Sunday, 12 May 2013
Saturday, 6 April 2013
Analysis of IDFC Equity Opportunities - Series 1 NFO
IDFC Mutual Fund is coming out with a New Fund Offer on 9th April namely IDFC Equity Opportunity Fund. The Fund will be a 3 year Close Ended Fund. The Fund will aim to invest in Small and Mid cap fund.
POINTS TO CONSIDER ABOUT THE FUND:
- IDFC Equity Opportunity Fund will be investing in small and mid cap and hence I would categorise the fund as a High Risk High Return fund.
- IDFC, as a Fund House, enjoys a good reputation of investing in mid cap space.
- The Fund will limit its size to 125cr as the Fund House feel this will ensure investors make early returns in the next cycle.
- The Fund is a Close ended fund.
- Fund will have a diversified portfolio of 60-80 stocks. The key for diversification is to manage liquidity/risk considerations and play across sectors.
- The most interesting aspect of this NFO is that there is NO Growth Option and there is COMPULSORY DIVIDEND option.
POSITIVES:
- The 3 year lock in allows the Fund Manager the to buy and hold stocks and not worry about the daily NAV as well as any Redemption Pressures.
- The Fund Manager Kenneth Andrade has gained reputation of identifying small caps which has the potential to become Larger Mid Caps. Some notable examples being Page Inds, Kaveri Seeds among others.
NEGATIVES:
- Star Fund Manager Kenneth Andrade besides managing the highly successful IDFC PREMIER EQUITY FUND also manages like IDFC 50-50 Equity Fund, IDFC Infrastructure Fund, IDFC Equity Fund whose performance is nothing to boast of.
- Small Caps and Mid Caps tend to be highly volatile and investing in SIP way would be the BEST method to negate the volatility but sadly this NFO does not give this option as this is a Close ended fund and hence no SIP option.
CONCLUSION:
IDFC is advertising this Fund as “an opportunity presenting itself after a decade”.
Sure opportunity is there, but why should I do go for a Close ended fund when I can do the same with a Open ended fund which I can always switch if the Fund is inconsistently performing poorly which i cannot do with a Close ended fund as this NFO is?
The Fund is for investors who are ready to take High Risk in pursuit of High Returns. Even then, I would prefer investing in proven small cap funds like Religare Mid n Small Cap Fund, Mirae Asset Emerging Bluechip Fund, DSP Small and Mid Cap fund, etc rather than risking some more by going for a NFO, that too close ended.
My advise.........AVOID. If you still want to invest in this fund, ensure that your expose is limited to 5% of your overall portfolio.
Best of luck,
Srikanth Matrubai
Also visit http://equityadvise.blogspot.com
Friday, 5 April 2013
Albert Einstein called "Compounding" as the 8th Wonder of the World.
Let us find out why with another example.
Also visit http://equityadvise.blogspot.com
Let us find out why with another example.
There are 'n' number of stories on the Power of Compounding. But the one which I like the most is this...
You may know the story, but still read it because the twist at the end is not what you expected.
3 persons, Mr.A, Mr.B and Mr.C joined a company. They all were given the option of either taking Rs.10000/- daily for next 30 days or taking 1paisa for Day 1, 2 paise for day 2, 4 paisa for Day 3, 8 paisa for Day 4....wherein double the amount what you got previous day and henceforth for the next 30 days.
Mr.A decided to take Rs.10000/- daily.
Mr.B and Mr.C decided to take 1 paisa and the double the amount every day.
At the end of 20th (twentieth) day, Mr.B badly needed urgent cash and took away Rs.10000/- from his accumulated corpus.
At the end of 30 days,
Mr.A's total amouted to Rs.3 lakhs (Rs.10000 * 30)
Mr.B who took Rs.10000/- on 20th, was however better than Mr.A and had Rs.5 Lakhs at the end of 30 days.
Mr.C who did not withdraw anything, had at end of 30 days, surprise, surprise, left with Rs.1 Crore!!!
Just look at the difference between Mr.B and Mr.C. Both took the same salary of doubling every day but just because Mr.B took a paltry Rs.10000/- only on the 20th, he was left with Rs.95 Lakhs lesser than Mr.C.
Well, then, that is the power of compounding!!!
You may know the story, but still read it because the twist at the end is not what you expected.
