Gold ETFs: Will they take off in India?

source:timesnow..

Gold ETFs: Will they take off in India?

Gold Exchange Traded Funds (ETFs) are now emerging as a lucrative option of investment in gold. Not only do they assure the quality of gold bought but also good returns. But will the concept will be accepted in India.

How it Works The Gold ETF is a new concept, an instrument that enables you to buy and sell gold in demat form. The gold is held by a mutual fund house which offers investors gold in units for as little as Rs 100. The fund houses invest the money collected from investors in standard gold bullion and issue 'gold receipts'.

Currently, there are two mutual funds which offer Gold ETFs in India. The Indian Players Benchmark Mutual Fund launched India's first gold Exchange-Traded Fund (ETF) on February 15 and listed as Gold BeES on NSE early this week. Benchmark was soon followed by UTI Mutual Fund's gold scheme on March 1, which will list on the NSE in April.

Eight others including the Kotak Mutual Fund, Tata Mutual Fund and Prudential ICICI Mutual Fund have also firmed up plans to follow suit. And experts believe that for retail investors the move from physical gold to paper gold makes a lot of sense.

Says Deepak Rattan, ABN AMRO Private Banking, "Gold ETFs are said to bring a lot of cost effectiveness into the system. It is extremely tax efficient from the investor's perspective because Gold ETFs have various tax advantages which typically accrue to mutual funds.

" The Indian Market However, what could prove to be a dampener in the success of this new concept in India is the need to hold demat accounts to buy Gold ETFs. Especially considering the fact that a large part of the population residing in small towns and rural areas do not hold demat accounts and the fact that even though India accounts for 35-per cent of global investment in gold, investors put their money in gold, not only to see value of their investment grow, but also to use the metal for making jewelry later.

Rajan Mehta, Benchmark Asset Management, thinks that the time is right, however. "I think the mindset will change over a period of time. It was the mindset when share certificates were there, when demat was introduced. Over time people have seen the convenience and have forgotten about physical certificates. The same will happen with Gold ETFs.

" Gold ETFs have been a great success in countries like the US, the UK and Switzerland and it is estimated that the size of the Gold ETF market in India would grow to Rs 5,000-7,000 crore in two years. But in a country like India, where gold is acquired in the form of jewellery and is passed on from generation to generation, the success of Gold ETFs will depend on how far the yellow metal succeeds in warehouses rather than ending up in jewelry boxes.

to know how to go ahead with this write to mutualfund_help@yahoo.com

choose the best mutual fund for yourself..

choose the best mutual fund for yourself..
Source: Economic times


Lets start by trying to understand the concept of risk.
In general it is said that the riskier a fund, the more its potential for earning high returns, at least most of the time.
A riskier fund will give you higher returns in a rising stock market — but would destroy your wealth in a falling one.
So one must always look for funds that deliver the best risk adjusted returns.


Liquid fund
These are the schemes with minimum risk, and consequently lesser long term returns as compared to equity funds. Liquid funds invest in very short term debt papers, with typically a portfolio maturity average of around three months. In other words, these are mainly used as an alternative to short-term fixed deposits.

Floating rate fund
Floating rate funds form the next level of risk. These funds invest in floating rate securities whose coupon rates are linked to a benchmark rates are aligned to any movements in the market rates. Put simply it means that the cash flow which they generate, fluctuates along with the change in interest rates. These are most suitable for rising interest rate times, like the present.

Debt or income funds
These are funds that invest predominantly in income bearing instruments like bonds, debentures, government securities, commercial paper etc. Though these schemes seek to provide a regular and steady income to the investors, the returns from these funds suffers in times of rising interest rates like now. There are short and long term income funds available, based on the maturity duration of portfolio.

Balanced funds
These stand between debt and equity as such funds invest both in equity shares and a fixed income-bearing instruments. The objective is to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These funds are most suitable when the direction of the stock market looks a little uncertain.

Equity Diversified
It is no secret that equity funds (rather equity in general) carries the highest level of risk, but in turn offers the highest returns to an investor. These schemes are easy to understand in that they invest predominantly in equity stocks. Stock markets are known to be volatile, but in a rising stock market like the present one, these investments yield more returns than any other investment.

Specialty funds like sectoral funds or ELSS
If one is very bullish on one particular sector and want to invest only in companies of that sector, sectoral funds suit him the best. There are various sectoral funds available in India like those that invest in banking, technology and pharma companies.

And lastly equity linked saving schemes or ELSS.
A long name for a simple tax saving instrument. These are growth schemes with a mandatory 3-year lock-in period on investments. Savvy investors usually use the product towards the end of the financial year to save taxes. Investing for retail investors should be a long-term process. So research your investments, remember your goals, re-examine your risk and invest — so that your money can work as hard as you.

to know how to invest in any of funds write to mutualfund_help@yahoo.com

FUND QUERIES

FUND QUERIES
Source: Express money

My investment in Templeton India Pension Plan has doubled to around Rs 12 lakh. Now that I have crossed 60 years, I can make withdrawals from it. How will these withdrawals be taxed?

