Best Equity : Multi Cap Funds for 2011.

Nowadays everyone wants to invest in Mutual Funds in India. In this post, I have complied some of the Mutual Funds which are Top MFs under Equity: Multi Cap category. These are long-term MFs winner in their category and given a best performance over the years by beating their benchmark and category average with good margin. These funds would not give you a benefit of tax-saving and they have diversified their portfolio in different caps. These are those funds which have 4 or more than 4 fund rating by Value Research Online and have toped the chart on 5 year returns basis.

List of best Equity : Multi Cap MFs.

This list is best suited to those investors which are looking for a long-term investment  with good returns and are ready to take risk. Please note that, I am talking here about Growth option not dividend option.

Reliance Regular Saving Fund- Equity

• 5.5 year old fund with returns since launch 20.49% with bad market crash in 2008.
• 23.42% strong 5 years returns beating its benchmark by 10.64% and category average by 10.06%.
• 48.59% in Mid and Small caps with 40% assets in Top 3 sectors. (Risky, but have shown high potential for returns)

HDFC Equity

• 16 year old fund with 22.49% returns since launch.
• 18.80% returns in 5 year time frame beating its benchmark by 5.94% and category average by 5.44%.
• 69% in Giant and Large cap and 28.08% in Mid and Small caps with 55.39% assets in Top 3 sectors.
• Less risky fund compare to Reliance Regular Saving Equity.

HDFC Growth

• 10.5 year old fund with 22.37%  returns since launch.
• 18.61% returns in 5 year time frame beating benchmark by 5.83% and Category average by 5.25%.
• 64.67% portfolio in Giant and Large and 33.68% in Mid and Small cap companies with 47% assets in Top 3 sectors.
• Well diversified portfolio and less risky than Reliance Regular Saving Equity.

ICICI Prudential Dynamic

• 8 year old fund with 35.54% mind boggling returns since launch. 
• 18.46% returns in 5 year time frame beating benchmark by 5.6% and category average 5.1%.
• 77.42% portfolio in Giant and Large cap and 19.32% in Mid and Small cap with 41.86% assets in Top 3 sectors.
• Has strict with its investment objective and less risky with high potential for growth.

UTI Dividend Yield

• 15.5 year old fund with 21.25% returns since launch.
• 17.98% returns in 5 year time frame beating its benchmark by 5.25% and category average by 4.62%.
• 71.65% in Giant and Large cap with 51.11% assets in Top 3 sectors. 
• Good for those who are looking for decent returns with good downside protection.

Templeton India Growth

• 14.5 year old fund with 19.305 returns since launch.
• 17.32% returns in last 5 year time frame beating its benchamrk by 4.54% and category average by 3.96%.
• 54.84% in Giant and Large cap and 45.17% in Mid and Small cap with 55.37% assets in Top 3 sectors.
• Fund has a value based investment style, mainly for those investors who are ready to take higher risk.

Above is the list of funds under Equity:Multi cap category. These funds are pure equity funds and have a good performance track record in the past and as per their investment style we can hope that they will perform well in future also. We can expect around 15-16% returns in future even if these funds has a potential for better performance.

Note : This blog is not for recommendation purpose, hence, must not be treated as an encouragement to invest in above listed funds. The decision of investment in any above listed funds solely lies with the reader/investor.

Source : ValueResearchOnline and Mutualfundsindia.

Special thanks to my friend who helped me in writing this blog. Thanks Rahul Sharma. 

Selecting a Equity Fund or Diversified Equity Fund

When we think about investments in Mutual funds, then the first question always comes in mind is which fund to invest in. There are lots of choices available for investor but not all the options can be considered. There are more than 40 Asset Management Companies (AMCs) currently in Indian Mutual Fund Industry at present and several schemes are offered by these companies. It will be challenge for investors, when it comes to identify a mutual fund scheme which best suits to their portfolio out of large universe of schemes. Good news for the investor is that most of the scheme doesn’t make to good rating but still the main challenge lies in identifying from those few schemes which make to good rating.

