	Amount Invested (Rs)	NAV	Units	Balance Units	Total Value (Rs)
02/01/06	50,000	107.19	466.46	466.46	50,000
17/03/06	-	123.52	-	466.46	57,617
07/03/07	-	135.17	-	466.46	63,052
07/03/08	-	173.18	-	466.46	80,782
19/03/09	-	100.8	-	466.46	47,019
25/03/10	-	233.86	-	466.46	109,087
30/06/10	-	253.29	-	466.46	118,150
	Total Returns				118,150

Source: Mutual Funds India

Comparison between returns of Dividend Re-investment and Growth Option - The dividend re-investment option fund declares dividend payout, but they are reinvested into the scheme to buy new units at prevailing NAV. On the other side, in growth option there is no dividend payout option. The amount is invested to buy the units in particular scheme.

In growth option the returns are fluctuated with net asset value. In the long term there are higher returns in the growth option which is well illustrated by comparing returns of Illustrations 2 and 3. Growth option generated 16.86% higher returns compare to dividend re-investment option.

Bonus Option - There are few mutual fund schemes which give the option of bonus. In this, the asset management company decides to declare certain units as bonus to their investors. It can be anything such as 1:2, 1:5, 1:10 or any other ratio. In Illustration 4 we have assumed the NAV and bonus declared for Reliance Pharma (Bonus) fund to understand this option.

Illustration 4:

An investor invests Rs 50,000 in the Reliance Pharma bonus option. The bonus assumed is 1:10 in this scheme. Now, this fund has declared bonus units in the 1st and 2nd year after initial investment. This has reduced the NAV after bonus and has increased the holding of units in the hands of the investor. In the event, the 3rd year investor decides to exit from this fund and manages to generate returns of 69.4%.

Scheme: Reliance Pharma (Bonus)

Year	Invested Amount (Rs)	NAV (before bonus)	Units	Bonus Units	Total Units	NAV (after bonus)
1	50,000	50	1000	100	1100	45.45
2	-	60	1100	110	1210	41.32
3	-	70	1100	-	1210	-
	Total Returns					Rs 84,700

*Assumption: Bonus units declared 1:10

Tax Implication - The funds such as diversified, sector or balanced which invest into equity of companies with holding of 65% or more are considered as equity mutual fund schemes.

Dividend income from an equity oriented fund is tax-free.
Exit from a mutual fund scheme within a year of investment will impose 15% short term capital gains tax.
Exit from a mutual fund scheme after a year of investment is considered as long term investment which implies no tax on capital gains.

By, now you would have understood the concepts and differences between Dividend Payout, Dividend Re-investment, Growth and Bonus options. So, don’t confound yourself with mutual funds terminology. Be clear with your investment goals and opt for right equity fund options considering all the aspects discussed.

Written for InvestmentYogi by Hiral Thanawala

Best Balanced Mutual Fund Investments in 2010

Yogi — Tue, 27 Jul 2010 06:19:55 GMT

Investors have the appetite to invest directly in equities or through diversified equity mutual fund schemes. But, the risk involved of investing in such instruments is higher and not safe for conservative investors. They are recommended to invest in balanced mutual fund schemes. Investing in this instrument will generate moderate returns in long term by appreciating capital invested.

What are balanced mutual fund schemes?

Balanced mutual fund schemes as the name suggest invest into equities to create wealth in long term and debt instrument products to maintain stability. Investing in this product helps to achieve your goals safely. This product satisfies investors’ appetite for equity as well as doesn’t take you on a bumpy ride during volatile sessions of markets. There is cushion from investing in debt which creates minimum return for investors.

The asset allocation of balanced mutual fund schemes varies in each product offered by an asset management company. The ideal mix an investor should look for while investing in this product is at least 65% into equities and 35% into debt instruments. This information is given in Key Information Memorandum of particular schemes.

Now, we will discuss Top Balanced Funds to Invest in 2010:

Performance and risks of Top Balanced Mutual Funds:

You need to consider the scheme which gives consistent returns in long term. Don’t fall in the trap of schemes which are star performers just for a short period.

Source: Morningstar Direct - Data as of June 30, 2010

While investing in these schemes an investor should not look at performance as the only criteria. You need to analyze risks involved which are given below for above discussed schemes:

Historical Risk Ratios 3 Years

Scheme Name	Std Dev (%)	Sharpe Ratio	Beta	R-Squared
HDFC Prudence	29.2	0.5	1	33.8
Balanced	28.4	0.6	1	34.8
Birla Sun Life 95	27.8	0.4	0.9	39.4
DSP BlackRock Balanced	25	0.4	0.8	30.3
FT India Balanced	23.5	0.2	0.8	34.9

Source: Morningstar Direct - Data as of June 30, 2010

To know more about the interpretation of these risks involved in mutual fund schemes please read, “5 Ways to Measure Mutual Fund Risk”.

Asset Allocations:

As discussed above, asset allocation is an important aspect which needs to be considered while investing for right mix considering risk ability of an investor and expected returns for set goals.

Below, given are asset allocations of the schemes (Data as of June 30, 2010):

Scheme Name	Equity	Debt	Cash	Money Markets	Others
HDFC Prudence:	74.61%	23.23%	2.16%	-	-
Reliance Regular Savings – Balanced	62.89%	31.70%	0.37%	-	5.04%
Birla Sun Life 95	67.03%	15.25%	-	14.07%	2.39%
DSP BlackRock Balanced	72.23%	21.64%	-	4.44%	1.02%
FT India Balanced	57.28%	27.50%	5.15%	-	0.07%

Source: Morningstar Direct

Fund Size:

This gives you the information on asset under management for particular schemes. The more the fund size is conveyed as an attractive scheme among investors.

