Prajna Capital

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• What is a Credit Default Swap?
• Tata Mutual Fund changes its in Benchmark Indices for few funds
• Debt options for risk-averse investors
• Mutual Fund Review: Kotak Bond Short Term Plan
• BNP Paribas Mutual Fund – Its Schemes
• How to read your credit card statement?
• Stock market risk assessment
• Mutual Fund Review: UTI Master Index Fund
• Mutual Fund Review: HDFC Top 200 Fund
• Mutual Fund Review: AIG India Equity Fund
• Franklin Templeton Mutual Fund - Its Schemes

What is a Credit Default Swap? Posted: 26 Aug 2011 04:11 AM PDT It is a form of insurance against debt default. When an investor buys corporate (or government) bonds he/she faces the risks of default on part of the issuing agent. The investor can insure its investment in such bonds against default through a third party. The investor pays a premium to the party providing insurance. In the event of default by the bond issuer, the insurer would step in and pay the investor. A CDS is just that insurance, which is bought by those who fear default and sold by those who believe it won't. • What is the economic benefit of CDS? It is a derivative instrument that transfers risk from investors to those willing to bear it for a fee. By insuring against risks of default, credit default swaps allow riskier companies to raise funds. Also, it improves investment and borrowing opportunities by redistributing risk. Therefore, overall it helps increase credit flow and boost liquidity. • What are the key concerns? The third party insurer issuing credit default swaps must have the capital to pay-up in case of debt default. Therefore, the issuers of CDS must be well capitalized and have stringent regulations on their exposure or else in case of a default they will not be able to honour their commitment. • What role did credit default swaps play in the financial meltdown? Speculators started buying CDS on even the bonds they did not hold, hoping to make good gains in the case of a default. This kind of CDS is known as naked CDS wherein the buyer doesn't hold the underlying debt. In many cases, such investors were holding CDSs worth much more than underlying debt, betting on the defaults in the US subprime market. And when those defaults did happen, CDSs compounded the problem as the underwriters did not have the capital to honour their commitment. • How is RBI safeguarding against CDS ills? CDSs will be subject to strict capital requirements, ensuring that the business is within prudent limits. Second, naked CDS will not allowed in India. Third, CDS buyers cannot buy insurance higher than the value of the underlying debt. These steps are expected to control speculation on default of bonds, restricting them to their proper use.

Tata Mutual Fund changes its in Benchmark Indices for few funds Posted: 26 Aug 2011 03:42 AM PDT Tata Mutual Fund has approved the changes in benchmark indices of seven funds, with effect from August 01, 2011. The schemes would now be benchmarked against the following indices:   Scheme Names    Existing Benchmark    Proposed Banchmark Tata Dividend Yield Fund   BSE Sensex   S&P CNX 500 Index Tata Equity Opportunites Fund   BSE Sensex   BSE 200 Index Tata Growth Fund   BSE Sensex   CNX Midcap Index Tata Indo Global Infrastructure Fund   BSE Sensex / MSCI World   S&P CNX 500 Index / MSCI World Tata Infrastrucute Fund   BSE Sensex   S&P CNX 500 Index Tata Infrastrucute Tax Saving Fund   BSE Sensex   S&P CNX 500 Index Tata Life Sciences & Technology Fund   BSE Sensex   S&P CNX 500 Index         -----------------------------------------------------------------   Also, know how to buy mutual funds online:   Invest in DSP BlackRock Mutual Funds Online   Invest in Reliance Mutual Funds Online   Invest in HDFC Mutual Funds Online   Invest in Sundaram Mutual Funds Online   Invest in Birla Sunlife Mutual Funds Online   Invest in UTI Mutual Funds Online    Invest in SBI Mutual Funds Online   Invest in Edelweiss Mutual Funds Online   Invest in IDFC Mutual Funds Online

