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INVESTMENT STRATEGIES - MUTUAL FUNDS |
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| INVESTMENT - THE
MUTUAL FUND EDGE |
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Review of
existing investment opportunities:
| Banks
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On savings accounts,
you get a measly 4% p.a.
On time deposits, you get 5 to 8% depending
upon the period of deposit, average yield being
around 6 to 7 percent. |
| Company Fixed
Deposits : |
Yield ranges from 9 to 10 percent
depending upon the company and period of deposit.However
because of constant downgrading of Corporate Debts
by ICRA and CRISIL, the investment in this instrument
is getting riskier everyday. |
| Post-Office
Deposits : |
Yield ranges from 4.5% to 10% p.a. |
| PSU Bonds : |
Yield ranges around 9%. |
| RBI Relief Bond
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Tax free yield of only 8% p.a. |
| Stock Market
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One cannot directly invest a small
amount in a diversified portfolio in stock markets.
But he can do so by investing through the mutual
funds. |
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| However while all the above avenues
of investments are reasonably safe but most of these fail
to offer liquidity, flexibility and tax-efficiency where
as Mutual Funds offer all these plus safety, transparency
and operational ease. |
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| SEVEN THUMB RULES
OF INVESTMENT |
One
should assess his/her risk appetite and then allocate
the investments in equity and debt instruments depending
upon the same. If the prices of his equity investment
shoot up, he must sell part of the same and invest that
money in debt instruments to ensure that the pre-determined
debt : equity ratio of investments is constantly maintained.
Investments in equity instruments should be well diversified
and one must not go overboard in a particular sector
just because everyone feels that it is hot
 And remember,
any pre-determined ratio of investment in debt and
equity should not be treated as sacrosanct. If the
situation in the capital market changes, this should
also be altered depending upon the changed environment.
If you cannot
assess your risk bearing capacity, consult a professional
who can determine the same based on one's psychology,
age, profession and certain other parameters.
Invest in
a disciplined manner. Don't get carried away by euphoria.
Adhoc investments based on tips and rumours may cause
injury to one's financial health. Tips and rumours are
normally floated by market manipulators to create euphoria
in a set of scrips or a particular sector.
Since business
and technological cycles are contracting everyday, one
should keep on reviewing his equity investments at more
frequent intervals.
Identify
your various needs, set financial goals for the same
and devise investment solutions for each one of your
financial needs.
To create
wealth, start investing early and set aside a fixed sum
every month to invest in the scheme of your choice. |
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| INVESTMENT STRATEGIES FOR ULTRA-CAUTIOUS,
RISK- AVERSE INVESTORS |
Traditionally, the favoured
avenue for risk-averse investors the world over was bank
deposits. Banks were known to be solid and safe, and even
if the yields were low, investors could be assured of the
safety of their capital.
Over the last 20 years or so, however,
especially in the more advanced markets such as U.S.,
mutual funds have overtaken bank deposits. The reasons
are simple :
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Equivalent safety.
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Higher post-tax yields.
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Complete transparency.
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Greater liquidity .
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Operational Ease.
For this reason, Income(Debt) Funds and
Gilt Funds from reputed mutual funds in India have come
to the fore and offer risk-averse investors the advantages
of safety, while giving good yields. Experts and government
officials predict positive growth for income funds, as
the latter operate on very thin spreads and invest primarily
in highly rated bonds and government securities. |
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THE TIMELESS DEBATE |
There is a timeless debate
going on between the sons and fathers and husbands and
wives since time immemorial whether money can grow on trees
or not. Take a look at the following conversation:
SON : Father, I want my pocket
money to be increased. All my friends are spending much
more than me.
FATHER : Look son, money does not
grow on trees. One has to work very hard for earning it.
SON : All those fruits like mangoes,
apples, pineapples, papayas etc. grow on trees only and
I am told that they do fetch a lot of money. Then how can
you say that money does not grow on trees?
SON : All those fruits like mangoes,
apples, pineapples, papayas etc. grow on trees only and
I am told that they do fetch a lot of money. Then how can
you say that money does not grow on trees?
