EDELWEISS PREPAID SIP - UNCONVENTIONAL BUT EFFECTIVE

Experts unanimously agree that Systematic Investment Plan is the best way to invest in Equity Markets.

But, SIPs are not an option for those who have unstable income like Businessmen, Doctors, etc who do not have "fixed" income to commit for SIP.

For them, it is suggested to invest whenever possible a lumpsum in a Debt Fund and then do a Systematic Transfer Plan (STP).

This ensures that they too get the benefit fo a SIP investment without having to worry arranging funds month on month.

But both SIP and STP have 1 pitfall. That is, they buy units (stocks) on a predetermined date irrespective of market conditions. And, thus even if the market has zoomed up by 5% yesterday and again up by another 5% today, the SIP/STP is triggered making the purchase "costlier".

To counter this drawback, mutual Funds have innovated and brought in products like HDFC Swing STP, Pramerica Power SIP, etc.

But, among all these, the one which I think is most effective and useful is the PREPAID SIP from Edelweiss Mutual Fund.

WHAT’S SO SPECIAL ABOUT EDELWEISS PREPAID SIP??

First let us understand how this Prepaid SIP concept from Edelweiss works.

1. You will be investing a Lumpsum (minimum Rs.25000/-) in Edelweiss Absolute Return Fund/Edelweiss Ultra Short Term Bond Fund/Edelweiss Liquid Fund.
2. Switch from the source scheme (one where you invested the lumpsum) is triggered each time Nifty falls by either 1% or 2% (as you choose) into any of the Target Funds at 5% or 10% (your choice). The Target Fund can be chosen from Edelweiss Select Midcap Fund, Edelweiss Diversified Growth Equity Top 100 (E.D.G.E Top 100) Fund, Edelweiss ELSS Fund, Edelweiss ARF (provided Edelweiss ARF is not the Source Scheme)

Your Prepaid SIP is now active and running

What’s the difference and benefits?

Benefit No.1: Since your investment is in a Liquid Fund/Absolute Return Fund, your funds are generating returns till the time they move into the Target Scheme on trigger.

Benefit No.2: Indirect SIP happens whenever the switch is triggered.

Benefit No.3: NO Exit load is levied in case of switch.

Benefit No.4: Investor need not worry about monitoring the fall in Nifty and investing, the trigger will do the job.

Benefit No.5:

The Biggest Difference and Benefit is that the switch is triggered only when the Nifty falls by 1% or 2% which indirectly lets you “time” the market.

SRIKANTH SHANKAR MATRUBAI advises :

The word PREPAID SIP is misleading as a SIP happens only a specific date with a specific amount.

Still the product is innovative and could be used by investors who have Lumpsum in their hands (Bonus, Land sale, Lottery,etc).

If you are convinced about the product and intend to invest, I suggest you to go for Edelweiss Absolute Return Fund as your Source Fund rather than a Liquid Fund. Edelweiss Absolute Return Fund is a kind of Arbritrage Fund and has consistently beaten its Benchmark by a wide margin and also have a higher CAGR compared to Nifty.

Since the Nifty fall by 1% or 2% do happen regularly, the switch will also ensure that Capital gain taxation comes into play. So, instead of the debt fund, if you are invested in Edelweiss Absolute Return Fund, then Equity Taxation treatment is applied and if the trigger happens within 1 year of your lumpsum investment then only 10% tax is levied.

Also, it is observed that Edelweiss Absolute Return Fund, inspite of being a Equity Fund, is a low volatility fund and has been pretty consistent with its return.

The unique Switching option will ensure that you are buying units when the market falls and benefit from averaging your purchases.

Negatives :

1.       The Switch is done only in In-house funds which ......

2.       Edelweiss AUM is meagre. In fact, no Equity Fund of the Fund House has crossed Rs.100 crores which can make some investors uncomfortable.

3.       Investors may miss out on a extended Bull Market as no units are bought in a continuously rising market. (Though, I personally feel, that even in a continously rising market, there are sure to be 1%, 2% fall every now and then).

