Tips to Improve Portfolio Performance

 

Mutual Funds have become a simple and effective medium of creating wealth. This is the reason why Mutual Funds have become a major part of the retail investors’ portfolio. However, if you invest in mutual funds, getting best out of it is challenge, especially since there are so many MF schemes from various asset management companies. Here are few tips to improve portfolio performance:

Diversify your Portfolio

As a retail investor, one should have a strategy for investment. It is important to pay attention towards the right exposure to different market segments. Your mutual funds’ selection should be such as you have exposure to large cap, mid-cap and small cap stocks. The returns of large cap oriented mutual funds are lower than mid and small cap funds, however they are relatively safer as well. Before investing in a mutual fund, you should understand the portfolio of the mutual fund. If you invest in mutual fund through a financial advisor or broker, you can check it with him. You should also check the scheme related documents.

It is important for investors to check the proper mix as it has a role to play not only in the returns he can expect from the portfolio but also the level of risk that he may have to encounter. The large cap oriented MFs pay a lower return as compared to mid and small cap funds but on the other hand, the risk associated is also lower.

There can’t be a single formula for the correct combination. It varies from one individual to other and depends on the risk profile, investment objective & the time horizon.

Looking Beyond Returns

Many retail investors consider only the returns and the performance of the mutual fund. However, only the returns should not be the sole criteria for choosing a mutual fund. It is important to ensure that the fund house has the expertise to get most out of the different segments of the markets. You should also check the expense ratio of the fund (the percentage of money fund company charges for fund management etc).

Time Diversification

Time diversification means remaining invested over different market cycles. This is particularly important for equity fund investors. It helps in mitigating the risk that one may encounter during bad time in the economic cycle. It has high impact on investments that have a high degree of volatility such as equity oriented funds. Longer time periods smooth those fluctuations of the market. It also allows investors to take on greater risks, with a greater potential to earn better returns. This is because some of these risks can be reduced by investing across different market cycles.

Gold ETF Funds in India

So far, finance synergy hadn't featured any article on gold etf funds in India. Though there was an article on how to buy gold coins in India. So I have decided to write this post.

The mutual fund market in India has seen a rapid growth during the last decade. Fund houses started a number of schemes and few gold etf funds in India were also launched. Traditionally, gold was more popular in physical forms. But now, more retail investors in have started investing in gold etf funds in India.

There are over 30 Asset management companies and so far, 11 gold ETF funds in India. www.indotogelx.com have listed them in the order of returns over last 1 year, as on 18th Sep 2011. Though, there isn’t any significant difference in the returns because the underlying is gold for all these funds.

List of All GOLD ETF Funds in India

1. Reliance

Reliance Gold ETF was launched on Nov 2007 and its one year return is 41.33 as on 18th Sep 2011. The expense ratio of this ETF is 1.

2. Kotak

This ETF was launched in July 2007 and its one year return is 41.25 and expense ratio of this ETF is also 1.

3. Quantum

It was launched in Feb 2008 and its one year return is 41.24. The expense ratio of this ETF is again 1.

4. UTI

UTI Gold ETF was launched in March 2008. The one year return of this fund is also 41.24 and expense ratio is 1.

5. Religare

This ETF was launched in Feb 2010. The one year return of this fund is 41.18. Expense ratio is again 1.

6. SBI

The SBI Gold ETF was launched in April 2009 and one year return of this fund is also 41.18. However, the expense ratio is slightly more than other funds ie 1.06.

7. HDFC

It was launched in July 2010 and one year return is 40.81. The expense ratio is 1.

8. Goldman Sachs

This ETF fund was launched in Feb 2007 and its one year return is 40.60. The expense ratio is again 1.

9. ICICI Prudential

This gold etf fund was launched in july 2010 and its one year return 40.39. The expense ratio is 1.5 which is highest.

