Stay Away From ULIPs
source: valueresearchonline
Does it not make sense to invest in a ULIP? After all it gives the benefit of investing along with an insurance cover.
Our views on mixing insurance and investment can be summed in two words: DON'T EVER! The lure of Unit Linked Insurance Plans (ULIPs) is in its convenience - it combines insurance with investment. But what may appear as convenient may not make sound investment sense. A common misconception is that the entire amount you pay is invested by the insurance company. Not so. From the premium paid, the insurer deducts charges towards life insurance (mortality charges), administration expenses and fund management fees. So only the balance amount is invested. Also, ULIPs have very high first year charges towards acquisition (including agents commissions). In order to evaluate the return generated by a ULIP, you need to take into consideration only that portion of the premium that is invested in a fund. This information is not easy to come by. You will not know which stocks the fund manager has invested in, which sectors he is betting on, how concentrated his portfolio is and how it appears at any point in time. Neither are you aware of his stock picking capability and how strong his research team is (if he has one). You must be able to compare the returns with similar products in the market. Also, with a ULIP, you have to block your money for long periods of time. So you sacrifice on transparency and liquidity. For the tax benefit, opt for an ELSS. Here too you get benefit under Section 80C and the investment is locked only for three-years. If you have already invested in a ULIP, you might as well stick it out. Because all the charges, which could be as high as 60 per cent in the first year, begin to taper from the fourth year onwards. So you will have to stick on for at least 10 - 15 years to make sure you get a decent return on your investment. The high costs, difficulty in evaluation, lack of transparency and low liquidity don't make a ULIP a sound avenue to put one's money. Its the agents who benefit most since commissions can go up to 25 per cent. Insurance should never be an investment.
Saturday, February 23, 2008
Friday, February 22, 2008
Why “Trading” in MFs is not the best thing to do
Source: Moneycontrol
Why “Trading” in MFs is not the best thing to do
The reason people invest in Mutual Funds is because they don’t have enough time and the inclination to monitor and manage their own funds. They prefer handing their money over to a professional fund manager who would invest on their behalf in equities, debt, gold or any other asset class.
However several people, besides just selecting a good mutual fund, also tend to go one step further and try to ‘trade’ with their mutual fund investments and try to time the market.
When they feel markets are high, they send in redemption requests thinking markets would come down and when the markets are falling they tend to panic and once again send in redemption requests thinking everything is headed for doom.
Or alternatively others keep switching from one mutual fund scheme to another within a matter of weeks. They exit one mutual fund and enter another; thinking they are being smart and can get more returns this way.
I know of one person who told me how he traded in mutual funds, and how he constantly kept track of different mutual funds. Every time a new fund offer (NFO) came to the market he exited his existing mutual fund investments to enter the NFO
Now part of the reason people tend to trade and move in and out of mutual funds so rapidly is because mutual fund distributors and brokers promote this type of thinking. If you don’t move in and out of mutual funds rapidly, your broker won’t make any money. Remember that everybody works in his or her own best interest, and the best way a broker can make more money is by letting you churn your portfolio
The entry load you pay is income for your broker. Of course many of you might have started investing directly in a mutual fund and might not have to pay the entry load, however things like exit loads would still prevail in the short term.
You might make more returns than a bank FD even if you churn, but you can make much more if you don’t trade mutual funds. You can save the excess entry load and exit load, which you would have to pay. You can save time and effort.
And also the entire logic of investing in a mutual fun is to let the fund manager analyze and take care of your money. If market correct the fund manager has to decide what to do and not you. All you need to do is invest regularly in quality mutual funds. In case you have the time and inclination to do research, why not start investing directly in stocks after doing research?
Many investors ask me, “When is it a good time to exit our investments?” The best time to exit your investments is when you need the money or when you feel the investment has no scope to go up further. In case you feel the Indian economy and Indian companies are having fundamental problems in the long run, that is when you should exit your investments.
Always remember that no matter what investment you make; in the longer term risks always reduce if you have invested in quality. In order to be truly wealthy you need to have a long-term vision and belief in India’s economic growth.
A lot more needs to be done in our country and this might be a challenge to a few, but for investors like me this is a wonderful opportunity. Since I have the time and passion to learn I invest directly in stocks. I started investing with Rs. 750 when I was sixteen years old and by the grace of God the Indian markets have been very kind to me. However for all those of you who don’t have the time or inclination to learn more about investing in stocks directly, mutual funds are a great way to invest and be part of India’s economic growth.
Just remember investments are like seeds, and will grow into wonderful trees only if you give them time.
Why “Trading” in MFs is not the best thing to do
The reason people invest in Mutual Funds is because they don’t have enough time and the inclination to monitor and manage their own funds. They prefer handing their money over to a professional fund manager who would invest on their behalf in equities, debt, gold or any other asset class.
However several people, besides just selecting a good mutual fund, also tend to go one step further and try to ‘trade’ with their mutual fund investments and try to time the market.
When they feel markets are high, they send in redemption requests thinking markets would come down and when the markets are falling they tend to panic and once again send in redemption requests thinking everything is headed for doom.
Or alternatively others keep switching from one mutual fund scheme to another within a matter of weeks. They exit one mutual fund and enter another; thinking they are being smart and can get more returns this way.