Scheme name	Fund Size (in Rs Crore)
HDFC Prudence	4113.5
Reliance Regular Savings - Balanced	539.2
Birla Sun Life 95	289.9
DSP BlackRock Balanced	677.1
FT India Balanced	278.3

*Data as of May 31, 2010

Source: Morningstar Direct

You don’t need to follow a herd while investing in any scheme just by seeing the fund size. Better analyze the scheme on different parameters as discussed in this article before making a decision to invest.

Tax Implication:

Balanced mutual funds are treated as equity funds for tax purposes when the fund allocates at least 65% into equities on an annual average fund amount. To create wealth in the long term an investor should continue to be invested in balanced mutual fund. The taxes applicable will be NIL for long term capital gain whereas, if an investor invests for short term in this scheme will have to pay 15% short term capital gain tax and 3% education cess which will make total taxes payable to 15.45%.

Written for InvestmentYogi by Hiral Thanawala

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Top Diversified Equity Mutual Fund

Yogi — Wed, 21 Jul 2010 05:08:32 GMT

From long era there is a common statement, “Don’t put all of your eggs in one basket!” flashing again and again in front of investors eyes. But, many investors have been ignoring it and act as an over smart investor. They move ahead and invest heavily in one or two equity stocks or a couple of mutual fund schemes without much research behind it. Then feel the pinch when they face heavy losses in such investments. As per investment experts, “Diversification of investment does pay off if it’s done systematically considering the asset allocation and goals of an investor.”

InvestmentYogi gives you an example of Diversified Equity Mutual Funds invested across the sectors: BFSI, Real Estate, Oil and Gas, Infrastructure, Telecom, Information Technology, FMCG, etc. By diversifying investments the fund minimises the risk of over concentration in specific sectors. In the long term, diversified equity mutual funds have given good results. In the examples below you will see some of the best equity diversified mutual funds across large cap funds, mid cap and small cap funds, and dividend yield fund categories.

1. Large Cap Equity Diversified Mutual Funds:

UTI Master Value

Objective: To provide substantial long term capital appreciation from investment in undervalued stocks. The scheme will invest predominantly in shares trading on the BSE and similar stocks having scope for attractive capital appreciation and good dividend yield.
Top Sectors Allocation: Pharmaceuticals, BFSI
Benchmark Index: CNX Midcap

Returns % (as on 6^th Jul, 2010)

5 Year	3 Year	2 Year	1 Year
19.7	16	32.1	75.6

* Returns over 1 year are Annualised

ICICI Prudential Discovery Fund:

Objective: To generate returns through a combination of dividend income and capital appreciation by investing primarily in a well-diversified portfolio of value stocks.
Top Sectors Allocation: Pharmaceuticals, BFSI
Benchmark Index: S&P CNX Nifty

Returns % (as on 6^th Jul, 2010)

5 Year	3 Year	2 Year	1 Year
24.5	16.4	39.1	72.3

* Returns over 1 year are Annualised

Reliance Equity Opportunities Fund – Retail Plan:

Primary objective: To generate capital appreciation;
Secondary objective: Generate consistent returns by investing in debt and money market securities.
Top Sectors Allocation: Pharmaceuticals, Information Technology
Benchmark Index: BSE 100

Returns % (as on 6^th Jul, 2010)

5 Year	3 Year	2 Year	1 Year
25.3	11.7	33.1	69

* Returns over 1 year are Annualised

HDFC Equity Fund:

Objective: To provide capital appreciation through investments predominantly in equity oriented securities.
Top Sectors Allocation: BFSI, Oil and Gas and Pharmaceuticals
Benchmark Index: S&P CNX 500

Returns % (as on 6^th Jul, 2010)

5 Year	3 Year	2 Year	1 Year
27.7	14.2	32.7	48.4

* Returns over 1 year are Annualised

Source: Value Research Online

2. Mid Cap and Small Cap Equity Diversified Mutual Funds:

DSP Blackrock Small and Mid Cap Fund:

Objective: To generate long term capital appreciation from a portfolio that is substantially constituted of equity and equity related securities, which are not part of top 100 stocks by market capitalisation. The Scheme may also invest a certain portion of its corpus in debt and money market securities, in order to meet liquidity requirements from time to time.
Top Sectors Allocation: Pharmaceuticals
Benchmark Index: CNX Midcap

Returns % (as on 6^th Jul, 2010)

5 Year	3 Year	2 Year	1 Year
-	12.7	33.1	71

* Returns over 1 year are Annualised

Birla Sun Life Mid Cap Fund Plan A:

Objective: To achieve long term growth of capital at controlled level of risk by primarily investing in mid-cap stocks.
Top Sectors Allocation: Pharmaceuticals, BFSI, Information Technology
Benchmark Index: CNX Midcap

Returns % (as on 6^th Jul, 2010)

5 Year	3 Year	2 Year	1 Year
25.5	11.6	27.7	49.1

* Returns over 1 year are Annualised

Sundaram BNP Paribas Select Midcap Regular plan:

Objective: To achieve capital appreciation.
Top Sectors Allocation: Pharmaceuticals
Benchmark Index: BSE Midcap

Returns % (as on 6^th Jul, 2010)

5 Year	3 Year	2 Year	1 Year
27.7	12.1	28.2	50.7

* Returns over 1 year are Annualised

Source: Value Research Online

3. Dividend Yield Diversified Equity Mutual Funds:

ING Dividend Yield Fund:

Objective: To provide medium to long term capital appreciation and/or dividend distribution by investing predominantly in equity and equity related instruments offering high dividend yield.
Top Sectors Allocation: BFSI
Benchmark Index: BSE 100

Returns % (as on 6^th Jul, 2010)

5 Year	3 Year	2 Year	1 Year
-	19.6	36.5	67.3

* Returns over 1 year are Annualised

Tata Dividend Yield Fund:

Objective: To provide income distribution and/or medium to long term capital gains by investing predominantly in high dividend yield stocks.
Top Sectors Allocation: Information Technology, FMCG
Benchmark Index: BSE Sensex

Returns % (as on 6^th Jul, 2010)

5 Year	3 Year	2 Year	1 Year
20.5	15.9	29.7	58.6

* Returns over 1 year are Annualised

Fortis Dividend Yield Fund:

Objective: To generate long-term capital growth from actively managed portfolio of equity and equity related instruments, primarily being high dividend yield stocks.
Top Sectors Allocation: Oil & Gas, BFSI
Benchmark Index: BSE Sensex

Returns % (as on 6^th Jul, 2010)

5 Year	3 Year	2 Year	1 Year
-	12.9	33.9	55.7

* Returns over 1 year are Annualised

Source: Value Research Online

There are many equity diversified mutual fund schemes available to opt while investing. Above discussed were a few of the best performing in respective categories. You need to follow certain strategies for selecting the right diversified equity fund. Let’s understand these strategies below:

Compare returns across the funds within same category:

For instance, returns of “UTI Master Value” large cap diversify equity fund should be compare with returns of other large cap diversify equity fund. These returns shouldn’t be compared with returns of mid and small cap diversify equity fund or any other category. Such comparisons will give you flawed results.

Compare returns for longer time frames:

The idle time frame for comparing returns is 3 to 5 years. This covers a complete economic cycle. So, it clearly showcases the returns during peak and recession phase.

Compare returns against benchmark index:

Each mutual fund scheme does specify the benchmark index in their Key Information Memorandum. While reviewing the performance of a fund and before investing, investors need to analyse whether the fund is able to out perform returns of benchmark index over the long term (3 to 5 years).

Compare returns against the fund’s own performance:

Historical performance of same fund should play a vital role in decision making while investing. There are many funds which delivers good returns but only for a certain period. Such mutual fund schemes should be ignored while investing. You need to have a mutual fund scheme which delivers consistent returns throughout the economic cycle.

There are certain risks involved while investing in mutual funds. This needs to be evaluated while investing and reviewing on a regular basis.

Be a smart investor. Diversify your investments by investing in diversified equity mutual funds, considering the risk capability and expected returns to achieve your goals.

Written for InvestmentYogi by Hiral Thanawala

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Best Large-Cap Mutual Funds

Yogi — Fri, 16 Jul 2010 08:32:04 GMT

What are Large Cap Funds?

Large cap funds are those mutual funds, which look for capital appreciation by investing primarily in stocks of large blue chip companies* that have more potential of earning growth and higher profit.

*Blue chip companies – they are large well established organizations which are superior in financial shape, industry leaders and have low debt to equity ratios. Examples are the constituents of Sensex, Nifty such as, Infosys, Bharti Airtel, Reliance Industries, HDFC, Hindustan Unilever Limited, etc.

Each Asset Management Company has their own investment objective which defines the large cap company based on market capitalization. Two such examples are given below:

Mutual Fund Scheme - Principal Large Cap Fund

Investment Objective - The scheme is to provide capital appreciation and/or dividend distribution by predominantly investing in companies having a large market capitalization. For the purpose of this fund, large cap companies are defined as those having market capitalization greater than Rs. 750 crores as on the date of investment (or any such amount as may be specified by India Index Services Ltd.[IISL]) and in being the upper limit of market capitalization as a criteria for inclusion of a company in CNX Midcap 200 Index.

Mutual Fund Scheme - Canara Robeco Large Cap Fund

Investment Objective - The fund is to provide capital appreciation by predominantly investing in companies having a large market capitalization. For the purpose of this Fund, Large Cap Companies are defined as those which are ranked from 1 to 150 on the basis of market capitalization at the time of investment. The ranking is reviewed periodically.

Risk-return of investing in Large Cap funds

Investing in large caps scheme is comparatively low risk/low returns because such companies being established business houses, their business data is widely researched and information about them is easily available to all.

Advantages:

These funds are less volatile than mid cap and small cap funds.
They are ideal investments for risk-averse/conservative investors wanting to enter the stock market without owning too much risk.
In the long-term, large cap funds out perform returns from mid-cap and small-cap funds.

The ideal time to invest in large cap funds:

To invest in equity mutual funds there is no such thing as an ideal time. Best way to enter is through a Systematic Investment Plan (SIP). One of the advantages of investing through SIP for the long-term is it adjusts the “returns” and “cost of purchase” during volatile times.

InvestmentYogi helps us understand parameters an investor needs to consider before investing in any large cap fund. These pointers would help one make an informed decision and not be fooled by a mutual fund agent selling non-performing schemes as superior large cap funds to invest:

1) ‘Investment Objective’ of the fund - The most important document an investor needs to understand is the KIM (Key Information Memorandum) of mutual fund scheme. Investors are expected to clearly know the ‘investment objective’ of the MF scheme. A KIM will also provide other relevant information such as total funds under management into equity and debt scheme, portfolio composition, expenses, etc

2) Tracking performance of the fund - Investor needs to analyze the historical returns of the scheme with benchmark index such as Sensex or Nifty. If the fund’s return are out performing consistently in last 3 to 5 years then investor may consider it as a good sign to invest. Past performance is not a guarantee of future returns. However, a MF scheme performing consistently well even during volatile times (such as the financial crisis of 2008) can be considered as a good buy.