10. Axis and Birla Sun life

These two ETFs are relatively new and haven’t yet completed and year. Hence the 1 year return is not available. Axis ETF was launched in Nov 2010 and Birla Sun life ETF in May 2011.

Conclusion: All Gold ETF funds in India have almost similar returns because they all invest in gold. You can invest in any of these ETF funds. However, the expense ratio of ICICI prudential gold ETF is highest which means you pay highest charges towards fund management etc.

Systematic Investment Plan And Its Benefits

 

SIP stands for Systematic Investment Plan under which investors invest a specific amount of money over a period of time, at regular intervals. It is a very poweful mode of investment in mutual funds for creation of wealth in long run. By investing in SIP, investor has the advantage of Rupee cost averaging. It also helps the investor save compulsorily a fixed amount regularly.

The stock markets are very unpredictable and most of the time they are highly volatile. It depends on a number of factors - domestic as well as international. In this scenario, a systematic investment plan is best strategy to minimize the risk and gain maximum returns. Since the amount of investment is same, the investor gets more number of units in declining market and less number of units in rising market. Thus if one invests consistently the same amount at regular intervals, the average cost per unit is always lesser than the average market price.

In order to start investing in SIP, you need to plan your savings and set aside some amount of money every month that you can comfortably invest on a regular basis. Go for a diversified equity fund or a balanced fund with a proven track record. While investing in SIP, set your time horizon to long term. At any time you can enter or exit the scheme, start or stop the monthly investment.

Benefits of Systematic Investment Plan

• SIP help in accumulation of wealth by giving you the power of compounding.
• Rupee cost averaging helps minimize the risk in volatile market.
• SIP is convinient tool for investment. One can give post dated cheques or opt for ECS instructions.

Mutual Fund Basics

A Mutual Fund or MF is a vehicle to pool money from the investing public and invest it in financial securities. The MF house or Asset Management Company (AMC) has professional money managers who take this pool of money and invest it in securities such as Shares, Bonds and Money-market instruments. These securities are held in trust on behalf of the investors with a custodian. These securities form the Portfolio of the Mutual Fund.

Basic Concepts

1. NAV or Net Asset Value

On each valuation date, the Fund calculates the market value of all the investments it holds. From this value it deducts the expenses of the Fund as of the valuation date. The result (Net Value) is divided by the total number of units held by the Fund. This is the Net Asset Value per unit, commonly referred to as the NAV or Unit Value.

2. Entry Load

Entry Load is charged at the time an investor purchases the units of a scheme. The entry load is a percentage fixed by the Mutual Fund. The amount paid by the investor to subscribe at www.entbet88.com would be calculated as follows:

(Number of units x NAV) + (NAV x Entry load % x Number of units)

3. Exit Load

Exit load is charged at the time of redeeming (or transferring an investment between schemes). The Exit Load percentage is deducted from the NAV at the time of redemption (or transfer between schemes). The charging of Exit Load varies from scheme to scheme and on the terms governing when Exit Load is applicable.

(Number of units x NAV) - (NAV x Entry load % x Number of units)

Most of the diversified equity funds dont charge exit load but you should read the offer documents carefully for such information.

4. Unit Value/Unit

The Unit Value is the amount an investor pays to buy a unit in a Mutual Fund. They disinvest by selling its units.

5. Valuation Date

Each Mutual Fund is valued on a specific day called the valuation date. Most Funds are valued daily, but some are valued weekly. Others, such as Real Estate Funds, are valued monthly or quarterly.

Types of Schemes by Tenor

Open-ended: These funds are on-going and do not have a fixed maturity. Investors can encash all or part of their units at any time and receive the current value of the units.

Close-ended: These have a fixed maturity. Investors in Close-ended funds can encash their units only at the end of the maturity period.

Parties Involved

Investors: People who invest money in the mutual fund.

Trustees: Trustees are the people within a Mutual Fund organization, who are responsible for ensuring that investors’ interests are taken care of.