Your withdrawals will be taxed as capital gains — (selling NAV minus buying NAV) multiplied by the number of units sold. The good news is that you don’t have to pay any capital gains tax on your investment if the following two conditions are met:
Your scheme is an equity-oriented fund (that is, its equity holding should be 65 per cent or more) and it is open-ended in nature.
Your investment in it has been for more than one year.
If both these conditions are met, your capital gains will be tax-free. Also note that since investments in Templeton India Pension Plan qualifies for deduction under Section 80C
(earlier under Section 88) of the Income Tax Act, there could be a lock-in
period of three years, during which time withdrawal is not allowed.
First-time investor
I want to invest in equity funds, but I don’t know where and how to start. Help me choose the best funds with quick returns.
Hari Monga, Panchkula
If you are looking for “quick returns”, then mutual funds are not the investment to make. I don’t know what’s the investment to make, but let me stick to what I know, which is mutual funds. I guess the main reason you are asking for “quick returns” is the experience of the past three years or so, when the stock market and most equity funds have done phenomenally well. But to expect similar returns in the
immediate future, one would have to be brave — or foolhardy.
Having said that, in the long run, equities give the best returns of all asset classes. Going by empirical evidence, the Bombay Stock Exchange (BSE) Sensex, the popular index, has returned a compounded annualised 13-15 per cent over 10-15 year
periods. Over such long periods, there are years when the market won’t perform (for example, 1995-98) and years when it will do very well (last three years). That’s why to earn top returns from equities, invest keeping the long term in mind.
The rationale for equities established, let’s put in place some ground rules for you as a first-time investor:
* Not all your savings should go into equities. Consult your financial planner on how much should. Alternatively, a crude equity allocation formula is 100 less your age (if you are the conservative types, 80 less your age). Till the age of 35 years, I would suggest the 100 less your age formula.
* Start a systematic
investment plan (SIP) in good diversified equity funds with a proven track record — the longer,
the better.
* About 60 per cent of your investment should be in funds with a large-cap bias, 30-35 per cent with a mid-cap objective, the balance in theme funds.
* Spread your risk. Don’t put all your money in just one scheme. Instead, for each objective of yours,
divide your investment across three schemes, across three fund houses. That way, even if one scheme stumbles because of bad money management, the others give you a chance to make up.
* In order to choose schemes, take the help of a good investment advisor, again with a good track record. If you want to do it yourself, go through performance rankings of independent fund-tracking agencies like Crisil or Value Research, and pick funds that have consistently done well.
* Track your schemes periodically to make sure they stay performers. Earning returns and preserving your capital is as tough, if not tougher, than earning it.

Save on taxes and get rewards too

Save on taxes and get rewards too
Source: Economic Times

Tax-saving mutual fund schemes appear to be in a hurry to “reward” unitholders with as many as six of them declaring dividends in January 2007. In general, fund houses are known to pay out dividends in the last quarter of the financial year. Equity-linked savings schemes (ELSS) usually see increased inflows in the last few months of a financial year as investors flock to avail of the tax benefit.
Dividends from equity MFs (diversified, balance and tax saver) are fully exempt from income tax under Section 10 (33). But according to the 2006 amendment in Income Tax Act Sec 80C, investments in ELSS are allowed as deduction from the total income, up to maximum Rs 1,00, 000 in a financial year.

ELSS from DBS Chola, Birla Sun Life, UTI, Principal, HDFC and Franklin Templeton have paid dividends in the last month. Funds like Franklin India Taxshield have delivered dividends as high as 80%, which means that at current NAV, their payout ratio was 21%. Next on the list of big dividend payers is Birla Tax relief ’96, has declared a dividend of 260%. A quick comparative study undertaken by ET reveals that no tax-saver fund had declared any dividend in January 2006.
However, the following two months i.e February and March 2006, saw 13 tax-saver mutual fund schemes deliver dividends. Though fund managers choose to get cryptic and philosophical on dividends and their impact on the corpus of funds, it is common knowledge that tax-planning schemes declare huge dividends in the months leading up to March. But in general, fund houses start paying dividends as the quarter progresses.

There is no contravention of law. Funds follow Sebi’s diktat of closing dividend record within five days of announcement — in letter. But whether they conform to the regulation in spirit is open to debate. Industry watchers say that mutual fund distributors hard-sell tax-saver schemes, saying that a good part of the money will be returned to investors in the form of dividends.

And this arrangement benefits all parties involved — the taxpayer can get an exemption for the full amount invested though he gets back a considerable sum; distributors get their commissions upfront and the scheme’s corpus gets a boost. Say for instance, a person in the highest tax bracket 30% invests Rs 1,00,000 (the maximum exemption under section 80c of IT Act) in Franklin Taxshield in December 2006. On this investment he stands to save tax up to Rs 30,000. As of date, he would have got back Rs 20, 000 as dividend, approximately.

That makes his effective investment Rs 80,000. Thus, the investor avails an effective tax rebate of 37.5%. Given that two more months are left during which the dividend activity will peak, the effective tax rebate can shoot up considerably.

MF may become long-term saving vehicles

MF may become long-term saving vehicles

Source: Economic Times

MUMBAI: After keeping pace with the Indian capital market step by step in terms of growth and still maintaining a better risk profile for investors, the mutual funds are emerging as a viable long-term savings vehicle in the country, a new study shows.

The mutual fund industry has grown about four-times to a whopping $65 billion in terms of their total asset size since 1993, while the industry's contribution to the country's GDP has also grown considerably in the past decade to nearly 10 per cent, a Deutsche Bank Research report said.

Interestingly, the stock market's benchmark index Sensex has also nearly quadrupled since 1993 and due to the loosened restrictions on investment in-debt instruments and money markets the mutual funds have been able to match the strong growth.

"Combined with rising per-capita income, improving awareness of capital market investing and pension fund reforms would make mutual fund investing a viable long-term investment vehicle," D B Research analyst Jennifer Asuncion-Mund said.
"A number of different schemes are now available in the market which appeals to investors varying investment objectives and constraints," she added.

The different new schemes include, assured return, balanced, floating rate, fund of funds, gilt, growth, income, liquid and money market funds.

Besides, the new offers of open-ended schemes allowed investors the flexibility to adjust their fund exposures, while regulations against fund managers' use of derivatives have been relaxed, allowing them to hedge their positions.

Equity Asset under managements (AUMs) of fund houses are rising steadfastly with robust capital market growth which vouches for the positive outlook for the industry. Mutual Funds have added over 18.5 lakh investors in the third quarter of current fiscal taking the total investor base to 2.67 crore, according to leading brokerage firm Sharekhan's report on the MF industry.
On monthly basis, AUMs of the 30 fund houses increased 2.2 per cent to Rs 1,46,749 crore in January 2007 from Rs 1,43,619 crore in December last year. The rise in the equity AUM was in line with the market movement of 2.2 per cent.
Interestingly, the cash level for all equity funds launched before January 2007 increased to Rs 9,957 crore in the month from Rs 6,710 crore in December 2006. The cash as a percentage of the total corpus also followed a similar trend, increasing to 8.2 per cent in January, 2007.
"The increase in the cash levels has been largely due to profit booking in a rallying market.. flush with cash MFs are well-placed to maintain the buying interest and propel the market forward," the Sharekhan report said. Despite the rapid growth in the industry for the past three years, the DB Research report says that MF industry still cannot be characterised as "come of age," if seen in the light of their low share in the household sectors total investment pie. One promising development announced in the Budget in 2006 was the lifting of overseas investment limits by mutual funds to USD three billion from USD two billion.