3) Analyzing risk of fund - An investor needs to first identify his/her risk appetite before investing in a mutual fund. For this reason, one must clearly understand the investment objective of the MF (mutual fund) scheme and whether it is in line with one’s risk appetite.

Investors with a long investment horizon and/or low-moderate risk appetite may consider large-cap mutual funds.

An investor can analyze the risk of a MF scheme through various statistical measures. Such information can be easily viewed from MF research reports and/or financial websites.

4) Diversification is an ideal policy -Another key parameter an investor needs to emphasize on is diversification of their investment amount. It is wise to know the portfolio composition of the MF schemes debt and equity proportion, sector-wise proportion, and investment holding in each company. Also, a fund needs to invest across 20 to 30 companies from different sectors. This is considered as ideal portfolio for any scheme. For example, if a fund has investments in only 6-12 stocks than it is considered a risky investment and an investor should avoid investing in such funds. A portfolio of a scheme is said to be over-diversified when there are stocks from more than 75 companies. Such over-diversified schemes should also be avoided because this makes it difficult for fund manager and his team to track individual stocks.

5) Background of Fund Manager - It’s important to know who is handling the fund of a particular scheme. Fund managers are professionals having the requisite qualifications and experience to manage your money. But, it’s necessary to have background check of schemes they have handled earlier and what were the returns/ performance of those schemes before investing.

6) Cost - There are no entry loads to invest in mutual funds. But, investors have to pay fund management fee and administrative charges on an annual basis. These two charges together cannot exceed 2.5 % of the fund's assets, as specified by SEBI. As discussed earlier investors need to go through KIM/offer document before investing to know any hidden charges specified, such as early redemption charges, etc. There will be an exit load specified in the KIM/offer document which also needs to be considered before investing. The charges are almost similar across the similar MF schemes.

Comparison of Large Cap Mutual Fund vs. Other Investments:

*Product*	*Return*	*Safety*	*Liquidity*	*Tax Benefits Under Section 80C*
Bank FDs (Fixed Deposits)	Low	High	Low	No*
Direct Equity	High	Low	High	No
Debentures	Moderate	Moderate	Low	No
Company Fixed Deposits	Moderate	Low-Moderate	Low	No
Infra Bonds	Moderate	Moderate	Moderate	Yes
PPF (Public Provident Fund)	Moderate	High	Low	Yes
NSC (National Savings Certificate)	Low-Moderate	High	Low	Yes
MIPs (Monthly Income Plans) of mutual funds	Moderate	Moderate-High	High	No
Unit-linked Life Insurance Plans (ULIPs)	Moderate	High	Low	Yes
Large Cap Mutual Funds	Moderate	Moderate	High	Yes**

*Except 5-year tax saving deposits; **ELSS (Equity-Linked Savings Schemes).

Current Top Performing “Large Cap Mutual Funds”:

Scheme Name	1 Year*	3 Year*	5 Year*	Since Inception*	Minimum Investment (Rs)
HDFC Top 200	27.91	17.32	27.73	25.57	5,000
UTI Dividend Yield	36.64	18.93	23.35	22.96	5,000
DSP BlackRock Top 100 Equity	20.85	13.65	27.10	35.37	5,000
Reliance RSF – Equity	27.73	20.02	23.18	22.79	500
UTI Opportunities	18.44	17.29	-	19.21	5,000
Category Average	24.29	7.95	20.19	-	-

*Returns %

Source: ValueResearch

Note: Returns over 1 year are annualized (CAGR); the above list is not exhaustive.

Written for InvestmentYogi by Hiral Thanawala

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Best Mutual Funds for SIP in 2010

Yogi — Tue, 06 Jul 2010 11:11:00 GMT

InvestmentYogi: Advises on the top mutual funds for SIP (Systematic Investment Plan) under categories like equity diversified, tax saving funds and balanced funds

There is a famous quote, “Drop by Drop forms the ocean.” Similarly, every paisa makes a rupee and each rupee invested in right product and at right time will help you to prosper in life. Systematic Investment Plan (SIP) develops a habit of regular savings from monthly income than investing this amount in various schemes of mutual funds after analyzing expected returns, risk, asset allocations, etc. Investing on regular basis i.e through SIP route has given better returns in long term compared to investing lump sum amount in any mutual fund schemes.

Example 1:

Mr. A, invested in various schemes of mutual funds through SIP from 1^st Jan, 2007 to 31^st Dec, 2009. We will compare the returns with non SIP return i.e. invested lump sum amount in those schemes. The returns from each scheme are given below:

	Scheme1: Reliance Equity Opportunities (Growth)
	Annualised SIP return	Annualised Non-SIP return
3 Yrs	21.88%	8.78%
1 Yr	98.48%	85.50%

	Scheme 2: SBI Magnum Global (Growth)

3 Yrs	15.96%	2.18%
1 Yr	103.47%	94.76%

	Scheme 3: Franklin India Prima (Growth)

3 Yrs	17.60%	3.42%
1 Yr	96.40%	86.61%
Source:	Value Research Online

Advantages of SIP:

Rupee cost averaging:

Investors have no need to time the market for their entry while investing. The investments get averaged out by investing through SIP on monthly or quarterly basis in MF schemes. It reduces the risk of investing when markets are volatile.

