Sunday, June 24, 2012

BIG Fund Size is Also a Problem

 
Is a Big Corpus good or bad for a Fund???
Let us find out…
Sandeep Kumar asked :
“sir,
All keep on insisting that one should not go for the funhttp://s3.amazonaws.com/readers/2012/06/24/320lbwoman2004doessizematters670x44516182580_1.jpgd which has grown to a huge corpus, as SBI Magnum Tax gain. It has been mentioned again and again that such funds tend to become imbalanced and it becomes difficult to manage such heavy funds by the Fund manager.
On the other hand, all sites are prescribing DSP rock top 100, Which is again going large in corpus. If I invest rs 2000 as SIP for nest twenty years, Its impossible to get suitable returns as this fund will be heavily burdened that time. So, How to survive this BIG corpus Problem ?
Please HELP. Thanks a Lot.
Sandeep Kumar”
SRIKANTH SHANKAR MATRUBAI replied :
Dear Sandeep,
     Yes, you are right. A Big corpus makes it unwieldy for a Fund Manager to manager his Fund in prudent fashion. Likewise a Small Corpus makes it difficult to make Large Purchases during attractive downturns.
Thus, it is essential that AMCs set up a Cap for each of their Funds, wherein, if the Fund Corpus goes above their comfort zone, they stop Fresh Subscription into the Fund.
     This strategy was sucessfully done by the IDFC Premier Equity Fund. Inspite of Bullish Markets, they resisted the attraction of Fresh Subscription and allowed fresh money to come in only through SIPs which allowed the Fund to perform better most of its peers.
Even Reliance Growth Fund once stopped Fresh Subscription in 2005 for a brief period.
In fact, recently, a Fund Manager confided in me, “Large Corpus means less avenue to invest, especially in a Sector Fund”.
Even Prashanth Jain of HDFC Mutual Fund has admitted “Managing Large Corpus needs more effort when changing the portfolio”.
Arindam Ghosh of Mirae Asset says “Schemes with too large Asset Base can pose bigger challanges”
Dhirendra Kumar of Valueresearch says “An investor must be watchful as too big asset size can be problematic for a scheme”.
But, what I in finality say is…“Size should be secondary consideration while choosing a fund. Before investing in a fund, check its parentage and consistency across market cycles.
If you are particular about Fund Size, then chose a fund which is nearer the Category Average.  
     As for SBI TaxGain it has had a unwieldy Corpus since more than 2 years now. However, the Falling Markets has ensured that its Fund Size is just about the Manageable Limit.
     As for DSP Blackrock top 100 fund, you can consider going for investments, however, do make periodic reviews and make appropriate adjustments.
     Your mutual fund investments need to be periodically monitored. More than the fund size, you will need to keep track of its performance. If you notice a significant degradation of performance, then you will need to find an another fund to invest in. Please note, performance is the key (though fund size might indirectly affect performance).
     Even Mirae Asset too has been very successful because of small size which allows it to be nimble-footed. I like their Mirae Asset India Opportunities Fund very much.
     AMCs nowadays are awake of the problem of Big Corpus/Fund Sizes and I am sure that they will not allow their Fund to become So Big that it becomes impossible to manage.
     Go on, invest in DSPBR Top 100 Fund.
Best of luck,
Srikanth Shankar Matrubai


Also visit
http://equityadvise.blogspot.com

Wednesday, June 20, 2012

Is my SIP investments in the right funds?

Is my SIP investments in the right funds?

One blogger Mr.Nishan Asher queried "
Hello,


I have an SIP plan in the following companies, please let me know if should continue stay invested with the same amount or should I stop or reduce the amount I invest monthly.


I am right now investing a Rs 5000 per month in each SIP


Birla Sunlife Mutual Fund – BSL Midcap Fund – Growth (B251G)

DSP Merill Lynch Mutual Fund – DSP India T.I.G.E.R Fund Grow-Reg (D13)


SBI Mutual Fund – Magnum Global Fund – G (L021G)

Sundaram CAPEX – Growth (S82)


Regards,

Nishan

SRIKANTH SHANKAR MATRUBAI replied :

Dear Nishan Asher,

Sadly, your portfolio lacks Good Solid Large Cap Funds. Stop your sips in all the existing funds IMMEDIATELY!!!!!.
Birla Midcap Fund, as the name suggests, is a Mid Cap Fund, which had a good run in the bullish times but now as with the case of all Mid Cap Funds, had a horrendously poor run. Mid cap funds do not look attractive even with a 3 years perspective. Stop your sip and for your existing investment, think about switching to Birla Sunlife Equity Fund.
DSP Tiger Fund and Sundaram Capex fund are both Thematic Funds. Both funds are heavily invested in Infrastructure stocks. With the economy taking a breather and Infrastructure Sector's future not looking rosy, you need to look elsewhere. Stop your sip in both the funds. Stay invested in both the funds for now.
SBI Magnum Global Fund is a Diversified Fund, but had a terrible past and a very poor track record. Stop your sip immediately and switch to Religare Business Leaders Fund.
You can look at investing your 5000 * 4 sip into these funds, with different dates in each fund to take maximum advantage of NAV volatility.
1. DSP BlackRock Equity Fund
2. HDFC Prudence Fund
3. Reliance Equity Opportunities Fund
4. Sundaram Rural India Fund
All these funds have had a good track record both in bull and bear markets. Split your sip investment into different dates.
Review your investments every 6 months or so.
Best of luck,
Srikanth Shankar Matrubai.

Also visit http://equityadvise.blogspot.com for an indepth Equity Analysis

I WANT RETURN ABOVE SAVINGS RATE.......