This would allow domestic fund managers to offer new opportunities in higher-yielding funds, such as those dedicated to emerging markets and alternative investments (e.g. commodities), currently not available in the local market, the report said

FUND VIEW - SocGen can't rule out India market correction

FUND VIEW - SocGen can't rule out India market correction

Source: Reuters, India
Mon Feb 19, 2007 10:46 AM IST

Societe Generale Asset Management won't be surprised to see a correction in India's stock markets given high price-earning multiples, but continues to sell the country to investors for medium and long-term returns, its chief said.

Alain Clot, group chairman and chief executive officer of the French fund house, told Reuters any such correction would be short-lived and would offer international investors a sound opportunity to buy into Indian stocks.

"We are bullish. We are long (on) India... if you think three months, it is a different story but if you think medium term, it is a nice satisfactory sound investment theme," he said on Thursday.
India's stock markets have seen a three-year bull run as the economy has grown at over 8 percent annually, driven by high domestic consumption and exports.

The benchmark stock index rose 42 percent in 2005, 47 percent in 2006 and 4 percent so far in 2007, leaving investors cautious over the potential for sustained returns.

Clot said the sharp rise in price earning ratios in India were being driven by strong corporate profits, but also by speculation in some stocks. "One cannot exclude a correction takes place in India in '07," he said.

However, the strong earnings growth would continue, as it was being fueled by an expanding middle-class as well as robust exports, while many other countries had just one of those two engines of growth, he said.


"Corporate profits will remain quite high in '07-'08 and will be the main engine and incidentally, the one we prefer because it is a much sounder one than the pure multiple effect," he said.

Societe Generale has a mutual fund joint venture with India's largest bank, State Bank of India. SBI Funds Management Pvt. Ltd. manages assets worth 180 billion rupees ($4.08 billion) serving 3.5 million investors.
Societe Generale also has an offshore fund worth $350 million focussed on India and Clot said it was set to grow to over $2 billion in five years.

"India is one of the main theme of diversification for international investors," he said.

He also saw investment opportunities in infrastructure and all sectors catering to the middle-class.
Societe Generale manages $450 billion worth of investors' money in 32 countries including $44 billion in Asia.

Faithful to the India story (Reliance Growth Fund)

Source: Hindustan Times..

While almost all equity funds have rewarded their investors handsomely in the past three to four years, there is a clutch of funds that clearly stand out.

Reliance Growth Fund is one among those whose stellar performance in no small way built the reputation of Reliance Mutual Fund, which now has become the largest fund house in terms of assets managed.

The scheme was launched way back in October 1995 as an open-ended equity growth scheme with the stated investment objective of achieving long term growth of capital by investment in equity and equity related securities through a research based investment approach. It is positioned as a diversified equity scheme that can invest in small, mid as well as the large cap stocks without any group bias and takes a long term view without being excessively bothered about the short term volatility of the markets. This allows the small investors to bet on the long term growth story of India without being affected by the market swings.

Having said that, the fund has put money predominantly in mid cap stocks with excellent growth credentials. It has grown to become one of the largest equity funds in the country with assets under management of Rs 3214 crore as at January 2007, a significant jump from the Rs 1963 crore of assets managed in July, 2006. Fund Manager, Sunil Singhania who has been at the helm from 2004 is a Chartered Accountant and a Chartered Financial Analyst (USA).

On the return front, Reliance Growth has been a top performer posting an annualised return of 33.94 per cent returns since inception compared with 13.92 per cent of its benchmark, the BSE 100. Over the past three year and five-year periods, returns have been exceptional at 52.37 per cent and 63.54 per cent in comparison with the 32.23 per cent and 32.66 per cent return of the benchmark index over the same time frame. In the recent six month to one year horizon too, a period in the stock market which saw superior gains from large caps, Reliance Growth has returned 30.52 per cent and 33.95 per cent gains as against the category median of 22.82 per cent and 25.80 per cent. The manager has been able to contain volatility as well with the indicator beta at 0.91, in line with the median of the peer group of diversified equity funds.

Compared to its many of its peers, Reliance Growth’s portfolio is more diversified with the top three sectors and the top ten stocks contributing at a significantly lower level (about 30 per cent) to the total portfolio value.

A relatively high percent of the portfolio (about 12 per cent as at January 2006) is in debt/ cash as well. When asked about this, Madhusudan Kela, Head Equities at Reliance Mutual Fund said that cash levels are maintained as part of an overall investment strategy and the fund manager is not factoring in a drastic fall in market levels.

True to its philosophy, the fund has invested across a range of sectors and has been fairly consistent in keeping many of the top stocks in the portfolio unchanged over the past one year.

The top three sectors the fund has invested in are metals, industrial goods and software. In January, the fund increased its exposure to metals, petroleum and auto sector while paring exposure to capital goods, pharma and software sectors.
The fund has also invested in new issues and has added the newly listed Cambridge Solutions to its portfolio the previous month. The price earnings multiple of the portfolio at about 13 is rather low as well compared to many of its peers, which points to a value based investing philosophy. When queried by myiris.com on the approach to portfolio building, Kela said that the fund is essentially a mid-cap oriented and a strict comparison with large cap funds (of which there are many in the equity diversified group) might not be very relevant.

On the whole, while large market corrections could affect this fund’s NAV perhaps more than others, it is a bet on the India growth story especially that of emerging companies. When myiris.com pointed out that mid-cap stocks have run up appreciably in the beginning of 2007, Kela said that the fund management team believes in the mid-cap story of India over the next three to five years and will continue to find compelling mid-cap ideas.

The best way to invest (Gold ETF Funds)

Source: Express money

Junk the jeweller, bung the bank. If you buy gold for investment purposes, you don’t need to look beyond gold funds now ..