I know of one person who told me how he traded in mutual funds, and how he constantly kept track of different mutual funds. Every time a new fund offer (NFO) came to the market he exited his existing mutual fund investments to enter the NFO
Now part of the reason people tend to trade and move in and out of mutual funds so rapidly is because mutual fund distributors and brokers promote this type of thinking. If you don’t move in and out of mutual funds rapidly, your broker won’t make any money. Remember that everybody works in his or her own best interest, and the best way a broker can make more money is by letting you churn your portfolio
The entry load you pay is income for your broker. Of course many of you might have started investing directly in a mutual fund and might not have to pay the entry load, however things like exit loads would still prevail in the short term.
You might make more returns than a bank FD even if you churn, but you can make much more if you don’t trade mutual funds. You can save the excess entry load and exit load, which you would have to pay. You can save time and effort.
And also the entire logic of investing in a mutual fun is to let the fund manager analyze and take care of your money. If market correct the fund manager has to decide what to do and not you. All you need to do is invest regularly in quality mutual funds. In case you have the time and inclination to do research, why not start investing directly in stocks after doing research?
Many investors ask me, “When is it a good time to exit our investments?” The best time to exit your investments is when you need the money or when you feel the investment has no scope to go up further. In case you feel the Indian economy and Indian companies are having fundamental problems in the long run, that is when you should exit your investments.
Always remember that no matter what investment you make; in the longer term risks always reduce if you have invested in quality. In order to be truly wealthy you need to have a long-term vision and belief in India’s economic growth.
A lot more needs to be done in our country and this might be a challenge to a few, but for investors like me this is a wonderful opportunity. Since I have the time and passion to learn I invest directly in stocks. I started investing with Rs. 750 when I was sixteen years old and by the grace of God the Indian markets have been very kind to me. However for all those of you who don’t have the time or inclination to learn more about investing in stocks directly, mutual funds are a great way to invest and be part of India’s economic growth.
Just remember investments are like seeds, and will grow into wonderful trees only if you give them time.
MFs crash but still promise long term gain
Source: Economic Times 12.2.08
The bearish trend in the stock market for the last three weeks has hit the investors hard. Even those who have invested through mutual funds have lost substantial wealth. However, experts and mutual fund managers say that this has created a good opportunity to invest in the market. CEO of a mutual fund run by a foreign bank said in the next one to three years, Indian stock market will give a return of more that 25% compounded annually. He advised that investor should postpone the idea of liquidating their investments in the stock markets to invest some other assets class. He said the returns from the investment in the equity market would be more than other areas. As shown in chart, in the long term, equity is still the best instrument to invest. However, he cautioned that one should not enter the market with the short term view in the current market scenario. The 30-share sensitive index has fallen by over 25% in the last one month from 20,827 on January 11 to 16,631 on Monday. This, a senior fund manager said, has brought down the share prices of many good performing companies to very attractive level. He said that prices of medium and small companies have become even more attractive.
He said the present fall in the market is mainly because of the apprehension of a slowdown in the US economy. But, many foreign fund managers feel that in a scenario of a US slowdown, Indian companies will emerge as an attractive option to invest. A senior foreign fund manager said very few Indian companies are dependent on the export revenue besides the IT companies, which will benefit from slowdown as the outsourcing by US companies will further increase to cut cost.
The performance of India centric companies is likely to improve as economy continue to grow at around
8.5%. Investment in equity of these companies will remain robust. A senior mutual fund official said there is no redemption pressure on mutual funds. Investors are still investing in MFs. According to one source, Reliance MF has raised over Rs 5,000 crore in the primary market. Other funds like HDFC Infrastructure has mobilized around Rs 2000 crore. AIG Fund has raised another Rs 450 crore. These funds are likely to start investing in the current week. Besides, funds are mobilizing substantial fund through systematic investment plan (SIP). FIIs have also started coming back in the market. In February so far, there net investment has increased by Rs 330 crore as against a net sale of Rs 3,200 crore in January.
The bearish trend in the stock market for the last three weeks has hit the investors hard. Even those who have invested through mutual funds have lost substantial wealth. However, experts and mutual fund managers say that this has created a good opportunity to invest in the market. CEO of a mutual fund run by a foreign bank said in the next one to three years, Indian stock market will give a return of more that 25% compounded annually. He advised that investor should postpone the idea of liquidating their investments in the stock markets to invest some other assets class. He said the returns from the investment in the equity market would be more than other areas. As shown in chart, in the long term, equity is still the best instrument to invest. However, he cautioned that one should not enter the market with the short term view in the current market scenario. The 30-share sensitive index has fallen by over 25% in the last one month from 20,827 on January 11 to 16,631 on Monday. This, a senior fund manager said, has brought down the share prices of many good performing companies to very attractive level. He said that prices of medium and small companies have become even more attractive.
He said the present fall in the market is mainly because of the apprehension of a slowdown in the US economy. But, many foreign fund managers feel that in a scenario of a US slowdown, Indian companies will emerge as an attractive option to invest. A senior foreign fund manager said very few Indian companies are dependent on the export revenue besides the IT companies, which will benefit from slowdown as the outsourcing by US companies will further increase to cut cost.
The performance of India centric companies is likely to improve as economy continue to grow at around
8.5%. Investment in equity of these companies will remain robust. A senior mutual fund official said there is no redemption pressure on mutual funds. Investors are still investing in MFs. According to one source, Reliance MF has raised over Rs 5,000 crore in the primary market. Other funds like HDFC Infrastructure has mobilized around Rs 2000 crore. AIG Fund has raised another Rs 450 crore. These funds are likely to start investing in the current week. Besides, funds are mobilizing substantial fund through systematic investment plan (SIP). FIIs have also started coming back in the market. In February so far, there net investment has increased by Rs 330 crore as against a net sale of Rs 3,200 crore in January.
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