Power of compounding:

Investments early in life helps to get the benefit of compounding on invested amount in long term. So, thru SIP an investor can start investing nominal amount consider Rs 100, Rs 500 or Rs 1000 of his savings to get the benefits of compounding by investing in mutual funds.

Discipline:

Regular savings and investments are an easy way to build the corpus compare to investing a lump sum amount in one go.

Ease while investing:

You can choose the option of Auto debit/ECS while filling the SIP form of any monthly/quarterly date or give post dated cheques for the amount you wish to invest in MF schemes.

As, you now understand the concept and advantages of SIP. Let us now identify “Best Mutual Funds for SIP” in popular categories as follows:

Top ELSS Schemes for SIP

1. ICICI Prudential Tax Plan:

Objective: To generate long term capital appreciation from a portfolio that is invested predominantly in equity and provides tax benefits.

Top Sector Allocations: IT, Pharmaceuticals

Absolute returns (%)

5 Years

3 Years

1 Year

144

41.8

53.7

2. HDFC Taxsaver:

Objective: To provide tax benefits along with capital appreciation.

Top Sector Allocations: Pharmaceuticals, IT, BFSI

Absolute returns (%)

5 Years

3 Years

1 Year

179.4

38.8

48.7

3. Canara Robeco Equity Tax Saver:

Objective: To provide long term capital appreciation by predominantly investing in equities.

Top Sector Allocations: BFSI, Pharmaceuticals, Oil drilling and exploration, BFSI

Absolute returns (%)

5 Years

3 Years

1 Year

255.4

59.5

43.9

4. Sahara Tax Gain:

Objective: To provide attractive returns, security and liquidity through Investments in capital and money markets.

Top Sector Allocations: Pharmaceuticals, BFSI

Absolute returns (%)
5 Years	3 Years	1 Year
203.7	56.6	40.8

5. Franklin India Tax shield:

Objective: To provide medium to long term growth of capital along with income tax rebate.

Top Sector Allocations: BFSI, Pharmaceuticals, IT

Absolute returns (%)
5 Years	3 Years	1 Year
158.9	35.8	32.8

Source: Value Research Online

Note: The absolute returns calculated above are till 30^th June, 2010.

Top Equity Diversified mutual funds for SIP

1. Reliance Equity Opportunities:

Objective:

Primary: To generate capital appreciation;

Secondary: Generate consistent returns by investing in debt and money market securities.

Top Sector Allocations: BFSI, Pharmaceuticals, IT

Absolute returns (%)

5 Years

3 Years

1 Year

208.1

40.7

61.71

2. ICICI Prudential Discovery:

Objective: To generate returns through a combination of dividend income and capital appreciation by investing primarily in a well-diversified portfolio of value stocks.

Top Sector Allocations: BFSI, Pharma, Power, Telecom

Absolute returns (%)

5 Years

3 Years

1 Year

199.9

57.7

65.74

3. Birla Sun Life MNC:

Objective: To build a high quality growth oriented portfolio to achieve long term capital appreciation through investment in multinational companies.

Top Sector Allocations: Pharmaceuticals, Service, BFSI

Absolute returns (%)
5 Years	3 Years	1 Year
167.1	53.5	65.77

4. UTI Master Value:

Objective: Providing substantial long term capital appreciation from investment in undervalued stocks and good dividend yield.

Top Sector Allocations: Pharmaceuticals, Refineries, BFSI, etc.

Absolute returns (%)

5 Years

3 Years

1 Year

147.9

55.5

70.11

5. HDFC Top 200:

Objective: To generate long term capital appreciation by investing in a portfolio of equities and equity linked instruments drawn from the BSE 200 Index.

Top Sector Allocations: BFSI, Oil drilling and exploration, BFSI, IT, Pharmaceuticals

Absolute returns (%)
5 Years	3 Years	1 Year
239.4	60.4	35.4

Source: Value Research Online

Note: The absolute returns calculated above are till 30^th June, 2010.

Best Balanced Funds for SIP

1. HDFC Prudence:

Objective: The investment objective of the Scheme is to provide periodic returns and capital appreciation over a long period of time, from a judicious mix of equity and debt investments, with the aim to prevent/minimise any capital erosion.

Top Sector Allocations: BFSI, Pharmaceuticals, Oil drilling and exploration

Absolute returns (%)
5 years	3 years	1 year
203.1	56.1	44.8

2. Tata Balanced:

Objective: To invest in equity and debt oriented securities so as to give investors balanced returns.

Top Sector Allocations: BFSI, IT

Absolute returns (%)
5 Years	3 Years	1 Year
158.2	40.7	33.9

3. Canara Robeco Balance:

Objective: To provide medium to long term growth of capital and also to distribute income by investing in equities, fixed income securities, other debt instruments and money market instruments etc.

Top Sector Allocations: Power

Absolute returns (%)

5 Years

3 Years

1 Year

177

31.6

4. DSP Blackrock Balanced:

Objective: To generate long term capital appreciation and current income from a portfolio constituting equity and equity related securities as well as fixed income securities.

Top Sector Allocations: BFSI, Pharmaceuticals

Absolute returns (%)

5 Years

3 Years

1 Year

171.8

42.8

31.3

5. Birla Sun Life 95:

Objective: Long term growth and income, through a portfolio with a target allocation of 60% equity, 40% debt and money market securities.

Top Sector Allocations: BFSI

Absolute returns (%)
5 Years	3 Years	1 Year
164.2	45.1	30.7

Source: Value Research Online

Note: The absolute returns calculated above are till 30^th June, 2010.