Asset Management Company (AMC): AMC manages the investment portfolios of schemes

Distributors: A person or a party responsible for bringing investors into the schemes of a MF

Registrars: The Registrar keeps a track of the investor’s investments and dis-investment

Custodian/Depository: An entity, usually a bank or Trust company, which holds and safeguards securities owned by a Mutual Fund.

Financial Planning for Your New Born

 

Having a newborn baby is extremely exciting. As a new parent, you probably have many hopes and dreams for your new son or daughter and can`t wait to have this special little person in your life. However, you also need to be aware of the fact that there are significant costs associated with having a child. In some estimates, parents will spend $250,000 or more on raising a child, without even counting college costs. Being financially prepared for this undertaking is a huge endeavor and you should begin financial planning as soon as you find out you are expecting, if not before.

Setting a Budget

Once you have kids, you will need to adjust your budget in order to account for the added expenses. Diapers are one cost you will need to factor in and you should think carefully about whether you plan to use cloth diapers or disposable diapers. Don`t count on cloth diapers being a big saving though, as the math often works out that cloth and disposable are about the same, when you consider the cost of buying the cloth diapers and paying for the laundering.

In addition to diapers, you will need to consider the cost of food, toys, daycare and baby expenses. Think about how you can trim your budget to make up for these added expenses. With a new baby, for example, you may not be eating out as much, so you may be able to slash your spending on entertainment and dining out.

Health Insurance

Not all health insurance companies in India will allow coverage for a newborn baby from day one. There are a few that do, however, so you should contact them to determine what the cost of insurance is. You want to make sure your infant is appropriately covered in case something should go wrong, as the cost of medical care can be very expensive.

Investing

You should also think about starting to save money for your child`s college education as soon as you can. Many people will want to give gifts to the new baby and having them contribute to an education account can be a great way to get your child started off on the right foot.

You should be contributing to your child`s college fund yourself as much as possible, of course. There are a number of different investment options to consider. Of course, you can just open a flexi bank account, which is on offer from most banks in India. These pay a higher interest rate than standard savings accounts but also offer flexibility in withdrawals.

However, since you will not need the money for a while, as your child`s education is far into the future, you should consider investing in a special investment account that will allow your money to grow more than it can in a bank. In the investment account, you will have a choice of what to invest in.

Stocks can provide the greatest potential gains but there is also great risk associated with them, as the company you are buying stocks in can suffer a decline. Since your child won`t need their education fund for a while, putting some of the money in stocks might be OK. You will have time to weather market downturns before you take the money out. Just be sure you choose established companies to invest in.

Another safer investment alternative is mutual funds. A mutual fund is an investment in a number of different stocks or investments that a fund manager determines are an appropriate mix. This way, if one item goes down, you won`t lose all of the money you invested, as would be the case with individual stocks.

Consider looking into different rewards cards or good credit card offers like those from Virgin credit card to help make sure you have money left over to save.

Importance of Investment for Newly Wed Couple

As a newly wed couple, part of your success in marriage will be to handle your finances well. A great percentage of couples in India are unhappy with their marriage because of financial issues. You can avoid this trap by securing your money as early as possible in your marriage and save yourself a lot of marital stress in the process. A clever investment can greatly add to the happiness of your married life as well as your future as a family.

Once you have decided to tie the knot, it is highly recommended that you and your spouse-to-be set up a meeting to discuss how you are going to handle your joint finances. You might want to consult with a financial planner or broker for extra guidance. To ensure that your financial planner is legitimate and not just out to make money from you, enquire whether they are affiliated with the Financial Planning Standards Board India. During your meeting, ask them about the different investments you can make as a married couple. Your broker could determine a risk profile for each of you and advise where it would be best for you to invest.

