SBI Gold Fund Review – Think before you Invest

Investment Options

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August 22, 2011

SBI Gold Fund Review – Think before you Invest

Should I call it a side effect of higher gold price that SBI Mutual Fund is launching SBI Gold Fund? And, SIDE EFFECTs are normally bad… what do you say? Globally first Gold ETF (exchange traded fund) was launched in 1993 but in India oldest fund come to existence in 2007. In 2008 & 2009, two gold related funds were launched but in 2010 & 2011 nine funds were launched including SBI Gold Fund – five more funds are expected to be launched this year. WHY? Is it because gold price will rise further or is it because gold prices have increased in past?? This is a very important question which you should answer before investing in any Gold Fund.

Let’s first check what SBI Gold Fund is offering & then will try to answer the above question.

SBI Gold Fund

SBI Gold Fund allows you to invest in gold without a Demat account (which is a requirement in case of ETF). SBI Gold Fund is a fund of fund & will invest in SBI Gold ETS. This fund provides convenience to invest in gold but increases the expenses.

I will suggest you to go through our earlier articles on Reliance Gold Savings Fund – this will cover:

Features & Benefits of SBI Gold Fund
Taxation on SBI Gold Fund
SBI Gold Fund Vs Gold ETF
How to invest in SBI Gold Fund
Hidden Points in SBI Gold Fund (must read about dual exit loads & dual expenses)

Reliance Gold Savings Fund & SBI Gold Fund are exact similar funds so if you just read SBI in place of Reliance, the meaning will be same. And ideally Gold is Gold… no distinction whether the fund is run by X company or the Y company. Click here to Read about Reliance Gold Savings Fund. (must check the comments)

Must Read- 5 reasons why not to invest in Mutual Fund NFO

Should you invest in SBI Gold Fund NFO

On facebook I was looking at one interaction between people working with a big distribution house.

Relationship Manager: Now Invest in Real Gold in Monthly SIP. SBI Presents “SBI GOLD FUND” where you may invest in Real 24 Carat Gold in Paper mode.

Boss: Let’s create history this time.

Relationship Manager: we are ready to rock; you will see the historical achievement this time.

SBI Gold Fund Review - Think before you Invest Click to Tweet

Interaction clearly shows they are going to push it very hard but you need this or not is not their problem. That’s the reason I always say NO to NFOs. Fancy of Gold, Craze of SIP, Advertising Campaign, Supporting views from media & a big push from agents may drive you to wrong decision.

My suggestion is even if after reading whole article still you would like to invest in gold funds – go for Reliance or Kotak Gold Fund which are similar to SBI Gold Fund. Benefit is you will immediately get NAVs rather than waiting for couple of weeks.

Must Check – Best Mutual Fund for SIP

Should you invest in SBI Gold Fund SIP

SIP is a great way to invest but does it make sense to invest in an asset which is in fancy. Check below table which shows details of Reliance Sold Savings Fund SIP.

Months	NAV	Monthly SIP amount	Units
Mar-11	10	1000	100.00
May-11	10.56	1000	94.70
Jun-11	10.71	1000	93.37
Jul-11	10.68	1000	93.63
Aug-11	12.29	1000	81.37
Latest	13.01	0	0.00
Total		5,000.00	463.07
Value of Investment		6,024.51
Abs Returns %		20.49

Must Check- 8 Most Important Mutual Fund Questions – Sahi hai ya Nahin

Don’t you think this is against the views expressed by Warren Buffett?

“If you expect to be a net saver during the next 5 years, should you hope for a higher or lower stock market (read gold price) during that period?”

Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

Check –Should you buy Sovereign Gold Bonds?

Also check what happened with IT Sector Funds between 1998 to till date.

Now come back to our main agenda which may help you in taking final decision.

All that Glitters is not gold.

But now-a days, Gold is glittering more and investors are flocking towards gold. You see, when a user demands a particular commodity more, manufacturer line up for selling more. It is immaterial for the manufacturers whether the product is useful for the end-user or not. They will get their share of profits by selling it and distributors will get theirs. For example, if you are suffering from stomach-ache and you buy a pill that cures head-ache, Pharma Company and the chemist are at no loss. Now when Swine flu was at its peak, people demanded mask and to meet the rising demand, many lined-up to manufacture such masks.

Investment is not much different from above examples. Way back in 1999-2000, When internet bubble or Dot- com bubble was at its peak, mutual fund manufacturers or so called Asset Management Companies came up with Technology Fund came down to as low as Rs 2. Similar thing happened in 2007 when Infrastructure and Real Estate theme was at its peak alternate New Fund success of its first fund, yes 4 infrastructure fund from 1 AMC – because you were ready to give them money. When the bubble got burst in 2008, a plain diversified fund did not lose as much as what happened with infra-related funds.

Gold Vs Equity Cartoon (Dec 2010)

Now please don’t mis-understand this article as something against Mutual Funds. (Read Understanding Mutual Fund with different Prospective). It is same with even Insurance companies. In 2005 to 2007, they were selling ULIPs as market was in Bull Run and more than 90% of their new premium came from ULIP. In the start of 2008 when markets were at their peak, you were sold Money Plus or Future Plus and in the year 2009 when the markets were at the lowest, you were offered Jeeven Asstha which guaranteed that your money would be safe and would get doubled in 10 years. The fact of the matters is that if you would have invested in Money plus in 2009, your money would have got doubled in less than a year.

What we are conveying is that manufacturers and distributors only want to sell whether or not it is useful for you and in case of investments, since majority of the investors make investment based on previous past performance and based on herd mentality, manufactures and distributors sell so called the TREND OF THE SEASON.