The above discussed mutual funds category are the most popular among investors. You can also invest in sector oriented mutual fund schemes through SIP. Each scheme has minimum SIP amount in the range of Rs 100 to Rs 10,000 specified in Key Information Memorandum. There is no maximum limit to invest through SIP in any MF scheme.

Absolute returns, annualized returns and objective of the schemes are not the only criteria an investor should consider while investing. Also, there are various risks involved while investing in mutual funds which need to be analyzed before investing and while reviewing, in order to get advantage of good returns by investing in mutual funds for long term.

Written for InvestmentYogi by Hiral Thanawala. Send us your feedback at yogi@investmentyogi.com

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InvestmentYogi: Leading website for research on the best mutual funds for SIP (Systematic Investment Plan) under categories like equity diversified, tax saving funds and balanced funds in 2010.

5 Ways To Measure Mutual Fund Risk

Yogi — Mon, 05 Jul 2010 08:58:20 GMT

There are flashy numbers of dividend pay outs in percentages declared by fund houses on a regular basis in newspapers, periodicals, websites, etc. These numbers attract investor eyeballs towards their schemes. Now, SEBI has stepped in and has asked fund houses to disclose their pay outs in rupee terms. This shows that investors are trying to get a clearer picture on their investment returns through dividends. However, investing by considering only historical returns and dividends in a mutual fund scheme is risky. Investors need to evaluate the risk involved in mutual fund schemes before investing and review their investments, say, at least once a year.

Investors may perform a small 5-step exercise to evaluate riskiness of particular mutual fund scheme, as described below -

We will take a hypothetical example of “ABC-Equity (G)” scheme to compute its riskiness in our “Paanch Ka Dum (Power of 5)”concept:-

1) Alpha:

Alpha basically is the difference between the returns an investor expects from a fund, given its beta, and the return it actually produces.

Computation: Alpha = {(Fund return-Risk free return) – (Funds beta) *(Benchmark return- risk free return)}.

Example-1:

Fund return (Fund performance in last one year)	75%
Risk free return	8%
Benchmark return (Sensex performance in last one year)	41%
Beta	0.69

By computing with above formula we will get alpha as 0.44 for this fund.

A positive alpha means the fund has outperformed its benchmark index. Whereas, a negative alpha indicates an underperformance of the fund. The more positive an alpha the healthier for investors.

Here, the fund has underperformed since an alpha we computed is less than beta. It mean’s fund has produced less returns considering the risks fund is taking while comparing it with actual return to the one predicted by beta.

Note: The ideal time period for analysing alpha and beta value is one year returns from their funds.

2) Beta:

Beta is a measure of the volatility of a particular fund in comparison to the market as a whole, that is, the extent to which the fund's return is impacted by market factors. Beta is calculated using a statistical tool called ‘regression analysis.’

By definition, the market benchmark index of Sensex and Nifty has a beta of 1.0.

It may be challenging for investors to compute it for each mutual fund scheme. However, one need not worry. Important statistical measures for various mutual fund schemes are easily available on financial websites like InvestmentYogi where mutual funds’ performance is tracked and analysed regularly.

Let us consider 3 possible scenarios in interpreting beta numbers:

[Sensex is assumed as benchmark index].

A beta of 1.0 indicates that the fund NAV will move in same direction as that of benchmark index. The fund will move up and down in tandem with the movement of the markets (as indicated by the benchmark)
A beta of less than 1.0 indicates that the fund NAV will be less volatile than the benchmark index.
A beta of more than 1.0 indicates that the investment will be more volatile than the benchmark index. It is an aggressive fund that will move up more than the benchmark, but the fall will also be steeper.

For example, if the beta of “ABC-Equity (G)” is 1.4 - then it’s considered as 40% more volatile than the benchmark index (beta of benchmark index being 1).

Similarly, in example-1, as we have considered beta of “ABC-Equity (G)” fund as 0.69 - this means the mutual fund scheme will be less volatile than its benchmark index.

Note: Conservative investors should focus on mutual funds schemes with low beta. Aggressive investors can opt to invest in mutual fund schemes which have higher beta value for higher returns taking more risk.

3) R-Squared:

As discussed above, beta is dependent on correlation of a mutual fund scheme to its benchmark index. So, while considering the beta of any fund, an investor also needs to consider another statistic concept called ‘R-squared’ that measures the correlation between beta and its benchmark index. The beta of a fund has to be seen in conjunction with the R-squared for better understanding the risk of the fund.

‘R-squared’ values range between 0 and 1, where 0 represents no correlation and 1 represents full correlation. If a fund's beta has an R-squared value that is between 0.75 and 1, the beta of that fund should be trusted. On the other hand, an R-squared value that is less than 0.75 than it indicates the beta is not particularly useful because the fund is being compared against an inappropriate benchmark index. This fund will not give returns similar to their benchmark index. The lower the R-squared the less reliable is the beta, and vice versa.

The R-squared of an index fund, investing in same securities and in the same weightage as the index, will be one.

Note: Beta and R-squared are calculated based on the historical data. They give an adequate estimate of risks to be evaluated by investors before investing.

4) Standard Deviation (SD):

The total risk (market risk, security-specific risk and portfolio risk) of a mutual fund is measured by ‘Standard Deviation’ (SD). In mutual funds, the standard deviation tells us how much the return on a fund is deviating from the expected returns based on its historical performance. In other words can be said it evaluates the volatility of the fund.

