Beruflich Dokumente
Kultur Dokumente
05Dec2012
As promised last month, we have published a list of mutual fund schemes that are most
investment worthy in the market today. We are calling this the FundsIndia Select Funds,
and it is available in this page:
http://www.fundsindia.com/select-funds
There is a debt
fund to suit
every time frame
Vidya Bala
Here, you will find schemes across the board equity funds for multiple purposes, ELSS
funds, hybrid funds and debt fund based on your investment time frame. We hope that this
list will serve as a ready reckoner for you when choosing funds, and will also serve as a handy reference for giving
out to your friends who are wondering where to invest.
Along with this, we have also launched a page that presents similar information from a portfolio perspective. We
are calling these the FundsIndia Smart Portfolios, and they are available at:
http://www.fundsindia.com/portfolios
Please take a look at both these pages and let us know your feedback.
Along with these, we have also launched our new look blog site which is much more easier to read through and
navigate than previously. For example, you can get access to all our weekly fund recommendations with just one
click. Check it out at:
http://www.fundsindia.com/blog
There are a few other new features that are under development as well, and I hope to be able to talk bout them
next month in this space.
In the meanwhile, the markets have picked up smartly following steady FII inflows that in turn, followed the reform momentum that the central government appears (as of now) to be capable of sustaining. As our own Vidya Bala noted, December has historically been a kind month for the markets.
So, lets hope for the best!
Happy Investing!
NEW at FundsIndia!
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Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
Volume 4, Issue 12
Page 2
Continued on page 4 . . .
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
Volume 4, Issue 12
Page 3
Mr.B.Krishna Kumar also hosts a weekly webinar that discusses the market
outlook for the following week.
You can register for the webinar by clicking here:
https://www4.gotomeeting.com/register/927617871
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
Volume 4, Issue 12
Page 4
It is noteworthy that a fund that calls itself short term or is classified as short-term by rating agencies may actually be a medium-term fund. Hence, you
will do well to look at the fund investment strategy in its Scheme Information Document (SID) as well as look at the exit load structure.
A slightly longer exit load period may suggest that the fund is not really short term in nature. For instance, the names of HDFC Short Term Plan or
Templeton India Short Term Income Plan may suggest they are short term in nature. But in reality, these are income funds that have an exit load for
redemptions made within 9 months.
Income funds and dynamic bond funds
These funds invest in a wide range of instruments including corporate and government bonds, debentures, certificates of deposits as well as commercial paper and money market instruments. These are mostly go-anywhere funds as far as their portfolio maturity is concerned. Most of them tend to be
dynamic in terms of their maturity profile, often pegging it to the interest rate cycle.
They tend to load themselves up with long-term instruments such as gilt when the interest rate is expected to slide and go short in a rising interest rate
scenario. The appreciation in your NAV comes from both income accrual (interest arising from the instruments) as well as any price rally coming from
a falling interest rate.
These funds may also take credit risks. While they seek to hold a good proportion in high credit-rated instruments, they may, at times, bet on slightly
lower rated instruments, hoping to see a re-rating.
All these features enhance the risk of their portfolio. Such risk arises from interest rate as well as credit quality. That means you will have to hold a
longer term view to take exposure to these funds. Funds typically recommend not less than an 18-month horizon to hold these funds.But when the
interest rate cycle is unidirectional for a long while (as was the case for a good year and a half till the beginning of 2012), then the holding in these funds
would have to be longer.
Income or dynamic bond funds are also good additions to a long-term portfolio. In such a case, SIPs will help reduce risk of timing in these funds.
Floating rate funds
These can be short or long-term funds that invest in floating rate instruments. That means the interest rates of the underlying instruments fluctuate.
While some of these funds are suitable for a holding of 6-12 months, others require a longer holding. You will have to read the fund document carefully
to know whether these funds will fit your time frame.
Gilt funds
As the name suggests, these funds invest a high proportion of their assets in government securities, often long term in nature. While these funds are
sovereign-backed and therefore safe in term of credit quality, the longer maturity makes this class of funds most vulnerable to interest rate cycles.
Quick capital appreciation from a falling rate scenario or short-term losses in case of sharp rise in rates means that timing plays a major role in these
funds. While they can be good long-term instruments, their volatility makes them less suitable for retail investors, who look for debt funds to hedge
their portfolio. HNIs and institutional players may take on these risks better.
Other categories of debt include capital protection schemes and fixed maturity plans. But since these funds either have a lock in or a fixed maturity, we
are not discussing them in the context of debt funds fitting various time frames.