SON : Why not? |
| While this debate would continue, we can say
with confidence that money does grow on money. All you have
to do to generate wealth is plant a money tree by investing
regularly in wealth creating investments and then watch it
grow. For more details, read the following : |
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Investment Planning leads you
to |
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Identifying your needs which
leads you to |
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Setting your financial goals
which leads you to |
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Finding solutions for the same. |
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| INVESTMENT OBJECTIVES |
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| There are two basic investment
objectives : |
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WEALTH CREATION :-
For creating wealth, one has to put
a part of his investments in equity instruments. What
would be the percentage of equity investments like Growth
(Equity) Funds and/or Balanced Funds would depend upon
his risk bearing capacity. Not only that, for creating
wealth one has to start early and make investment a regular
habit by setting aside a fixed amount of money every
month.
WEALTH PRESERVATION:-
For preserving wealth, Income(Debt) Funds
and Gilt Funds are ideal instruments. Needs can be of various
kinds but we have tried to identify the main ones which
most of the families face at one time or the other and
can be met through investments designed for wealth creation
:
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Higher education of your children.
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Decent Marriage of your daughter.
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Setting up your son in business or
profession.
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Acquiring House/ Flat
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Your dream vacation.
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Unusual expenses like medical attention
etc.
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Retirement needs.
The second objective of investment, i.e.
wealth preservation is suitable for those who are above
50 and going to retire within next few years since it would
not be prudent for them to take any kind of risk with their
capital at that stage in life. |
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| Mutual Funds offer following
investment options to meet your various financial needs: |
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| 1) |
Systematic Investment Plan (
SIP)
One can invest in mutual funds
regular sums of money through the Systematic
Investment Plan thereby making the volatility
of the securities market work in his favour.
Since the amount invested per month/quarter is
constant, the investor ends up buying more units
when the price is low and fewer units when the
price is high. Therefore, the average unit cost
will always be less than the average sale price
per unit irrespective of the market rising, falling
or fluctuating. This concept is called "Rupee
Cost Averaging". The investors can gain
automatically without having to monitor the market
or attempt to predict the market for purchasing
the units.
From the enclosed table, you may
be pleasantly surprised on the benefits of investing
systematically over the long term. An investment
of Rs 1000/- per month, in a mix of instruments
yielding a net compounded return of 15% per annum
over a period of 25 years, can grow to over Rs.27
lacs. The table below illustrates how a regular
investment of Rs. 1,000/-per month grows over different
time periods.
While SIP is ideal for investing
in Equity Funds nut should be used by all business
and salaried class persons to save a fixed sum
every month in whichever fund that suites their
need and psychology. |
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| 2) |
Systematic
Withdrawal Plan (SWP)
The investor may establish a
SWP to receive regular monthly or quarterly payments
from the account. This is ideal for those who
have retired and received a lumpsum of money
from their provident fund, gratuity, super annuation
etc |
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| 3) |
Systematic Transfer
Plan ( STP )
Under this scheme, an investor
can invest a lump sum in Income (Debt) Fund to
protect his principal amount and instruct the
Fund to transfer only the growth part every month
to its Equity or Balanced Scheme. Apart from
protecting the principal amount, this would also
ensure the growth of your incremental amount
by transferring the same into equity fund. |
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Systematic Investment
Plan (SIP)
An Open End Monthly Income Scheme
The first step, that may take you a long way towards
achieving your financial goals. |
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The Systematic Investment Plan (SIP)
allows investor to save a fixed amount of rupees every
month/quarter for purchasing additional units of Income
(Debt) as also other schemes like Growth (Equity) and
Balanced Funds and is ideal for meeting the following
needs:
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Higher education of children.
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Decent Marriage of one's daughter.
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Setting up one's son in business
or profession.
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Acquiring House/ Flat
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Retirement needs.
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| Look at the following table and you may be
pleasantly surprised on the benefits of investing systematically
over the long term. An investment of Rs 1000/- per month,
in a mix of instruments yielding a net compounded return
of Rs 15% per annum, over a period of 25 years, can grow
to over Rs27 lacs. The table below illustrates how a regular
investment of Rs. 1,000/-per month grows over different time
periods. |
Period
in (yrs) |
Your
Savings (Rs.) |
Grows
to @10.0% p.a. (Rs.) |
Grows
to @12.0% p.a. (Rs.) |
Grows
to @15.0% p.a. (Rs.) |
5 |
60,000 |
77,172 |
81,104 |
87,342 |
10 |
1,20,000 |
2,01,458 |
2,24,036 |
2,63,018 |
15 |
1,80,000 |
4,01,621 |
4,75,931 |
6,16,366 |
20 |
2,40,000 |
7,23,987 |
9,19,857 |
13,27,073 |
25 |
3,00,000 |
12,43,160 |
17,02,207 |
27,56,561 |
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Systematic Withdrawal Plan
An Open End Monthly Income Scheme |
Highlights :
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Ideal plan to meet regular income
needs.