Debt options for risk-averse investors Posted: 26 Aug 2011 03:19 AM PDT  The Reserve Bank of India (RBI) continued with its monetary policy tightening measures. It raised the policy interest rates (repo as well as reverse repo) by 50 basis points. The revised repo and reverse repo rates stand at eight and seven percent respectively.    This move means the interest rates will go up further on loans as well as deposits. The interest rates have been going up slowly since the last one year as the RBI is tightening the monetary policy. The rising interest rates change the investment landscape for investors. The potential of debt instruments has gone up over the last few months due to the higher returns as interest rates are going up. In the current market conditions debt instruments are safer. On the other hand, the potential of equity based investment instruments has come down due to the sluggishness in industrial growth in the current high interest rate regime. Also, theoretically, equity valuations go down when interest rates go up as the expected rate of returns from equity instruments go up.    Investors with a low to moderate risk appetite should look at increasing their portfolio allocation to debt-based instruments.     These are some debt-based instruments available in the markets: Saving scheme    Saving schemes are risk free with respect to the principal amount and also promise to deliver good returns in terms of interest. Savings schemes include various bank deposits, provident funds, public provident funds, National Savings Certificate etc.    The returns net of tax are attractive under most of these schemes as they offer tax benefits. However, most of these schemes are not very attractive in terms of liquidity as usually they come with a long-term lockin period. Debt-based mutual fund Debt funds invest in various government bonds, securities, corporate fixed deposits and debentures. Since the interest rates have gone up, debt-based mutual funds are expected to offer better returns. There are various flavours available in the market with respect to investment horizons and risk-returns balance.    Liquid mutual funds are a good option for a short term where you need to park your money for a short duration. On the other hand, if you are looking for higher returns go for balanced funds. Structured products     There are many innovative and structured products on offer. These products promise a balance of risk and returns. Some of these instruments invest a fixed percentage of the investment corpus in debt based instruments and the remaining in equity-based instruments to balance the overall risk and returns.    Some other innovative products in the hybrid category guarantee the principal amount but the returns are linked to some equity based milestones such as the Nifty index, returns from top five companies etc. These products are based on the derivatives markets.    You should read the various terms and conditions carefully before committing large investments to these instruments. Debt looks good    Debt instruments are looking more attractive in the current market conditions as their yields have gone up due to the interest rate hardening. On the other hand, uncertainty in the global markets, weaker outlook of the corporate sector and stretched valuations in equity has tilted the risk and returns equation towards risk for equity based instruments.    Therefore, individual investors should review the various aspects of their investment requirements - objective, horizon, risk appetite etc - and make the required changes to ensure a balance between risk and returns.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   Invest in DSP BlackRock Mutual Funds Online   Invest in Reliance Mutual Funds Online   Invest in HDFC Mutual Funds Online   Invest in Sundaram Mutual Funds Online   Invest in Birla Sunlife Mutual Funds Online   Invest in UTI Mutual Funds Online    Invest in SBI Mutual Funds Online   Invest in Edelweiss Mutual Funds Online   Invest in IDFC Mutual Funds Online

