Infrastructure mutual fund schemes seem to be the flavour of the season. How good are they compared to other schemes available out there?
Try taking a look at the portfolio holdings of a typical Infrastructure focused mutual fund - I assure you that you’ll be in for a surprise. Clearly, the term ‘infrastructure’ has been very loosely interpreted (if it has been interpreted at all). How else would you describe the presence of Banking, NBFC and Real estate stocks in the portfolio?
Anyways, I am quite downbeat on funds that focus on any particular sector, because they defeat the purpose of investing in a mutual fund – which is to achieve diversification and reduce risk. Concentrating the fund scheme’s portfolio in one or two sectors increases risk of capital loss in the event of a bubble. While some sectors may be flavour of the season and experience high returns over the short term, they may not last forever. Long-term investors need to stay anchored to diversified mutual funds that have a long and strong track record.
What are SIP mutual funds? Are they better than normal mutual funds?
SIP - meaning Systematic Investment Plan, is not a type of mutual fund – so there’s no question of whether they are better than normal mutual funds! SIP is a method of investing in a mutual fund. There are two ways in which you can invest in a mutual fund: 1) Outright payment and 2) Automatic periodic investments. Outright payment is when you cut a cheque to the Mutual Fund Company or Distributor, whenever you want to invest. Automatic periodic investments mode (referred to as SIP), allows you to invest a fixed amount at constant intervals e.g. every month. Before staring a SIP you need to decide on – which fund scheme you want to invest in? Dividend or growth option? How much you want to invest? How often you prefer to invest (periodicity)? How long you want the SIP to go on? How you plan to make the periodic payments i.e. through cheque or ECS (electronic clearing/ direct debit from bank)? Hope this helps.
For SIP schemes, how is the holding period calculated for tax purposes? In other words, is the one-year period (for long-term capital gains tax to be applicable) calculated from the first SIP payment or the last payment or from the mid-point? Kindly clarify.
The system of first-in, first-out applies here. For tax purposes, the units that you sell first will be considered as the first units bought and holding period is calculated accordingly.
Try taking a look at the portfolio holdings of a typical Infrastructure focused mutual fund - I assure you that you’ll be in for a surprise. Clearly, the term ‘infrastructure’ has been very loosely interpreted (if it has been interpreted at all). How else would you describe the presence of Banking, NBFC and Real estate stocks in the portfolio?
Anyways, I am quite downbeat on funds that focus on any particular sector, because they defeat the purpose of investing in a mutual fund – which is to achieve diversification and reduce risk. Concentrating the fund scheme’s portfolio in one or two sectors increases risk of capital loss in the event of a bubble. While some sectors may be flavour of the season and experience high returns over the short term, they may not last forever. Long-term investors need to stay anchored to diversified mutual funds that have a long and strong track record.
What are SIP mutual funds? Are they better than normal mutual funds?
SIP - meaning Systematic Investment Plan, is not a type of mutual fund – so there’s no question of whether they are better than normal mutual funds! SIP is a method of investing in a mutual fund. There are two ways in which you can invest in a mutual fund: 1) Outright payment and 2) Automatic periodic investments. Outright payment is when you cut a cheque to the Mutual Fund Company or Distributor, whenever you want to invest. Automatic periodic investments mode (referred to as SIP), allows you to invest a fixed amount at constant intervals e.g. every month. Before staring a SIP you need to decide on – which fund scheme you want to invest in? Dividend or growth option? How much you want to invest? How often you prefer to invest (periodicity)? How long you want the SIP to go on? How you plan to make the periodic payments i.e. through cheque or ECS (electronic clearing/ direct debit from bank)? Hope this helps.
For SIP schemes, how is the holding period calculated for tax purposes? In other words, is the one-year period (for long-term capital gains tax to be applicable) calculated from the first SIP payment or the last payment or from the mid-point? Kindly clarify.
The system of first-in, first-out applies here. For tax purposes, the units that you sell first will be considered as the first units bought and holding period is calculated accordingly.
8 comments:
After the elimination of Entry loads, where do mutual fund houses get their income from?
In many funds, I saw exit loads as zero if redemption is after 1 year and nonzero if redemption is earlier.
So, is this their only source of income (non zero case) or there are any other deduction/charges?
Also, any idea whether Mutual Funds use hedging techniques (Futures and options etc)
sir i read in newspaper regarding hedge funds scam by a sri lankan billionaire...
my question is WHAT IS HEDGE FUNDS?
Hi Shyam
I love your post actually I posted a Question on this article
http://www.shyamscolumn.com/2009/04/how-to-identify-fair-price-for-good.html
I have come across this article very now Can you give one example for any non banking share say L&T on date you choose to give us the better understnading I am missing many things I know I am asking for spoon feeding ,But need help-to identify fair value ,I dont need exact numbers , but give a rought extimation with calculations That will help a lot
Again Thanks for your valuable responses
cc090987@zapak.com
Regards
what are Futures & Options,Derivatives in trading ?
(richards15789@gmail.com)
hi, liked your column in this am's edition of The Hindu. Unfortunately couldnt find the link to backdated columns in your blog. would u be providing one? Thnx
Indovesting - What has been abolished are the entry loads. Mutual funds will continue to get their income from annual asset management fees that will be deducted from your invested amount. These fees are usually in the range of 0.5% - 1.5% of assets managed. Early redemption will also attract another fee called 'exit load'
Anonymous - Hedge funds can be thought of as mutual funds for rich people only. They usually charge a % of profits made as fee. They are not regulated unlike mutual funds and hence can buy/sell pretty much anything from real etate to race horses anywhere in the world.
Rohit - please email me for any specific query.
Marian - will try to adress this in one of my forthcoming columns
Anonymous - the blog has all past articles, just the heading may be different from that in the newspaper
Thanks Shyam! that was very informative..
Only entry load and exit loads are menitoned everywhere.
annual asset management fees are not mentioned anywhere prominently and like me, many other people must be ignorant about them.
worth reading article on this topic:
link
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