Capital letter Aug'11 - Fundsindia

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

SEBI’s mutual fund moves My name is Srikanth; I’m a director at FundsIndia. Thanks for taking the time out to read this August 2011 issue of our monthly newsletter. At its recent board meeting, SEBI has made a slew of decisions relating to mutual funds. Some are aimed at strengthening the mutual fund industry, while some are meant for simplifying proc-esses and having more disclosures. Here is a quick summary and our comments on the various decisions:

1. Transaction fee – distributors will be allowed to charge Rs. 100 or Rs. 150 for every investment transaction. While this grabbed the headlines in the newspapers, for FundsIndia investors this should be a non-announcement. As we indicated in our blog immediately after the announcement was made, we do not plan to levy this charge. However, if this leads to mutual funds being more popular and incentivises small advisors, we would be happy. We trust this charge would stay optional, and we are awaiting the official circular for confirma-tion in this regard.

2. UID can be used for KYC purposes – now, this will really make entry into mutual funds easier. When this comes into practice, there will be no more separate KYC registrations done requiring people to provide yet another copy of address proof, identity proof, passport photo etc. etc. A real welcome move.

3. More disclosures – Funds will be required to provide both absolute returns and comparisons with Nifty and/or government bonds (apart from comparisons with their benchmark returns). Again, we like this move – more disclosures are always good.

4. More frequent statements to investors – if an investor does a transaction in a month, they will get a consolidated statement of account that month. If they do not do any transactions for a period, they will atleast get half-yearly consolidated statements. This is a fantastic move – will really keep investors well informed about their invest-ments and let them view their MF investments as a whole.

Overall, we are happy to see the promise of a mutual fund industry veteran helming SEBI starting to deliver results. Hope these moves will both bolster the industry and the confidence of investors in the industry.

In these troubled times in the market, we can definitely use a dose of confidence! Happy Investing!

Volume 3 August 7, 2011 Issue 8

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Greetings from FundsIndia!

Volume 3 August 7, 2011 Issue 8

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FundsIndia All Insurance Ranking – FAIR

FAIR is designed for individuals and families, to simplify their in-

surance buying decisions. It helps you choose the insurance

plan that gets the most out of the money you invest in it. In its first avatar, it ranks the

various term insurances available in India, across insurance companies, in a scientific

and time-tested manner.

Login to

http://www.pelicaninsuranceonline.com/

content/jsp/Insurance/FairRankingInsurance.jsp to see how your policy ranks in our

FAIR rating!


Deposits from ‘Top rated Companies’

Company Name Rating 1 Year 2 Year 3 year

HDFC LIMITED FAAAA 9.4% 9.5% 9.25%

ICICI HOME FINANCE COMPANY LIMITED MAAA 8.25% 8.75% 8.75%

LIC HOUSING FINANACE LTD FAAA 7.0% 7.4% 7.65%

MAHINDRA AND MAHINDRA FAA 8.25% 9.75% 10.25%

SHRIRAM TRANSPORT FINANCE CO.LTD TAA 9.25% 9.75% 10.75%

DHFL AA+ 10.25% 10.25% 10.25%

For more information log on to www.daiwafunds.in


https://www.fundsindia.com/content/jsp/corporate/FI-VideoChannel.do

Shriram City Union Finance Ltd.

NCD Issue

Key Features of Shriram City Finance NCD:

1. Public Issue of Secured NCDs aggregating upto Rs. 37,500 Lakhs with an option to retain over subscrip-

tion of Rs. 37,500 lakhs ,aggregating to a total of Rs. 75,000 Lakhs.

2. NCDs can be held in demat mode only.

3. Face value: Rs.1000.

4. Minimum Application amount: 10 NCDs i.e. Rs.10,000/-.

5. Issue open date: 11 August 2011.

6. Issue closing date: 27th Aug 2011.There is option of early closure of extension of end date.

7. Interest Rates for Retail investors:

8. Interest will be payable annually and there is no cumulative option. Interest will paid on 1st April of each

year from year 2012.

9. Credit Rating: CRISIL “AA-” and CARE AA upto amount of Rs. 75,000 Lakhs. Both indicates low credit

risk and timely repayment of interest and principal by company.

10. Tax benefits: As always interest received is taxable and this is not a tax saving issue.

Coming soon to www.FundsIndia.com

Options 1 2

Tenure 60 Months 36 Months

Interest Rate for Reserved Category 12.10% payable p.a 11.85% payable p.a.

