Elastic Straps: August 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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S ystematic Investment Plans are much misunderstood. For one, investors often mistake SIPs as an investment avenue rather than a mode of investing in mutual funds. Then there are investors who invest in SIPs expecting quick results without fully appreciating the need to invest via SIPs for the long-term.

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In an earlier article, we discussed how SIPs are perceived incorrectly by many investors as standalone investments. This explains why one of the most common queries we receive on the website is - which is the best SIP? Unfortunately, these investors have not been educated by their investment advisors about SIPs i.e. SIPs are only a mode of investing and not an independent investment avenue. Another misconception investors have about SIPs is with regards to the minimum tenure. Most fund houses have a minimum SIP tenure of 6 months. This leads investors to believe that 6 months is the ideal time frame for investing via SIPs (just like a lot of investors invest Rs 5,000 in mutual funds simply because that is the minimum investment amount for several mutual fund schemes).

Full Story: SIPs: A long-term investment strategy

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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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Sky-rocketing inflation and the subsequent stringent monetary measures initiated by the Reserve Bank to curb it have not impacted the pace of fresh capital investment, a Centre for Monitoring Indian Economy report has said.

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"Rising inflation and the RBI's attempts to combat it through monetary tightening are leading to fears of the investment boom in India cooling off," the CMIE said. The pace of fresh capital investment, however, continues unabated, the think thank said. "The relentless rise in the flow of fresh capital investments reflects India Inc's confidence in the continuation of buoyancy in the consumption demand." According to the report, although rising interest rates are expected to dampen the profitability of Indian corporates, "it is not a very significant burden to make them cancel their fresh investment plans or stall those under implementation".

Full Story: Investment not hit by inflation, RBI moves: CMIE

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A t Personalfn , we routinely interact with investors. And ever since the equity markets turned volatile, we have (expectedly) come face to face with several hassled and confused investors. Another pattern we have noticed is that a number of investors have similar concerns. We thought it would be interesting to address the 5 most common questions that investors are faced with now.

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Is this the right time to invest in equities? With equity markets descending from their record highs, several investors want to know if this is the right time to invest in equities. More importantly, they would like to know if markets have bottomed out. As regards the former, it can be safely stated that the markets are attractively poised in terms of valuations. So does that mean investors across the board should get invested in equities? Not really. Only investors who can take on the risk associated with an equity investment should consider getting invested. Also, investors should be willing to stay invested for the long haul (at least 3-5 years).

Full Story: 5 questions investors are asking now

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W hen home prices are going up, your equity in your home also goes up. Let's understand this with an example. Consider, three years back you bought a property for Rs 50 lakh (Rs 5 million), with Rs 500,000 as down payment and a home loan of Rs 45 lakh (Rs 4.5 million). Now, if the property is priced at Rs 1 crore (Rs 10 million), it means that even if you were to sell it off and repay the entire home loan, you would still make around Rs 55 lakh (Rs 5.5 million) as net profit.

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The other advantage is the rise in the price would also make you eligible for an additional loan against the property. Known as the concept of home equity, this is quite a common product in the US. In India, most banks call it as a top-up loan, where borrowers can garner further amounts, based on the existing valuation of the property. While the rise in property prices leads to an increase in home equity, the reverse is also true. That is, when prices of property fall, your home equity diminishes. In recent times, there have been reports of real estate prices cooling off. A reality check also establishes that very few transactions are happening today. This could lead to some price corrections, and quite sharply, in areas where prices have risen too fast, too soon.

Full Story: Paying EMIs on time, but still a defaulter!

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T he immediate impact of rising inflation is clearly visible on interest rates, which have also been moving up. That in turn is also reflecting on economic and corporate growth. Such a situation will bring with it a number of challenges for companies as they seek to fund their day-to-day operations as well as manage future growth.

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In a rising interest rates scenario, where easy money gets wiped out (thanks to equities turning unattractive), banks also turn stringent while lending to companies. For now, the fact that the prime lending rates, at which companies typically borrow from banks, have shot up and currently hover at about 15-17 per cent as against the 12-13 per cent three years back is a matter of concern.

Full Story: 5 great tips for investors to play safe

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A midst the stock market volatility, it is not surprising to find investors who have all but redeemed their investments. Considering the losses incurred, investors are now exploring investment opportunities in avenues beyond equities. These avenues even have a fancy name - structured products.

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Structured products, is the latest buzzword among investors and fund houses alike. Many investors are enticed by the investment proposition offered by these products. Fund houses on their part are only willing to launch more products to feed their popularity among investors. Most investors believe that structured products are designed in a manner that equips them to deliver superior returns. Besides, they also consider them to be less risky.

Full Story: Are structured products good enough?

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R etirement marks the beginning of a new phase in an individual's life. It's a transition from a lifetime of work to a time when one can relax, spend time with the family and pursue other interests. Not only this, retirement also marks a transition in one's finances. With a regular stream of income no longer available, the savings made over one's working years now have to provide for all his needs.

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Given the kind of challenges that retirement can throw up, it isn't surprising that any financial planner worth his salt would recommend that retirement planning should be given its due importance and started as early as possible. However, there is another (often ignored) set of investors - retirees. Individuals who are already retired and need to get invested now. For such investors, capital protection and liquidity are priorities. In this article we profile some investment avenues that retirees can consider adding to their portfolios.

Full Story: Retired? 6 great investment plans

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T he turbulence in equity markets has impacted more investors than one would have initially thought. The hardest hit are those who invest directly in the stock markets (i.e. direct equities). Then there are investors who aim at diluting the risk of investing directly in equities by routing their investments through mutual funds.

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Expectedly, this category of investors has also felt the heat from the stock market turbulence. There is yet another category of investors to rival both these categories in terms of equity investments i.e. ULIP (unit linked insurance plan) investors. If too many visitors haven't given a thought to the fact that ULIP investors have considerable investments in equities, it's largely because ULIPs are a mixture of insurance and investments, and sold under varying (marketing) guises depending on the situation.

Full Story: Having second thoughts about your ULIP?

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The Chinese method of maintaining export competitiveness is to peg a low Yuan to the USD. By ploughing export earnings back into US treasuries, China also ensures that US interest rates stay low and hence, consumer demand is high.

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The problem is, the US is in trouble and the Chinese strategy has led to the People's Republic of China's economy becoming highly-correlated to America. China cannot pull reserves out of US bond markets without causing a crash that may destroy its cash-cow.  Indian exporters suffer less from similar overdependence on the dollar and US markets. But unlike the pegged Yuan, the rupee has swung wildly in the last 18 months. The short-term direction now depends on two factors. Appreciation will occur if widening yield differentials post the repo-hike triggers higher inflows despite likely downgrades of Indian debt. It will depreciate if portfolio investors continue to sell in large quantities.

Full Story: It's safe to invest in debt-free cos

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