Tuesday, November 24, 2009

MUTUAL FUNDS BETTER THAN DIRECT EQUITY INVESTING

MUTUAL FUNDS - YOUR BEST TOOL FOR WEALTH CREATION



Most of the investors may not know which stocks to invest in and, once any rally starts, they jump on to the bandwagon and invest in some stocks which they feel will be next multibaggers. Their expectation either on the basis of mere hearsay or their own gut feeling. They neither have the expertise in selection of quality stocks, nor the time or the inclination to engage in painstaking research for picking up good stocks. Result: most of them end up with losses and dud stocks in their hands at the end of the rally.
So, what's the way out for these investors? The answer is simple: buy equity mutual funds. If you don't under-stand equities market, buying equity mutual funds is probably much better
than buying equities themselves.


Investing in a Mutual Fund rather than Direct Equity Investing is always better and more profitable. There are lots and lots of advantages by investing in a Mutual Fund instead of Direct Stock Investment. Some of the most prominent are :
1. Financial Expertise :
Investment in Stocks is a time-consuming afffair. And most importantly, you require expertise to analyse the Balance Sheet and ability to foresee the future scope of Companies. However, by investing in a Mutual Fund, you are hiring a Fund Manager for a ridiculous price. So, investing in Mutual Funds not only saves you time but also enables your money to be handled by a Equity Expert.

2. Diversification :
Investing a Mutual Fund gives you instand diversification. In fact, this is true for even a 'Sector' Fund. With just one fund, say "Religare PSU Equity Fund" you are getting exposure to a whole bunch of Public Sector Companies.

3. Low Risk :
By investing in a Equity Share directly, you are exposed to risk of the Company going bust (ex.Satyam), even if you had done through analysis. Mutual Funds, even if they have exposure to such stocks, the risk is mitigated by the other stocks the Fund holds.

4. Liquidity :
You get back your funds in under 2 working days (in liquid funds). Some Stocks might have liquidity problem, but Mutual Funds do not face this problem.

5. Flexibility :
You can invest in Mutual Funds with an amount as low as Rs.100 per month!!!!!! Thus, even with Rs.100 per month, you get an opportunity to invest in a Diversified Stocks and Sectors.
You can also "switch" from an equity to debt to balanced fund depending on your risk/asset allocation with "NIL" cost.

6. FOREIGN EXPOSURE :
With Direct Equity, you can't buy Foreign Stocks, which you can do with Mutual Funds. And all this at your convienience.
You can get the Sensex/Nifty exposure with just a single Fund.
Mutual Funds thus let you invest 'where you can't'

7. High Returns :
Most of the Funds are known to outperform the Nifty/Sensex by a wide margin regularly and consistently.

8. High Transperancy :
Mutual Funds are regulated very highly. In fact, SEBI has been more vigilant on Mutual Funds, than even insurance. Mutual Funds have to mandatorily disclose their NAVs daily.

8. Cheaper :
ULIPs are the closest to mutual Funds in terms of structure and fuctioning. However, your investment in Mutual Funds get 'fully' invested, whereas in ULIPs, nearly '40%' goes to the Insurance Agent.





CONCLUSION:
There is no other investment class which offers the wide cumulative advantage that the Mutual Fund investment offers.
With an investment in Mutual Funds, you get
Professional management
Instant Diversification
Flexibility
Liquidity
Returns comparable to any other investment class.

Even the latest issue of Dalal Street Journal has its Cover Story titled "Its time for Mutual Funds".

Best of luck,



Srikanth Matrubai

Also visit

http://equityadvise.blogspot.com

Saturday, November 14, 2009

GOLD - ADD THE 'SPARKLE' TO YOUR PORTFOLIO




BUY GOLD - SLEEP WELL



Dear All,


There has been so much said on Gold these days, investors are confused whether to buy or Sell Gold. I will try in my own way to confuse further!!!!


WHY GOLD???

Before trying to get to know what to do with Gold., lets try to find out WHY we should consider Gold as an investment class at all.




1). Its well known that Gold is a perfect hedge against Inflation. But. Period.
But, only if hold for a considerable period of time., say

at least 10 years. The fact that Gold has appreciated by 60% this year only makes it more obvious candidate for Long Term Investment only.
2) Gold is considered as a symbol of Wealth.