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Available throughout the year.
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You have a choice of monthly / Bi-monthly
/ Quarterly payments.
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No dividend tax.
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Highly tax efficient.
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| Given below is an example, which shows the
tax efficiency of this plan. If one invests Rs 1,00,000 in
an Income ( Debt) Fund through Systematic Withdrawal Plan
(SWP) and decides to withdraw Rs.1,000 every month, the inflows
to him and tax to be paid are as follows : |
| Date |
NAV |
Amount
Withdrawn |
Value
of Balance |
Tax
(Rs.) |
01-January |
10.00 |
0 |
1,00,000 |
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01-February |
10.10 |
1,000 |
1,00,000 |
3 |
01-March |
10.20 |
1,000 |
99,990 |
6 |
01-April |
10.30 |
1,000 |
99,970 |
10 |
01-May |
10.40 |
1,000 |
99,941 |
13 |
01-June |
10.50 |
1,000 |
99,902 |
16 |
01-July |
10.60 |
1,000 |
99,853 |
19 |
01-August |
10.70 |
1,000 |
99,795 |
22 |
01-September |
10.80 |
1,000 |
99,728 |
24 |
01-October |
10.90 |
1,000 |
99,651 |
27 |
01-November |
11.00 |
1,000 |
99,566 |
30 |
01-December |
11.10 |
1,000 |
99,471 |
33 |
01-January |
11.20 |
1,000 |
99,367 |
7 |
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Total |
210 |
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In the one year investor
has withdrawn Rs 12,000 with the original investment remaining
almost intact, and he has paid only Rs 210 as tax.
The above clearly demonstrates the tax
efficiency of the SWP. What's more, after a year, withdrawals
are eligible for indexation benefit, which along with
long term capital gains tax @ 20% minimizes the tax outgo. |
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| RUPEE COST AVERAGING |
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| Securities markets (equities and fixed income
instruments) can be volatile and it is rarely possible to
predict the future and time the market. We can seldom accurately
predict when a particular stock will move up or where the
interest rates are headed. Mutual funds provide you the convenience
to invest regular sums of money through the Systematic Investment
Plan and thereby making the volatility of the securities
markets work in your favour. Sine the amount invested per
month is a constant; the investor ends up buying more units
when the price is low and fewer units when the price is high.
Therefore the average unit cost will always be less than
the average sale price per unit irrespective of the market
rising, falling or fluctuating. This concept is called
"Rupee Cost Averaging". Here is an illustration
of how SIP can benefit you, assuming that you invest Rs 1,000/-
each month for four months i.e. a total of Rs 4,000/-. |
Month |
Amount
Invested (Rs.) |
Fluctuating Market |
Rising
Market
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Falling Market |
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Price
(Rs.) |
Units |
Price
(Rs.) |
Units |
Price
(Rs.) |
Units |
1 |
1,000 |
12 |
83.333 |
12 |
83.333 |
12 |
83.333 |
2 |
1,000 |
15 |
66.667 |
14 |
71.429 |
10 |
100.000 |
3 |
1,000 |
9 |
111.111 |
15 |
66.667 |
8 |
125.000 |
4 |
1,000 |
12 |
83.333 |
18 |
55.556 |
6 |
166.667 |
Total |
4,000 |
48 |
344.444 |
59 |
276.985 |
36 |
475.000 |
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Average
Price (Per unit) |
Rs.12.00 |
Rs.14.75 |
Rs.9.00 |
per
month |
(i.e.Rs
48/4 months) |
(i.e.Rs
59/4 months) |
(i.e.Rs
36/4 months) |
Average
cost (Per unit) |
Rs
11.61 |
Rs
14.44 |
Rs
8.42 |
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(i.e.Rs4000/344.444units) |
(i.e.Rs4000/276.985units) |
(i.e.Rs4000/475.000units) |
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As can be seen from the
examples above, you automatically gain without having to
monitor the market or attempting to predict the market
for purchasing the units.
