Mutual Fund news 1 June 2009

• Sundaram BNP Paribas Select Thematic Fund declares dividend

Sundaram BNP Paribas has declared dividend under the dividend option of Sundaram BNP Paribas Select Thematic Fund. The record date for the dividend is set as 05 June 2009.
The quantum of the dividend will be Rs 1.00 per unit i.e. 10% on face value of Rs 10 per unit on the record date. The scheme recorded a NAV of Rs 13.1324 unit as on 29 May 2009.
Sundaram BNP Paribas Select Thematic Fund is an open ended equity scheme with an objective to achieve long term capital appreciation by investing primarily the equity and equity related instruments of companies in the entertainment business.

• Reliance MF declares dividend for Quarterly Interval Fund

Reliance Mutual Fund has declared dividend under dividend option of Reliance Interval Fund - Quarterly Interval Fund -Series III. The record date for the dividend is 05 June 2009.
The fund house has decided to offer dividend on the face value of Rs 10 per unit for both plans viz. retail and institutional plans. The quantum of dividend will be 100% of distributable surplus as on the record date.
The NAV for the scheme under retail plan was Rs 10.1382 per unit and under institutional plan was Rs 10.1449 per unit as on 28 May 2009.
Reliance Interval Fund - Quarterly Interval Fund, is a debt oriented interval scheme with an investment objective to seek to generate regular returns and growth of capital by investing in a diversified portfolio of Central and state government securities and other fixed income/ debt securities normally maturing in line with the time profile of the plan with the objective of limiting interest rate volatility

• ICICI Pru Income Opportunities Fund announce changes

ICICI Prudential mutual fund has approved changes in minimum application amount and exit load structure of ICICI Pru Income Opportunities Fund. The proposed changes will be in operation from 1 June 2009.
Accordingly, the minimum application amount for all fresh purchases/switches for institutional option under the scheme will be Rs 10 lakh and in multiples of Re 1 thereafter.
Hereafter, the scheme will charge an exit load of 1.00% for an investment upto Rs 1 crore, if the amount sought to be redeemed or switched out is invested for a period of upto one year from the date of allotment and it will not charge any exit load if the amount sought to be redeemed or switched out is invested for a period of more than one year from the date of allotment. The scheme will not charge any exit load for an investment of Rs 1 crore and above.
The scheme is an open ended income fund that intends to generate income through investments in a range of debt and money market instrument of various credit ratings and maturities with a view of maximizing income while maintaining an optimum balance of yield, safety and liquidity.

• Religare Gold Exchange Traded Fund seeks Sebi`s approval

Religare Mutual Fund has filed offer document with Securities and Exchange Board of India (Sebi) to launch new fund named as Religare Gold Exchange Traded Fund, an open-ended gold exchange traded fund. Each unit will have a face value of Rs.100 each and each unit is approximately equal to price of 1 gram of gold.

Details of the Religare Gold Exchange Traded Fund:

The scheme seeks to generate returns that closely correspond to the returns provided by investment in physical gold in the domestic market, subject to tracking error.
Minimum application amount: For retail investors, the minimum application amount will be Rs 5000 and in multiple of Re 1 thereafter. For authorized participants and large investors, the minimum application amount will be Rs 15 lakh and in multiple of Re 1 thereafter or 1 kilogram gold per application and in multiples of 1 kilogram gold thereafter. The gold should be of finesses of 995 parts per 1000, i.e. 99.5%.
The scheme seeks to collect a minimum corpus of Rs 1 crore during NFO period.
Asset allocation: The scheme will invest 90-100% in physical gold with medium risk profile. The fund will be having investment exposure up to 10% in debt and money market instruments with low to medium risk profile. Investments in securitized debts can be made by the scheme up to 10% of the net assets. The scheme may invest in warehouse receipts and other instrument having gold as underlying and units of international gold linked ETF, as and when permitted by Sebi.
Load structure during NFO period: The scheme will charge an entry load of 1.50% in respect of each purchase/ switch in of units less than Rs 15 lakh in value. In respect of each of each purchase/ switch in of units greater than Rs 15 lakh and less than Rs 50 lakh in value, 1.00% entry load is payable. In respect of each purchase/switch-in of units equal to or greater than Rs. 50 lakh and less than Rs. 1 crore in value, an entry load of 0.50% is payable while in respect of each purchase/switch-in of units equal to or greater than Rs. 1 crore in value, no entry load is levied.
However, the fund will not levy exit load.
Load structure during on going period: The Fund will not ask both entry and exit load.
Benchmark index: The performance of the scheme is being benchmarked to price of gold.
Fund manager: Gautam Kaul is the fund manager for the scheme.