3 persons, Mr.A, Mr.B and Mr.C joined a company. They all were given the option of either taking Rs.10000/- daily for next 30 days or taking 1paisa for Day 1, 2 paise for day 2, 4 paisa for Day 3, 8 paisa for Day 4....wherein double the amount what you got previous day and henceforth for the next 30 days.
Mr.A decided to take Rs.10000/- daily.
Mr.B and Mr.C decided to take 1 paisa and the double the amount every day.
At the end of 20th (twentieth) day, Mr.B badly needed urgent cash and took away Rs.10000/- from his accumulated corpus.
At the end of 30 days,
Mr.A's total amouted to Rs.3 lakhs (Rs.10000 * 30)
Mr.B who took Rs.10000/- on 20th, was however better than Mr.A and had Rs.5 Lakhs at the end of 30 days.
Mr.C who did not withdraw anything, had at end of 30 days, surprise, surprise, left with Rs.1 Crore!!!
Just look at the difference between Mr.B and Mr.C. Both took the same salary of doubling every day but just because Mr.B took a paltry Rs.10000/- only on the 20th, he was left with Rs.95 Lakhs lesser than Mr.C.
Well, then, that is the power of compounding!!!
Also visit http://equityadvise.blogspot.com
Friday, 8 March 2013
There is a New Baby on the Tax Saving Front.
It is called Rajiv Gandhi Equity Savings Scheme (RGESS).
RGESS was introduced in the last year budget for those who earn Rs.10 lakhs or less and are First Time investors into Equity.
FEATURES :
1. RGESS gives this First Time Investor a deduction of 50% of his investment into the scheme subject to a ceiling of Rs.50000/- (Maximum deduction hence cannot exceed Rs.25000/-).
2. To avail Tax Deduction, annual income should NOT exceed Rs.10 Lakhs.
3. Should be First Time Investors to Equity. (Surprisingly, the rules says, the investor can own shares but should NOT have them in Demat on or before 23 November 2012).
4. Can invest only in Stocks listed under BSE100/CNX100, PSUs and ETFs/Mutual Funds which have RGESS eligible securities.
5. Lock in is for 3 years.
6. Tax Benefit can be claimed only once (1st time only)
I AM ELIGIBLE FOR RGESS., SHOULD I INVEST?
For investors who are eligible for RGESS, the question is should they invest.
To begin with, the Tax Benefit is not so huge. On a investment of Rs.50000/- you get a deduction of Rs.25000/- enabling you to claim a Tax Benefit of Rs.5150/- if you come under the Top Bracket.
Equties are a MUST for an investor since it is the only proven asset class which has the capacity to beat inflation on a consistent basis. RGESS is the opening that is given to you by the Govt and you should make use of the same.
For a brand new investor, Equities are best invested under the guidance of a expert and hence go through the Mutual Fund route.
RGESS is locked in for 3 years but an investor can switch from one RGESS fund to another RGESS fund after 1 year. But, since Equities work in the Long Term, you are advised to treat RGESS like ELSS and forget your investment for 3 years. No need to churn your funds. Allow the fund to give you the Compounding effect.
Investors could invest either in lump sum or by installments.
CAVEAT : Since most salaried class would have already had their Tax Deduction done with their employers, these investors would have to ask for Tax Refut under Sec 80CCG when they file their returns with the IT. Better check with your employers.
Also, please note, you CAN invest in RGESS scheme even if you do not meet the Eligibility Criteria. But, still the money will be locked in for 3 years. Yes, RGESS is actually open to all investors. But, these investors will NOT get any Tax Benefit. And it is important to note that whether you claim tax benefit or not, your amount is locked for 3 years.
NEW FEATURES IN LATEST BUDGET :
Effective 1 April 2013, investors with a gross total income of up to Rs.12 lakh can invest in RGESS and also now an RGESS investor can invest for 3 successive years.
So, with the new provisions, an investor can now save upto Rs.7500 and also spread out over 3 years.
Under the tweaked RGESS structure, investors can invest R50,000 for three years, effectively availing of a tax deduction of R75,000 from their taxable income at the end of three years. -
So, should you invest?
I believe in the saying “SOMETHING IS BETTER THAN NOTHING” and if you are eligible for RGESS, go for it!
Best of luck.
