Investment Information

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.

Do you know how the equity mutual funds perform? How to analyze their performance? You can become an expert investor by yourself. Read this article and you can get more guidance.

Guidelines to measure the performance of Equity Mutual Funds:

First check the profile of the company that has the Asset Management Business. Most of the companies in India like TATA, SBI, HDFC, Axis, Fidelity, Reliance, Templeton and Sundaram etc have good management expertise and they have good expertise team for managing the asset management business. So if these companies launch the schemes, then you can trust them.
Then you should check the profile of the fund manager who takes care of the investments. Some of the companies have group of fund managers who takes joint decisions for investing. But in some companies, they have individual fund managers who take the decision of investing. So you should analyze his past profile, his decision making capabilities, his past record and performance in economic downturns. Once you get good information on the same you can trust them.
You should check the history of the performance of the particular scheme. You should collect the details of the performance in the past 6 months, 1 year, 3 years and 5 years. Then you should compare them with the other similar schemes. You should check whether the schemes have generated returns more consistently than the other schemes. Once you spot the scheme that has generated more consistent returns, then you can invest in that particular scheme.

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.

Master limited partnerships are a form of limited partnership (isn’t it obvious from the name!) which combine themselves with the liquidity of a common share. The structure of an MLP resembles a partnership, but offers investment units like common stock and to be traded on a common platform such as a stock market. Like a limited partnership, the MLP has a general partner and limited partners. The general partner is mostly the sponsor corporation (e.g. Kinder Morgan Inc. owns the general partner of Kinder Morgan Energy Partners LLP) or one of its operating subsidiaries and is responsible for the operations of the company and, in most cases, is liable for partnership debt. The individual unit holders are retail investors, who contribute capital and receive up to 90% of handy cash flow as distributions in a stated year but have no day-to-day management role in the partnership. In the Tax Reform Act of 1986 and the Revenue act of 1986, the current structure of the MLP was defined and eligibility of an enterprise to issue MLP was stated- any business with a durable in flow of money was allowed (dealing with common resources principally)

The driving force behind a company to organize MLPs is tax avoidance. A shareholder in a corporation will have to pay tax at two levels- one at the corporate level and secondly at the individual level (when the dividends are shared). However, in a limited partnership tax has to be paid only once- at the personal level. There is no partnership equivalence of corporate income tax. In an MLP, the tax accountability of the partnership is passed on to the unit holders. The investor would receive annually a notification of his or her shares and profits.

Mostly MLPs have heterogeneous yields and tax avoidance, with mostly companies offering really attractive yields. The shareholders normally have the percentage revenue of 3-4% of general partnership and 7-8% of limited partnership. The tax benefits combine to the value. Cash flow would commonly better that of the taxable income of the partnership, and while doing so the dissimilarity is considered as a capital return for the limited partner. This return is apt to be taxed when sold to the unit share holder. This deferral causes the unit holders to pay an effective tax of less than 10% (and this rate may at times even go down to 0!). However incomes from MLPs are taxable even in retirement accounts like 401K s and IRAs. This causes investors to move away from MLPs when in retirement accounts. This applies equally in case of institutions as well.

In an period earlier the MLP, it was many times needful to create a minimum investment (which many times turned out to be quite a appreciable amount) to take part in a partnership, limiting the potential equity market to entities from the upper-income range. Once a partnership was created were extremely burdensome to withdraw from if an investor wished to strip earlier liquidation. The MLP business structure addressed these issues by breaking partnership interests into smaller, more affordable units that are purchased and sold, equivalent to stocks or mutual fund shares. This attribute greatly enhances the liquidity of the partnership while also opening the door to investors for far less capital.

Kotak Mutual Fund has launched “Kotak Systematic Investment Plans” for the benefit of retail investors and low income persons. By this way you can invest a fixed amount for a certain period of months i.e. 6 months or more.

How to choose the right plans?

As an investor, it is your duty to check if you are investing in the right schemes. The brokers and agents would recommend schemes that would pay them more commissions. But you should ensure that you are getting benefitted the most.

* You should check the returns generated from the schemes in the past 6 months, 1 year, 3 years and 5 years. But please note in mutual funds, the past investments are not guaranteed in future.
* You should enquire on the entry load and exit load applicable for the mutual fund schemes in which you are planning to invest. Most of the schemes do not have entry loads. But if you plan to close your investment within 1 year, then most of the schemes would charge 1% as exit load. If you plan to close the investment after 1 year, then most of the schemes would not impose any charges. You should check these details before investing in any of the schemes.
* You should check the payment options available for investing in the SIP Plans. You can pay the monthly payments either through post dated cheques or you can apply for SIP auto debit facility.

Next Step: Find more details on SIP Plans check list.

Nowadays, while evaluating and selecting the best performing mutual funds, investors look at the fund performance for 6 months to a year down the road. The highest performing mutual funds in 2010 have surprised many investors and investment pundits due to its negative correlation with the recent past.

The following were the highest performing mutual funds in F.Y 2010:-

• Templeton Global Bond advantage

• Oakmark International Fund

• T. Rowe Price Blue Chip Growth Fund

• Dreyfus International Bond

• American Century Global Gold A

Templeton Global Bond advantage

One of the top performers in the bond mutual fund segment in 2010 was the Templeton Global Bond advantage. This fund seeks current income with capital acceptance and growth of income. The fund normally invests at least 80% of net assets in bonds including debt securities of any maturity, such as bonds, notes, bills and debentures. In 2010 it was able to achieve returns of 9.88% with a absolute growth of 81.41%.

Oakmark International Fund

The $6 billion Oakmark International fund reduced their exposure in the emerging markets to about 5 percent and focusing instead in finding promising stocks in troubled economies like Japan and Europe. Emerging-market equity funds returned 19 % to their investors in 2010. They attracted more than $92 billion from investors compared to $180 billion by the bond funds.

T. Rowe Price Blue Chip Growth Fund

T. Rowe Price Blue Chip Growth fund invests 80 percent of its assets in large and mid cap blue-chip growth companies that have the potential for above-average earnings growth, while sometimes seeking out companies that will have good prospects for dividend growth. As of January 05, 2011, the fund has assets totaling to $11.35 billion.

Its portfolio mostly consists of holdings in U.S. large cap companies. As of the end of June, Apple, Google, Amazon and American Express are all listed among the fund’s largest holdings. The fund has owned Google and Goldman Sachs since their respective IPOs. T. Rowe Price Blue Chip Growth fund was able to give a CAGR of 16.4% in 2010.

Dreyfus International Bond

Dreyfus International Bond fund normally invests at least 80% of assets in fixed-income securities. It also invests at least 65% of its assets in non-U.S. dollar denominated fixed-income securities of foreign governments and companies located in various countries, including emerging markets. The fund is allowed to invest up to 25% of its assets in emerging markets. The investment seeks maximize total return through capital appreciation and income. This fund was able to perform very well last year in a downtrend market. The fund gave a return of 7.43% in 2010.

American Century Global Gold A fund (ACGGX)

American Century Global Gold A fund (ACGGX) was able to give a return of 28.43% in the last year. The fund manager Mr. William B. Martin has been managing this fund since 1992. The lion share of its assets is invested in securities issued by gold firms. The fund purchases both domestic and foreign markets, including those issued from developing markets. This fund was set up in order to achieve both current income and capital growth, which it also was able to offer in the turbulent times last year.