Rupee cost averaging is ideal for investing
in Growth(Equity) Funds and also Balanced Funds. |
ADDRESSES
MUTUAL FUND COMPANIES
DSP MERRILL LYNCH MUTUAL FUND
Apeejay Business Centre , No. 12, Haddows Road
Chennai - 600 006
Tel : (044) 825 7282
Email : dspmlim@in.ml.com
Website : http://www.dspmlim.com/
KOTAK MAHINDRA ASSET MANAGEMENT
COMPANY LIMITED
5A, 5th Floor, Bakhtawar, 229, Nariman Point,
Mumbai 400 021
Tel : (022) 202 4884
Email : mutual@kotakmahindra.com
Website : http://www.kmutual.com/
PIONEER ITI MUTUAL FUND
Century Centre, 75 T.T.K. Road, Alwarpet
Chennai 600 018
Tel : 467 9200
Fax : 498 7963
Email : services@pioneeriti.com
Website : http://www.pioneeriti.com/
PRUDENTIAL ICICI MUTUAL FUND
3rd Floor, contractor Building, 41, R.Kamani
Marg, Ballard Estate,
Mumbai 400 038
Tel : 269 7989
Fax : 267 9677
Email : enquiry@iciciamc.com
Website : http://www.pruiciciamc.com/
TEMPLETON ASSET MANAGEMENT (INDIA)
PVT.LTD
Sakhar Bhavan, 1st Floor, 230 Backbay Reclamation,
Nariman Point,
Mumbai 400 021
Email : service@templeton.com
Website : http://www.franklintempletonindia.com/
IL&FS ASSET MANAGEMENT COMPANY
LIMITED
The IL&FS Financial Centre, Plot No. C-22,
G Block, Bandra Kurla Complex, Bandra (E),
Mumbai 400 051
Phone : (022) 653 3232 / 653 3333
Fax : (022) 652 3854
Website : http://www.ilfsindia.com/
SUN F&C ASSET MANAGEMENT
(I) PVT LTD
Apeejay Chambers, 5 Wallace Street, Fort,
Mumbai 400 001
Tel : (022) 203 6222
Fax : (022) 203 6333
Email : help@sunfc.com
Website : http://www.sunfc.com/
ING SAVINGS TRUST MUTUAL FUND
Hoechst House, 6th Floor, Nariman Point,
Mumbai 400 021
Tel : 281 3404 / 3407
Email : information@ingsavingstrust.com
Website : http://www.insavingtrust.com/
JM MUTUAL
112, Jolly Maker Chambers ||, Nariman Point,
Mumbai 400 021
Tel : (022) 2826474
Fax : (022) 2881154
Email : mktg@jmmutual.com
Website : http://www.jmmutual.com/
SUNDARAM NEWTON ASSET MANAGEMENT
COMPANY LTD
2nd Floor, 46 Whites Road,
Chennai 600 014
Tel : (044) 858 3362 / 858 3367
Fax : (044) 858 3156
Email : marketing@sundaramnewton.com
Website : http://www.sundaramnewton.com/
HDFC ASSET MANAGEMENT COMPANY
LIMITED
Raman House, 3rd Floor, H.T. Parekh Marg, 169,
Backbay Reclamation, Churchgate
Mumbai 400 020
Tel : (022) 231 6030 / 202 91111
Fax : (022) 2028862
Email : cliser@hdfcindia.com
Website : http://www.hdfcfund.com/
CHOLA MUTUAL FUND
602/603, Regent Chambers, Nariman Point,
Mumbai 400 021
Tel : (022) 204 6179 / 204 6180
Email : cholamutual@cholamandalam.co.in
Website : http://www.cholamutual.com/
IDBI - PRINCIPAL ASSET MANAGEMENT
COMPANY LIMITED
2nd Floor, Bajaj Bhavan, jamnalal Bajaj Marg,
Nariman Point,
Mumbai 400 021
Tel : (022) 204 4988
Fax : (022) 284 6442 |
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