Investment in mutual funds always comes with evaluating your own investment objective with good investment decisions, in which investor always get confused. Their confusion always get enhanced by misrepresentation of mutual fund agent as they are hungry for their own commission. Because of all these unfavourable things, it’s necessary for an investor to have a set of objective parameters because these parameters always serve as a benchmark for investor for selecting mutual fund for their portfolio or for evaluating respective mutual funds.  Here, I am providing you four steps for selecting a right diversify fund:-

1.    Compare the fund against its own performance.

First and foremost it’s important to compare fund with its own historical performance. All funds don’t show stability in retaining their performance every year on. By evaluating funds against its own historical performance investor is just ensuring that he/she is choosing the fund with most consistent performance record for their portfolio. This is important because all mutual funds are not able to sustain their good decisions year after year going from one market cycle to another and then slip up. So, it’s necessary for investor to filter effectively, the inconsistent performers and keep them away from their portfolio as they can affect their future objectives.

2.    Comparison of return across funds within same category.

Benchmarking involves comparing funds within a same category. For example, you are evaluation DSPBR Top 100 equity which comes under large cap diversified equity fund for investment. So, you need to compare this fund returns with other large cap diversified equity funds. Comparing it with multi cap HDFC equity fund for example will deliver wrong results because their risk-return relationships between these two funds are not comparable.

As we all know that equity deliver best returns over a time period of 3 to 5 years, so investor should mind this that they need to make investment in diversified equity funds with long term perspective. Hence, the investor should consider longer time period while comparing returns before taking a decision about investing in a fund. Comparing a fund for such a long period will give investor a good idea about how fund have performed in a stock market cycle.

3.    Comparison of returns against their benchmark index.

AMFI regulations demand that every fund should mention its benchmark index in their offer documents. It serves double purpose as being a guiding post for fund manager and investor both. Every investor must keep an eye on a benchmark index and how that fund has performed against it. Again the investor should consider the performance of the equity fund over a longer term, while comparing it. However most of the equity funds have outperformed their benchmark indices for a long time period say 3 to 5 years. However during bad market condition like the one in oct-nov 2008, investor will see that most equity funds was struggling for returns equal to their benchmark indices. The funds that can outperform their benchmark indices during bad market or volatile market conditions should be marked.


4.    Risk-related parameters.

NAV returns are important for investor but investor should not ignore the risk taken by the fund for achieving those returns. All mutual funds are market linked so they are associated directly with stock market related risk. There are 2 things which investor should take into account i.e volatility of the fund which is indicated with the help of Standard Deviation and risk adjusted returns which are calculated with Sharpe Ratio.

Standard deviation shows the degree of risk fund has taken and Sharpe Ratio indicated the return generated by the fund per unit of risk taken. Standard deviation of the fund should always be lower than the other funds in the same category, whereas Sharpe Ratio of the fund should be higher than other funds. Best funds are those funds which have lowest Standard Deviation and highest Sharpe Ratio within same category of funds. Here also, Investor should evaluate the Standard Deviation and Sharpe Ratio of the fund on a historical basis for identifying the most consistent fund in that category.

Should you invest in IDFC Infrastructure Bonds under Second Tranche?

As you all know that investment in infrastructure bonds are also eligible for additional tax exemption upto Rs. 20000 under section 80CCF. This is second tranche from IDFC ltd and there are a lot of investors who are considering these bonds again as an option to save additional tax this year.  I will brief you about IDFC infrastructure bonds in this article. 

About issue??