When the new fund offer of Gold Benchmark Exchange Traded Scheme opens for subscription on Thursday, it will mark a milestone in Indian investing. Not only will it mark the debut of a hassle-free way of investing in gold, it will make India only the seventh country in the world to offer gold funds to its investing public. If you buy gold for investment purposes, not for consumption, take note: gold funds are the least problematic and most cost-efficient way of investing in the yellow metal.
Gold BeES
It’s fitting that the first gold fund to hit the market should be from Benchmark Asset Management Company, which filed an offer document for a gold exchange-traded fund (ETF) with Sebi as far back as May 2002 the first to do so not just in India, but also in the world. UTI Mutual Fund and Kotak Mahindra Mutual Fund have also got the green signal from Sebi to launch their gold funds. These are expected to be launched any day now and will probably be on the same lines as Benchmark’s Gold ETF.

Gold BeES is an open-ended ETF that gives you an exposure to gold, without you holding gold in the physical form. Here’s how it will work. In its NFO, two kinds of units will be allotted. The money pooled in by investors like you will be used to buy gold from companies and high net worth individuals, who will, in turn, be allotted ‘creation units’. The gold will be stored by a custodian on Benchmark’s behalf.

The transaction cost in a gold fund is 1-1.5%. A jeweller charges a mark-up of 5-7%, banks 10-20%

The creation units give these large investors the right to buy gold from Benchmark whenever they want. The gold serves as the underlying security backing your units. So, when the price of gold rises or falls, the value of Benchmark’s gold holding moves in tandem, as does the NAV (net asset value) of your units. Once the allotment happens, the fund is listed. The units allotted to you (not the creation units) are traded on a stock exchange like any other security.
The trading price is closely linked to the fund’s NAV, which is closely linked to the price of gold. Each unit of Gold BeES will represent one gram of gold. Say, the per gram price of gold on the date of allotment is Rs 950 and you invest Rs 10,000, the minimum. Benchmark is charging an entry load of 1.5 per cent (Rs 150 on Rs 10,000). That means the net amount invested is Rs 9,850. Given the price of Rs 950 per gram, you will be allotted 10.37 units (9,850/950).
These units are like a company’s shares, and will trade on stock exchanges. So, when you want to sell your units, in part or in full, you sell it on the exchange at the given market price. Similarly, when you want to buy more units, you buy more from the stock exchange. Since the market price will be linked to the spot price of gold at all times, you have a near-mirror exposure to the asset. Says Rajan Mehta, executive director, Benchmark Asset Management Company: “Since we don’t have an official spot rate in India, we have benchmarked it against LBMA bullion rates, to which we add import duties and VAT, and convert it to Rupees.”
There can be times when this linkage weakens a surge in demand for units lead to a spike in the market price of the Gold BeES or a sell-off leads to a crash. Benchmark has budgeted for such times also. It has tied up with some authorised participants who, in such times, will arbitrage between spot price of gold and the market price of the Gold BeES, and link prices again to NAV. As a result, the deviation in the market price from the NAV is expected to be minimal.
The advantages
Gold ETFs are, by far, a cheaper and hassle-free way of investing in gold, compared to jewellery, bars and coins, more so if you invest only a small sum. Lower cost. In Gold BeES, the transaction cost in the NFO is the entry load (1.5 per cent). By comparison, a jeweller charges 5-7 per cent over the spot price, banks 10-20 per cent. In fact, experts say, if you get top brokerage rates, you can even invest in a gold ETF for less than 1.5 per cent through the secondary market. Says financial planner Surya Bhatia: “Investors are buying and selling on 0.6 per cent brokerage. Even if you add some arbitrage spread to that, it will be less than the 1.5 per cent.”
Then, there’s the recurring charge. Benchmark will charge an annual expense of up to 1 per cent, which will go out of the NAV. Even this might come down. Says Mehta: “As the size grows, we hope to reduce it.” If you hold gold in the physical form, you will need to rent a locker, the annual charge for which varies from Rs 400 for a small one to Rs 4,000 for a big one. If you are a HNI and have a sizeable gold holding, it works in your favour. But if you are a marginal investor, ETFs make more sense.
Greater convenience. You will hold Gold BeES as an electronic entry in your demat account. You don’t have to worry about purity, storage or safety (that’s Benchmark’s job). All this without compromising on liquidity. Although ETFs are still gaining currency, trading volumes in existing stock-based ETFs is high enough to facilitate easy entry and exit for small investors. Gold BeES, being the first of its kind in India and with obvious advantages, should see strong investor interest.
Lower taxes. Gold held in physical form is subject to a wealth tax, of 1 per cent of the incremental amount above Rs 15 lakh. So, if you have gold worth Rs 20 lakh, you will have to pay a wealth tax of Rs 5,000 (1 per cent of Rs 5 lakh). Gold funds are exempt from wealth tax. There is a differential tax treatment of long-term capital gains the threshold for physical funds is three years, but one year for gold funds.
Should you invest?
It depends on your investment objective. Remember, though gold has done well in the past few years and is expected to appreciate further (See box: Still a golden run, page 1), that doesn’t make it an automatic investment choice or the cornerstone of a portfolio. Gold is different from conventional financial assets like debt and equity. Says Bhatia: “Gold is a store of value and a hedge in turbulent times, not a wealth-creation investment vehicle.” If you are looking to give your portfolio a defensive tilt, gold is a good option and gold funds the best way to get that exposure.

