Daily SIP for Indian Mutual Funds

India is undoubtedly one of the best places to invest money. Needless to say, there has been a recent uptrend in the number of fund houses starting their operations as well as the money flowing into mutual funds besides the increase in the number of investors themselves.

To be on the safe side, most investors opt for SIP or Systematic Investment Plan. This is an ideal mode of investment for investors who have a regular flow of money (say salaried people) who can be sure that by a given specific date, they are sure of having their money (salary) in their bank account. A simple instruction to the fund house and the bank will help them invest regularly on a given time and hence stay away from the uptrend or the downtrend of the markets.

One catch with the SIP plans is that none of the 30+ strong Indian mutual fund houses have a SIP that invests money on a daily basis. There are two options available now, of course.

The first is from the ING Vysya Mutual Fund who launched a feature called ING Zoom Investment Pac (ZIP) in which a lump sum money is invested in one of their ING Vysya Liquid Fund and then money is transferred to one of their allowed equity schemes. Though this is not exactly a Daily SIP per se considering that the investor has put in his money at a single go (into the liquid fund), it serves the purpose to a certain extent by allowing the investor to invest on a daily basis in the equities. The actual money put in the Liquid fund will be safe considering debt and related instruments are safer than equities.

The latest Daily SIP facility is from Bharti AXA Mutual Fund. Investors may be recall Bharti AXA has come up with a new fund scheme called the Bharti AXA Equity Fund (NFO Period: September 4, 2008 to October 1, 2008; Scheme re-opens for continues sale and re-purchase from October 29, 2008). Bharti AXA is offering Daily SIP for investors in this fund who are having a bank account with HDFC Bank, Axis Bank or with Bank of Baroda (Core banking branches). Bharti AXA seems to be planning to expand this offering to other banks too. So, if you have an account with any of these banks and would like to do a Daily SIP Investment, Bharti AXA Equity Fund is the only fund available for the investors at the moment.

The minimum SIP amount for a Daily SIP is Rs. 300 (per day). The minimum period is for 6 months. Hence the SIP amount for the 6 month period works out to Rs. 300 day x 6 months x 25 days (considering we will have 25 trading days in a month on an average) = Rs. 45000.

This option is also a good choice for an investor who wishes to do a SIP for more than Rs. 7500 a month. Instead of investing at Rs. 7500 on a single investment, it would be good to go for a Daily SIP (Rs. 300 per day x 25 trading days per month (approx) = Rs. 7500)

Daily SIP offers rupee cost averaging on a daily basis and hence is considered as a good choice for investors who want to invest their money on a daily basis and yet put their investment decisions in the hands of experts.

Not Peter Lynch or a Warren Buffett? Try Index Funds

Everyone might be familiar with mutual funds especially ELSS (Equity Linked Savings Scheme) coz that seems to be one of the favourites with salaried-class people. After all, it’s eligible for that deduction under Section 80C and plus has a potential to give you returns far better than traditional investment avenues such as Provident Fund (PF) and National Savings Certificate (NSC). However, investing in ELSS means a lock-in period of 3 years.

Consider this – you’ve already invested in ELSS and have some extra money that you wish to invest in stocks. You could be one who is a pro when it comes to investing directly in stocks. Or you could be someone who depends on friends / family for guidance. Then there are times when you really don’t have the time to track the stock market, more specifically, trying to figure out which are the stocks that you should ride your money on. In such a case, index funds are a good avenue to look at.

What is an index fund?

The average opinion of the stock market is expressed through a stock market index. While following an indexing strategy the idea is to try and earn similar returns as given by a stock market index. One way to execute this strategy is by investing in constituents of a stock market index in the same proportion as their proportion in the index. But, this is a complicated strategy for individual investors as weight-ages keep changing and the investor will have to keep adjusting investments all the time. The other way is to invest in an Index fund – a mutual fund that collects money from investors and invests in stocks that make up a stock market index in the same proportion as their proportion in the index.
 
What is the logic behind an index fund?

It’s very difficult for an investor to keep beating the market. In the last two decades more than 85% of the fund managers in the United States have underperformed the S&P 500, one of the most broad-based indexes in the US. May be a Peter Lynch or a Warren Buffett can keep doing it all the time, but of the lesser mortals very few are able to do it consistently. Given this why not just ride the market? And this is the very reason that led to the innovation of an index fund.

As the US equity markets evolved, mutual fund managers realized that it was becoming more and more difficult to beat the indices, net of commissions, trading costs and taxes. Many mutual fund managers started buying stocks that constituted the various indices in the same proportion. And this became known as closet indexation. Out of this concept of index funds evolved. John Bogle was the first to launch an index fund. It was called the Vanguard 500 and it was an index fund based on the S&P 500.

What makes an index fund attractive?