• Reliance MF rejoice Rs 1 lakh crore mark

Association of Mutual Fund of India (AMFI) has started to release the data of Average Asset Under management (AUM) of the mutual fund for the month of May 2009. Till now the data is available for only 3 fund houses.
AUM of Reliance MF jumped 16.23% in May 2009 over April 2009, as per AUM data released today. Reliance MF has crossed AUM of Rs 1 lakh crore that reached to Rs 1,02,730.16 crore in May 2009 from Rs 88,387.99 crore in April 2009.
AUM of Baroda Pioneer Mutual Fund soared by 85.09% to Rs 3483.36 crore in May from Rs 1882.01 crore in April 2009. Edelweiss Mutual Fund showed a rise of 41.61% in its average assets to Rs 20.63 crore in May from Rs 14.27 crore in April 2009.

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10 Investment Basics

• Start early:

Investing is easy once you know how. That’s why starting early gives you an extra edge, to learn from mistakes and experiment with various investment techniques and asset classes. As you grow older, you can take limited risks with equities and would prefer to invest in debt too.Also, every year that you postpone investing towards retirement, the annual savings you need to make to reach your financial goal will keep on rising.

For instance, to get Rs 10 lakh at the end of 20 years, if you start now you will need to invest Rs 13,879 annually but if you start 10 years later, the annual investment will shoot up to Rs 56,984.

• Know yourself:

Invest in shares or mutual funds based on your needs and after doing proper homework. Don't buy something because your neighbour believes he has a winner on hand, or your broker is issuing a big buy report on a stock. Carefully choose securities that fit your profile.

It is important to relate the risk perceived in a given security not only to returns, but also to your attitude towards risk. It is important to understand your emotions towards money and comfort levels with risk. For instance, what would be your reaction if your stock investments plummet by 35 per cent in a month? How would that affect your medium term or long term plans?

• The risk/return trade-off:

There is no harm in assuming a big risk in the quest for higher long term returns, and your profile does not preclude taking of such risks. Equities promise higher long term returns but the period taken to realize these returns too can be uncertain. As far as debt mutual funds are concerned, they are more stable tenure but returns are much lower.

As an investor, you should be able to judge whether the perceived risk is worth taking in order to get the expected return and whether a higher return is possible for the same level of risk (or a lower risk is possible for the same level of return). Smart investing will involve choices, compromises and trade-offs. And you have to decide the combination of factors that suit you best.

• Don't overpay for growth:

Seek out shares that are capable of delivering sustainable earnings growth but don’t fall into the trap of overpaying for growth. Even the best growth stock may not deliver dream returns if your purchase price was too high to begin with. Warren Buffet, one of the most successful investors in the world, said back in 1983:"

For the investor, a too high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favourable business developments." So growth riding on the back of a reasonable purchase price may be a good motto to stick with.

• The reinvestment risk:

If it suits your plan, choose a fund that reinvests your dividends or interest. That won't leave you exposed to the risk of reinvesting the amount at equivalent or higher returns for the same level of risk. Such alternatives are more than often not easily available. The reinvestment risk is implicitly defined for a debt instrument. Yield-to-maturity, which is the actual yield on a bond if held to maturity, may be a familiar term to those who invest in fixed income.

But few know that this YTM assumes that each interest cheque received by the investor is reinvested at the coupon rate. In reality, however, most investors are probably spending this interest on fullfiling current needs. So even if investors are getting a coupon of 18 per cent on a semi-annual debt instrument, their YTM is much lower.

• Beware of the law of averages:

The average, or mean, acts like a powerful magnet that pulls stock prices down sharply, often causing returns to deterioriate after they exceed historical norms by substantial margins. Stocks display runaway tendencies by appreciating sharply. Subsequently, prices may plateau causing disappointment. In such a situation, investors may profit from selling out earlier than originally planned. And if the fundamental story is still intact, you could even buy back your shares at a lower price. So stay tuned to any short-term movements in the stock market that affect your stocks.