The shine will stay
Madan Sabnavis
It is interesting that gold has been a traditional form of savings in India based on the gut feeling that its price can never fall. With the growth of futures trading, new investment options have been offered; and the proposed launch of gold ETFs is a further improvement, where you can trade on gold, without holding it and yet be sure that there is a gold backing for every transaction. Today, gold is also a very smart investment option, and there are a number of theories that indicate the direction of price movement.
Gold is today priced in the range of $650/ounce. The Indian price is a mirror reflection of the international price adjusting for the rupee-dollar rate and the taxes levied at the Central and state levels. The correlation coefficient how closely domestic gold prices track international prices is a high 95 per cent. So, if we get the international price movement right, we will get the Indian price right.
There are three factors to watch for depending on the investment horizon in mind. In the very short run, which could be up to three months, the market links the price of gold to the price of oil. Typically, when the price of oil goes up, so does that of gold. The price of crude has been falling in the past two months, but the feeling is that as winter sets in the US, it could start rising. And so would the price of gold then.
In the short run, say up to six months, inflation will be a dominant factor affecting the price of gold, which is considered to be a natural hedge against inflation. Inflation appeared to be a worry in the Western world, as there was signs of an overheated global recovery, which made several central banks raise their interest rates. However, since the US Fed or other central banks have not raised interest rates in the recent past, it may be concluded that inflation is not an immediate concern.
In the longer run, which can be defined as one year, the price of gold will be linked inversely with the price of the dollar. This has been historically the case, except for a brief deviation in the latter part of 2005, when all asset prices went up, including the dollar. The correlation coefficient here is over 85 per cent.
Now, with the US current account deficit at 6.3 per cent, the dollar has to depreciate. It did happen by about 8 per cent last year, falling from $1.20/euro to $1.30/euro. However, there will be certain mitigating factors such as pressure from within the US to correct this deficit through higher interest rates, as well as from outside, particularly the Euro zone, which will be keen to ensure that its currency does not strengthen too much so as to blunt its export competitiveness.
Putting all these three factors together, only an upward movement can be visualised, albeit with a crawl given the mitigating circumstances. Lastly, with gold ETFs coming into play, there will be greater demand for the physical metal too, which will exert an upward pressure on prices. In short, the fundamentals indicate that the bull run in gold should continue in the current year.
The writer is chief economist, NCDEX. The views expressed are personal
‘Costs are not high’
Rajan Mehta, Executive director, Benchmark Asset Management Company
It’s appropriate that the country’s first gold fund is floated by Benchmark Asset Management Company. Almost five years, Benchmark had submitted an offer document with Sebi for the world’s first gold exchange-traded fund (ETF). Benchmark ED Rajan Mehta on its finer points.
How will you classify your gold ETF?It’s a passive fund with underlying assets to it. Its NAV moves in tandem with the spot price of gold. Since we don’t have an official spot rate in India, we have benchmarked it against LBMA bullion rates, to which we add import duties and VAT, and convert it to Rupees. Since your holding is in a demat account, not physical, it is a convenient, transparent and tax-efficient mode of investing.
Isn’t the NFO entry load of 1.5 per cent high?Not really. It’s comparable with the secondary market transaction costs, which comprise 0.5-0.85 per cent of invetsment as brokerage and a bid-ask spread of 0.50 percentage point.
And expenses of 1 per cent a year?Internationally, it ranges from 0.4-1 per cent. Here, the custodian charge alone is around 0.5 percentage point, which is high. But as the size grows, we hope to reduce the management cost.
Is gold a good investment?Gold is a store of value. It’s a unique asset and appeals to all sections. A farmer in a village is interested in it, as are central banks. It shouldn’t be taken as a return-generating asset, but as a store of value.
What is the challenge for you?Right now, people don’t understand ETFs. The challenge is to make people understand the product and penetrate the market, and then innovate with the product.
‘Don’t buy for returns’
Surya Bhatia, Financial Planner
One of the things financial planners never tire of saying is that gold is a hedge against all calamities, not an investment avenue for wealth creation. It's a theme that Surya Bhatia iterates again when asked how the small investor should look at gold ETFs as an investment option.
How do you rate gold as an investment?Gold is a comletely different asset class than, say, debt or equities. It is a good hedge, but it shouldn't be seen as a return-generating asset.
It helps you preserve the value of your asset. If you are looking for returns, gold is not for you.
If one is not looking for returns, is the Gold ETF a good option?No, it isn’t. But if you have to invest in gold, it should be the ETF way, as it has many advantages. The ETF doesn't require you to physically possess gold. Also, the cost of transaction and ownership is less than other options. Therefore, I see it becoming a popular mode of investment.
And how do you rate the Benchmark BeES?The product is good, but it could have been better with a lower entry load and annual charge. The entry load, at 1.5 per cent of the investment amount, seems to be on the higher side.
If you purchase those units from the secondary market, your transaction cost, which comprise the brokerage cost and the arbitrage spread, would work out to around 1 per cent of your investment. At 1 per cent per year, the annual expense also seems to be on the higher side, and can be brought down.
So, what would you advise investors?Rather than invest in the new fund offer (NFO), wait for a month for the units to list, and then invest.

India is in for long period of high and stable growth’

India is in for long period of high and stable growth’

Source: Economic Times..

Jpmorgan Asset Management recently forayed into mutual fund business in India. The company already has an exposure of around $6 billion to Indian equities through India-dedicated offshore funds. . Excerpt: What’s your view on the Indian equity market? JPMorgan group is optimistic about the Indian equity markets. With good growth prospects for the Indian economy, Indian companies are expected to grow topline and bottomline at good rates. Already, the Indian companies are witnessing a dramatic improvement in their return on equity and return on capital employed. Balance sheets are looking robust. Fundamentally, the India story looks good. India is in for a long period of high and stable growth. Aren’t market valuations on the higher side? Often P/E multiples for the entire market is looked at in order to get a regional perspective on valuations. This could be misleading. Rather it is the earnings — quality of earnings and the sustainability of the earnings growth — that is important. And for India, the story looks good ahead. For March 2008, consensus estimates put Indian corporate earnings to grow at 15% — an upgrade from the 12-13% levels expected three months back. In the past 12-18 months, there has been constant upgrade of earnings estimate. At the current juncture, the top two themes are ‘domestic consumption’ and ‘infrastructure’. Companies that fall under this category are expected to do well. Our top holdings in JF India Fund are Infosys (6.8%), Bharat Heavy Electricals (6.7%), ACC(6.1%), Bharti Airtel (5.7%) and Larsen & Toubro (5.2%). Our portfolio valuations, based on various metrics like P/E, P/B, are also at index averages. Why are you entering into the MF business in India? Increasing exposure to markets such as India is as essential to our business development as it is to our client’s portfolio performance. We are already among the top three investors in India, managing around $6 billion of India-dedicated offshore funds. We are already the fourth largest MF in China ($110 billion market). If we have to remain a leader in Asia, we have to be a leader in India. Our exposure to emerging markets began with the launch of Asia fund in 1971, followed by launch of global emerging market fund in 1990. What’s your current portfolio strategy for India investments? We typically use the proprietary model for doing the valuation exercise. India, at current valuations, is giving a larger landscape for stocks to be picked at attractive levels using the bottom-up approach. We maintain a concentrated portfolio — with portfolio turnover remaining below 30% pa. Our top 10 stocks for India-dedicated fund constituted 50% of overall portfolio.