Mutual Fund Review: Kotak Bond Short Term Plan Posted: 26 Aug 2011 03:01 AM PDT Type: Debt Short -Term Fund Manager: Laxmi Iyer, Ritesh Jain Launch Date: 25- Apr- 2002   Kotak Bond Short term plan is typically aimed at short term investors with an investment horizon of one month or more, and the investment objective of the scheme is to provide reasonable returns and high level of liquidity by investing in debt and money market instruments of different maturities, so as to spread the risk across different kinds of issuers in the debt markets. Short Term Debt Funds are meant to park surplus money for a short period of time, typically less than a year and provide safety, liquidity and stability of returns.   As per its latest disclosed portfolio, the scheme has apportioned 78.88% of its assets in debt instruments and 21.12% cash and equivalent. In the last three months debt exposure has been pruned a bit.   The scheme was launched in Apr 2002, and has managed to generate above-average returns for the selected time frames. Over a period of three year it has posted compounded annualized return of 5.42% while its benchmark and category average lagged far behind at 2.95% and 5.22% returns respectively. Expense Ratio of the scheme is 1.50% which is quite high compared to the category average of 0.88%.The scheme's risk profile is lower than the peer group average as indicated by standard deviation and beta.     Kotak Bond Short Term Fund -G Peer Group Average Std. Dev. 0.0083 0.0187 Beta (Slope) 0.0173 0.0268         The scheme presently manages a corpus of Rs 80.16 crores. The scheme has invested 33.38% of its assets in bonds, 19.10%% in commercial paper 45.5% in non-convertible debentures comprising of good quality rated papers such as AAA and P1+. It has allocated 87.99% to AAA rated and equivalent papers and around 9.97% in AA/AA+ rated papers. The average maturity of the portfolio is 336 days, which is higher than the category average of 276 days.   Kotak Bond STP has been in operation for quite sometime now, and has managed to deliver above average returns consistently. The scheme is less volatile in nature as compared to the peer group, and although the average maturity of the scheme is a bit on the higher side for a short term scheme, the high exposure to quality papers and its consistent track record combine to make the scheme an attractive proposition.   Minimum investment amount is Rs 50000 and offers both growth and dividend options. The scheme is benchmarked against Crisil Short-term Bond Fund Index. It charges no entry and exit load. The scheme is suitable for the investors looking for a safety of debt instruments and having short term horizon.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   Invest in DSP BlackRock Mutual Funds Online   Invest in Reliance Mutual Funds Online   Invest in HDFC Mutual Funds Online   Invest in Sundaram Mutual Funds Online   Invest in Birla Sunlife Mutual Funds Online   Invest in UTI Mutual Funds Online    Invest in SBI Mutual Funds Online   Invest in Edelweiss Mutual Funds Online   Invest in IDFC Mutual Funds Online

BNP Paribas Mutual Fund – Its Schemes Posted: 26 Aug 2011 02:23 AM PDT About the Company:   BNP Paribas Investment Managers have a dedicated Asset management business and manages and advises assets of over EUR 533 Billion across 45 countries. They have a significant presence in Europe, Asia and America. BNP Paribas Mutual Fund is the part of the company and they have a good domestic knowledge along with the expertise they have gained through the world, they have launched a lot of schemes.   Investment Schemes Launched:   Equity Funds: ·                           BNP Paribas China – India Fund ·                           BNP Paribas Sustainable Development Fund ·                           BNP Paribas Mid Cap Fund ·                           BNP Paribas Tax Advantage Plan (ELSS) ·                           BNP Paribas Dividend Yield Fund ·                           BNP Paribas Opportunities Fund ·                           BNP Paribas Equity Fund Money Market Fund: ·                           BNP Paribas Overnight Fund Fixed Income Funds: ·                           BNP Paribas Fixed Term Fund - Series Invest Online:   Benefits of Investing Online: ·                           You can purchase, redeem and order any transactions online. ·                           There is no need for you to contact the broker or any intermediate person for the transaction. ·                           You can view all the portfolio details of your folios online. ·                           You can generate Account Statements; view the past transactions and any other details. ·                           You can update your personal details online.     -----------------------------------------------------------------   Also, know how to buy mutual funds online:   Invest in DSP BlackRock Mutual Funds Online   Invest in Reliance Mutual Funds Online   Invest in HDFC Mutual Funds Online   Invest in Sundaram Mutual Funds Online   Invest in Birla Sunlife Mutual Funds Online   Invest in UTI Mutual Funds Online    Invest in SBI Mutual Funds Online   Invest in Edelweiss Mutual Funds Online   Invest in IDFC Mutual Funds Online

