Investment Information

MUTUAL FUNDS are basically mutual decisions on part of an investor and a financial intermediary or an agent to invest a pre-decided sum of ‘fund’ or money in a certain way in a particular proportion of debt and equity.

If you don’t want to invest directly in shares but want similar returns without associated risks with direct equity investment, then investing in a mutual fund is a profitable alternative.In simple terms, an invested sum of money is divided into units, each having a Net Asset Value, which increases or decreases based on the performance of the stock market. It’s upto the investor to decide how the units are distributed in shares and debt instruments such as government securities, and even in gold units.

The most important thing to remember while investing in mutual funds is to stay invested for a minimum of three years for returns to materialize. The longer an investor stays invested the more time he gives himself for the market to even out in terms of fluctuations and reach maximum market and share capitalization based on the performance of the local and global economy.

This is why choosing the “right” mutual fund is a critical decision. Generally, the longer a mutual fund has been in the market with evident and consistent results, the better bet it will be for an investor.

The amount to be invested in a mutual fund can be decided on the basis on budget, liquidity, and state of the share market. Further, there are many mutual funds that come with a tax saving advantage as well as insurance benefits. The modern mutual investor is much better off than say ten years back when the mutual fund market was not all that sophisticated.

In 1949 Australian Alfred Jones was credited with the term “hedge fund”. Historically it derives its name from the use of hedging to manage risk while achieving superior returns. Today, a hedge fund is an un-regulated investment vehicle designated for sophisticated, also known as the “Accredited Investor”.

Mutual funds gained popularity in the 1980′s. Prior to this time, the problem of the small investor was in obtaining sufficient knowledge to make informed investment decisions, and so the average person avoided stock market investing. Instead money was held in traditional savings accounts or placed with a bank in a Guaranteed Investment Certificate (“GIC”) or Certificate of Deposit (“CD”).

What to do. The small investor was not able to obtain a professional money manager without $10 million or more to start. But what if he could pool his money with other small investors to reach this minimum threshold. And so the mutual fund was created to address these exact concerns.

The mutual fund concept was simple, allow the un-sophisticated investor access to the strategies of the professional money manager. This was done by pooling small sums of money, as little as $20.00 deposited monthly. In return, the fund company would use professional money managers using professional investment strategies to easily out perform traditional bank savings products.

The mutual fund investor had other problems. Because they did not understand the nature of the investments made for them, government regulators got involved to protect investor rights. And so mutual fund investing became regulated and soon took on a life of its own. Rules were set in place to govern what could be held within a mutual fund and how the investment strategies were marketed to the public. Even what could be invested and what should be avoided.

While much evolution has transpired since the early days of the 80′s. One thing is for certain, mutual fund investing is all about what it cannot do. While this article is not focused on these issues, there are some glaring examples the investor needs to know. In times of market un-certainty, the mutual fund cannot sell and move to cash for safety. The manager must remain fully invested at all times making the investor, in consultation with his Investment Advisor, responsible for proper asset allocation. The mutual fund also cannot employ risk management or hedging techniques because they are deemed too sophisticated for the small investor to understand. So to avoid investor complaints, these important strategies are discouraged by managers and outlawed by regulators.

In the end, all of the benefits started by the mutual fund industry to provide safety of capital have been regulated away from the interests of the small investor. In fact, these are the exact investors which need safety of capital most of all. Many market observers believe the industry has become over regulated and as such, do more harm than good.

To-date, the hedge fund industry has been able in all country jurisdictions to avoid nuisance government meddling. The recent wall street initiated financial melt down has proven that even a self regulated industry is not immune. It seems big company rights take precedence over investor rights. So some regulation may be forth coming. Historically, the hedge fund industry has been able to avoid regulation by offering its products only to the Accredited Investor. There is a strict agreed upon formula based on wealth accumulation. The premise being if you were smart enough to accumulate wealth, then you are smart enough to understand the sophisticated investments being recommended.

Typically hedge fund investors are in direct contrast to mutual fund investors and thus have different needs. The mutual fund investor has modest wealth and little investment knowledge. The hedge fund investor has significant wealth with greater investment understanding. Therefore one is regulated to protect the investor and the other is not.