Another reason that makes index funds attractive is their lower expense ratio. Expense ratio represents the expenses of the mutual fund expressed as a percentage of the total assets. Index funds do not require the services of high price fund managers or any sort of research. This tends to keep the expense ratios of the fund low. The Vanguard 500 index fund in the US has an expense ratio of 0.18%. The index funds in India do not have such low expense ratios but they are low vis-a-vis other funds.

Do index funds show returns exactly the same as indices?

All index funds do not return as much as their benchmark index. This difference between the returns from the index fund and the returns from the index is known as tracking error. This error occurs because of two reasons – the index fund may not fully track the index plus the index fund will have transaction costs to take care of.

GOLD MUTUAL FUNDS INDIA NFO(Exchange Traded Fund-ETF)

Slew of ETF(Exchange Traded Funds) for most precious commodity i.e Gold are being launched in the coming few months. BenchMark Funds, UTI, TATA Mutual Fund etc. all these fund houses are planning NFO launches for Gold Mutual Funds.Primary objective for such funds would be to diversiy the investor's portfolio, hedging in a relatively safe commodity and a novel instrument for investments in India.Gold Exchange Traded Mutual Funds would be perhaps first ever to be launched in India.

Bharti Axa fund offers sops for online investors

Bharti Axa Mutual Fund has devised a new way to persuade investors to switch to the online model. The fund house is launching a plan under its maiden equity scheme, wherein investors opting to receive all communication through email will be charged 0.25 per cent discount on management charges.
The fund house is projecting it as a green initiative to reduce paper consumption, but rivals have termed it as a move to reduce operating costs.
Though the concept is not new, as the email option already exists for investors, the Bharti Axa fund is unique in that it will pay back its investors from what it saves by cutting down on expenses arising from physical delivery of statements.
“We are promoting online servicing of clients through this model. It is the power of compounding that will add up returns for the investors in the long term. We are also in talks with large distributors and banks to market this plan,” said Vikas M Sachdeva, country head (business development), Bharti Axa Mutual Fund.
However, an industry official disagreed, saying, “It is nothing but cost-cutting. There is a challenge in terms of mailing cost. It takes Rs 8 to deliver a couriered statement to the investor. So the fund is basically trying to make the scheme attractive by these perks. The reality is that in India, customers still want to see statements in the paper form. Less than 8 per cent of our investors today opt for the email option.”
At present, mutual funds charge at least 1 per cent as management charges, which is one of the streams of revenue for fund houses. But under this plan, while Bharti Axa Mutual Fund will save on mailing expenses, it will have to bear a part of the management charges, which is being offered to investors as monetary compensation.
The reduction in management charges will also be reflected in the net asset value (NAV). If for a normal investor, the NAV is Rs 10, the NAV for an investor opting for the plan will be Rs 10.025.

Source: http://www.business-standard.com/india/storypage.php?autono=333637

Planning for future

As the government plans to extend NPS to everyone, the onus is on the contributor to make the right investment choice.
Retirement planning, across the world, focuses on the pension amount that a person would be able to garner in his sunset years. A lot of countries have safety nets to make life easier for the older generation. In India, however, we are still struggling to create an efficient system to achieve this goal.
In recent years, the government has been playing a proactive role towards developing the area of pension. This has led to the introduction of the New Pension Scheme (NPS) for government employees. And now there are also hopes that in the next few months, there could be more improvement in these areas to help even the self-employed to get access to NPS. For the ones who are waiting for these new developments, here are a few things to note.
OPEN FOR ALL

At present, NPS is open only to government employees, who have joined after a specific date. This restricts the introduction of a larger number of people from investing in the scheme. With the proposal to include all under this scheme, more investors can look upon this as an option. The option for self-employed today is to buy a pension policy/annuity plan offered by insurance companies or invest in one of the two pension schemes offered by mutual funds.
When NPS opens up, it would become necessary for the investor to understand the new guidelines. This would be a voluntary route.
For ones, who wish to enter this scheme, there would be lots of decision-making involved in this process. That is, the kind of option that they are comfortable with such as, the aggressive or defensive methods of investing. Also, this scheme would be ideal for people who have more than 15 years to go for retirement as they can effectively build a retirement corpus.
PRIVATE FUND MANAGERS

For all these years, the task before investors with regards to any of their retirement savings was quite simple. All that they had to do was select the option that was suitable. Then sit back and watch the performance. In most cases, the return was fixed so there was little to worry about. Even in other circumstances, the problem of ensuring returns and performance was with the entity with whom the money was entrusted.
In NPS, there will be private fund managers to manage the money and the returns they generate will determine the amount that the investor gets as pension. For investors, it is important that they track the performance of fund managers because, they may have to select the one, who should be managing their money at a later date.
As far as existing pension plans and mutual funds go, the final corpus cannot be known because it is dependent on the performance of the scheme in the long run.
CHOICE OF INVESTMENTS