The same theory is being cooked in case of GOLD now days. Mutual Funds are launching GOLD related products Gold ETFs, International Gold Funds, GOLD based Asset allocation fund one after the other as GOLD is in demand. We all remember about Equities- December 2007 of Extreme optimism and February 2009 of extreme pessimism – what was the outcome when people took decision based on herd mentality. In 2007, they lost money and in 2009, they never made money. Today, everyone is ready to convince you that gold price will only go higher but we just want to say – gold should be small part of asset allocation and the reason of buying gold should not be rise in price.

Check- SBI maxgain home loan

Research on investor psychology

The following are Google trend charts. It analyzes a portion of Google web searches to compute how many searches have been done for the terms you enter, relative to the total number of searches done on Google over time. This clearly shows that people start searching for investment which have gone higher in recent past. Check 2^nd Graph of Mutual funds which peaked in December 2007 when equity markets were also at their peak. No one was searching for Mutual funds in the end of 2008 or start of 2009 when actually it was the best time to invest. Upto 2007 end when it was best time to invest in gold but no one was searching for it but when price went up, the number of search went up.

At the end, a famous quote by legendary investor Warren Buffet- “When all the people are thinking is same direction, No one is thinking.”

Disclaimer: These are my personal views. Gold may double or triple from current price or may go half but your financial decision will not make any difference in my life, your agent’s life or to asset management company.(think) As it is your hard earned money – only one suggestion always keep your head cool while taking financial decisions.

So do you think one should buy SBI Gold Fund ?

Ask Readers: Let’s Advice President Pratibha Patil on her Investments

Analysis & Views

Hemant Beniwal

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August 9, 2011

10

Ask Readers: Let’s Advice President Pratibha Patil on her Investments

Recently President Pratibha Patil made her assets & investments public – same on the lines of prime minister & few other ministers in recent past. She is holding assets worth Rs 2.49 Crores.

Money Mantra Magazine asked me to share my views on her portfolio & I loved this. I am sharing what actually I advised – you can also share your ideas. I was having some word limit & few other limits 😉 but you don’t have any restriction.

Pratibha Patil’s Assets

My advice to President Pratibha Patil

Pratibha Patil was Governor of Rajasthan before being elected as President of India. As I also belong to Rajasthan, we have noticed her simplicity as a Governor – even as a President, she has been the same. Her simplicity also reflects in her portfolio, which matches a portfolio of average Indian – 30-40% in real estate, 40-50% in debt, 10-15% in gold and almost zero equity.

Ask Readers: Let's Advice President Pratibha Patil on her Investments Click to Tweet

Let me simplify Assets

Immovable	Amount	Amount in lakhs	Percentage
House at Amarvati	39.60
Farm house	9.82
Ancestral property	7.81
Ancestral property	20.00
Agricultural property	3.64
Agricultural property	2.90
immovable properties	83.77	83.77	34%
Movable
Bonds	4.71
FD	68.80
PPF	12.60
Investment	29.00
Share	0.22
SB accounts	16.33
Sanjivani savings	0.67
Cash in hand	1.87
Movable properties	134.20	134.20	54%
Precious Metal
Gold	31.00
Silver	0.69
Commodities	31.69	31.69	13%
Total		249.66	100%

Recently many politicians and bureaucrats have shared their assets, either voluntarily or by force but most of them had no exposure to equity. Even Mr P Chidambaram, our ex-finance minister, promoted equity as an asset class on various platforms but he had negligible equity exposure in his portfolio. Even the current finance minister’s biggest asset is his residential house and again no equity. When these people advocate that India is a great growth story, they should put their money where their mouth is. Nevertheless, they shy away from putting their own money in equities. I think this question will remain forever unanswered.

I have assumed that President Pratibha Patil will leave her post next year and will not contest for second term. Points that she should think over:

Her retirement is still a year away so she should not keep so much of money in savings bank account. Thanks to such a high inflation, the value of this amount is eroding rather than increasing.
Prima facie, her risk appetite looks low but if we talk about her retirement benefits, she may not actually need to touch most of her current corpus. Therefore, her investment should depend on the beneficiaries’ profile rather than her own.
If she wants to do some social activity after retirement she should make an irrevocable trust – which will actually reduce her tax liability and the money can be maintained in a separate compartment.
Good part about her real estate is that it is not in shape of House – she is having some agriculture land. Most of it in Jalgaon and around– Jalgaon is famous for drip farming and even if the farm’s size is small, it can give better yield. If she does not want to get involved in day-to-day work, she can give this on contract.

Pratibha Patil gave almost 45-50 years of her life to our nation – with having a vision to see India as one of the greatest nations. Now the whole world is seeing India as an upcoming power – she should sit back and enjoy her remaining life. Moreover, she should always keep guiding & motivating people of this nation.

I will love to see your advice to the President. 🙂

Understanding the difference between Income and Wealth

Investor Psycology

Hemant Beniwal

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August 2, 2011

14

Understanding the difference between Income and Wealth

Have you ever wondered why your salary is called income and not wealth and if you are a businessman, then your profit is called income and not wealth. Well my question is not in accounting terms but in Financial Planning terms. Well let us understand the difference between Income and Wealth from Financial Planner’s perspective.

Difference Between Income & Wealth

Income is something with which you maintain your life style. For example, with every month’s income, we maintain our existing lifestyle and not increase it substantially.
But if you were to sell a property which you were holding from years, you find that you can afford something which you could not afford with your income. Now in that case, you have created wealth and that wealth have substantial effect in increasing your life style.

Now when we invest, do we look for income creation or wealth creation?