RECOMMENDATION :

Dont treat this Fund as a Emergency Fund.

Those having a Lumpsum to invest can definitely look at investing in Edelweiss Prepaid SIP.

Product is innovative and the Edelweiss funds have proved to good performers in their short history.

However, those who have regular income and can afford monthly are advised to go for the typical Systematic Investment Plan.

Best of luck,

Srikanth Shankar Matrubai

Also visit http://equityadvise.blogspot.com

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HERE'S WHY......YOU SHOULD AVOID RELIANCE CLOSE ENDED FUND

Reliance Mutual Fund has joined the mad rush for Close Ended funds and has launched Reliance Close Ended Equity Fund – Series A. 

The Fund has already open for subscription and will close on 29^thof November. 

Since the fund is a close-ended, the Fund Managers will not have to worry about the inflow-outflow of investment. However, a lot would also depend on when this scheme is open for subscription and the maturity period from the date.

Fund Manager Mr.Shailesh Raj Bhan explained the nuances of the Fund to me and this is what I interpreted

Features of the Fund :

1. The fund is not bound by any market capitalisation or theme or sector for choosing stocks.
2. Portfolio of the Fund will be restricted to about 25 – 30 stocks.
3. The Fund will NOT be a small Cap fund but will be a Flexible Fund
4. The Fund will be run like a Alpha Fund. The Fund Manager will “refresh” the portfolio but not “churn” like a Diversified Fund.

Positive Points :

1. Since the Fund is locked in, Fund Manager is saved by the hassle of investors redeeming his units and indirectly forcing the Fund Manager to avoid taking a very long term on any stock. Hence, here, the FM can ensure better returns by holding on to stocks for a longer period.
2. Close ended funds have less churning and hence scope for lower expense ratios too ultimately resulting in better returns.
3. The Fund is managed by Mr.Shailesh Raj Bhan who has been very consistent in the funds he is managing namely Reliance Equity Opportunities fund, Reliance Top 200 fund, Reliance Pharma Fund,etc.

Negative Points :

1. Close ended funds can be invested only via Lumpsum and thus investors are deprived the benefit of Systematic Investment Plans. Lumpsum carry the risk of Timing the investments.
2. Another disadvantage with Close ended funds is that even the Fund Manager will NOT get fresh inflows due to absence of SIPs and hence will be helpless to invest further in case of Quality stocks being available at cheap prices due to market correction or otherwise.
3. Studies have proved that just because a Fund is close ended does not mean it will fare better than Open ended funds.

SRIKANTH SHANKAR MATRUBAI view : 

Close ended funds, according to me, go against the very basic premise of Mutual Fund investing.......TIMING THE MARKET.

Since you can invest only at the Fund Opening Period, you are forced to “TIME” the market., isn’t it???

Thankfully, even though the Fund is close ended, since it will be listed on Stock Markets, the problem of liquidity is solved to some extent.

The Fund has a Dividend payout and Growth option. Another option Dividend Transfer Option (to a Debt fund or another equity fund) would have been a good idea as normally investors tend to misuse the Dividend recd by treating it as “Free Money”.

The biggest negative against Close funded funds are that you do not get a opportunity either to average your cost of purchase in case of a downturn in performance and likewise neither you would get a chance to book profit if and when the fund performs above average.

RECOMMENDATION : 

If as the Fund House says, “Not investing now will be like a missing a great opportunity”, then why should I choose a Close Ended fund where I cannot scale up my investment nor can I average?

The Fund Manager, Mr.Shailesh Raj Bhan’s handling of other funds do inspire confidence, but the fact that the fund is CLOSE ENDED is the single biggest negative of the fund and negates most of the positives.

I would recommend AVOID.

If you are a Reliance Fan and do want to invest, then take the Dividend Payout option.

Best of luck,

Srikanth Shankar Matrubai

 


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IDFC SIP CARE - SHOULD YOU GO FOR IT ?