POINTS FAVOURING "BUY" :

1). With the US Dollar and other Major Currencies are in terribly fashion and do not paint a rosy future. The Weakening Currency is a sure sign of a Strong Gold. All Central Banks are thus leaning towards 'Gold' as an hedge against Sovereign Losses

.


2) Gold is a good Diversifier. Gold tends to go against Equities and Real Estate and acts as a good hedge.

3) Demand for Gold is rising rapidly. Gold ETFs in India has seen a rise of 1000% in just under 3 years. China which has a ban in place where its

public can't buy Gold, is considering lifting the ban. This move will make the Chinese Demand for Gold to go through the roof.


4) Gold Production is decreasing. Another reason for the Gold Prices to keep steady, if not go up.

Inspite of a rapid rise in Gold prices, the production of Gold has Declined by 9.8% since the peak production seen in 2001.
The mines in South Africa, USA and Australia are in matu

re market and the reserves are constantly declin

ing.




POINTS FAVOURING 'SELL'
1) There has been a sharp rise in supply of Scrap Gold which has had a 'soothing' effect on Gold price rise. The Scrap Gold supply is expected to rise further which will limit any rise in Gold prices.


2) Too much, too fast
The Price of Gold has risen too much and at much quicker speed than one expects from a 'lazy' asset. This could bring in not only 'profit booking' but also 'shorting' traders bringing the prices of Gold down.


3) Rise in other commodities could dampen the prices of Gold. Especially, any price rise in Crude will hasten the hedge funds and 'fence' investors to jump away from Gold.





HOW TO INVEST IN GOLD :

1) Gold Jewellery :
Indians are major believers in Gold Jewellery. Gold Jewellery also has an added cost with the 'making' charge added to your Gold cost. Gold Jewellery has a unprofitable resale value and if you buying Gold for investment, then this from of Investment is Best Avoided.

2) Gold ETFs :

Gold ETFs are Gold Exchange Traded Funds which are listed and traded on Stock Exchanges just like any other stock. This is the Most Convenient Form of buying Gold and with its Low Cost, one can buy even 1gm of Gold. Gold ETFs also ensure that you do not need to worry of Purity of Gold, Security, etc.
However, the disadvantage is that you have to pay B

rokerage Charges, Securities Transaction Taxes, Demat Charges which 'eats' into your profit. Gold ETFs are Tax-efficient.

3) Gold Physical :
The Traditional Way to buy Gold and store. The disadvant

ages with this form of buying gold is., not only the question over the purity of gold., but also the security of storage of Gold.

4) Gold Funds :
Other than Gold ETFs, there are funds like DSPBR World Gold Fund and AIG World Gold Fund. These Funds DO NOT invest in Gold directly like the Gold

ETFs., instead these Funds invest in Gold Mining Companies. These Stocks are very volatile, much more than Gold and tests your BP. If you stay rooted., then these two Funds give you MORE returns than the conventional Gold ETFs.
DSPBR World Gold Fund has given a return of 110% over 1 year period. AIG World Gold has given a return of 125% over 1 year period. Both have outp

erformed the FTSE Gold Mines Index which has given a return of 106%.
These Two Funds also provide you Geographical Diversification due to their investments in Gold Mining Stocks Worldwide. However, do note, that these Funds not only face Equity Markets Volatility Risk but also Currency Risk.


A Rash of Gold companies offered equities which had a sober effect on Gold Mining Stock Prices. This has now not only worn off but these Companies have outperformed the market by a Huge Margin.



WHAT TO DO NOW :
The RBI buying 200 tonnes of Gold has given

a shot in the arm to the 'bullish sentiment' towards Gold. Other Central Banks too are actively considering adding More Gold to their Kitty. Sri Lanka has already made an announcement to this effect. China has a 'measly' 2% Gold Reserves and is adding Gold quitely.



While it will definitely not be 'win-win' situation for Gold Buyers., Gold will make a Good Investment, if you are considering holding the same for a period of at least 10 years.
For now, you can use the Gold you have to take a "gold loan" to repair your house and any other expenditure as Banks will be falling over each other to offer you "gold Loan".