Obviously, you will say that we look for wealth creation and not income creation after understanding the difference between income and wealth. But mind you that wealth creation is a very BORING process. Wealth creating takes time and you need right products to create wealth.

Think of few wealthy persons you know and look at the time they must have given to create that wealth. Now-a-days, we see that farmers are getting wealthy by selling their lands which they earlier used to cultivate. But then you look at the time they have given to create such wealth.

Understanding the difference between Income and Wealth Click to Tweet

You probably will have n number of examples of people who have created wealth in Real Estate. But do you know many persons who have created wealth by investing in Financial Asset? You may not think of many. But let me ask you that don’t you know Mr. Mukesh Ambani or Mr. Ratan Tata or Mr. Azim Premji or any other rich businessman that you know in your vicinity. They all have created wealth. Now tell me which real estate Mr. Ambani owns? Must be an absurd question for you and you probably don’t know about it.

But what you know is that Mr. Ambani owns shares of Reliance or Mr. Azim Premji owns Wipro’s shares and the wealthy businessman you know may own 100% share of his business.

What do I really want to convey?

If you find your investment exciting and you are having fun, probably you are not making wealth. We don’t make wealth out of equity because, we look at equity as income creating tool. Buy Reliance at 2000 and sell at 2100.
Now financial instrument that makes wealth is equity and you understand equity as exciting investment that goes up and down every day. And those financial instruments which create income, we make them our BORING investment FD, NSC etc. How many of you look at your Fixed Deposit daily or your PPF account balance or your RD that you have in your post office.

But you want see the value of your mutual fund investment regularly, keep watching your equity portfolio as if tomorrow you need to sell it to marry your daughter.

This is why Equity does not create wealth for most of the Indian Investor.

What happened in US in last 100 Years

GDP 1950 – 2050

India in 2020 (check where India is in 2010)

Equity is a long term BORING investment and look at equity as wealth creating tool and not income creating tool.

Everything that you want to know about ETFs (Exchange Traded Funds)

Investment Options

Hemant Beniwal

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July 26, 2011

36

Everything that you want to know about ETFs (Exchange Traded Funds)

ETF as an investment concept has failed in India. The introductory stride has been lost. Even with 10 years of existence in Indian markets they have not able to make any space in investor’s portfolio. If we talk about Indian Mutual Fund industry ETF share is less than 1% & if we remove Gold ETFs which were or are in fancy these days picture is even worse. But let’s first understand basics about ETF & then see why I started with a negative statement.

What is ETF?

If we talk about the structure of the ETFs, it is same as Mutual Funds – basket of few stocks. If we talk about category it is just a replica of index funds which is made to replicate an index. Eg Gold ETF, Nifty ETF, Bank Nifty ETF, Hangseng ETF etc. ETF stands for Exchange Traded Fund because they are listed on stock exchange. In most of the case these are passive funds where fund manager’s role is negligible.

Must Read – Let us Make Sense of the Sensex and Nifty

How ETF Works?

ETF Comparison with Open-ended Mutual Funds & Close Ended Mutual Funds

	Open Ended Fund	Closed Ended Fund	Exchange Traded Fund
Fund Size	Flexible	Fixed	Flexible
NAV	Daily	Daily	Real-Time
Liquidity Provider	Fund Itself	Stock Market	Stock Market / Fund Itself
Availability	Fund Itself	Through Exchange where listed	Through Exchange where listed / Fund itself.
Portfolio Disclosure	Disclosed monthly	Disclosed monthly	Daily/Real-time
Intra-Day Trading	Not possible	Expensive	Possible at low cost

Source – Benchmark AMC

ETF Benefits

As we have seen that ETFs work like Mutual Funds so basic benefits of both are same like Diversification, Transparency, Tax benefit etc. Few more advantages:

Everything that you want to know about ETFs (Exchange Traded Funds) Click to Tweet

Any time NAV: In mutual funds whenever you put your investment/redemption you will get closing NAV of that particular day but in ETF you can buy it anytime during the trading hours.

Low Asset Management Cost: As ETF are passive funds they don’t have to incur fund management charges, plus they are sold without intermediaries that keep total cost low.

International Exposure: If you would like to invest in international markets, ETF is a better way as it gives you diversification benefit in that marked & you also know much about those countries active funds. Globally there are many ETFs which focus on Indian Markets – you can check India ETF List at Onemint.