 IDFC Mutual Fund has tied up with Indian Health Organisaition (IHO) and will offer IDFC SIP Care wherein Systematic Investment Plan  investors in IDFC Mutual Fund will get Medical Discounts at various Clinics, Labs and even Hospitals.


 Product Features:
i. SIP Care is available only in the monthly frequency.
ii. SIP-Care would be available only for an SIP of 36 months or more
iii. In case of SIP-Care minimum amount has been kept as Rs. 2000/-. Any SIP care application for a monthly SIP of less than Rs. 2000/- would be rejected.
iv. The Health care benefits would be discontinued and the Card would be deactivated if the SIP is discontinued during the period for which the AMC is offering the facility.
v. The Health care benefits are available to the subscribers of IDFC SIP Care only for a period of one year from the date of subscription. The subscribers desirous of availing the facility beyond 1 year can get the card renewed by paying the fees directly to IHO.


There are certain specific health care benefits attached to this “SIP care”. The subscribers would be provided a Health Card which will help them in getting certain benefits provided by Indian Health Organization Pvt. Ltd. (IHO) through their network of doctors and medical practitioners and pathology labs etc.

Benefits of IHO plans as compared to traditional medical Insurance:
No Age limits – All age groups can avail the same benefits at same fees.
Pre-existing ailments are covered from day 1.
All day to day and Pre- hosptialisation medical expenses are covered.
Dental and cosmetic treatments are covered.
Discounts are upfront and no claims are to be filed.
No upper limit on the expenses.
Free chat facility with a doctor available.

Benefits to SIP Investor:
Dental Benefits
Medical Benefits
Pathology/Radiology Benefits
Pharmacy Benefits
Dial a Doctor Benefits
Free Chat with a doctor

SHOULD YOU GO FOR IT?

As with all products this product has got both positive and negative aspects.
Let us look at them.

POSITIVES :
1. Investors can just call up the IHO Toll free number to get medical prescription for routine illness like cough, headache instead of going to their Doctors.
2. Upto 50% discount on Consultations with IHO empanelled clinics (about 14000 of them!!_
3. About 7.5% to 12% discount on Medicines purchased from the IHO network of Pharmacies.
4. Upto 30% discount on Tests done through IHO empanelled Labs.
5. The SIP Care facility will continue to be offered to the Investor even if he stops the SIP  after the 1st year as the investors agreement is with the IHO and not IDFC Mutual fund.
6.No additional cost would be charged to the customer or to the fund for this benefit.




NOTE :
All these discounts are offered upfront and an investor need not file any claim with IHO or IDFC Mutual Fund.
The Investor will need to pay Fees to the IHO from the 2nd year onwards to continue availing this facility. The Fees ranges from Rs1500 to Rs.4000.





NEGATIVES : 

The concept looks great on paper, but the problems do exist.
1. The facility is only on 2 funds namely
IDFC Classic Equity Fund
&
IDFC Sterling Equity fund.
Both the funds performance are not anything to boast of.
2. The reviews on IHO's services are far from encouraging.
3. The facility is FREE only for the 1st year.

I personally, would NOT like to use their facility.

SHOULD YOU TAKE THE FACILITY?
No.
Unless you are a IDFC fan and have a transferable job, you are  better off taking a proper Health Plan and invest the SIPs in a better performing and consistent fund like BNP Paribas Equity Fund, Birla Sunlife GenNext Fund, Reliance Equity Opportunities Fund, L&T Equity fund.

Since the concept is eye-catching, surely other AMCs too could come with similar features and if the feature is better and the schemes on which the facility is also good, then you can surely go for the same.