The above description is not the only difference that separates the two. Hedge funds can employ a complex strategy of investment vehicles known only to the fund manager. Many hedge fund managers are protective of any proprietary trading formula which will provide an edge over their competition and disclosure of their trading style is not required.

Mutual funds are sold through an Investment Advisor who will make comparisons, explain and make recommendations for a balanced portfolio. Hedge fund investing can be more difficult. Firstly, there can be difficulty in locating a list of the availability of funds. There are however helpful data-bases for this. Then you must undertake your own due diligence to ascertain if it is the right asset mix for your overall portfolio.

Thirdly, you’ll need to have an understanding of the different investment strategies. Do you choose a value fund or a growth fund. CTA funds are out performing these days and what about a suitable bond fund. Does my fund employ hedging and should I invest in an off-shore fund to obtain the tax benefits.

There are certainly many things to think about when selecting the proper investment vehicle. Make your selection with intelligence and proper planning. Ask around and be inquisitive. Your level of investment knowledge and the time needed to devote to this topic will dictate which is best for you.

New discoveries and improved technology have enabled exploration and mining companies to extract raw material in greater quantities, with improved efficiency and far greater speed than ever before. The rallying of the prices of crude during the period 2004-2008 has broken ice with many of the reluctant investors. Although some of them are not allowed by law to put in moolah due to their working interest. Also the capital required for high-risk partnerships, purchasing royalty interest and drilling partnerships is so huge that it forms an effective entry barrier.

Due to these circumstances and scenarios of the market, Natural Resource Funds provides an investor with exposure to a large swath of the economy. This is coupled with lesser risk in comparison to direct participation program.

So what exactly is a Natural Resource Fund?

These funds are those investments which are made in the shares of companies engaged in the business of processing, refining, developing and extracting raw material of any kind. The focus is primarily on fossil fuel and energy enterprises, but also includes forestry and timber along with minerals and ores. A few of the alternate sources of energy is also considered. Peripheral industries such as those that provide equipment, technology and related services are included entirely on the discretion of a particular fund manager.

Occasionally this sector also incorporates precious metals. A vast majority of  mutual funds directed towards natural funds tend to put their moolah exclusively in shares, both globally and domestically.

Similar to the real estate funds, these funds also have their own cyclical paths they follow. They generally do not have much correlation with the overall mood and scenario of the market. The major factor which affects the prices of these funds is the discoveries of any new reserves of precious raw material that has been commissioned. The natural resource sector got a shot in the arm by the rise in crude oil prices in the early part of the year 2000 and was also buoyed by the rise in prices of gold and other important metals.

Most financial pundits would agree that the year 2004 ushered in the era of extended high growth period for the energy industry, particularly oil and gas industry. With the economy of the countries of the Pacific Rim and China busting at its seams, this scenario has led to steep rise in the demand for crude oil. Due to this, major oil producers had to shore up their production capacity in order to meet this demand. The timing of this latest surge in the demand came when some of the major oil fields in the traditional oil producer, Saudi Arabia have almost reached their depletion. With the help of historical records, it has been known that the demand for crude doubles every 10 years. Not only this, the pattern shows any sign of ebbing.

Significant improvement has come about in the drilling technology. This has not only reduced the environmental impact of drilling but has also made this endeavor more accurate.

Reliance Mutual Fund is one of the best mutual fund companies in india. “Reliance Equity Opportunities Fund” is one of the best performing mutual fund in India. This fund invests in all the sectors and industries. They invest in companies of all market capitalization. The main aim of the fund is to take advantage of any opportunity that arises in any sector or any industries irrespective of the market capitalization.

Most of the funds (75%) will be invested only in equity and equity related instruments. The balance amount will be invested in Debt Instruments and Money Market Securities.

There are two types of plans available for investing in this Mutual Fund.

Retail Plan
Institutional Plan

Both the plans have dividend option and growth option.

Dividend Option:

If you choose dividend option, then you will receive the dividends when the fund manager declares dividends for the investors. There are two choices for the investors in the dividend option i.e. dividend reinvest and dividend payout. If you choose dividend payout option, then you will receive the dividends. If you choose dividend reinvest option, then additional units will be added to your folio for the dividend amount. The additional units will be bought for the corresponding NAV at which the dividend is declared.

Growth Option:

If you choose growth option, then the dividends will be reinvested in your folio. The units value will be increased accordingly.