ETF List: Performance, Category, Asset Size

ETF – Exchange Traded Funds

Category

1 Year

Asset Rs Cr

Expense %

Price

Bank BeES Exchange Traded Scheme

Banking

12.7

993

0.5

1,115

Kotak PSU Bank Exchange Traded Scheme

Banking

7.83

30

–

426

PSU Bank BeES Exchange Traded Scheme

Banking

5.71

10

0.74

407

Reliance Banking Exchange Traded Scheme

Banking

9.47

12

0.35

1,040

Hang Seng BeES ETF

Global

5.06

61

1

1,280

ICICI Prudential SPIcE Exchange Traded Scheme

Large Cap

-3.33

0

–

174

Kotak Nifty Exchange Traded Scheme

Large Cap

6.65

–

569

Kotak Sensex Exchange Traded Scheme

Large Cap

4.85

28

–

193

Motilal Oswal MOSt Shares M50 ETF

Large Cap

-2.02

0

–

76

Nifty BeES Exchange Traded Scheme

Large Cap

5.88

538

0.5

572

Quantum Index Exchange Traded Scheme

Large Cap

10.23

2

0.75

581

Shariah BeES Exchange Traded Scheme

Large Cap

1.86

1

0.7

121

UTI SUNDER

Large Cap

-4.18

1

920

Liquid BeES Exchange Traded Scheme

Liquid

0

468

0.6

1,000

Motilal Oswal MOSt Shares NASDAQ 100 ETF

Other Sector

–

104

Birla Sun Life Gold ETF

Precious Metals

–

2,282

Gold BeES Exchange Traded Scheme

Precious Metals

23.2

2,068

1

2,211

Kotak Gold Exchange Traded Scheme

Precious Metals

23.54

128

–

2,220

Quantum Gold Exchange Traded Scheme

Precious Metals

24.19

33

1

1,107

Reliance Gold Exchange Traded Scheme

Precious Metals

24.19

1,135

–

2,165

Religare Gold ETF

Precious Metals

25.97

1

2,280

SBI Gold Exchange Traded Scheme

Precious Metals

25.03

238

1.07

2,283

UTI Gold Exchange Traded Scheme

Precious Metals

20.95

567

1

2,175

Junior Nifty BeES Exchange Traded Scheme

Small & Mid Cap

-1.05

108

1

113

Why ETF Failed in India?

The reason should not be performance because most of the ETFs are passive funds in India and try to mimic performance of some Index. Performance wise certain ETFs like Gold have given more and consistent returns than the broad market in the last 2-3 volatile years. But main reason looks…

Index Vs Diversified Funds: If we compare equity ETFs performance with diversified equity mutual funds in longer horizons, ETFs looks far behind. But check DSP BlackRock Equal Nifty 50 Fund

Expense Ratio: Biggest benefit an investor seeks in ETF is lower expenses but even on this aspect Indian funds scores low. Internationally ETFs average charges are close to .53% but in India most of the equity related ETFs are charging more that this – some even charging 1%. Vanguard which is one of the biggest ETF players charges just .16% & in some cases as low as .07%. This is possible due to economies of scale but still difference is huge.

Other incidental Charges: Over & above the basic fees investor has to pay brokerage & other charges relating to manage his equity account. Many investors who just wish to invest in MF find it inconvenient to maintain a demat account with a broker.

Skewed Indexes: Top 3 stocks in Sensex Reliance, Infosys & ICICI make 27% of the index even nifty which is having 50 stocks – top 3 contribute more than 24%. This is even worse for sector index – in bankex top 2 stock weightage is more than 50%.

Liquidity: Liquidity is not very good in most of the Indian ETFs. So, sometime when you want to buy the units are not available and when you go for sell, there are no buyers.

Are we recommending ETFs?

Right now we are not suggesting investor to go through ETF route due to above mentioned reasons. As ETFs are not very popular in India they are very illiquid too. Few of the ETF were not even traded a single unit in 30-40% of the transaction days in year 2010. So investors have a good chance to get stuck or taken for a ride. In 2006 ICICI Pru Spice Fund which actually tracks Sensex was up by 200% in a fortnight. Due to unawareness & poor volumes someone spiraled the prices just by a wrong trade.

How ETFs can become popular in India?

ETF are traded through stock exchanges & are suggested by brokers – not by mutual fund advisors. ETF are meant for passive long term investors & that’s not a good thing for a stock broker. Stock brokers earn on volumes rather than if somebody holds it for long term so there is clear conflict of interest. So I don’t think much can be done on this but if investors are made aware about the benefits there is a chance that things can be better in future. One more thing that can be done is bringing the variety right now. Most of the ETF are either Gold or large cap equity funds. Only 2 ETF are there which give you international exposure – so there is still scope to bring variety which can increase the interest. Even on commodity side there is a big scope but there is no clarity who will govern them – due to conflict between Securities and Exchange Board of India (SEBI) and Forward Market Commission (FMC) even Silver ETFs are stuck.

ETF in India Vs US

In US ETF are there from last 20 years – as a segment is growing at a pace of 32% every year & biggest reasons that comes out is the lower cost, fund managers ability to beat broader index & the variety of ETF available. Indian ETF fails on all these criteria’s. Biggest ETF in US is $89 Billion which is more than half of the Indian Mutual Fund Industry Size. And total ETF assets in US stands at $1 trillion which is close to 2/3 of total Indian Market capitalization. In US there are more than 2000 ETFs listed & in India number is less than 30 – another 13 are with SEBI for clearance. So one can clearly see the difference but this is the same case if we talk about Indian Mutual Funds – in US 39% of the households invest more than 50% of their financial assets through Mutual Funds but in India less than 1% have ever invested a penny in it. This can be blamed to poor Financial Literacy in India, lack of distribution facilities, higher operational cost and quality manpower.

Is there some hope for ETF

India is a fast growing economy & with kind of demography we have a big scope for newer & better financial products. Goldman Sach who is a big player in ETF has signaled regarding the growth of ETF by buying India’s Benchmark AMC which was a niche ETF player. Even IDBI AMCs is focusing on Index Funds & Motilal Oswal AMC trying something new with ETFs shows it’s a beginning towards passive investing. Hope for a better picture of ETF in future.

My final words – tough to Control Emotions: When you have a demat account it is very tough that you will only be holding ETFs – someday you will also be tempted to buy or trade in direct equity. Which may turn out dangerous for your financial health.

Have you ever invested in ETFs & what’s your experience? Share in comment section.

Best Mutual Fund for SIP

Investment Planning

Hemant Beniwal

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July 22, 2011

622

Which is the best mutual fund for SIP? I think this is the most common question I came across followed by “share top 10 mutual funds for SIP”; be it TFL, through mail or even newspapers where I answer personal finance query section. Sometimes I replied – sometimes I ignored – sometimes I made up my mind to write but dropped the idea after few minutes. People who are regular readers must be knowing why I am not able to answer this question – others can read my earlier article on Magic of Systematic Investment Plan (SIP).