The standard deviation of a fund measures this risk by measuring the degree to which the fund fluctuates in relation to its average return of a fund over a period of time.

In other words, it is a measure of the consistency of a mutual fund's returns. A higher SD number indicates that the net asset value (NAV) of the mutual fund is more volatile and, it is riskier than a fund with a lower SD.

Note: For SD to be an effective tool, investors will need to use it in comparison with peer group mutual funds. For example, a large-cap mutual fund is to be compared with a large-cap mutual fund with the same investment objective(s).

5) Sharpe Ratio:

Sharpe ratio (SR) is another important measure that evaluates the return that a fund has generated relative to the risk taken. Risk here is measured by SD. It is used for funds that have low correlation with benchmark index. This ratio helps an investor to know whether it is a safe bet to invest in this fund by taking the quantum of risk.

The higher the Sharpe ratio (SR), the better a fund’s return relative to the amount of risk taken. In other words, a mutual fund with a higher SR is better because it implies that it has generated higher returns for every unit of risk that was taken. On the contrary, a negative Sharpe ratio indicates that a risk-free asset would perform better than the fund being analyzed.

It tries to find out the excess return generated by a mutual fund over and above a risk-free rate of return such as an RBI bond or a post-office savings scheme, etc.

Lets say the Sharpe ratio = 0.957 for a fund. As discussed above, the higher this ratio, the better a fund’s return relative to the amount of risk taken. Here, this fund could be a risky investment option for their investors since ratio is just near to 1 (approx.).

Quick View

Mutual Fund Evaluation Criteria –

Consistent Performer -> Low SD; High SR -> Higher ranked fund

Volatile Performer -> High SD; Low SR –> Lower ranked fund

Mutual Fund Evaluation Criteria:-

Consistent Performer -> Low SD; High SR -> Higher ranked fund

Volatile Performer -> High SD; Low SR -> Lower ranked fund

Note: Comparison should be made with peer group for accurate evaluation.

Conclusion:

This “Paanch Ka Dum” concept we just discussed to evaluate a mutual fund’s risk will enable an investor to take a wise decision on his mutual fund investments. An investor should not blindly invest by considering only past returns mentioned, but needs to do some research of the fund schemes and reviewing their performance at regular intervals.

These risk measure are readily calculated and are available on financial websites and research reports. For example, you can logon to www.investmentyogi.com and click on the mutual fund tab to look for the fund you wish to evaluate. You will find the latest data for all these parameters (under returns tab of a particular fund). However, the above measures cannot be viewed in isolation while evaluating the risks of investing in a mutual fund scheme. Other important parameters such as the corpus held, disclosure norms followed by the AMC, portfolio composition, consistency in investment objectives and strategy must also be considered.

Written for InvestmentYogi by Hiral Thanawa

How to evaluate mutual funds

Yogi — Fri, 18 Jun 2010 08:24:05 GMT

With so much transparency, access to information and expert advice available through the internet and media - print and electronic, evaluating a mutual fund should be child’s play. Well if that’s what you think...here’s news for you…It is not. While it is definitely easier to make a selection now vis-à-vis the earlier days, it still requires careful study of the funds available, market situation and equally important, your own circumstances.

Even before you start examining the funds available, you should first be clear about your objective. What is the purpose of your investment? Are the savings that you are planning to invest meant for a specific purpose? i.e. for your child’s education 10 years away? Or is it for a foreign vacation you want to take your family to after 3 years? Or is it some surplus money which presently you do not require for anything but can think of it for retirement?

Depending on your motive, it will be easier to study the funds available. Say, it is for your child’s education 10 years away, equity funds would be a better option. But if it’s for a goal within 3 years, then it would be better to invest in a debt fund to protect the money you have put aside for this goal.

Essentially you need to understand your objectives and the time horizon of your need so that you can then evaluate those mutual funds which are appropriate for this objective.

Coming to the fund, here again the objective is important to evaluate, this time the funds!

Do pay attention to the stated objective of the fund and then crosscheck this at least over the last 8 quarters and verify if the fund has stuck to the said objective. A mid to small cap fund in all possibility will generate higher returns in good times when compared to a large cap fund. But it is accompanied with higher risk exposure as well and more likely to loose value in falling markets then a large cap fund. So if you invested in a fund, thinking it would give relatively stable returns with lower risk and found out later that the fund is actually venturing into mid cap and small cap stocks then there is an obvious mismatch to your objective.

Then the next attribute to be seen is the lineage of the fund. Who are the promoters of the fund? What are the systems and processes followed by them? With so many new players in the market, foreign tie-ups, here today – gone tomorrow instances, it is better to go with a fund house that has been around in the Indian market for at least some years. A foreign player isn’t strictly a NO, provided the company has its own track record of impressive, consistent and long standing performance in the countries that it operates in.

The fund manager also has an important role to play in the evaluation of the fund. But where recent history shows most of them, barring a few, always on the move to the next company, it would be prudent to look at the fund house.

Now, coming to past performance - the bane for many financial advisors, since often clients will quote the Top 3,5 or 10 funds touted by such and such magazine, paper, TV programmer or website and demand why none of them are present in their portfolio. Past performance is definitely an important criterion for evaluating mutual funds, but this needs to be put in perspective.

One year, 2 year or even 3 year returns and performance is not sufficient. If we took the 3 year performance track record of most funds from 2005-2007, we would get excellent returns on all of them. But the same funds would give completely different picture if you saw their 3 year return over 2008-10. Select funds that have done well across market cycles and investment cycles – funds that have performed consistently - in good market , bad market , quiet market and roaring market. Your choice should figure in the top 10-15 schemes at least over 5 yrs returns.