How to read your credit card statement? Posted: 26 Aug 2011 01:21 AM PDT Users of credit cards receive the credit card statement akin to a bill every single month. Many of us have the tendency to just pay the amount due, without caring to give the bill a proper reading! Sometimes this habit can prove to be costly! Frauds or incorrect payment info might be overlooked! Do you tend to procrastinate or ignore reading the bill because you do not understand it- Terminologies used are confusing?   Read on to understand your credit card statement better. Credit card number: This is a unique 16 digit number assigned to you and super imposed on your card. This number is needed to pay your credit card bills through cheque or also for any correspondence with the credit card issuer. Keep this number handy so that you can report to the credit card issuer in case of any theft or fraud. This number will always be stated on your credit cards statement. Credit Limit: This is the maximum amount the credit card issuer allows you to borrow. This limit is based on you income profile and your payment track record. A good payment track record will help in getting your credit limit enhanced and vice versa. If you exceed the credit limit, the credit card issuer will charge an overdrawn fee. This fee is a fixed percentage of the overdrawn amount subject to a minimum and maximum amount. Available credit limit: This is the difference between your credit limit and the amount you have spent (total amount due). If you have spent Rs. 20,000 and your credit limit is Rs. 100,000, then your available credit limit is Rs. 80,000. Payment Due date: This is the date by which the payment should be made i.e. you account should be debited and the credit card issuer should realize the amount on or before this date. So you should be aware that is not the last day on which you can issue the cheque but it is the date by which the cheque should be realized. So issuing the cheque before the due date is not good enough if the amount is not credited into your credit card account by the payment due date. Paying your credit card bill before this date is key to managing your credit card history and your credit score. Statement date: This is the date on which the bill has been generated. This date is used to calculate the interest amount if you do not pay the full outstanding amount by the payment due date, even though the due date may fall weeks after the statement date. Cash advance/ Cash limit: Credit card issuers allow you to withdraw cash from the ATM but the amount of cash that you can withdraw is not your credit limit, there is a separate limit called the cash limit. The cash limit is usually 30% of your credit limit. A cash advance will have a one-time transaction fee levied which could be to the tune of 2.5%-3% of the cash withdrawn. In addition interest charges will start accruing immediately. The interest charged on cash withdrawals are more than those charged on your purchases. So this facility is best used only when you need funds on an emergency basis. Total amount due: This is the total amount outstanding on your credit card i.e. the amount you owe to the credit card company. This amount is a cumulative amount comprising of interest or any other charges such as over drawn fee among other things. Minimum amount due: The credit card issuer fixes a minimum amount that you need to pay every month which is typically a certain percentage of the total amount due. It is typically 5%-20% of the total amount due. Non-payment of the minimum amount is treated as default and a late payment fee will be levied. If you opt to pay the minimum amount due, the unpaid amount is carried forward to the next billing cycle and so on, under revolving credit facility. What you need to note here is that, any fresh purchases will not enjoy interest free period i.e. you start paying interest from the day on which the purchase has been made. This will continue till the total amount due has been paid for.  Also even if you pay the minimum amount due, interest will be charged on the total amount due which will include the minimum amount due. So suppose you have paid 60% of the total amount due before the due date, interest will be charged on 100% of the total amount due rather than on the balance 40%. Thus opt for paying minimum amount due only if you're running short of money to pay off the total amount due. Transaction details: All transactions executed through your credit card, which includes purchase, payments made will be recorded under transactions details. Also any charges levied by the credit card company such as interest, annual fee, late payment charges among other things will also be listed here. It is essential that you go through these details in order to spot any discrepancy. Reward points: This is the record of the points accumulated till date. The summary will give details on the opening balance, points redeemed and balance points. You can redeem the accumulated points on a need basis. Each credit card issuer has a different method of redemption.