But Anil Kumar Kapila came as much needed help – he prepared a short note on how one can select the best SIP or make better mutual fund portfolio. I am publishing it as it is – Just added performance Tables that may interest you.

Guidelines for Choosing Best Mutual Fund for SIP in India

While going through the comments of readers on the posts I have observed that most of the readers are asking the same questions again and again. The most common question is regarding the best equity mutual funds available SIP. Although you have answered this question many times, the investors seem to be confused. Hence I think it will be a good idea if some broad guidelines are given. Accordingly, I have prepared some guidelines. You can go through these and see if these can be shared.

Read – ULIP Vs Mutual Fund + Term Plan

Broadly, equity mutual funds can be classified as follows:

Equity Large Cap Mutual Funds

DSPBR Top 100 Equity
ICICI Prudential Focused Bluechip Equity
Franklin India Bluechip

LargeCap Funds	1m	3m	6m	1yr	3yr	5yr	10yr
DSP BlackRock Top 100 Equity	5.61	-1.94	0.08	6.40	16.11	18.78
Franklin India Bluechip	2.95	-3.43	-0.82	6.69	18.64	16.78	27.06
ICICI Prudential Focused Bluechip Equity	5.55	-3.50	0.98	10.63	21.35
Category Average	5.53	-4.11	-2.10	4.00	11.05	12.19	18.45

Best Mutual Fund for SIP Click to Tweet

Equity Large and Midcap Mutual Funds

Fidelity India Growth
HDFC Top 200
ICICI Prudential Dynamic

LargeCap & MidCap Funds	1m	3m	6m	1yr	3yr	5yr	10yr
Fidelity India Growth	5.42	-3.52	-1.21	4.88	19.13
HDFC Top 200	4.37	-3.40	0.15	6.48	21.55	20.25	31.77
ICICI Prudential Dynamic Ret	4.80	-1.92	0.61	7.22	18.15	18.67
Category Average	4.88	-2.95	-1.63	2.42	12.17	12.25	21.25

Equity Mid and Small Cap Mutual Funds

HDFC Midcap Opportunities
Birla Sunlife Pure Value
IDFC Premier Equity

MidCap & SmallCap Funds	1m	3m	6m	1yr	3yr	5yr	10yr
Birla Sun Life Pure Value	4.37	-0.65	2.72	-1.25	24.95
HDFC Mid Cap Opportunities	6.43	6.49	9.05	13.38	26.29
IDFC Premier Equity Plan A	7.19	1.55	4.85	7.98	23.32	29.33
Category Average	5.99	0.18	0.97	0.38	13.29	12.10	24.71

Equity Multi-Cap Mutual Funds

HDFC Equity
Quantum Long Term Equity
Reliance Equity Opportunities

MultiCap Funds	1m	3m	6m	1yr	3yr	5yr	10yr
HDFC Equity	3.97	-2.97	0.55	7.82	25.09	20.33	32.89
Quantum Long Term Equity	4.03	-3.86	-2.58	5.53	22.29	18.14
Reliance Equity Opportunities Ret	6.75	1.54	4.28	7.73	25.51	18.96
Category Average	5.12	-2.39	-1.02	1.74	14.43	14.78	25.61

Equity Value Funds

Birla SL Dividend Yield Plus
ICICI Prudential Discovery
UTI Dividend Yield

Equity Sector Funds

Reliance Banking
ICICI Prudential FMCG
UTI Pharma and Healthcare.

Equity Others

UTI MNC Fund
Birla SL India Gen Next
Kotak Lifestyle Fund

Check – best mutual fund for sip consistent?

Core & Satellite Approach of Making Mutual Fund Portfolio

While selecting the funds from the above-mentioned list Core and Satellite approach has to be adopted. The core of the portfolio will consist of comparatively safe Large and Large and Midcap Funds. The satellite component will have funds from the other above categories. Satellite will have comparatively risky funds. While core provides stability to the portfolio satellite gives the potential for high returns. The allocation between the two components depends on the risk appetite of the investor. Conservative investor will have a larger allocation in the core and aggressive investor will tilt the balance towards satellite.

Diversification in SIP Mutual Fund Portfolio

A portfolio should have a minimum of two funds and a maximum of five to seven funds. This is needed for the purpose of diversification. Also while selecting the funds, not more than one should be selected from the same group. Diversification across fund houses is also needed. Keep only one fund from a particular fund house in the portfolio. A typical portfolio will have one fund each from Large Cap, Largecap and Midcap, Multicap, Mid and Smallcap. One or two funds from other groups can be included in the portfolio if required.

Best Mutual Fund for SIP

My Views

First of all thanks a lot to Anil who has taken out time & wrote this masterpiece for fellow readers. I have seen his comments on various posts & 80-90% of our views match so there was no reason that I have not published this. I think this article will be really helpful for the people who are having “best mutual fund for sip” question in their mind + few tips on diversification will also help you to reduce some unsystematic risk. As a couple of days back we discussed the selection of the fund is not the most important factor in your investment success. So even if you stick with points that are shared by Anil – you still will be doing better than most of the investors.

But still, there is a lot of scope to reduce risk in once portfolio. Even in the selection of fund risk should be given an equal weightage to returns if not more. How my performance table would have looked if I was comparing these funds.

