Elastic Straps: July 2008 Archives

Despite having been in existence for a while, index funds have never quite captured the domestic investor's imagination. And the reasons are not hard to see, given that index funds have been outscored by actively managed funds for a better part of their existence.

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However, a related investment style i.e. index-plus investing has delivered better results. Index-plus investing combines active and passive investing, thereby attempting to capitalise on the best of both worlds. ] Top 200 Fund has made a name for itself as a proponent of index-plus investing. In this article, we put HTF's investment proposition under the scanner and study its performance.

Full Story: Has HDFC Top 200 delivered?

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I n a trend that shows no signs of abating, investment advisors continue to find ingenious reasons to make their investors churn their mutual fund portfolios. Now some investment advisors are raising the red flag on falling AUMs (assets under management of the mutual fund, also referred to as net assets). They are telling investors to redeem funds that are seeing a drop in their net assets because this is a sign that those funds are in trouble.

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Surprised? Redeeming funds would mean a fall in the advisor's AUM; that in turn would mean a loss in income for the advisor one might say. Well, the key here is that the investor is being persuaded to churn his portfolio i.e. redeem his holdings from a fund and invest in another. Of course, there's more than a fair chance that the second fund is also losing AUM on account of the falling markets. But then there's a stronger possibility that the second fund belongs to a fund house that has recently announced a contest/attractive compensation structure to incentivise advisors to combat the challenge posed by falling markets. Of course, none of this is likely to find mention in the advisor's sales pitch.

Full Story: What falling AUMs mean for your mutual fund

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T hat's a question we routinely hear nowadays. Ever since the equity markets have been engulfed by volatility, the most frequently heard piece of advice is - invest via the systematic investment plan route for the long-term. While regular visitors and clients of Personalfn have since long bought into the merits of SIP investing, we are rather surprised to note that it took a prolonged volatile phase for most investment experts/advisors to appreciate the importance of SIP investing.

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Coming back to the original question - which is the best SIP? Thanks to all the hype around SIPs, several investors have been led to believe that the SIP is an investment avenue. Furthermore, the panacea to the present testing phase is to select the best SIP and get invested therein. The SIP is simply an investment mode i.e. a means to invest in mutual funds and not an investment avenue . When an investor chooses to invest via an SIP, he makes investments (usually) in smaller denominations at regular time intervals as opposed to making a single lump sum investment. The underlying intention is to benefit from the volatility in equity markets by lowering the average purchase cost. In this article, we discuss the pros and cons of SIP investing.

Full Story: Which is the best SIP?

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W e receive several queries from investors on investment-related dilemmas. Irrespective of the nature of these queries, they help us understand the investor's perception on investments. Typically, such queries highlight the conflicts that investors face while making investments.

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Getting into a dilemma while investing is a common phenomenon. It usually happens when investors are indecisive about two seemingly similar situations or investment avenues. If the dilemmas are not tackled early on, it could lead to a flawed investment decision, which can be disastrous for your finances. These dilemmas are usually a result of the lack of knowledge among investors about various investment options. This leads to confusion about which investment option is most suitable in a given situation. In a bid to simplify things, investors look for answers that may have worked for their friend or colleague in the past.

Full Story: 5 common investment dilemmas

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irfan answers,  at 2008-07-16 12:52:18 hi, sip is a mode of investment and not an investment avenue by itself. you need to determine a fund that is right for you and then consider making an investment via sips.

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chris asked,  Hello Mr. Irfan. My portfolio consists of dsp opportunity, fidelity equity, franklin flexi-cap, hdfc equity, hdfc top 200, hsbc equity and reliance vision. Out of the funds listed which one to keep for the long term growth especially in the case of 2 hdfc funds I am holding for I will retire soon. With thanks, please advice. irfan answers,  hi, if you are about to retire soon and are going to rely on your investments to provide for your daily needs, there is a case for gradually shifting from equities to lower risk avenues like POMIS, FDs, FMPs.

Full Story: Investing through SIPs? Choose wisely

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W ith the Sensex tottering at 13,000 levels, a whole lot of investors would be wondering if they should exit their mutual funds or stop their monthly systematic investment plans. While the latter does not make sense, especially if you are in good equity diversified funds, the former can be contemplated in certain cases.

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Generally, getting into a mutual fund is associated with a long-term relationship whereby, there are good times as well as bad times. However, most investors are willing to enjoy the upside, but at the slightest hint of a downside, they start crying foul. Here we address the issue of when you should take the tough call of exiting your mutual fund. Consistently poor performer: There are times when even a star fund manager will not be able to get great returns. Especially, in times like these, where all funds are sitting on cash simply because of lack of opportunities.

Full Story: When to exit your mutual fund

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O ver the last few years, when equity markets were surging northwards, balanced funds were relegated to the sidelines. Instead, equity funds, especially new fund offers were the season's flavour. Fund houses were busy launching a slew of infrastructure and global funds, among others.

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And most advisors (taking a cue from the markets and fund houses alike), were busy piling up their clients' portfolios with equity fund offerings. As a result, several investors landed up with investment portfolios lop-sided in favour of equities. Expectedly the volatile equity markets have adversely affected such portfolios. Then there are balanced funds with the mandate to invest at least 65 per cent of their portfolio in equities and the balance (35 per cent) in debt instruments. In effect, balanced funds offer investors the benefits of asset allocation, while investing in a single avenue.

Full Story: Is DSP ML Balanced Fund a good buy?