Regards,
Srikanth Shankar Matrubai


Also visit http://equityadvise.blogspot.com

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IIFL NCD - GRAB THIS LUCRATIVE OFFER

The carnage in the Equity, Gold, Real Estate and even the Debt markets have shattered investors faith.
They are now looking at "fixed" returns and to cash in on the same, India Infoline Limited's NBFC subsidiary, India Infoline Finance Limited (IIFL) has launched a Public Issue of Secured Redeemable Non-Convertible Debentures (NCD) of Face Value of Rs.1000/- each aggregating to a total of Rs.1050 crores today.
The NCD will carry a coupon rate of 12% interest annually.
The face value of each NCD is Rs 1,000 and the minimum application amount is Rs 5,000 (5 NCDs). The NCDs have an investment horizon of 3 years and 5 years. Allotment is on a first-come-first-served basis except on the last day where, in case of an oversubscription, the allotment would be made on a proportionate basis. The issue will close on October 4, 2013.
Investment can be made for a period of 3 years and 5 years.

MERITS :
1. This issue, unlike its 2012 avatar, is SECURED. So, in case of company going bust, your money is SAFE. Consequently, the claims of NCD holders will be superior to the claims of unsecured creditors (like company FD holders, which are unsecured deposits). The NCD is secured and shall rank pari passi with other credit holders. Even Banks and Company FDs do not offer this safety.

2. Rating too has gone up to "AA" from CARE, implying high degree of safety.
3. No TDS will be deducted if you invest via Demat, thus investor will get full cash flow of 12%. Though, you should note, the interest should be added to your overall income and will be taxable as per your tax slab
4. Good Liquidity due to listing of the NCD in both NSE and BSE. Though, NCDs are not traded regularly, IIFL's previous NCDs have good trading interest.
5. Monthly interest payment available, wherein annual yield works to 12.68%.
6. Company cannot prematurely redeem the NCDs as there is NO Call and Put option.
7. Company is in excellent financial condition and has among the lowest NPA in the industry. In fact, the NPA is progressively getting lower and lower from 0.36% in FY11 to 0.17% in FY13.
8. If you sell at the stock exchange after 12 months, your gains will be treated as long-term capital gain and will be taxed at 10 per cent without indexation. If you sell in less than 12 months, your gains will be treated as short-term capital gains and taxed at the marginal income tax rate.



DEMERITS :
1. For someone in the highest tax bracket, the yield will reduce to a paltry 8.4% from a lucuratively attractive 12%. They are better off investing in Tax Free Bonds of HUDCO which opens on the same day. However, please note that IIFL is for a maximum of 5 years, whereas HUDCO Tax Free bonds, your money could be locked for 10,15, 20 years.

CONCLUSION :
The company enjoys sound fundaments with low NPAs and High Capital Adequacy Ratio, which means that the Company has higher amount of capital held as compared with the value of risky assets

If you are a HNI and fall in the Highest Tax Bracket, you can skip the issue and look at HUDCO Tax Free bonds.
If you are a retail investor then, you may go for the Bonds in moderation.
Senior Citizens too can take advantage of the high interest and lock in at these rates and are advised to go for Monthly Interest Option.
Unless you have a monthly commitment or are sure of reinvesting the Monthly interest you receive, I strongly advocate investors to go for Annual Option.
SHOULD YOU INVEST??

YES!!! OF COURSE!!!
Even for a risk-averse saver bitten by ever falling Bank FD rates, NCDs are great alternative. After all, a three-year fixed deposit will earn you 9-9.5% interest, but a three-year NCD will fetch 12%, a clear gap of 250-300 basis points.
Investors can definitely take up the offer as they not only offer Returns higher than Bank FDs but their money is also secured by the Assets of the Compnay.
The markets are volatile, be it Equity, Gold, Debt, Real Estate. And among Fixed instruments, IIFL NCD is an attractive offer which retail investors should seriously consider investing.

Not only will you be locking your returns at a higher rate than a Bank FD but also liquidity is easy due to its trading in the Stock Markets!!! If you want to get out, you can get out any time.

Best of luck,
Srikanth Matrubai



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FALL IN BOND FUNDS NAV......AN OPPORTUNITY?