Read Secret of Achieving high returns

Funds	Alpha	Beta	Downside Risk	Info Ratio Rel.	Jensen’s Alpha	Max Drawdown	r2	Sharpe	Sortino	Treynor	Standard Deviation
Birla Sun Life Pure Value	13.73	0.81	6.92	1.12	12.71	-25.72	0.94	0.71	2.90	24.71	28.31
DSP BlackRock Top 100 Equity	5.47	0.90	5.81	0.91	4.93	-27.78	0.97	0.49	2.03	13.15	24.14
Fidelity India Growth	6.18	1.00	7.69	1.68	6.16	-34.30	0.98	0.52	1.84	14.25	27.07
Franklin India Bluechip	7.82	0.97	6.81	1.42	7.67	-32.62	0.96	0.57	2.21	15.45	26.38
HDFC Equity	9.13	1.06	9.09	1.78	9.45	-38.23	0.97	0.64	2.23	19.09	31.70
HDFC Mid Cap Opportunities	13.08	0.86	9.14	1.70	12.30	-37.87	0.97	0.67	2.14	22.84	29.46
HDFC Top 200	8.52	1.06	7.75	2.02	8.86	-34.71	0.98	0.60	2.26	16.45	29.00
ICICI Prudential Dynamic	6.62	0.92	6.76	0.86	6.18	-35.64	0.94	0.53	2.01	14.84	25.48
ICICI Prudential Focused Bluechip	10.03	0.97	6.72	2.97	9.87	-29.97	0.98	0.67	2.61	18.04	26.04
IDFC Premier Equity Plan A	10.06	0.87	8.87	1.32	9.35	-38.12	0.96	0.54	1.84	18.76	29.90
Quantum Long Term Equity	8.50	0.96	7.58	1.60	8.27	-36.11	0.97	0.64	2.40	19.05	28.60
Reliance Equity Opportunities Ret	9.11	1.08	8.78	1.74	9.53	-38.46	0.97	0.63	2.32	18.87	32.28

I have removed half of the columns to keep it bit simple. I have also not divided it in types of funds because I just wanted to share what an advisor looks into before selecting a fund – there are many other variables which are considered before suggesting a fund. For this table I have chosen 3 years data as few of the funds in the list have not completed 5 years.

If you like to learn about these technical aspects of mutual funds – I will try to write. You can read about Standard Deviation in Mutual Funds.

In case you have some questions regarding mutual Funds or SIP feel free to ask. Also, share this with your funds who are confused about choosing best mutual funds.

Disclaimer: This post represents the opinion of its author only, and does not necessarily reflect the opinions of the author’s employer, The Financial Literates or the other authors who write content for this Website.

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Short Movie: Saving is not enough, invest your money

Investment Planning

Hemant Beniwal

-

July 16, 2011

29

Short Movie: Saving is not enough, invest your money

“To save must be a habit of childhood, but to invest must be the habit of adulthood” One survey conducted in the Indian urban class people revealed the fact that only 4% of the population was confident of the future financial security of self and family as they had generated enough wealth. More than 60% of the population has to work part-time even after retirement.

Read Budget for your savings & not investing

Story on Saving Habit

Once a grandmother gave her grandson Rs.100/- on his birthday. He happily told his mom that he will buy candies with this money. But his mother explained that candies will spoil your teeth and it is better you put in your piggy bank. Reluctantly, he agreed. A few months later, his piggy bank was over-loaded with coins and notes. Both son and mother counted them and were delighted that the total was beyond their expectations. Again this time as a responsible mother, she advised him to put this fund into a savings account. She taught him to fill up the deposit slip. The boy tried, but could not. So his mom filled the slip and he left for the bank along with an office help.

Short Movie: Saving is not enough, invest your money Click to Tweet

Years rolled by, and his mom is now proud of his saving habits. However, the amount is earning interest only in the bank. As a responsible mother, she did right in inculcating savings habit in her son but not beyond.

This is a common story for Indians. We are one of the biggest savers in the world and an average Indian family saves over 33% of their income. Despite huge savings, we are still counted in poor countries.

The reason is that we do not know how to convert our savings into good investment. Let us quote from Rich Dad Poor Dad “The poor and the middle-class work for money. The rich get the money to work for them”

Movie on Saving, Investment & Growth

Youtube – Part 1

Youtube – Part 2

Learn how to convert our savings into a good investments which can later lead us to financial freedom.

Budget for your savings and not spending!

Family Finances

Hemant Beniwal

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July 15, 2011

19

Budget for your savings and not spending!

Warren Buffet said, that we should not save what is left after spending but spend what is left after savings. And these words come from a person who is regarded as the Best Ever Investor in Human History.
People are not able to plan for their savings because there is no financial plan that they have which clearly spells the requirement for savings to meet your future goals. Many a times, people find that their financial position is good as they are able to meet their current liabilities with their current income. Taking this as background, as their income increases, so their expenses. There are times, when people go to unplanned exotic vacations as they have received bonus or impulsive buying takes place as bank balances is good enough to support this.

Read – Budgeting – The First Step to Financial Success

What is your definition:

Read- ELSS : Best tax saving instrument – undoubtedly

Savings have to be planned well in advanced and it should be quantified as well. At best what people do is that they make tax saving investment and that too at the end of the year under compulsion. They end up investing where others are also making their investments. If there is no plan to save, people land up having huge surpluses in their banks which is does not give any returns to boast off or they land up having in financial crisis as some huge expenditure have come on their way for which there was no planning.

Budget for your savings and not spending! Click to Tweet

A good savings plan should be drawn taking inflation factor, future income growth etc. But before we plan to save for future, you must ensure that you have a solid base, which means planning for any contingency, including disability and death etc. So, depending on the consistency of income, one must at least have 4-6 months’ worth of expenses in fixed deposits, floating rate funds or investments against which overdrafts can be taken. Additionally, you need to ensure that you have sufficient medical cover for your dependents.

Then for long term goals a product mix of equity debt should be taken more tilted towards equity and for short to medium goals, debt should be more than equity.