However, if your goals are long term, don't get into the trading mode, where you compromise on the big picture for short-term gains. It is important that you still think long term. As Benjamin Graham, author of the investment classic The Intelligent Investor wrote: "In the short term, the stock market is a voting machine-reflecting a voter registration test that requires only money, not intelligence or emotional stability-but in the long run the market is a weighing machine.

• A trend may not be your best friend:

The psychology of the stock market is not only based on how investors judge future events, but also on how they react to the immediate past. There is a tendency among common investors to buy shares of those companies or sectors that have performed well very recently. It is critical that you assess where you are in the cycle during any bull run. That's because what may seem to be an everlasting phenomenon eventually turns out to be illusory.

It will be replaced by another, equally compelling one. And as an investor, you are left with shares bought at the peak of a cycle.Like Burton Malkiel, the author of A Random Walk Down Wall Street has to say: "It is not hard, really, to make money in the market… What is hard to avoid is the alluring temptation to throw your money away on short, get-rich-quick speculative binges."

• Time marches on:

Time can dramatically enhance the value of your starting capital through the magic of compounding. At 10 per cent annually, the annual incremental capital accumulation on a Rs 10,000 investment is Rs 1,000 in the first year, is over Rs 2,300 by the 10th year, and just under Rs 10,000 by the 25th year. After 25 years, the total value of the initial Rs 10,000 is Rs 108,000, a ten-fold increase in value.

Give your investment all the benefit of time that you can afford. Choosing an investment plan that automatically reinvests your dividends and interest is also a way to benefit from the power of compounding.

• Evaluate your future:

A lot of investing is about how you see your future, financially speaking. We all make certain assumptions while estimating our future needs, and how we intend to meet those needs. But circumstances can change. Hence it is important that you review your portfolio at least once a year.

Also try to evaluate the performance of your investments against the level of risk you are assuming for achieving the returns you want. And when necessary re-balance your portfolio to stay on track with your long term financial goals.

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How much risk can you take?

Risk and returns are inversely correlated, barring rare occasions. Hence, knowing your appetite for risk is essential as your returns profile emerges from your risk profile. Your investments should be guided by the risk profile. A totally risk averse person is very conservative, does not want to losea penny regardless of how little his or her money earns.

The compulsive risk taker is at the other end of the spectrum, willing to risk a huge amount of money on a risky bet, hoping to reap a windfall in the process. Risk tolerance can also be measured by volatility. How much of volatility in an individual’s portfolio is acceptable. Apart from an individual's psychological makeup, various other factors also play a crucial role in determining one's comfort level with risk. Evaluate yourself against the following parameters :

• Current income or net worth:

If a significant portion of your current and future financial needs can be met by income from non-portfolio sources –like a job or maybe even an inheritance- you can take more risk with your investments. Likewise, higher your current net worth greater is the investing flexibility. In such cases, a portfolio may be geared to achieve capital appreciation through greater risk. When current income is insufficient, investors would want the portfolio to be focused towards generating income and preserving capital, rather than generate capital gains.

• Age group

Age is a key factor in influencing comfort with risk, given a current income level or net worth. An investor's risk tolerance is expected to increase with income and wealth, but after a point, diminish with age. Check the life cycle investment approach, which uses age as a starting point for determining risk tolerance.

• Time horizon:

If your investing time frame is longer, you can choose a potentially more rewarding, even if riskier and less liquid investment. That can give you better capital appreciation. If you have a shorter time frame, you are better off with less risk investments, since losses are difficult to recover in a short period of time.

For instance, a 30-year old investor has more time to recover from initial portfolio losses than an investor who is 58-years old and is nearing retirement. Hence, as the time horizon shrinks, more importance is attached to how the investments yield returns in the short term than in the longer run.

• Occupation profile

Your occupation can also shape your risk appetite. A person who is more in his or her occupation, will be emboldened to take more risks without fearing for the future. The converse will be true for someone who is not very secure about his or her future. The nature of the profession too may have a role to play. A businessman for example may feel more comfortable with a higher degree of risk, since his main profession itself involves risk.

A salaried employee may on the other hand be accustomed to a smaller degree of risk. There may be a contradiction visible here, that a businessman whose future is not very secure may be willing to take more risk too. This is a fact of life, whatever the occupation profile may be each individual’s psyche will determine his world view of things and in turn, his ability to manage risk.

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