I WANT RETURN ABOVE SAVINGS RATE.......

One Guest wrote,
want to park some of my money into liquid funds.
Are "ICICI Pru Gilt - Investment Plan - PF Option" and "Canara Robeco Income (G)" are liquid funds? Can I put my money in these funds? I only know that liquid funds are similar to Savings Account but with more % returns.
These above 2 funds have 5 stars in MC and they have given nearly 25-30% return in a year.
some of my other queries regarding liquid funds are as below:
+ What are tax implications on liquid funds?
+ Difference between liquid and liquid plus funds
+ If I have parked my money in liquid plus and due to some emergency I need some money how can I get it? I mean do I have to fill some form to redeem and submit at AMC? And when will I get the money in my hands?
Please help me in this.


SRIKANTH SHANKAR MATRUBAI replied :
Canara Robeco Income (G) fund is a Bond fund & ICICI Pru Gilt - Investment Plan - PF Option is a Gilt fund.
anyone of above fund is not a liquid or liquid plus fund. ur understanding regarding returns of Liquid funds is right.
+ What are tax implications on liquid funds? - Growth option treated as debt fund, so STCG & LTCG r taxed accordingly. Dividend option- div. option in ur hand is tax free but DDT is 28.325%. From taxation point of view, the DDT (div. distribution Tax) is higher in Liquid funds & at the same time due to higher maturity period of underlying securities of Liquid plus funds`, returns r on higher side in Liq. + funds, it make sense to park money in Liquid + funds.
+ Difference between liquid and liquid plus funds - The maturity period of underlying securities is slightly higher in plus funds & also the DDT is 14.15% only in case of plus funds.

U can get money on T+1 day basis. If u have opted direct trasnfer to ur acct. option while investing, the money `ll be credited to ur acct. directly. As there is no entry or Exit load in case of Liq.. & Liq. + funds, it`s better to invest in these funds thru ur online broker acct. - like Icici direct, Sharekhan, Indiabulls, .....


Selection of Growth & Div. option `ll depend upon 2 things -
1. Ur current Tax slab - as in all probability there `ll be STCG on investment in these funds which `ll be added to ur income & `ll be taxed at ur slab rate.
2. Ur time duration - if u r using these funds either to park surplus money for some better earning on ur liquid cash or u r using these funds as transfer vehicle for investing in Eq. funds under STP mode.

In case of Liq. + funds & `ll use for parking of surplus funds as well as emergency funds, the DDT `ll be 14.15% only, so if u r in 20.6% & higher Tax slab it makes sense to invest in Div. option to minimise Tax outgo.

In case u r using it for STP in Eq. funds, it`s better to invest in Growth option for easy calculation of STCG Tax.

The reason to get the nearly 25-30% return in last 1 year was due to the an inverse relationship between interest rate and prices of securities. And this gets reflected in government bonds first, so if the interest rate goes down, the prices of bonds rises and vice-versa.
On any fixed income investment, whether it’s a gilt or a corporate bond or even a fixed deposit in a bank, there are three types of risk. These are credit risk, liquidity risk and interest rate risk. A high credit risk means that a borrower wouldn’t be able to pay back an investment at all. In government securities, this risk is generally considered to be zero. In other types of f ixed income investments, this risk is higher. In any economy, government securities are considered to be of the lowest risk. Therefore Gilt fund has stood as a far safer investment avenue than others.

Gilt funds could be opportune investment for risk adverse investors particularly when interest rates are likely to go down. I think you can expect return between 8-11% on Gilt funds from now.

However, regarding the fund choice to invest, I would prefer
HDFC Income Fund and Birla Income Fund, especially the former. I have gone through the portfolio of the HDFC Income Fund throughly, and I can with some confidence, that the fund could give a return of at least 14% in the coming year inverse relationship between interest rate and prices of securities.
gilt Funds can give you somewhere between 7-9% and
debt funds should give above 12% comfortably.


Also visit http://equityadvise.blogspot.com for an indepth Equity Analysis

Advise needed on my indian mutual fund Portfolio..

Mr.Shiraz asked : "
pls advise me on my portfolio...at present I am doing Monthly SIP'S in these mutual funds and schemes..My horizon is around 10 years..
1.HDFC Top 200
2.Dsp Equity
3.Idfc Premiur Equity
4.Hdfc Prudence
... 5.Templeton India Pension Plan
6.Reliance Gold fund
7.New Pension Scheme (NPS)
How is my porflio looking..pls advisee thanks in advance and take care...bye""


This question was asked through YAHOO ANSWERS....
 SRIKANTH  MATRUBAI advised :
Hi, Shiraz,
at the outset, congrats for having a long term outlook.
Investors like you are few and far between.
Out of the above funds,
continue
Hdfc Top 200
Dsp Equity Fund
IDFC Premier Equity Fund
HDFC Prudence Fund
and
Reliance Gold Fund. 
which means that your selection of funds have been very good. However, the only fund which I feel that you should take out is the Templeton India Pension Plan...

You would do well to have another Diversified Equity Fund like the
Axis Triple Advantage Fund

You can also consider replacing Reliance Gold Fund with RELIGARE Gold Fund as its expenses is lower.

Do review your funds at regular intervals and switch from underperformers
It would also be prudent if you could replace HDFC Top 200 Fund as a Diversified fund would be in a better position to give you better returns and also this will reduce your exposure to the HDFC Fund house.
This is in no way a comment on the performance of HDFC Top 200 Fund.
You can look at investing in
ICICI Dynamic  Equity Fund
Best of luck,
Srikanth Matrubai

Source(s):

http://goodfundsadvisor.blogspot.com



Also visit
http://equityadvise.blogspot.com

Translate