Let each goal is defined in terms of expected time of occurrence, its expected cost on your wallet and how should you be approaching them with the right mix of equity and debt.

We will try explain how tackle major goals in our life like that of retirement, kids higher education etc later.

Would you like to share what is your strategy?

Stop Fooling Investors

Mis-Selling

Hemant Beniwal

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July 8, 2011

39

What’s the easiest way of earning money? Watching business TV channels & following their advice to buy or sell stock/market. This is true for many of the investors who start their day with a business channel and follow so called experts blindly.

I would not like to add more – just check the video & picks. Decide what is right for you – experts are not loosing anything from your financial decisions but you……

Disclaimer: Its not to harm reputation of any person or channel but just to tell naive investors that this is not the way investing is done.

Also check this Sensex chart of Past 5 year – will help you in relating to the timeline.

Stop Fooling Investors Click to Tweet

Video Ashwani Gujral (Technical Analyst) & Shankar Sharma (Market Guru)

You can also check this video on youtube

Also check market commentary of Ramesh Damani – a well know equity bull.

Money Mantra Magazine did a Full story on this “TV Wale Baba”

You can download full magazine from here.

So now question is “Do you call these people experts?”

Should you buy Mediclaim even if your employer is covering you?

Insurance Planning

Hemant Beniwal

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July 5, 2011

50

Should you buy Mediclaim even if your employer is covering you?

Premium payment is always a head ache. But in life, few basic insurance cover are must go. Regular readers know I am referring to the Term Insurance, Accidental insurance and the Mediclaim. I have already written a lot about these too, so today we shall discuss a common confusion over Health Insurance.

These days’ lots of people are coming with queries that they are having mediclaim from employer – do they still need to buy separate policy. Recently again one reader asked this query & I thought why not take some expert opinion over it. Shailendra’s query is:

“I am 34 and have 5 lakh mediclaim policy from Bajaj Allianz through my organization. And I believe in future also any company I may work will have this facility to provide the mediclaim policy as in my past which is common now. As per you should I still buy one?

I am thinking of buying one 5 years before my retirement so that I can get the no claim benefits as well in the premium.”

You can check basics regarding Mediclaim Policy here.

Check – Health Insurance Policy for Parents

I asked the same query from some financial professionals – you can check their views:

Shekhar Bansal (Insurance Professional & Health Insurance Ninja) Replied:

Our recommendation is YES. You should buy a personal family floater for at least Rs 3 lakh. Though you are sufficiently covered today through your employer but what if your existing employer changes the HR policy some day.

Employer not buying a cover – Group mediclaims are getting more and more expensive for companies with every passing year. This happens primarily due to increasing claim ratios through group policies. Since companies buy group policies at discounted rates and negotiate better coverage like inclusion of parents, maternity cover and waiver of exclusions, the insurers have started shying away from group policies as it is more of an HR gimmick rather than insurance in the pure sense of it. In such scenarios, the HR policy of your employer may even change to giving to a refund (full or partial) towards your health insurance costs.

Employer changes the configuration of health cover for employees – the employer may even decide to reduce the members of your family to be covered at its expense. In such a scenario, though you would still be covered, your family members may not be. Any contingency arising within the family hits the same pocket.

Employers creating a health pool – big companies have started creating a pool akin to self-insurance to provide health insurance benefits to the employees. Gujarat NRE Coke is a recent example as it has stopped buying group health insurance.

These things impact the person more on the day he/she decides to quit the job to either change the employer or become self employed.

A 3 lakh cover provides more or less for a major contingency in case your company’s cover was to vanish altogether. Also, if your insurability was to get damaged some day, having your own health insurance will not let you compromise on your career decisions.

Should you buy Mediclaim even if your employer is covering you? Click to Tweet

Manikaran Singal, CFP Replied:

As far as your query is concerned, though you are covered by your employer provided policy but please understand that here employer has covered his liability not your responsibilities. Due to hectic and pressurized work culture now day’s young people are more prone to health problems. Blood pressure, migraine and heart issues are normal these days. And moreover if you have family history then that this will in turn add to the problem.

In your working life if you are diagnosed with any of major health problem, then it would be difficult to get adequate health policy for you after retirement or even 5 years before that.

Secondly – your belief may be wrong that when you change job then your new employer will provide you with adequate cover. Looking at current trends, employer provides the basic cover to employees and if employee wants more than he/she would have to shell out some money out of his/her own pocket. The benefits which used to come in the group cover have also got reduced.

Thirdly – God forbid, if there comes any gap between changing of jobs and you face some medical problems in that period then you will have to bear the burden out of your own savings.
So I believe that one should buy adequate cover separately of the employer policy.

Kiran Telang, CFP Replied:

My view is that Health Insurance is necessary even if employer provides it. Reasons:
Job losses are becoming common. So you might suddenly not have a cover when you lose a job.
Breaks between jobs might occur, and also there can be a delay at the new organization in paperwork, denying you the benefits of health cover for a short time. That is a risk.
Pre-existing diseases are excluded/covered after a pre-determined time or can lead to loading. This can be avoided if health cover is taken at earlier age when health conditions are good. If you decide to take health cover at 55 ages, these factors will come into play.

Check – How much health insurance I should buy

Jitendra Solanki, CFP Replied:

Group Insurance is becoming a loss making business for General/Health insurance companies. I recently visited a company with more than 1500 employees and got information that the Group Health Policy, which was taken by the company last year, is being cancelled by the insurer because the claims in first year itself was more than double of what they received as premium. Hence, most of the employees will face problems on group coverage where either they have to shelve more premiums or the benefits being reduced going forward.