The company is planning to raise around 3400 crore for the financial year 2010-2011. These bonds come with the maturity of 10 years and lock-in period of 5years. These bonds will be listed in BSE and NSE. After 5 years you can keep them for additional 5 years and withdraw money at any time just by returning them to company or by selling in a secondary market. This time company issuing 2 different series:  series1 do not provide cumulative interest but have an option of buy-back. Company will pay interest annually at rate 8% p.a. Series 2 will provide you cumulative interest rate with buy-back option. Company will provide 8% interest rate compounded annually.

About taxation??

These bonds will get tax exemption under section 80CCF upto Rs. 20000. However interest earned on these bonds will be taxable for an investor.

About Real Return??

The interest rate under these bonds are 8% but still the actual return works out to be much more than that once you add on the tax deduction factor in it.  For example: - Suppose you fall under tax bracket of 30.9% and you invested 20000 in these bonds. This means your tax for this year will goes lower by 6180, and you earn a 1600 interest after one year. So, effectively your return after 5 year will be nearly 11% to 12% in case of annually interest payment.

	Series 1	Series 2
Face Value per Bonds	5000	5000
Frequency of Interest Payment	Annually	Cumulative
Interest Rate	8% p.a	N.A
Buyback Option	Yes	Yes
Buyback Date	Date falling 5 years & 1 Day from the Deemed Date of Allotment	Date falling 5 years & 1 Day from the Deemed Date of Allotment
Maturity Date	10 years from the Deemed Date of allotment	10 years from the Deemed Date of allotment
Buyback Amount	5000 per bond	7350 per bond
Maturity Amount	5000 per bond	10800 per bond
Yield on Maturity /Buyback	8%	8% compounded annually

Other features of IDFC Infrastructure bonds.

• The bonds don't attract any TDS.  
• These bonds have got rating of LAAA by rating agency ICRA and AAA (ind) by FITCH indicating a stable outlook. 
• The interest accrued on the Bonds will be credited to the respective bank registered with the dematerialized account through electronic clearing service (“ECS”) on the due date for interest payments.
• Investors can mortgage or pledge or hypothecate or mark lien over these bonds to avail loans only after the lock-in period.
• Investment in the Bonds can be made in dematerialized and physical forms.
• An investor would need to provide his or her PAN card to invest in these Bonds. 
• The Bonds will be issued only to resident Indian individuals (major) and HUFs.
• An applicant may subscribe to both options but the minimum application under each option shall be one Bond i.e., Rs. 5,000.   
• Interest on the Bonds shall be payable on annual or cumulative basis depending on the series selected by the Bondholder.
• Issue closing date is February 04, 2011

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You can subscribe in these bonds through physical form also by just following these steps:-

• Don’t fill up the dematerialized details in the application form
• Compulsorily provide the following three documents with the application form:
• Self-attested copy of the PAN card;
• Self-attested copy of a cancelled cheque of the bank account to which the amounts pertaining to payment of refunds, interest and redemption, as applicable, should be credited.
• Self-attested copy of the proof of residence. Any of the following documents shall be considered as a verifiable proof of residence:
• Ration card issued by the Government of India; or
• Valid driving license issued by any transport authority of the Republic of India; or
• Electricity bill (not older than 3 months); or
• Landline telephone bill (not older than 3 months); or
• Valid passport issued by the Government of India; or
• Voter’s Identity Card issued by the Government of India; or
• Passbook or latest bank statement issued by a bank operating in India; or
• Leave and license agreement or agreement for sale or rent agreement or flat maintenance bill; or
• Letter from a recognized public authority or public servant verifying the identity and residence of the Applicant.

It is stated in the prospectus of these bonds that they provide interest rate of 8% which would further reduce if we consider tax on interest earned. But if you have different outlook then the money you save through tax-exemption at the time of investment in these bonds then your over all return will going to be around 11% to 12% in case of 30.9% tax bracket. Now, decision is yours whether to invest or not.

Investment Alternatives Avaliable for Investors... (Long-Term Investments)

Today I will explain long-term investment option out of which some will provide you benefits of tax saving also. 