Next Step: How to Invest?

You can contact any agent for applying for this fund or you can apply online. The application is available in the leading websites.

Mutual Fund investment has been an investment avenue for the retail investor and has been very popular over the years. However it doesn’t mean that investors have become adept in selecting Funds with ease and accuracy. But the fact is that these investments are not more risky as compared to stocks, and are meant for long term horizon. Selecting a Mutual Fund from the many available in market for your investments is a tedious process. Following are the 10 pointers for investors; which can help in selecting best one.

1. Who is sponsoring the Fund?

An investor must check the sponsor’s (promoter) record in the financial services arena. Apart from a consistent and clean record in financial services, sponsor(s) should have requisite experience and background in managing mutual funds be it in India or overseas.

2. Fund Manager Profile

The fund manager must be experienced, which is best reflected in the returns he has generated on funds previously/currently managed by him.

3. What is Investment Philosophy of Fund?

Every fund manager has his own individual style and investment philosophy. While some managers are aggressive, others are passive. The investor must choose the fund that best reflects and matches his own investment philosophy.

4. Choosing a Fund that meets your objective

Funds are either open-ended or close-ended.

Open-ended funds:

An open-end fund is available for subscription throughout the year. Investors have the flexibility to buy or sell any part of their investment at any time at a price linked to the funds – Net Asset Value (NAV)

Close-ended funds:

A close-end fund begins with a fixed corpus and operates for a fixed duration. The fund is open for subscription only during a specified period. When the period terminates, investors can redeem their units. Close-ended funds may be listed on the stock exchanges to impart liquidity to the investment.

5. The correct fund category

Mutual funds offer different categories. These can be classified as:

Debt funds

They seek to provide a regular source of income by investing in fixed income securities like debentures and bonds.

Equity Funds

They aim to grow money over time (i.e. capital appreciation). Here the investment focus is mainly on stocks/shares. Historically, stocks have outperformed other asset classes like bonds, fixed deposits, gold, real estate over the long term – 10 years.

Balanced funds

The fund attempts to maintain a balance between fixed income securities and equities in a pre-determined ratio like 60:40 equity – debt for instance.

The investor must invest in mutual fund categories, which meet his criteria in terms of need for regular income, capital appreciation, and safety of principal.

6. Fees and charges

Asset management companies (AMC) charge a fee for managing investor monies. In other words, your mutual fund deducts charges and fees from the net asset value (NAV) of the fund. As an investor you must be aware of the fees and charges of the AMC. Two schemes with more or less similar performances would generate different returns if one of the two schemes charges higher fees.

7. The load

An investor may be required to pay a load either at the time of buying the units or at the time of selling the units. Again, the returns of two similar performing schemes may vary depending on the load charged by the scheme to the investor.

8. The tax implications

The investor needs to understand the tax implications before investing in mutual fund schemes. Investments in mutual funds have varying tax implications depending on whether you exit from the fund before or after 12 months from the investment date. Tax-saving funds in particular make attractive investments from a tax perspective as they offer tax relief under Section 88.

9. Investor service and transparency

Services offered by mutual funds vary across funds. Some MFs are more investor friendly than others, and offer information at regular intervals. For instance, some funds disclose the expense ratios, an important criterion for fund selection, once a year, some disclose it once every 3 months, while a few disclose it every month.

10. Evaluating Fund Performance and Track record of Fund

Every fund is benchmarked against an index. The investor must track the fund’s performance against the benchmark index. He must also compare its performance with other funds from the same category. He should also see the fund’s calendar year performances over the years.

Sundaram BNP Paribas Mutual Fund is one of the best investment companies in India. They clearly manage the funds and invest in the companies after doing good research on their potential. They have set up an internal committee that monitors the daily activities and periodical performance.

SIP – Systematic Investment Plans:

Sundaram mutual fund has launched systematic investment plans for the benefit of the retail investors. The SIP Plans have generated more returns for the investors when compared to the other schemes. This is because when you invest in SIP Plans, you will buy the units at a cheaper cost. As you are making payments monthly, you buy units at different prices. This would help you to average the price of the units. Finally you would have bought more shares at less price and less shares at more price. This is called averaging.