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H olding your nerve in a bear market requires both sound knowledge and a cool head. If you can do so, you can both reduce losses and find profitable gems gathering dust. After all, it's worth remembering that that most revered of all investment prophets Warren Buffet eyes bear markets with a special gleam in his eye - for it's at such times that buying opportunities are available with handsome value in-built into their prices. Here are ten rules from a master trader to steer by in difficult times...

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Flick the switch You'll never make rational investment decisions if you're mesmerised by the gyrating prices on your screen. Steel yourself not to look at prices, read market reports or talk to stockbrokers during trading hours. Markets are not going to turn for the better just because you will them to. And, as prices have fallen so far, it matters little if you miss the first inch of their eventual recovery. Pound the streets You don't just need a sense of perspective; you need the widest possible perspective. The best investment opportunities are those you discover by observation of the workings of the economy in the aftermath of the stock market collapse. If you can bear it, take the taxi driver litmus test.

Full Story: 10 rules for investing in a bear market

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A t Personalfn, we regularly interact with investors who need assistance with their financial planning. And often the latter entails (among others), conducting a review of their existing investment portfolios. An increasingly common and rather disturbing trend is the absence of a solid 'core' portfolio.

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In recent times, we have met several investors (most were new to investing in mutual funds) whose investment portfolios were constituted of only thematic and sectoral funds. To further complicate matters, these investments were made in new fund offers launched at a time when markets were surging northwards. Expectedly, such portfolios are in dire straits at present. The core portfolio By the core portfolio, we are referring to a mix of investment avenues that is capable of delivering an enduring performance across market cycles.

Full Story: Do you have a core portfolio in place?

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T he rise in the interest rates is impacting every borrower. And even investors have not been spared because a sustained high interest rate implies that they will have to earn higher rate of return to keep their real rate of return in positive.

Add to the high interest rate, high rate of inflation and the cocktail becomes really heady. This is because the overall expenditure rises, leading to imbalances in the household budget. So such situations, where the rise in expenses coupled with fall in returns are rather challenging for investors. During such times, it is important that investors are able to ensure that they keep earning good returns, even after things cool down a bit to make up for the money they lost in bad times.

Full Story: How to earn high returns on bank deposits

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F or years, banks have had to fall back on their own experience to gauge consumer's credit worthiness. However, in the last few years, things have started to change for the better.

Lenders now are armed with your credit report provided by Cibil (Credit Information Bureau India Limited) that has all the pertinent details of your credit pattern (loans and credit cards). More importantly, since this data is collated from across the country, whether you have defaulted in Mangalore or in Mumbai, you are still on the radar. And when you apply for a loan or a credit card, lenders call for a copy of credit report from Cibil before considering your case. This report has a credit score that is arrived at by analysing your repayment record, outstanding debt, credit enquiries, amount of credit limit utilised and various other parameters.

Full Story: How banks decide to give you a loan or not

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C ontra investing draws from value investing and is regarded as a subset of the latter. It entails investing in fundamentally strong companies/sectors/themes that are presently out of favour. In other words, the fund manager takes a bet that is contrary to the popular trend in the markets and hence the name contrarian investing.

A contra fund operates on the premise that investment opportunities fall in two categories a) those that are identified by most investors and therefore already form part of their portfolios and b) those that are ignored or not yet identified. Since investment opportunities under Category A are identified by most they are overbought and are therefore trading at higher valuations. The investment opportunities in Category B are what really interest the contrarian investor. These opportunities come by way of temporary/short-term occurrences which make fundamentally strong stocks/sectors attractive investment propositions for the investor. When markets turn around, these investment opportunities tend to get valued in line with their fundamentals and investors clock a return based on the uptick.

Full Story: Has Magnum Contra delivered?

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A s the Samajwadi Party demands its pound of flesh from the United Progressive Alliance, select companies could benefit. A smart investor can profit from such firms.

The new power structure is less stable. Elections are guaranteed within the next 12 months anyway. But a handful of defections could trigger the end of the UPA and that makes the environment even less conducive to long-term planning. The SP doesn't have ideological hang-ups. It has always been consistent in its commitment to generating return on its investments. That commitment to ROI could lead economic policy in new directions.

Full Story: The 'Super Party' impact

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W hen it comes to investing, it is commonly observed that investors tend to replicate the investment strategy followed by their colleagues, friends or relatives.

It is generally believed that an investment strategy that has worked for one will also work for others. However, this is the wrong approach, simply because 'one size does not fit all' while investing. Instead, investors need to build an investment portfolio that is right for them. Building an investment portfolio requires the investor to put in a fair degree of thought and time. The need for the latter is only accentuated in light of the overwhelming choices available. In this article, we present a 4-step strategy that will help investors build an investment portfolio.

Full Story: 4 great tips for safe investing

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R ecently, we met a rather hassled investor. His concern was that his Monthly Income Plan (MIP) had skipped dividends over the last few months. As a result, the investor was in two minds about the prospects of the MIP and wasn't sure if he should stay invested.

Before discussing the case further, first let's understand the investment proposition offered by MIPs. MIPs are hybrid investment avenues that invest a minor portion of their portfolio (around 15 per cent-25 per cent) in equities and the balance in debt and money market instruments. Typically, MIPs are suited for investors with a low-moderate risk appetite. For instance, investors who wish to clock higher returns than those offered by fixed deposits or bonds and are willing to take on commensurately higher risk should consider adding MIPs to their portfolios.

Full Story: Are monthly income plans safe?

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