Post Office savings- These are popular saving scheme as it have low risk with no tax deduction at source and yields high return than Bank FDs. Its monthly income plan will suits you if you are a retired person or you need a regular income every month. Post Office offers various schemes that include National Savings Certificates, National Savings Schemes, Kisan Vikas Patra, Monthly Income Scheme, Time Deposite, Senior Citizen Scheme and Recurring Deposit Scheme.

Public Provident Fund- PPF is one of the best Fixed income investment schemes for small investors because of: - The minimum amount to be deposited in this account is Rs 500 per year and maximum amount is Rs 70,000 per year. This amount get tax rebate under section 80c. PPF account provides investor an option of loan against its PPF account. And yields an interest of 8% p.a... The real good thing is the interest income is fully tax exempt. PPF account can be opened either in Post Office or in a Bank

It has a big negative point i.e lack of liquidity. So, if you are willing to live with poor liquidity, you should invest as much as you can in this scheme before looking for other fixed income investment options.

Company Fixed Deposits- Companies FDs are the best option to maximize returns within a fixed income investment. These are basically an investment instrument which is used by companies to borrow from small investors. FDs are open throughout the year. You should invest in FDs only if you have surplus funds for more than 12 months and select your investment period carefully as most FDs are not encashable prior to their maturity. These are risk embedded as its not important for non-financial companies to get a credit rating. So, you should consciously select the companies in which you like to invest your money. It yield better return than PPF but it is also have high risk association.

Bonds and Debentures- It is the other fixed income instrument issued by companies. It yield better return than companies fixed deposits. Due to an illiquid secondary market and a lack-lustre primary market, investment in these instruments is largely skewed towards issues from financial institutions.

Mutual Funds- Under this investment option investor’s pool their money to buy equity shares, bonds or any other fixed income instruments. It gives you a benefit of professional management of your funds, you can easily diversify your portfolio and lower your risk and increase your returns. There are number of option available to investor’s for investment like pure equity schemes, pure debt scheme and balance scheme. Investor can choose a fund which matches his/her objective. For example: someone want to invest for 5-7 years but do not have the high risk appetite so he/she can go with that fund which provide him good return at some lower risk. Some mutual funds also provide tax rebate under section 80c.

Life Insurance- I would like call it as risk cover instrument instead of investment alternative. People see life insurance as an investment option which is not a right thing. It is basically a risk cover and serves as a financial buffer in the wake of any un-favourable and un-foreseen circumstances. It ensures your near ones are not left in financial doldrums due to any emergency. Life insurance is classified as: Risk/ loss Mitigation and wealth creation option. Risk/ Loss Mitigation include- term insurance and whole life insurance. Wealth creations include- endowment assurance, ULIPs and pension plans. Life insurance yield less returns but provide protection from un-favourable conditions.

Equity Shares- Equity shares yields maximum returns over long-term and gives the shareholder an ownership stake in company. If you have time period of at least 5 years and you are ready for risk then invest in equity shares as it yield you maximum returns. You can invest in equity from secondary market as well as primary market. Equity shares are classified as blue chip shares, Growth shares, income shares, cyclical shares and speculative shares.

Preferred shares are type of shares which has properties of equity and debt instruments both and generally, termed as hybrid instruments. Preferred shares are senior to equity shares but are subordinate to debt/ bonds. These are usually carries no voting rights but carry a dividend and have priority over common shares in the payment of dividends and upon liquidation. These shares may have a feature of conversion in common shares. Preferred shares are also rated like bonds by major credit rating companies, there rating is generally lower then bonds as they do not carry guarantee as bonds carry for interest payments and they are usually junior to all the creditors. Preferred shares are classified as : - Prior Preferred shares, Preference Preferred shares, Convertible Preferred Shares, Cumulative Preferred Share, Exchangeable Preferred Shares, Participating Preferred Shares, Perpetual Preferred Shares, Putable Preferred Shares, Monthly Income Preferred Shares and Non-Cumulative Preferred Shares.