Another category of debt fund that is often misunderstood is the monthly income plan
(MIP). These funds are hybrid in nature and have as much as 20-25 per cent of assets
in equities. As a result, they can witness capital loss in prolonged bear markets.
Hence, these funds have to be held for the long term like equities.
Time frame alone not enough
When you invest in debt funds, your choice of fund should be primarily based on your
time frame. But that is not enough. As discussed, some fund categories, such as dynamic bonds, or MIPs carry higher risks. If you have a long-term time frame but are
totally risk averse, then you will have to settle for short-term funds. Of Course, that
means a possibility of capping your returns as well.
Vidya Bala is the Head of Mutual Fund Research at FundsIndia. A chartered Accountant by training, she was earlier with the Hindu Business Lines research bureau, tracking mutual funds, stock markets and sectors for eight years. She will write for our monthly newsletter on topics including mutual fund, personal finance
and equity markets. Vidya Bala can be reached at vidyabala@fundsindia.com
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
Volume 4, Issue 12
Page 5
Mr.S.Sridharan is the Head of Financial Planning with FundsIndia. You can reach Mr.Sridharan at sridharan@fundsindia.com
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
Volume 4, Issue 12
Page 6
Now that theres a small wind of optimism blowing through the equity markets, its time for many mutual fund investors to
take a fresh look at their portfolios and see if its distribution among different kinds of funds is the optimum one going forward. For seasoned investor at least, one vexing question always has been the exact role that funds that focus on mid-cap
and smaller companies should play in their investment strategy.
Depending on their personal investing experience, that is, when they were invested in mid and small cap funds and when
they were not, investors are divided between two sharply opposed opinions on such funds. There are those who think that mid and small cap funds are
great for getting ahead of the markets more popular large-cap end; and there are those who think that investing at the smaller end is an invitation to
disaster.
Both views are correct, after their own fashion. Since 2003, when last decades great bull run properly got going, mid-caps have repeatedly run ahead of
large caps and then fell back sharply. An exact comparison of the progress of the BSE Sensex and the BSE Midcap tells the story rather nicely. At the
beginning of April 2003, the Sensex was 3081 and the Midcap Index was 900. To make the comparison simpler, lets equalise this point to 3081 on
both. In May 2006, after three years, the Sensex hit a peak of 12,612. At that time, the Midcap index was already at an equivalent level of 20,671 having
run ahead of the large-cap index by an amazing 64 per cent.
For investors who had discovered the joy and excitement of investing in smaller companies, the next month was a pretty hard landing. The Sensex fell
almost 30 per cent but the Midcap index fell 40 per cent. However, the markets turned and the journey back started once more with the same pattern
as earlier. In January 2008, when the Sensex peaked at close to 21,000, the Midcap index was at an equivalent level of 33,600. Predictably, the landing
was even harder. By the end of March 2009, the Sensex was at 10,000 the Midcap index was just below that level having given up all the margin (79 per
cent at its peak) by which it had overtaken the large-cap bellwether.
In the years since, even though the magnitude of the bull-runs wild ride has not been matched, the pattern remains the same. However, the moral of
the story is not to avoid mid- and small-cap investing, but instead, to do it in a way that this pattern can be exploited to yield higher returns. And first
step in doing so is to appreciate the fact that the variance in mid-cap stock performance is so high that it offers the better fund managers a wide scope
for beating the markets. Moreover, the underlying volatility, when it appears in a well-run fund, actually serves to enhance returns from SIP investments.
Here are some fascinating numbers that demonstrate this. In the period since March 2009 low mentioned above, an SIP in a Sensex or a Nifty tracking
fund would have yielded a rather pedestrian return of a little over 5 per cent. Over this same period, the median mid and small cap fund in Value Researchs database has yielded a return of 14.8 per cent p.a. Thats just the median fund and Im quoting its numbers first to show that thats what a middle-of-the-road mid-cap fund did. The 25th percentile fund did 17.4 per cent and the best 28.7 per cent. No great fund picking skills were needed to get
these bonanzasabout 40 of the 50-odd funds beat the bellwether indices by huge margins.
But as we saw above, thats just one side of it. The volatility in mid-caps is always there and it can turn negative with very little notice. When the markets fall, these funds will fall more. Therefore, they are suitable only for those who can deal with this. For the less-involved investor, a better option is to
stick to broad spectrum multi-cap funds, where the fund manager decides how much and when to allocate to mid-caps. Either way, any approach to
investing in equity funds must take mid-caps into account.
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.