Stock market risk assessment Posted: 26 Aug 2011 12:15 AM PDT HOW financial models define 'market' could be at the heart of how we define and understand risk. One is connected to the other. This is an idea of extreme importance for a society that not only gives undue weightage to financial risk but also relies on the return and growth that accompanies calculated risk-taking. Though financial models have limited history, risk has traditionally been under judged and might never be completely understood. We can't pinpoint the source of the problem because markets evolve and what seemed risky yesterday is not that relevant today. Risk, like many other social parameters, is a moving target. Many risk parameters have moved from reverence to irreverence, as they failed to pass the test of time. The bigger issue is how financial models understand and define 'market'. Specialised or non-specialised, markets have been defined as a benchmark, an index. Around 50 years before, one could not expect Jack Treynor to really ask this question when he was working on the Capital Asset Pricing Model (relationship between risk and expected return), whether there was a need for redefining 'market' itself. There was less computing power. We did not even have futures or the 1980s' risk management tools. Decades passed and we never questioned whether our basic assumption of the market being a popular benchmark was correct. Behavioural finance was the first to challenge the status quo and break illusions built around beta and benchmarks. Framing errors were showcased among fund managers comparing their portfolio with benchmarks that showed enhanced performance. Then, of course, we had research suggesting the beta (relative performance) was dead. Researchers were still attacking the risk measure, not questioning the definition of market. In a society integrating at a hectic pace, making universal collage films (Ridley Scott's Life in a Day), rewarding companies for tying up the world in a social network, why is our market beta connected to a local index? Why is 'market' for us not a mix of assets, a group of traded financial assets? Beta looks for sensitivity of an asset compared to the index, but is the index not part of a group of assets? Is the index itself not playing multiple roles of performance, underperformance and neutrality in a group of assets? How does the risk measure account for the changing sensitivity of the popular benchmark? Is the real market not a group of assets made of a few thousand assets? If an equity investor's portfolio group also had gold, won't he understand more about the performance of his equity portfolio in 10 years? Won't expanding the definition of market from a blue-chip composite index to a large broad group with cross-assets break the investor's illusion of gain and risk? Won't it give a more balanced approach to measuring how much more alpha (risk-adjusted return) was possible? Won't it help him see correlation in a different light? Won't this redefined market help us to a better risk measure?

Mutual Fund Review: UTI Master Index Fund Posted: 25 Aug 2011 11:39 PM PDT   Type Of Scheme Open Ended Liquid Fund Date Of Inception 01/06/1998 Scheme Objective UTI MIF is an open-ended passive fund with the primary investment objective to invest in securities of companies comprising the BSE sensex in the same weightage as these companies have in BSE sensex. The fund strives to minimise performance difference with the sensex by keeping the tracking error to the minimum. Asset Allocation 100% Equity Face Value Rs.10/- Min Investment Amt Rs. 5,000/- Other Plans Debt Funds Are 1). UTI-Gold Exchange Traded Fund 2). UTI-Index Select Fund 3). UTI-Nifty Index Fund 4). UTI-Sunder   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   Invest in DSP BlackRock Mutual Funds Online   Invest in Reliance Mutual Funds Online   Invest in HDFC Mutual Funds Online   Invest in Sundaram Mutual Funds Online   Invest in Birla Sunlife Mutual Funds Online   Invest in UTI Mutual Funds Online    Invest in SBI Mutual Funds Online   Invest in Edelweiss Mutual Funds Online   Invest in IDFC Mutual Funds Online