You can make the payments by any of the following methods:

Post Dated Cheques
SIP Auto Debit

You can issue post dated cheques for making monthly payments to the company. You can also make the payment by sip auto debit facility. For availing this facility, you have to sign a bank authorization form along with the application form. Once you have submitted the authorization form, the bank will send your payments every month to the company.

Top Performing SIP:

One of the top performing SIP Plans in sundaram mutual fund is “Sundaram BNP Paribas Select Mid Cap Fund”. This fund in SIP Plan has generated returns around 35% since the inception of this scheme.

What is the Next Step? Start Investing!!

That’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 (SIP) 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.

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.

How an SIP helps…
As mentioned earlier, the most important role of an SIP is to lower the average purchase cost of an investment over the long-term. This is possible when equity markets experience a turbulent phase. Since the investment amount for each SIP installment is fixed, the investor gains by receiving a higher number of mutual fund units. An example will clarify this better. Suppose the monthly SIP is for Rs 1,000 and the fund’s net asset value (NAV) is Rs 50; this will lead to 20 units being credited to the investor. However, in the next month on account of the volatile markets, the fund’s NAV falls to Rs 40. This will lower the average purchase cost; as a result, the investor will have 25 units credited to his account. This is how an SIP can help investors benefit from volatility in equity markets.

Lack of disciplined investing is one of the major reasons for investors not achieving their financial goals. For example, often monies that are kept aside for investments end up getting used for other purposes. As a result, the investor is even further divorced from his goals. An SIP ensures that the investor stays the course by investing in a disciplined manner.

An often heard excuse for not investing is lack of monies. SIP takes care of this problem by lowering the minimum investment amount. For example, the minimum investment amount for a lump sum investment in a diversified equity fund could typically be Rs 5,000; conversely for an SIP, it can be as low as Rs 500. As a result, investing via the SIP route is lighter on the wallet..

Timing the market is a popular pastime with several investors. Investors have an inexplicable urge for timing markets and aim at getting invested when markets have bottomed out. It’s a different matter that timing markets to perfection and doing so consistently is beyond most investors. SIPs make market timing irrelevant.

Having discussed the benefits of SIP investing, now let’s consider the situations when an SIP won’t deliver…

1. In rising markets
An SIP may not be able to lower the average purchase cost if equity markets rise in a secular manner. In such a scenario, the average purchase cost could actually rise. So in a market rally, SIPs could prove to be more expensive vis-a-vis a lump sum investment.

2. A directionless SIP
A directionless SIP is one that does not form part of an investment plan; in other words, it’s an aimless SIP. The SIP is not an ‘end’; instead, it is the ‘means’ to achieve an end. Hence an SIP in isolation does not make ‘financial’ sense. Instead, the SIP should form part of an investment plan aimed at achieving a predetermined objective (like providing for a child’s education or buying a house).

3. An SIP in a poorly managed fund
Investing via an SIP doesn’t improve the prospects of a poorly managed fund. Such a fund stays the same, irrespective of the investment mode. Its shortcomings will not be eliminated by an SIP. Hence the key lies in first selecting a well-managed fund that is right for the investor and then investing in it via an SIP.

As can be seen, the SIP mode of investing has a fair number of advantages to offer; conversely, there can be instances when it may not deliver as expected. Investors on their part should make well-informed investment decisions after acquainting themselves of both the pros and cons.

This fund was launched by SBI Mutual Fund to give the investors an opportunity to invest their funds in long term growth schemes. The fund managers invest the funds in a basket of diversified equity stocks. These stocks of the companies have an market capitalization, which would be equal to or more than the market capitialization of the companies listed in the BSE 100.

NAV:

It is called as “Net Asset Value” of the mutual fund. The NAV of one unit, when the fund was launched would be Rs 10. Then based on the performance of the mutual fund, the NAV will increase or decrease. You can see the updated NAV of the fund every day after the market closes.

There are two options available for investing in SBI blue chip fund.

Dividend
Growth

Dividend:

If the investors choose “Dividend” option while investing their funds, then they get their dividends declared by the fund managers. A cheque will be sent in the name of the investor and also an updated statement for the same. Once the dividend is declared then the Net asset Value of the fund will go down. There are two choices for the investors who choose dividend option i.e. Dividend reinvest and Dividend payout. If the investor chooses for dividend payout option when he applies for the fund, then he will get the dividend when it is declared. If he chooses for “Dividend Reinvest”, then additional units will be bought in his portfolio.