Buy Gold at every dip and the 'sparkle' in your Investment Portfolio. With Gold in your portfolio you will not only 'sleep' well, but buying now, you will have to 'sleep' over it.

Use Gold mainly as a diversification tool in your portfolio and NOT as a Core Investment.
Do note, that unlike Equities or Real Estate, Gold does not bring any Regular Income and your income is 'locked'.

SMART TIP :
Do NOT buy Gold from Bank. Not only the Cost of Gold you buy in Bank is higher, but the Bank only sells and does not buy back from you.


If you remember, I had a given a STRONG BUY Call on Gold when it was quoting at $958 on March 19, 2009. Click the link http://goodfundsadvisor.blogspot.com/2009/03/buy-gold-now-before-it-becomes.html" to see the article.

Best of luck,

Srikanth matrubai


Also visit

http://equityadvise.blogspot.com

Sunday, November 8, 2009

FD MATURING - WHERE TO INVEST NOW????

IDEAS FOR INVESTING LUMPSUM AMOUNT

I had given an advise to an NRI in the month of April. I thought there is something for you to learn from that advise. Here goes......






Mr.S Parekh asked :

Dear Sir,

I am a retired Gulf NRI aged 59 years.
A NRO deposit of 6L is maturing in the next month. Can any of you guide me as to where and how i should invest this as I am not interested in renewing this FD further due to TDS of 31%
I have following investments other than this.
NRO fix deposit 11L
Equity diversified funds 10L
Income, gilt, debt and arbitrage funds 32L
A flat in Mumbai worth 60L for personal use.
Monthly income is not required for another 2 years.
Thanks,
S Parekh


SRIKANTH SHANKAR MATRUBAI wrote :
Dear S Parekh,
as the money `ll come to u in the month of may, By that time, the NCD of recently closed TATA NCD issue `ll be listed on BSE. Thru ur Demat acct. u can purchase these NCDs from BSE. As ur time frame is limited to next 2 years, plz. purchase only cumulative option NCD. U can liquidate ur money from these NCDs any time by selling back on BSE. Even after 2 years, if u don`t need money, for taxation purpose, my advise is to liquidate these NCDs just 15 days before the completion of 3 years. the gains `ll be treated as LTCG & same `ll be taxed @ 10.3% without indexation or 20.6% with indexation. The coupon rate for these cumulative option NCDs is 12%, hence post tax ur returns `ll be around 10% (while selling ur NCDs on market, some discount `ll be there, that`s why the effective rate of return to u `ll be 10% post discount & post taxation).

Another option is to invest in Nabard Bhavishya Nirmaan Bonds (BNB) again these r also listed on BSE but here post tax yield `ll be around 7.5%.

However, the caveat is, that by May, it is expected that Interest Rates in the market would drop a lot. That means the market value of Bonds would have risen to effectively reduce the yield. In 2 years, if the interest Rates are back up, your Bonds will be worth much less. If so, you actually won`t get the 10% return calculated at coupon rates if you buy the Bonds from the market after further Interest Rate reductions.
At the same time, the Equity markets would also probably be at lower levels by then, and will hold a good prospect of giving good returns over the next 2 years as the global economy recovers (or at least as the panic gripping it now recedes).
Besides, your percentage investment in the Equities is quite low compared to Debt, even for your lifestage, under these market conditions and prospects.
So, you would be better off investing the lumpsum money arriving in May 09, into select equities or equity funds. Shares of essential goods/services suppliers, and infrastructure support companies should be pretty safe bets at those levels.

One more suggestion
ICICI bank has a new FD which takes into account the Double Taxation Avoidance Agreement and under this new NRO FD you pay 12.5% tax and not 31%. If you have ICICI NRE account, then simply go for this.
But the best option would be to invest at least 50% of your Deposit in a Debt Fund and go for a Systematic Transfer Plan into Good Large Cap Funds like HDFC Top 200 fund, DSPBR Top 100 Fund, etc.
Best of luck,
Srikanth Shankar Matrubai


Also visit

http://equityadvise.blogspot.com

Comments System

Disqus Shortname

Disqus for Good Funds Advisor

Translate