Srikanth Shankar Matrubai
Also visit http://equityadvise.blogspot.com
Monday, 4 February 2013
Dear Investors,
There are more than 2000 funds in India and selecting the right one is a daunting task even for 'experts' leave alone lay investors.
It is extremely difficult for investors to pick the BEST funds and track them regularly and make the right rebalancing whenever required. Here's where FUND OF FUNDS come to the rescue of the investors.
What is FUND OF FUNDS :
A FUND OF FUNDS is mutual fund which invests in other funds. In other words, it creates a portfolio of funds and provides the investors with a huge diversification by spreading risk across a larger universe.
The question which every mutual fund investor finds difficult to answer (even the experts) is when to 'change' a fund.............here I am not talking about rebalancing a portfolio by increasing/decreasing equity/debt but actual replacement of a fund either due to underperformance/change in strategy of fund/etc.
Mutual Fund investing is not a easy task. You not only have to pick the 'right' fund, but also keep a track of them and should consider exiting a fund if it underperforms and find the right replacement. FUND OF FUNDS eliminates the need for frequent switchings.
PROS :
1. Diversification :
As FOF like the ING Financial Planning Fund invest in more than 1 mutual fund, the investment portfolio is broadened.
2. Investor need not worry about moving from equity to debt or vice versa as the Fund Manager will do the same.
3. FOFs are proven to give superior risk adjusted returns.
4. Convenience :
An investor in fund like ING financial Planning Fund is spared from the bother of tracking the performances of various schemes and also he need not worry about churning his portfolio.
5. FOFs eliminates the cost and hassle of investing, maintaining and tracking multiple mutual fund schemes
CONS :
1. Costs : Since the FOF keeps regularly replacing funds, this involves transaction cost to the fund and thus expense ratio could be high because of this constant churning.
However, SEBI has put a cap on Expense Ratio and costs should be reasonable.
2. Tax Treatment : Even if the FOF is fully invested in Equity, the FOF is treated as Debt funds and thus they are liable for Dividend Distribution Tax and Long Term Capital Gains tax.
One Caveat would be, that in case of a prolonged Bull run, ING FINANCIAL PLANNING FUND would give less return than Pure Equity FUND(they will be having typically more than 95% exposure to equity) as the ING FINANCIAL PLANNING FUND would be forced to sell equities at every rise and would thus lose out on compounding.
Srikanth Matrubai's take : Yes, the cost are on the higher side but you are paying for expertise. Selecting a Good Fund is highly difficult task in the Indian context due to the vast gulf which separates the Best Performing Equity Funds from the really bad ones.
The Monthly re-balancing and inputs received from meeting various fund managers are value addition provided by FOFs like ING Financial Planning Fund which a lay investor would find it difficult to replicate.
WHICH FOF?
Though there are quite a number of Fund of Funds in India, almost all of them invest in their respective Fund House schemes and thus do not give benefit of different style of investment and could be baised.
So, you should consider investing in that Fund of fund which aims to pick the BEST fund from which Fund House it belongs to, without any bais.
There are few funds which do this job namely Kotak FOF, ING Financial Planning Fund among others.
I would prefer ING Financial Planning Fund as the Fund House is highly experienced in this segment and is in this FOF business since more than 7 years now., (2006).
WHY ING FINANCIAL PLANNING FUND ?
ING FINANCIAL PLANNING FUND is a rare Fund of Fund which actually invests in Fund of OTHER Fund Houses. It aims to pick the BEST of Funds from across Different fund Houses and put them together into one.
ING FINANCIAL PLANNING FUND is a asset allocation fund which provides you the opportunity to spread your money among asset classes with one single investment.
ING FINANCIAL PLANNING FUND FOR WHOM??
One reasont to invest in ING Financial Planning Fund is 'simplicity'. You can simply invest in ING Financial Planning Fund instead of bothering which fund to buy, which one to hold, which one to replace as this Fund does all this 'headache' job for you.
Why invest in Fund of Funds?
Compared To Investing In Several Mutual Funds Separately, A Multi Manager
Fund of Funds Brings Unique Advantages
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1. ING FINANCIAL PLANNING FUND are ideally suited for investors who are not looking at actively managing their asset allocation.
2. ING FINANCIAL PLANNING FUND can be considered to newcomers to Mutual FUND as the Fund has Debt exposure which provide cover in case of a bear run.