Growth:

If the investors choose “Growth” option, then the dividends will be reinvested in his folio. The NAV of one unit will increase accordingly.

The latest NAV of SBI Blue chip fund – Dividend option as on 25th June, 2010 is Rs 12.32 and for the growth option is Rs 14.14. You can check the updated NAV of the SBI mutual fund online.

Of the many investment products out there, the MLP Mutual Fund has attracted a lot of interest with its recent introduction. Here is a brief review of its operations.

Master Limited Partnership (MLP) is a type of limited partnership that is publicly traded. There are two types of partners in this type of partnership.

• Limited Partner

• General Partner

The limited partner is the person or group that provides the capital to the MLP and receives periodic income distributions from the cash flow of MLP, whereas the general partner is the party responsible for managing the affairs of MLP and receives compensation that is linked to the performance of the venture.

If we look back at the history of MLP mutual fund, it can be observed that it is indeed a brief one. On May 12th 2010, SteelPath, a Dallas-based investment advisory firm, announced the launch of the SteelPath MLP Funds, the very first mutual fund family to provide access to the Master Limited Partnership asset class.

The SteelPath fund consists of portfolio managers and investment team with a six year track record at Alerian, the leading MLP indexing company. SteelPath uses research techniques like fundamental analysis in this emerging asset class, incorporating its bottoms-up, private-equity investment process with a risk management philosophy designed to protect capital and mitigate portfolio volatility. The mutual fund platform of firm seeks to provide high levels of current income along with portfolio diversification, protection against inflation and a low correlation to other asset classes.

SteelPath has introduced three new funds which are as follows:

MLP Income Fund – This fund provides a high level of current income with an inflation adjusted protection tool, a higher distribution yield compared to equity alternatives such as REITs (Real Estate Investment Trust) and Utilities. This feature makes the fund the lead performer amongst the three.

MLP Select 40 Fund – Consisting of 40 energy infrastructure MLPs, this fund seeks to outperform the broader equity markets. Select 40 fund portfolio provides diversification and risk elimination.

MLP Alpha Fund - The Alpha fund is a concentrated portfolio of 20 energy infrastructure MLPs that utilizes a securities selection procedure designed to unveil those MLPs with the best risk-adjusted opportunities for superior distribution growth and price performance.

These funds focus on energy infrastructure MLPs. This asset class is composed of companies that control and operate the physical assets that transport crude oil, natural gas and refined petroleum products, such as pipelines, as well as the associated storage facilities. These companies have long-term contracts with nominal exposure to commodity prices, therefore reducing volatility in income.

The SteelPath MLP mutual fund family offers options that have been designed to meet alternating investor needs while concentrating on a long-term investment tenure, diversified exposure and prudent risk management. All three funds have a Class A share asset class which can be procured by a minimum investment of $3000 by individuals, while the institutional class shares have been explicitly created to provide a cost efficient option for institutional investors from pension funds to insurance companies.

Special risk considerations are taken into account in case of these funds which are very similar to those associated with the direct ownership of energy infrastructure assets due to its policy of concentration in the securities of Master Limited Partnerships.

Axis Mutual Fund has launched a lot of Mutual Fund schemes and some of the schemes are performing well in 2010. Axis Bank was formerly called as “UTI Bank” and the management is well efficient to launch successful schemes.

Axis Mutual funds suggests the fund schemes as solutions for your needs. For example, if you need to invest your extra savings in a fund, then you can go for “Axis Liquid Fund” or “Axis Treasury Advantage Fund”.

If you want to find more income or additional income, then you can go for “Axis Short term fund”. There are such solutions provided by Axis mutual fund for your needs.

How to find the best schemes?

Here are some guidelines which you should follow to find the best schemes.

* You should check the profile of the company before investing. You should check the profile of the management team and its efficiency.
* Then you should get the details of the fund manager and his efficiency. His past performance and consistency in delivering success is the key factor in measuring the efficiency. His ability to take decisions in difficult situations is also an important factor.
* Once you have spotted a particular scheme, then you should analyze the past performance of scheme and the dividends declared by the fund manager for the same. For some of the schemes, the growth options perform well as the funds are reinvested back into the schemes.

Next Step: Find the best Axis fund schemes and start investing in it.