SIP it slow, if you want it to grow

SIP it slow, if you want it to grow

DNA

SIPs allow one to buy at every level in the market; one buys more in a falling market and less when the markets are rising

MUMBAI: Systematic investments plans (SIPs) of mutual funds are slowly becoming popular. And with good reason. Going by the advertisements brought out by mutual funds detailing their many virtues, they may well be the best thing to have happened to mankind since the invention of the wheel. Jokes apart, investing through SIP does work.
Reliance Growth has been the top performing scheme in the last ten years. If an investor had invested Rs 2000 every month, from October 1996 till now, over a ten year period, his total investment of Rs 2.40 lakh (Rs 2000 per month, amounts to Rs 24,000 per year, and Rs 2.4 lakh over ten years) would have grown to more than Rs 22.1 lakh by now. This with the assumption that he had invested in the growth option of the scheme.
But back then, the investor had to know that Reliance Growth as a scheme would be the best performing scheme, in the next ten years. This he obviously would not know given that the scheme was launched only in December 1995 and had very little track record. Also those were the days when US-64 used to rule the roost and every middle class Indian had it as an essential part of his or her investments.
Let's say an investor wants to start investing through an SIP now, he does not face the same problems, like his contemporary did ten years back. Right now, like other things in life, there is no dearth of mutual funds to choose from. On the last count there were more than 160 funds to choose from in the diversified equity category. Also some of the mutual funds have been in the market for a period of five to ten years now. Hence there is enough data to separate the men from the boys.
The first thing to take a look at when deciding to invest through the SIP route is to take a look at the long term performance of the scheme, preferably over a 5 to 10 year period.
If a fund has performed well over this period what it tells us is that the fund has been through various stages of the market and has survived them. Hence the chances of such a fund performing well over the coming years are better vis a vis fund which was launched only in the last few years of the bull run.
As of now most fund houses charge the same entry load on bulk investments as well as SIP investments. This typically tends to be 2.25% of the amount invested. But there are fund houses which charge an entry load of 1% or even 0% on investments through SIP.
This is used as a selling point by mutual fund distributors. But an investor should not invest in a fund through the SIP route just because it charges a lower entry load. The long term returns of the fund should be the primary criteria on whether to invest in a particular fund.
It is very important to continue with the SIP when the markets are falling. When the markets are falling, its a good time to buy. But when prices are falling, its psychologically difficult to buy. On the other hand, when the markets peak, a lot of investors enter the market.
An SIP ensures that you buy more when the markets are falling and less when its peaking. But if an investor backs out when the markets are falling he won't be buying when the markets are falling and this will not him to average his price, the primary reason behind the success of investing through the SIP route.

To know how to get started with sip write to mutualfund_help@yahoo.com.

How to handle DEBT carefully

How to handle DEBT carefully

Moneycontrol
The last few years have seen a substantial rise in the personal debt of individual families in India. This is in the form of credit card outstanding balances (many people don't even realise this is a debt), personal loans, vehicle loans, home loans etc.
The reason for this is, of course, quite obvious:
Booming economy with rapid increase in income levels
Double income families
Low interest rates
Easy availability of finance & convenience
Hard-selling by the lenders
Unbridled consumerism
But debt is, in effect, spending tomorrow's income today. Therefore, as long as the going is good, there's no issue. But suppose
(a) There is a setback to one's income (job losses are not uncommon) or(b) There is some emergency (medical problems, natural/manmade disasters etc. are also not uncommon) or (c) If the interest rates become too high (could happen if the inflation does not come under control soon). God forbid if things turn bad, then debt could become a really serious problem. Therefore, we must be extremely careful and smart in the way we manage our debt.
Before you take-up a debt, you must keep three things in mind:
What is it financing?
Paying for the parties or dinners through credit card is very common. As long as this is within your paying capacity and you will clear the bills on the due date, then it's OK. But if you are going to roll-over your balances, then you are using your credit card debt to finance consumption. Or if you are going on a vacation abroad under an EMI (equated monthly instalment) scheme, again you are financing consumption. This is definitely the worst form of debt and must be prevented.
If instead, you are buying a house or a car through a loan, that's fine. You are, at least, buying an asset.
So ideally speaking, debt, which builds assets for you, is OK.
Is it within prudential norms?
Second important point is to keep your debt within manageable levels, even though the lenders may be willing to lend you large amounts.
This can be checked by calculating your 'debt service cover ratio', which is nothing but Debt service cover ratio = Monthly payment of all loans / Monthly take home-pay
Broadly speaking, if you have no significant liabilities, then this ratio should not exceed 40-45%. And, as you near retirement or add any liabilities, this ratio should be suitably reduced.
Also, the ideal ratio will depend on the type of loan. For example, for home loans 40-45 per cent?ratio is fine. But for personal loans, the ratio should preferably not exceed 15-20 per cent?and for credit cards it should be less than 5-7 per cent.
Are the terms competitive?
Shop around for the best deals in terms of interest rates, convenient repayment schedule, and minimum prepayment charges etc. The financial jargon can sometimes be confusing. So if it sounds too good to be true, it should raise warning signals in your mind. Remember, it is better to be safe than be sorry.
But if you have already breached the above guidelines, you can still try to bring the things under control.
Consolidate your debts
If you have too many loans like multiple credit cards, personal loans, home loans, vehicle loans etc. it will be difficult to keep track of all these and make timely payments on the respective due dates. You could therefore, for example, transfer the balances on your various credit cards to one card. Or you could take a personal loan and pay-off all your credit card outstanding balances. This will consolidate all your small loans into a single debt, making it easy to manage.
Pay-off 'bad' loans first
The credit card debts and personal loans are the so-called 'bad' loans. One, they primarily finance consumption and two the interest rates on these are comparatively very high. Therefore, take immediate steps to clear-off these loans at the earliest.
Refinance your loans
Another smart way is to borrow against your LIC policy, mutual funds, equity, etc. These loans are comparatively much cheaper (maybe around 10-12 per cent) because they are secured. Secondly, they can be paid in convenient installments vis-?say a credit card debt, which has to be paid fully, or it starts attracting compound interest. Third, these loans give you more time to repay. Use this money to pay-off all your high-interest 'bad' loans.
In fact, many a times it is seen that people have money in a bank fixed deposit (where they earn say 7-8 per cent) and still have credit card debt/personal loan (where they pay anything between 18-36 per cent). This makes no sense and this FD should be used to pay-off such high-interest loans.
All this will result in huge benefits in terms of
Reduced debt burden
Lower interest outgo
Convenient payment schedule
Less no. of debts to keep track off
Not being bothered/harassed by the lenders
Therefore, get smart with your debt 'NOW'. Don't let it become such a big burden that it affects your personal relationships, causes emotional trauma, lead to loss of social standing and in the worst case cause you to lose your home/car/other assets.