Mutual Fund Review: HDFC Top 200 Fund Posted: 25 Aug 2011 10:11 PM PDT Objective To generate long term capital appreciation from a portfolio of equity and equity-linked instruments primarily drawn from the companies in BSE 200 index. Option/Plan Dividend Plan,Growth Plan. The Dividend Plan offers Dividend Payout and Reinvestment Facility. Entry Load (as a % of the Applicable NAV) In respect of each purchase / switch-in of units less than Rs. 5 crore in value, an Entry Load of 2.25% is payable. In respect of each purchase / switch-in of Units equal to or greater than Rs. 5 crore in value, no Entry Load is payable. Exit Load (as a % of the Applicable NAV) In respect of each purchase / switch-in of Units less than Rs. 5 Crore in value, an Exit Load of 1% is payable if units are redeemed / switched-out within 1 year from the date of allotment. In respect of each purchase / switch-in of Units equal to or greater than Rs. 5 Crore in value, no Exit Load is payable. Minimum Application Amount For new investors :Rs.5000 and any amount thereafter. For existing investors : Rs. 1000 and any amount thereafter.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   Invest in DSP BlackRock Mutual Funds Online   Invest in Reliance Mutual Funds Online   Invest in HDFC Mutual Funds Online   Invest in Sundaram Mutual Funds Online   Invest in Birla Sunlife Mutual Funds Online   Invest in UTI Mutual Funds Online    Invest in SBI Mutual Funds Online   Invest in Edelweiss Mutual Funds Online   Invest in IDFC Mutual Funds Online

Mutual Fund Review: AIG India Equity Fund Posted: 25 Aug 2011 09:29 PM PDT About the Company:   Name of the Company: AIG Global Investment Group Mutual Fund The sponsor for the mutual fund is "AIG Capital Corporation" incorporated in USA. AIG Capital Corporation is 100% owned by American International Group. The group companies are located all over the world in USA, UK, Japan,  HongKong, Thailand, Brazil, Canada etc   Type of Scheme: Open Ended Equity Scheme   Investment Objective: It seeks to generate long term capital appreciation by investing in all kinds of equities in the stock markets i.e. large cap stocks, mid cap stocks, small cap stocks. They invest in any sector and also they invest in equity derivatives.   Asset Allocation:   The fund manager allocates 80% to 100 % of the funds in equities and equity related instruments. The fund manager would allocate 0 to 20 % of the funds in short term debt and money market Instruments. SIP – Yes SWP – Yes STP -  Yes Types of Plan: ·                           Dividend ·                           Growth The dividend Plan has two options i.e. dividend payout and dividend reinvest. Minimum Investment Amount: Rs 5000 SIP, STP- Minimum Investment Amount – Rs 1000 Entry Load: NA Exit Load: 1 % if the fund is redeemed within 1 year from the date of investment.                 : NIL If the fund is redeemed after 1 year from the date of investment.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   Invest in DSP BlackRock Mutual Funds Online   Invest in Reliance Mutual Funds Online   Invest in HDFC Mutual Funds Online   Invest in Sundaram Mutual Funds Online   Invest in Birla Sunlife Mutual Funds Online   Invest in UTI Mutual Funds Online    Invest in SBI Mutual Funds Online   Invest in Edelweiss Mutual Funds Online   Invest in IDFC Mutual Funds Online

Franklin Templeton Mutual Fund - Its Schemes Posted: 25 Aug 2011 08:50 PM PDT Franklin Templeton is one of the global financial companies with operations in 29 countries. They have a disciplined approach while investing. The company has successfully launched several schemes that have generated good returns which inturn demonstrates its capabilities. They have launched schemes in all categories i.e. Equity, Debt and Balanced Schemes.   Some of the top performing schemes in the Equity Category are listed below for your reference. ·                           Franklin FMCG Fund – Dividend and Growth ·                           Franklin Asian Equity Fund – Dividend and Growth ·                           Franklin Pharma Fund – Dividend and Growth ·                           Franklin Infotech Fund – Dividend and Growth   The scheme available for investing in the Balanced Category is "Franklin Templeton India Balanced Fund – Dividend and Growth" option.     -----------------------------------------------------------------   Also, know how to buy mutual funds online:   Invest in DSP BlackRock Mutual Funds Online   Invest in Reliance Mutual Funds Online   Invest in HDFC Mutual Funds Online   Invest in Sundaram Mutual Funds Online   Invest in Birla Sunlife Mutual Funds Online   Invest in UTI Mutual Funds Online    Invest in SBI Mutual Funds Online   Invest in Edelweiss Mutual Funds Online   Invest in IDFC Mutual Funds Online

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