An important point to note is the performance of the fund vis-à-vis the benchmark. Last but not the least, keep an eye on the expense ratio of the funds, if it is too high compared to its peers and not justifying the cost with its performance; it may be a good idea to mark it away.

Ultimately, the fund should match your risk profile and appetite and suit your objective.

Written for InvestmentYogi by Shweta Jain, CFP, who is a practising Financial Advisor and has been with International Money Matters for over 7 years.

New SEBI Guidelines for Mutual Funds

Yogi — Thu, 25 Mar 2010 05:37:07 GMT

The Securities and Exchange Board of India (SEBI) has brought in sweeping changes for the mutual fund industry. The impact of which will be felt on the investor in more ways than one.

1) First, for New Fund Offers (NFOs): They will only be open for 15 days. (ELSS funds though will continue to stay open for up to 90 days) It will save investors from a prolonged NFO period and being harangued by advisors and advertisements. The motivation behind the rule seems to be simple – if you can invest anytime, why keep NFO period long?

2) NFOs can only be invested at the close of the NFO period. Earlier, Mutual funds would keep an NFO open for 30 days, and the minute they received their first cheque, the money would be directly invested in the market; creating a skewed accounting for those that entered later since they get a fixed NFO price.

The market regulator has corrected this by extending Application Supported by Blocked Amount (ASBA) to mutual funds. This will become effective starting July 1^st this year.

By the ASBA process (Application Supported by Blocked Amount) one can continue to earn interest in the bank account until the NFO closes (remember there is usually no rejection or “oversubscription” in a mutual fund NFO) which means that the cheque goes for clearing after the NFO has closed irrespective of when it was sent. The fund manager will be able to invest once the NFO closes.

3) Dividends can now only be paid out of actually realized gains. Impact: it will reduce both the quantum of dividends announced, and the measures used by MFs to garner investor money using dividend as a carrot to entice new investors.

4) Equity Mutual funds have been asked to play a more active role in corporate governance of the companies they invest in. This will help mutual funds become more active and not just that, they must reveal, in their annual reports from next year, what they did in each “vote”. SEBI has now made it mandatory for funds to disclose whether they voted for or against moves (suggested by companies in which they have invested) such as mergers, demergers, corporate governance issues, appointment and removal of directors. MFs have to disclose it on their website as well as annual reports.

5) Equity Funds were allowed to charge 1% more as management fees if the funds were “no-load”; but since SEBI has banned entry loads, this extra 1% has also been removed.

6) SEBI has also asked Mutual Funds to reveal all commission paid to it’s sponsor or associate companies, employees and their relatives.

7) Regarding the Fund-of-Fund (FOF) – The market regulator has stated that information documents that Asset Management Companies (AMCs) have been entering into revenue sharing arrangements with offshore funds in respect of investments made on behalf of Fund of Fund schemes create conflict of interest. Henceforth, AMCs shall not enter into any revenue sharing arrangement with the underlying funds in any manner and shall not receive any revenue by whatever means/head from the underlying fund.

These guidelines set by the SEBI will lead to greater transparency for the common investor. SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. With these guidelines falling in place it would create better trust and transparency and an investable environment that would attract investors with greater faith and confidence. A welcome & refreshing move!

The author Lovaii Navlakhi is a Certified Financial Planner, Managing Director of International Money Matters Pvt. Ltd.

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Why should you invest in Mutual Funds?

Yogi — Mon, 14 Dec 2009 11:36:06 GMT

Mutual Funds are one of the best instruments for making your long term investments. Mutual Fund schemes offer many advantages:

Professional expertise

Asset Management Companies (AMC) are managed by professionals and carry out the specialized investment activity. Investing requires different skill sets than you might be having. It requires a hawk like grasp over markets and on the various industries and companies within it. Anybody who has surplus capital to be parked as investments is an investor, but to be a successful investor, you need to have someone managing your money professionally.

Diversification

Diversifying your portfolio into different asset classes and securities/companies help in reducing risk. If you want to do this on your own, it will take you immense amounts of money and research to do this. Mutual Funds are very convenient instruments for diversifying without putting time or effort yourself. You can choose a fund depending upon your risk, goals and investment style. Examples can be equity diversified Debt, Hybrid, sectoral funds, commodity funds, Fund of funds etc.

Economies of scale

Mutual funds are able to take advantage of their buying and selling size and thereby reduce transaction costs for investors. As a standard rule there are volume discounts for bulk transactions. This is as true for MF transactions as it is for groceries. If you decide to similar number of transactions on your own the costs will be much higher. The cost of running a mutual fund is also divided between a larger pool of money and hence mutual funds are able to offer you a lower cost alternative of managing your funds.

Liquidity

Mutual funds are typically very liquid investments. Unless they have a pre-specified lock-in, your money will be available to you anytime you want. Typically funds take a couple of days for returning your money to you. Since they are very well integrated with the banking system, most funds can send money directly to your banking account.

Transparency

Since the Mutual Fund industry is tightly regulated by SEBI (Securities and Exchange Board of India), the chances of an AMC defaulting is almost zero. Sebi forces transparency on the mutual funds, which helps the investor make an informed choice. Sebi requires the mutual funds to disclose their portfolios at least six monthly, which helps you keep track whether the fund is investing in line with its objectives or not.

Flexibility

Through features such as Systematic Investment Plans, Systematic Withdrawal Plans and Dividend Investment Plans, you can systematically invest or withdraw funds according to your needs and convenience.