ELSS: Standing the test of time

Source: Business standard
Although equity-linked savings schemes of mutual funds may not have fared as well as ULIPs over the past year, fund managers advise investors to look at these funds more seriously.
They also feel investors should opt for a longer time horizon, as a one-year period is too short for an ELSS.
"Now, ELSS has a long background with a proven track record. An investor can chose from hundreds of schemes, which is not the case with ULIPs. Over the past year, a large number of ULIPs have been launched, and their returns are yet to stand the test of time," says Sanjay Sinha, equity head, SBI Mutual Fund, which runs a successful ELSS - Taxgain.
Over the long term, ELSS returns are indeed noteworthy. According to Value Research data, ELSS funds have, on an average, earned a compounded return of 41 per cent a year over the past five years. In the same period, the Sensex has seen a yearly gain of 33 per cent.
Mutual funds, typically, cost less than ULIPs in terms of management fees. Sinha says, "The charges deducted by ULIPS are higher in most of the cases, even though they could differ depending on the scheme."
Financial planners advise investors to keep investments and insurance separate. And small investors like Ganesh Barbhai, a 45-year-old private sector bank professional, are implementing that.
He sees no point in mixing the two. Barbhai, who is an avid follower of the stock markets, has a portfolio consisting of 15-20 stocks ranging from Reliance Industries to recently launched mid-cap infrastructure scrips.
ULIP is not an easy product to understand and, if investors are not savvy enough, some of the benefits such as switching from equity to debt may not be utilised.
"My company takes care of both my life and medical insurance. So I do not find any reason to invest in insurance policies, though they are fetching good returns," says Barbhai.
"Besides, while investing into ULIPs, sometimes the investor has to choose between exposure of his premium towards life cover and investments, or among the four-five plans offered by the insurer. I see many hassles here. In ELSS, there is no such hassle, once you pay the basic amount, the AMC deducts its load, and your investment is through," adds he. The entire investment is put in the vehicle (after load) in the case of ELSS unlike ULIPs.
"In ELSS, the entire collection or corpus is put into some or other instrument, while that doesn't happen for ULIP, as part of it is reserved for life cover," says Sinha.
However, there are many who believe the two products are different and cannot be compared.
"I don't think there is any reason to compare ULIP with ELSS. I view the two as totally different investment routes. The basic objective of a ULIP is insuring for life. If compared with the returns given by ULIPs, I think ELSS have performed better, even though it is not prudent to compare sheer returns of the two instruments, irrespective of their nature and objective," says R Rajagopal, equities head, DBS Cholamandalam.
Sinha of SBI Mutual Fund advocates for ELSS - rather than ULIPs. He says mutual fund schemes give more returns and cost less.
Financial planners advise investors to first get the basics right - use the tax exemption limit and invest in ELSS, and take a term insurance policy to cover life.Any surplus investment beyond this amount can be invested in mutual funds or ULIPs, based on the risk appetite.

How safe are your Fixed Deposits...

Source: Times of india

Have you recently noticed a large number of advertisements from banks, announcing hikes in their fixed deposit interest rates? You couldn’t have missed them. They are everywhere – hoardings in railway stations, advertisements on TV, jingles on the radio, etc. Are you impressed with the rate hike? If you are, you have a misconception. The hikes in bank fixed deposit interest rates are merely an illusion. The truth is — the ‘real’ return on your bank fixed deposit is miniscule-tonegative.

UNDERSTANDING ‘REAL’ RETURN

When you place your money in a bank deposit, you believe that the interest rate offered by the bank is your income. Wrong.

There are two outflows from this interest income.
The first one is obvious, and the other, not so obvious.
The obvious one is taxation. Interest income earned on your bank deposit is fully taxable. The ‘not-so-obvious’ one is inflation. Inflation eats into all your income – whether it is earned income (salary, business income, etc.) or unearned income (income from your investments). However, in case of a fixed income investment such as a bank deposit, a rise in inflation has an immediate effect. IMPACT OF TAXATION ON YOUR INCOME Presently, banks are offering interest of about 8-8.50 per cent on one-year fixed deposits. Let’s assume that you are earning 8.50 per cent on your one-year fixed deposit. This income is fully taxable. This means that if you fall in the highest tax bracket, i.e. 30 per cent, 2.55 per cent of your interest income will have to paid as tax (30 per cent of 8.50 per cent). You are now left with 5.95 per cent interest income.

IMPACT OF INFLATION ON YOUR INCOME
Recently, inflation touched a 2-year high of 6.12 per cent. The main culprit has been a rise in the prices of food items. The supply of essential commodities has been lower than the demand, resulting in rise in inflation. While the rate of inflation did come down marginally to 5.95 per cent for the week ended 13 January, the expectation is that it will be difficult to contain inflation in the near future. Inflation directly reduces the ‘real’ return on income through a simple subtraction. This means that assuming an inflation rate of 6 per cent, your bank deposit interest rate of 8.50 per cent, will become 2.50 per cent after reducing inflation.

THE NET EFFECT
A combination of taxation and inflation has a profoundly negative effect on your bank deposit interest rate. Let’s understand this dual effect taking our example forward. On your interest rate of 8.50 per cent, after taxation and inflation, your ‘real’ interest is -0.05 per cent! By placing your money in a bank deposit, you are actually eroding your capital! However, don’t despair. There are better investment alternatives, which are equally safe AND help you retain the real value of your capital.