3. Investors who want to eliminate the cost incurred on research and advise on investment cam also consider investing in ING FINANCIAL PLANNING FUND.
ING FINANCIAL PLANNING FUND ensure automatic asset allocation.
ING FINANCIAL PLANNING FUND too are Diversfied Equtiy FUND with a lesser exposure to Equities!!
Go for it.
ING Financial Planning Fund takes Diversification to a new level. The Fund invests in Diversified Funds across Fund Houses and across themes/sectors and ensures wide diversified portfolio with just 1 single fund!!
Also visit http://equityadvise.blogspot.com
Thursday, 10 January 2013
SEBI has allowed Mutual Funds to have a Separate NAV for investors investing Directly. This Separate NAV will have a lower expense ratio and is expected to benefit for "very long term " investors.
As usual, the "experts" have started advocating of going direct to Mutual Funds bypassing the Advisors.
Was in ICICI AMC office the other day regarding a query.
A walk in customer comes in and asks for "Direct Plan Details".
The clerk at the Reception said "yes sir, Direct is good, NAV is very cheap and you will make huge profit".
Customer : "I want to invest in International Fund, which is the Best"?
The Clerk "sir, ICICI is the BEST in the industry. You can blindly go for the same. Come sir, I will help you fill the application".
I could only laugh at the ignorance of both the clerk and the customer.
ICICI Indo Asia Fund which the clerk was referring to.......is not even in the list of Top International funds according to Valueresearch list and the Fund has been, in fact, listed under EQUITY - LARGE CAP and the clerk had the audacity to recommend this Fund as a International Fund.
Of course, the Clerk obviously will not recommend his rivals fund such as L&T Global Real Assets fund or the DSP BLACKROCK Natural Resources and New Energy Fund.
Expect more of such Non-sense recommendations when you go DIRECT!!
you should avail of the Direct Plan only if you have the expertise to choose the best funds for your portfolio. The difference between the best and worst performing funds in India can be quite large.
Therefore, it would be quite unwise to avoid an advisor just to cut corners on expenses. This could you cost you quite a bit in terms of sacrifice on long-term returns.
After a deluge of statements, scattered investments, and ad-hoc decisions later, investors will realize that going cheap was not worth it.
Wednesday, 2 January 2013
Recently I came across this honest confession from a Expert in Mutual Funds.
Yes, I repeat, this person is a "Expert" and this was what he had to confess........
"""I know it is impossible to time the market.Last year when the sensex was around 20500 I made lumpsum investments in HDFC Equity Fund,HDFC Top 200 Fund,Birla Sunlife Frontline Equity Fund and UTI Opportunities Fund.My returns from these funds are still negative.On the other hand I am getting decent returns from my investments in Kotak Mutual Fund and ICICI Prrudential Fund where I am investing through monthly SIPs for the last three years.The lesson which I have learnt is that long term monthly SIPs even in average funds are much better than lumpsum investments even in the best performing funds."""
SIP is the best route for investment in mutual funds to meet your long term goals.
The greatest advantage is that once you start a SIP you can remain invested for a long time without bothering about the short term ups and downs of the market.
The greatest disadvantage of lump sum investment is that you become a hostage of market timing.While it will be foolish to invest lump sum when the sensex is at around 22000,it makes sense to invest at a level of around 17000.You can always invest some lump sum whenever there is a sharp correction in the market.
All mutual fund investments are subject to market risks.
In the short term you may see a lot of volatility and returns from your investments may even be negative. But if you remain invested for a longer period of more than five years in equity mutual funds, there is a potential of creating wealth.
SIP is the best mode of investment as you don’t have to bother about market timing.In lump sum investments you become a hostage of market timing.Yes, you can do some lump sum investment when you see the market correcting substantially.You can combine both modes of investment.
You can select any tenure for your SIP and you can increase or decrease it as per your requirement.You can also redeem whenever you need money.You have to only see exit load and tax implications.
My take is :
IF YOU HAVE A LUMPSUM AMOUNT TO INVEST., THEN GO FOR A DEBT FUND AND OPT FOR A SYSTEMATIC TRANSFER PLAN. THIS IS THE BEST OPTION.
Regards,
Srikanth Shankar Matrubai
Also visit http://goodinsuranceadvisor.blogspot.in/
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