 

The Lay Investor will be shell shocked for sure.

First his favourite, “Can never fall” Gold fell by 15% and next

his “Can never ever fall” Bond/Liquid Funds Fell by a massive 4% in a single day.

His definition of “safe” investment would have gone for a toss.!

We all now know why Gold fell. (Read http://goodfundsadvisor.blogspot.in/2013/05/do-not-buy-gold-this-akshaya-tritiya.html)

What should you do if you have a investment in Liquid/Bond fund?

WHY BONDS FELL?

The Reserve Bank of India (RBI) in its effort to rein in Dollar decided to tighten Domestic Liquidity and restricted overnight finance to banks as well as sell bonds in a bid to restrict liquidity in the system, a move that would take pressure off a weak rupee. This pushed up interest rates in the domestic money market.

This sudden jolt shook the Banks and they rushed to redeem their investments from Mutual Funds, especially Liquid and Gilt Funds. This resulted in Bond Yields shooting up to above 8% from 7.5%, the single biggest day gain in more than 3 years.

As Bond prices are inversely related to Interest Rates, a Rise in Bond yields pushes the NAV of Bond Funds down and hence, NAV followed suit with a fall of more than 2%. Even liquid funds were not spared and it was a “shocker” for many investors to see the supposedly “safe, very safe” Liquid funds too posting negative returns.

WHAT COULD HAPPEN NOW:

RBI could manage to sell only about Rs.2500 crore worth of bonds out of its targeted Rs.12000 but surprisingly it rejected most of the bids. Thus, RBI has sent a strong signal that these measures were temporary by rejecting bids and RBI is not in favour of strong interest rates.

The Liquidity pressure on Mutual Funds is ignorable as can seen from the fact that Mutual Funds were yet to make use of the Special Liquidity Window opened by RBI as they were eyeing higher yields which clearly shows that they have enough liquidity to manage redemption pressure.

WHAT EXPERTS SAY:

The Most experienced Fund Manager in the Industry on the Fixed Income side, Mr.Amandeep Chopra of UTI assures Investors “no need to panic, stay invested as this is a short term reaction”. In fact, he further goes on to encourage new investors to jump in these funds as these RBI measures are expected to be reversed sooner rather than later”.

IDFC Mutual Fund says that “Bond funds have become much more attractive due to this short term disruption”

TATA Mutual Fund has recommended investment in Dynamic Bond Funds at current levels with a 1 year Investment horizon as the Fund House feels that Investors like PF, Insurance Cos will use this opportunity to enter bond funds and thus ease yields on Bonds.

Kotak Mutual Fund feels that the sharp drop in the NAV of liquid and Bond funds is temporary and the drop provides lucrative investment opportunity for investors across the curve.

WHAT TO DO NOW:

If you have invested in these funds with a horizon of another year to go, you have nothing to worry as interest will accrue to the Funds holding and the NAV would rise. Moreover, the interest rates are expected to fall, at least Not Go Up, and in worst case scenario for an investor, the rates could be stable.  So your money is safe.

Continue to hold and those who would mind a bit of volatility, entering the Bond Funds should give you Double Digit returns, especially after the NAVs have dropped due to “Mark to Market” impact.

In the year 2008, Bond and Gild Funds generated returns of above 20% and next year gave a negative return of -15%, so you need to be very quick to get in and get out of these funds.

Best option would be to invest in Dynamic Bond Funds where the Fund Manager will take the call of moving in and moving out of short term and long term Debts.

The decline in NAV of BOND Funds during current week was a GOD GIFTED Opportunity for those Investors who wanted to Invest in such Funds & had some spare money.

Going forward, the investors can benefit from steady accruals from these funds and also benefit from rate cuts, when they happen.

I would recommend Short Term Debt Fund and Dynamic bond, especially those with lower duration.

Low risk investors should look at Accrual funds.

Enjoy the ride but be warned the ride could be bumpy.

Also visit http://equityadvise.blogspot.com

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