With the entry of NPS, investors will be forced to make a decision regarding their choice of investment style. So depending on the age, risk profile and the targeted corpus, the right kind of asset allocation will have to be made. The onus will be on them to make sure that the portfolio is constructed properly to suit their needs.
It is likely that the scheme will have provisions for various investment options, which will include, a fully safe option – where all the money is parked in debt instrument to an aggressive one – where a large part of the portfolio is in equities. There could other options where the portfolios are balanced, rather than skewed towards pure aggression or safety.
The corollary is that the safe option will be best suited for people who are closer to their retirement because a small change in the returns can significantly affect the end result. For example, a sum of Rs 1 lakh will become Rs 3.20 lakh at the end of 20 years at an annual rate of return of 6 per cent. At 8 per cent, the same amount becomes Rs 4.66 lakh.
Similarly, a sum of Rs 60,000 invested each year for 20 years at 6 per cent leads to an end corpus of Rs 25.43 lakh at the end of 20 years. The same Rs 60,000 at 8 per cent will become Rs 32.67 lakh after 20 years. However, in the latter option, while there are chances of higher returns, the risk is significantly higher as well. Another important point is that once a certain investment option has been chosen, changes have to be made during the tenure.
This is because while at the age of 25 or 30, the aggressive option might suit your investment style, but as you approach retirement, you may be have to opt for a defensive approach. This would imply reduction in equity exposure. In fact, even during the interim phase, choices will need to be made depending upon the outlook that you have of the market scenario. This will require constant monitoring as well as an eye on the changes required. Moving to NPS would put the onus on investors now. This is unlike the earlier years when they neither had the responsibility nor the option to take a call on the returns that their money would generate.

Source: http://www.business-standard.com/india/storypage.php?autono=333631

The enigma behind balanced funds

Once upon a time, there used to be a type of mutual fund called a ‘balanced fund’. They were a very useful type of fund, which were generally the most suitable type for a large proportion of retail investors. Actually, balanced funds still exist. It’s just that Indian fund companies seem to be trying their best to sweep them under a carpet. If you depend on the marketing and sales efforts of mutual fund companies and distributors to get to know about funds, I’m sure that you haven’t invested a single paisa in a balanced fund in the last three years.
This becomes amply clear if we look at the track record of new fund offers, which are the only things that are intensely marketed anyway. Since the stock markets started rising in 2003, 12 new equity-oriented balanced funds have been launched. During the same period, 157 new equity funds have been launched. That’s 13 equity funds for every balanced fund. As things stood in 2002, the ratio was 20 balanced funds to 48 equity funds. That’s one balanced fund to 2.4 equity funds. Quite a drastic shift, no?
To figure out why balanced funds need more attention than they get, let’s recap what balanced funds (also called hybrid funds) are. Such funds maintain a balance of two types of investments-equity and fixed income. The fixed income part is generally corporate or government debt of various types. These funds are mandated to stick to a fairly well-defined ratio between these two types of assets. This simple structure is more conservative in returns than equity funds but it compensates with some great advantages.
Firstly, to maintain the ratio between debt and equity, the fund manager has to periodically sell whichever investment has done better. With the proceeds of the sale, he has to buy the other type of investment to regain the balance.
While this sounds counter-intuitive to the average investor, it ensures that the profits from equity are being regularly realised and then protected from vanishing by investing them in safe debt investments. When the equity markets are falling, it ensures that you are buying equities when they are cheap. Invariably, this is the best strategy to combine profits with safety in the long-term. However, individual investors rarely have the discipline to implement it, since it is always counter-intuitive to sell whatever is rising and buy whatever is falling.
Over a complete rise-and-fall market cycle, this invariably produces decent returns with far less volatility and heartburn. Over the last five years, the average equity diversified has given returns of about 31% p.a. and the average equity-oriented balanced fund has produced 23% but with lower volatility.
Not only does this balanced strategy get stable returns, it is also more tax-efficient than it would be if you executed it yourself. There are two reasons for this. One, every time you would sell you would pay capital gains tax. When funds buy and sell with their portfolio, there’s no tax liability to the end-investor.
Two, when you hold any kind of fixed income investment yourself, it is not liable for long-term capital gains tax since only equity income is exempt from that. However, if a balanced fund keeps its equity allocation above 65%, then the investor’s entire investment is treated as equity for tax purposes and thus becomes free from long-term capital gains tax.
Which brings us to the original puzzle-why aren’t fund companies and salesmen enthusiastic about balanced funds? I believe that’s because it’s difficult to package balanced funds in some kind of a returns-maximising trick story.
As the fund industry has gravitated towards consumer-goods type feature-driven products, simple and reliable ideas like balanced funds get side-tracked. But that doesn’t mean that the sensible investor has to ignore them too. There are a handful of excellent balanced funds with solid long-term available-you just have to seek them out.
Source:http://www.financialexpress.com/news/The-enigma-behind-balanced-funds/358293/2#