 

Real Estate- For most of the investor the most important asset in their portfolio is their residential house. It yields a highest return sometimes at shortest period and sometime takes the long period. It is an illiquid asset. Affluent investors are mostly interested in these types of investments like Agricultural land, semi-urban land and commercial property. Before going for this investment avenue please read this article.

Continue......

Investment Alternatives Available for Investors

This blog is related with the investment alternatives present in market for investors. As we all know there are numerous investment avenues from which an investor can make a choice but very few knows that there choice should be based on their objective, risk appetite, time horizon and how much return they are expecting. As we all know, different investment alternatives have different risk and return trade off. So, it depends upon an investor how he/she perceive and think about his/her investments. There are number of investment alternatives available for investors which are divided under three heads:- Short-term investments, Long- term investments and other type investment. 

Short-term investments include: Saving bank account, Money-market Instruments (Money-Market funds, treasury bills, commercial papers and certificates of deposits), bank fixed deposits.

Long-term investments include: Post Office savings, Public Provident Fund, Company fixed deposits, Bonds and debentures, Mutual Funds, Life Insurance Policies, Equity shares, Real estate.

Other Investments include: Commodity Market, Forward Market, Future Market, Option Market and currency market.

Today I will explain only short-term investment options and other two options later on in my future write- ups.

Saving Bank Account- It is a short term investment option and usually the first banking product which people use. It offers a low interest rate of 3.5%p.a but its better option than safe deposits lockers. It provides best option if you are looking for protecting your money. Best example check out your own bank account.

Bank Fixed Deposits- Bank Fixed deposits are best options for those investors which have low risk appetite. This investment product is normally available with every bank with minimum investment period of 30days. The best investment period for Bank FDs is 6 to 12 months as interest rate in less than 6 month period is likely to be lower than money-market instruments returns. It is very important for an investor in this investment instrument to plan your investment period because early withdrawal of money carries a penalty.

Money-Market Instruments- Money-Market instruments are those instruments which have a maturity of less than one year at the time of issue. Money-Market instruments are Money-Market funds, treasury bills, commercial papers and certificates of deposits. Money- Market instruments primary objective is to protect your money and then aimed at maximizing returns. Money market instruments usually yield lower return than bank fixed deposits.

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• Money-Market funds are also known as liquid funds. It results better return and better liquidity than saving bank account. Money- Market funds primary objective is to protect your money and then aimed at maximizing returns. Money market funds usually yield lower return than bank fixed deposits. With the flexibility to issue cheques from a money market fund account now available.

• Treasury bills- These are short-term obligations issued by the government. At present, the Government of India (GOI) issues 4 types of T-Bills i.e., 14 day, 91 day, 182 day and 364 day. The T-Bills are issued for a minimum amount of Rs. 25,000/- and in multiples of Rs. 25,000/-. T-Bills are issued at a discount and redeemed at par. 

• Commerical Paper- These are short-term unsecured promissory notes issued by a company to raise short-term cash. They mature in no more than 270 days. Only the largest and creditworthy companies issue these commercial papers. CPs as a source of short-term finance is used by companies as an alternative to bank finance for working capital. Generally, companies prefer to raise funds through this route when the interest rate on working capital charged by banks is higher than the rate at which funds can be raised through CP.

• Certificates of Deposits- These are bank-issued time deposit that specifies an interest rate and maturity date, and is negotiable (saleable on a secondary market). CDs are issued at a discount to face value. The discount rate is freely determined by the issuing bank considering the prevailing call money rates, treasury bills rate, maturity of the CD and its relation with the customer, etc. The minimum size for the issue of CDs is Rs. 5 lakh (face value) and thereafter in multiples of Rs. 1 lakh. 

Will update you all on long-term investment and other type of investment alternative in next blog. I hope next time you’ll think twice before investing for short-term investment.