Even in a standalone health insurance policy, there are waiting period of 2-4 years for many illnesses. Some of these are very frequent when you go higher in age. So it’s necessary that you continue with same insurer for at least 4-5 years to reap the maximum benefits. Also, with underwriting becoming very stringent in many companies, taking a health insurance policy at higher age can prove to be costly with- either companies charging higher premiums or there can be permanent exclusion on some specified illnesses. Hence, one should always buy separate comprehensive health insurance coverage apart from a group health insurance policy.

What you should do now?

Verdict from above experts is very much clear that one should buy separate health insurance policy over and above his existing group mediclaim policy from his employer. The point again here is – if you are expose to risk (may be a little bit in quantity or for temporary period), you need to cover it. That is prudent risk management and when this risk is towards life; any delay or lethargy will hit back hard.

My suggestion is to visualize your situation & analyze your policy – then decides the plan of action. If you have questions related to this feel free to ask.

You can also share your practical experience that will be of great help to other readers.

Secret – High Return Investment in India

Investment Planning

Hemant Beniwal

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June 28, 2011

86

Secret – High Return Investment in India

Who doesn’t want to know the secret of High Returns? We keep getting requests for suggesting best investment plan with high returns, High Return Investment in India, low risk high returns investment, high return stocks – the list will keep growing so let’s give you the secret of achieving high returns.

High Return Investment – Uncovering

Is it a good time to invest in equity? Sorry to say but if you are having this question in mind; you have already lost half battle. Don’t get disappointed – I assume you are new to this game & don’t know much about its rules so let’s give you one more chance. Happy!!

Sometimes people also ask “which are the mutual fund where we can get HIGHEST Return”. I think there is no definition of “Highest Return” but let’s stick to high return for time being. High return for me means beating inflation & comfortably achieving your goals – that’s it.

80:20 rule in your investment success

80:20 rule apply everywhere in this world & same also applies to your investment. But the problem is people waste 80% of their energy on those things which will only contribute 20% in their financial success. And not even 20% on those things which are going to contribute 80%. Let’s understand where things can go wrong.

Let’s start with the things where people give most importance

Timing the Market

“Market kya lagta hai” this is the worst question one can ask & if someone start a reply with “mujhe to lagta hai….” – he is lying to himself. Market timing is the worst strategy which someone can adopt & it hardly contributes any positive returns in once portfolio. But if we talk about investors & advisors 80-90% focus is on this thing – bad part is they have not even learned from their past mistakes. Various researches have proved this strategy if successfully implemented can fetch you 3% of your total returns. Only 3% what about rest 97%??

Check this Video before going forward – High Return Investment

Don’t look at data – it keeps changing

Selection of Security or fund

“Which is the best fund or best investment?” I think this is the most common question I have heard on TFL. There is nothing called BEST – which is best today gives no guarantee of best tomorrow. I did some research with diversified equity funds & shockingly there were very few periods where best fund of last year got listed in even top 10 funds of next year. So best is a myth – yes you may find few good funds with consistent returns. But even this will not contribute more than 7% of returns. So again what about the 90%??

Read – Magic of Systematic Investment Plan (SIP)

End of the story or a new beginning

90% of the investor’s waste their 90% of the energy in timing the market & selection of best funds or high return investment but both of these combined is not even able to contribute more than 10% in your investment return. So you can see all your efforts till date have gone in drain. So what are things which are important to have a successful financial life?

Secret - High Return Investment in India Click to Tweet

Portfolio Construction

Actually if we were talking about the steps – portfolio construction comes after asset allocation. Portfolio construction is a very detailed thing but it do two things either reducing your risk at some point of return or increasing your return without increasing risk.

Let’s take example on 5 year period (only mutual funds) – these 6 funds (existing portfolio in below chart) have return of 13.91% & risk of 29.63%. Now we have task in hand that we have to increase its return without increasing risk or other way round reducing risk without reducing return.

If you can see I have not made any changes in the best performing fund of this period – that is HDFC Equity Fund. I have also not done major replacement of the funds or substantial changes in the fund allocation. In last column you can see there is a shift in portfolio but there is no change in Risk & Return.

Read – Types of Risk That affect your Investments

Asset Allocation

This is where most of returns are generated but not even 1% investor reaches here consciously. People may have something in debt & some part in equity but it is not a thoughtful effort. This strategy is very simple but hard to stick – as they say investing is simple, but not easy.

Asset allocation means dividing the ratio of asset classes for investments as per the risk and time horizon of investment. The weightage of each asset class is kept constant. Once you have made this portfolio you just need to rebalance it at pre-decided date. The profit in the asset class which outperforms is booked & the proceeds are used in the asset classes which underperform in that particular period. This is done keeping the original weightage of the asset class in the portfolio. If we see in 2007 equity gave exceptional returns so if you would have followed this strategy your assets would have automatically moved from equity to debt. And in 2009 when equity underperformed it would have indicated you to increase your exposure in equity. With time this strategy reduces the risk & increases return.

Your Behavior

This is the place where winners do all wrong things to lose the game. If you are new to equity markets you must be thinking that people are fool who invest in top of the market & exit in the bottom. Warren Buffett said “In the equity markets, the rear-view mirror is always clearer than the windshield.” So don’t be over-confident and prepare yourself that you don’t stuck in cycle of greed & fear – 80% of the market participants are going to do this mistake again & again till they broke. That’s the reason equities have given substantial return in past but you will hardly find people who have build their wealth through it. Mind you “It’s the mind game & not number game”.

You cannot change your destination overnight but you can change your direction overnight. So turn to right direction & start moving.

Must add your views & also if you like it click share buttons. But please don’t ask about high return investment 🙂