Interest Rate for Un-reserved Category 11.85% payable p.a 11.60% payable p.a.

www.fundsindia.com/taxfiling


Asset allocation is the best strategy

BY ARINDAM GHOSH

For most of us, investing is simply about picking stocks that are expected to yield high returns in the future or park-ing our hard-earned money in safe instruments e.g. a bank deposit that offers a fixed rate of interest. Well, not ex-actly. In today’s world wherein a multitude of global and domestic factors influence the state of our finances, invest-ing requires a far more calculated approach beginning with the fundamental principle: Asset Allocation.

Asset allocation is the relative percentage of different asset classes (group of similar investments) in your portfolio which determines how much returns potential/ risk component your portfolio has.

It ensures that your investment portfolio comprises several mutually exclusive asset classes instead of a concentrated pie of similar and therefore highly correlated instruments. This correlation is the very reason why you should pursue an asset allocation strategy while crafting your investment portfolio.

To put things in perspective, asset allocation pursues reduction in portfolio risks without substantially affecting over-all returns or enhancing returns without substantially adding to those risks.

Let’s look at an example to understand this more clearly. Consider a portfolio investing in stocks and commodities. This portfolio is likely to experience less volatility than a portfolio that comprises only stocks, without compromising on the level of returns. As is evident from the chart, with an asset allocation mix of 70 per cent investments in stocks (BSE Sensex) and 30 per cent in commodities, one can achieve the desired trade-off between optimal returns and investment risk.

Structuring one’s portfolio begins with a simple process called ‘Know Thy Self’ or an understanding of one’s level of expectations in terms of return on investment as well as gauging one’s ability to tolerate loss of capital.

Needless to say, both the factors go hand in hand i.e. if one expects high returns from an investment, s/he should be willing to accept higher risk if the chosen investment vehicle fails to perform. The graph appended below compares the risk and potential return of some of the popular asset classes.

Once the returns expectation and the underlying risk has been gauged, one needs to arrive at the point of balance. After this, adding the right asset classes to the portfolio is a relatively easy task.

Having developed your portfolio with the correct asset allocation mix, you need to regularly review and rebalance it. This is because, over a period of time, different asset classes generate varying returns which automatically changes the structure of the portfolio. One may be required to sell certain asset classes that have risen in value, thereby add-ing to one’s investment gains and also to maintain the original level of asset allocation.

On completion of a desired financial goal or if one wishes to change one’s financial goal mid-way, the exercise must be revisited from the beginning.

In sum, as asset classes evolve and investing assumes complex proportions it must be ensured that one’s investment portfolio is based on a unique asset allocation matrix that truly takes care of the returns expectation as well as risk appetite.

— Author is the CEO, Mirae Asset Global Investments (India)


Faster Is Not Always Smarter

BY DHIRENDRA KUMAR

Here’s a headline that caught my eye last week: “JP Morgan supercomputer offers risk

analysis in near real-time”. It seems that JP Morgan has gotten a custom-designed su-

percomputer built that can model the risk on its entire global portfolio in just 12 sec-

onds. Before this, the machines in their earlier setup (no slouches, one can assume)

would take about eight hours to do the job.

A little bit of background googling tells me that till a short while back, this is the kind of

project that you would expect only the governments of a handful of countries under-

take, using them for weather modeling or nuclear reactor design or similarly ‘heavy’

tasks. You wouldn’t have expect to see a business undertake such a project.

The article also said that the bank is now looking to use the technology in other areas of its business, such as high

frequency trading. High frequency trading, (sometimes called high speed trading) is now said to make up more than

70 per cent of the trading on the US stock markets. The general impression is that by deploying ultra-fast computers

with ultra-smart software written by ultra-clever geeks, big US banks are basically just printing money at the expense

of smaller traders.

No, I don’t know whether this is actually true. But the problem is that this idea of big Wall Street banks making out

like robbers by high frequency trading has taken an increasingly powerful hold on the imagination of short-term

traders. This has given rise to a curious concept—that the faster you trade, the better it is. You’ll see this actually be-

ing discussed on Internet forums. The logic is (apparently) simple—if high frequency trading is good, then frequency

(or speed) of trade must be positively correlated to success.

Ergo, since a million trades a day is smarter than half a million trades a day, then five trades a day must be smarter

than five trades a month and buy-and-hold for years must be downright stupid.

However, it doesn’t work like this. What million dollar computers are doing in Wall Street banks have nothing to do

with the basics of investing as you and I have to follow. That’s a different world and has nothing to do with how ordi-

nary mortals should invest in equities.

— Syndicated from Value Research Online

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Capital letter Aug'11 - Fundsindia