ALTERNATIVES TO BANK DEPOSITS
Mutual funds offer a number of debt schemes, which are good alternatives to bank deposits. These schemes help cope with inflation by either investing a portion of the corpus in equity (where potential returns are higher than debt securities thereby helping earn returns that are higher than the inflation rate) and/or investing in debt securities with floating interest rate (where the interest rate is reset depending on the market rates). In addition, dividend distributed by these schemes is tax-free in your hands. Some of these schemes are enumerated below: Floating Rate Funds (FRFs) FRFs invest in floating rate debt securities such as bonds, floating rate notes, debentures, etc., where the interest paid on the security is reset periodically, depending on changes in market interest rates. Due to this, they help the investor avoid taking the risk of interest rate movements. Capital Protection Funds (CPFs) CPFs invest about 70-75 per cent of the corpus in debt securities, which are rated by rating agencies such as CRISIL, ICRA, etc. The balance 25-30 per cent is invested in equity derivatives, i.e., futures and options. While debt has the required safety, equity derivatives, too, offer safety through hedging with the potential for better returns. Fixed Maturity Plans (FMPs) FMPs are debt funds which are usually close-ended. FMPs are comparable to bank fixed deposits, since they invest in securities whose tenures approximately match that of the fund’s tenure. When you invest in an FMP, check with your mutual fund distributor the indicative return on the FMP. CONCLUSION Don’t live with the notion that a clever way to avoid spending time on your investments is to park them in bank deposits at minimum risk and simply watch them grow. Neither will the risk be minimum nor will your investments grow.

To know more abt mutual funds investment write to personalfin@gmail.com

GETTING YOUR MIN AND PUTTING IT TO USE

GETTING YOUR MIN AND PUTTING IT TO USE

Source: timesurmoney
ALTHOUGH QUOTING A MUTUAL FUND IDENTIFICATION NUMBER (MIN) HAS BECOME MANDATORY FOR MUTUAL FUND PURCHASES OF RS 50,000 OR MORE, FROM JANUARY 1, 2007, BARELY 2,000 INVESTORS HAD THEIR MINS IN PLACE AT THE BEGINNING OF THE NEW YEAR. THIS IS A RATHER INSIGNIFICANT NUMBER, CONSIDERING THAT THERE ARE AROUND 2.5 CRORE FOLIO NUMBERS IN EXISTENCE.

THIS MAY BE PARTLY DUE TO THE FACT THAT THE MIN GUIDELINES CAME OUT AS LATE AS DECEMBER 27, 2006, AND INVESTORS HAVE NOT HAD THE TIME TO GO OUT AND GET THEMSELVES MINs.

IT MAY ALSO BE DUE TO THE FACT THAT SOME INVESTORS DO NOT REALISE HOW SIMPLE IT IS TO OBTAIN THIS NUMBER AND HOW ALL PERVADING IT WILL BECOME IN FUTURE. HERE’S AN FAQ ON MIN AND ITS IMPORTANCE.

WHAT IS A MIN? FOR WHAT DO I NEED IT?
A Mutual Fund Identification Number (MIN) is a unique number that is allotted to mutual fund investors. If you plan to make a fresh investment of Rs 50,000 or more in any mutual fund scheme, you must quote your MIN on the application form.

DO ALL MUTUAL FUND INVESTORS REQUIRE A MIN?
At present, those who make fresh investments in any scheme from any fund house require a MIN. If you are investing via a Systematic Investment Plan (SIP), you will need to obtain a MIN even if the SIP was registered prior to January 1, 2007. However, any switches made from existing investments or dividends re-invested do not require quoting of a MIN. Another class of mutual fund investors, who are exempt from furnishing their MIN, are existing investors, irrespective of their current holdings, as long as they do not purchase units worth Rs 50,000 or more.

DO I HAVE TO GET A NEW MIN EACH TIME I INVEST IN UNITS OF MUTUAL FUNDS?
No. Once you acquire a MIN, it can be quoted on all future mutual fund unit purchases that you make, irrespective of which mutual fund house you invest with and which scheme you choose. What’s more, you do not have to mention your MIN, each time you purchase fresh units. Once it is linked to your folio number, the fund house in question will use it in all future account statements. In case you possess multiple folios/accounts with a single mutual fund, you can request them to update the MIN in all your folios/accounts.

SUPPOSE I HOLD A JOINT FOLIO WITH ANOTHER INVESTOR. DO WE RECEIVE A JOINT MIN?
No. In the case of joint holdings, each of the holders should have a MIN of their own, which must be quoted across all their holdings, single or joint.

IF SOMEONE IS MANAGING MY PORTFOLIO FOR ME AND INVESTING ON MY BEHALF BY USING MY POWER OF ATTORNEY (POA), WHOSE MIN MUST BE QUOTED?

In such cases, the person who holds your PoA is required to obtain a separate MIN and quote it along with your own MIN while investing on your behalf.

CAN MINORS APPLY FOR A MIN?
Minors will not be allotted MINs. So, while investing on behalf of a minor, the guardian of the minor must quote his or her MIN in the mutual fund form. However, once no longer a minor, the investor must obtain a MIN of his or her own.

WHAT ARE THE CHARGES THAT MUST BE PAID TO OBTAIN A MIN?
This number can be obtained free of cost, simply by submitting the appropriate form along with certain basic personal documents.

WHERE CAN I GET THE FORM? WHAT DOCUMENTS ARE REQUIRED?
The form can be downloaded from AMFI’s website (www.amfiindia.com) or from the websites of mutual fund houses with whom you plan to invest. Alternatively, mutual fund distributors will guide you about where a physical form can be obtained. You have to submit proof of identity and address, your photograph and a copy of your PAN card along with the form to designated Points of Service (POS) which comprise select branches/ offices of mutual funds, registrars and select branches of banks.

HOW LONG WILL IT TAKE FOR ME TO RECEIVE A MIN ONCE I SUBMIT ALL MY PAPERS?
After checking your documents, you will be allotted a MIN across the counter. Then, your documents will be subjected to a more detailed verification and in case of any discrepancies, the MIN may be cancelled or rejected. You will be informed about the cancellation/rejection of your MIN through a separate communication.

HOW CAN AN NRI OBTAIN A MIN?
An NRI must send the filled in form along with a certified true copy of the passport, certified true copy of the proof of overseas address and permanent address to a representative or distributor who can then obtain the MIN for him. These documents can be attested at the Consulate’s office or overseas branches of scheduled commercial banks registered in India.

Can I apply for a MIN even if I do not plan to invest Rs 50,000 in mutual fund units right away?
Of course you can. It will hold you in good stead for the future.