Be sure that you are very well-informed with regard to which assets you invest in. It is never a good idea to invest all your money in one asset. Rather go for a variety such as gold, post office saving schemes, mutual funds, real estate and company shares etcetera. Investing in different assets is safer, as it reduces the total risk of losing all your money, even should one of your investments fail. Depending on what your risk profile looks like, you could go for a mixture of equity and debt assets.

If you both have separate jobs and income, you could keep your own private bank accounts, but also create a joint bank account in which to deposit funds for your household. You should set certain financial goals and come up with a plan to achieve these goals. You might want to buy a house together or travel the world, all of which will require money. It is a very good idea to set aside savings monthly and invest these savings to get a better return. That dream trip overseas will never happen if you don`t plan for it and work toward getting there financially.

Watch out that you don`t start spending more now that you are married. You might want to spoil each other all the time, but it is better to really monitor how much you spend and create a monthly budget to work from.

One of the good reasons to have money saved up or invested is that you never know when you could go through a financial crisis. One or even both of you might suddenly lose your job. No job is secure and in a very unstable economy, both in India and worldwide, it is best to set some money aside to cover you for at least a few months in case of a sudden loss of income. As a couple, job loss can really change your whole life, especially if you depend on a single income. Lack of finances could force you to change your lifestyle and ruin your future plans. A wise investment could, however, carry you through situations like these.

One of the clever ways to invest your savings is to buy shares on the foreign exchange market at www.dominoz88.com. It might take some research and training to get the hang of it, but many people have made a lot of money, simply by investing in the right currencies and benefiting financially from fluctuations in the different exchange rates.

The beauty of forex investing is that you don`t have to spend money right away. You could apply for a demo account, during which you don`t invest real money, but you see what returns your investments could have given you.

How to Manage Personal Finance Successfully

Managing personal finance is one of the toughest challenges facing almost everyone in the current economic climate. The media is filled with stories about rising levels of personal debt, repossession of homes and assets, unpaid bills and bad credit ratings. Wage rises are negligible or frozen altogether, while inflation is rising. Households find that their weekly grocery bills and the costs of basic necessities such as heat and light are increasing steadily. While this all sounds very depressing, it is possible for households to cope by keeping track of what they spend and managing their personal finances successfully.

The most important factor when trying to assess income and outgoings is to be entirely honest. There is no point spending time and energy on creating a statement of outgoings if these bear no resemblance to what you truly spend each month. If possible, look back over several months of spending to ensure that things are not forgotten. For, example, the costs of running a car can vary. Do not forget to factor in annual bills such as insurance or road tax and try to include emergency funds for repairs.

It is important also to be realistic as to where savings can be made. If you have a large family who buy each other presents for birthdays, it is pointless to make a spending plan that does not include a sum to cover this. If you like to go out for meals or entertainment, then don`t exclude an amount in your budget for doing so. However, once a spending plan has been made, stick to it. This may sound obvious, but it is important to keep referring back to it and amending it if it is unworkable.

If bills are becoming a struggle and payments are being missed, then debt management is paramount. Prioritise payments carefully. Usually a mortgage or loan secured on a property should come first, payment of utility bills such as water and electricity should come next, with unsecured loans third and anything else last. Ignoring personal-finance problems will only compound the problem. Creditors are more likely to be understanding if customers have contacted them to explain their difficulties.

If a personal-finance problem is temporary, then taking out a loan to cover the necessary payments could be an option. It is very important, however, that a cycle of debt does not begin, or that the type of finance chosen is not going to lead to further problems. It is not always easy to see exactly what your chosen route of finance is going to cost. Just knowing what the interest rate is does not necessarily equate to knowing what a monthly repayment will be. Proper research is highly recommended. Some loans may have hidden fees or conditions that are not immediately obvious. That is not to say that it is not possible to save some money by shopping around different lenders to make sure you are getting the best possible deal on your finances.

Luckily, there are many useful and easy-to-use budgeting and finance tools available that make assessing potential loans much easier. Tools such as a mortgage calculator will ensure that you are fully aware of what each option will cost you every month.