Monday, December 3, 2012

Prajna Capital

Prajna Capital

How to Profit from interest cycles

Posted: 03 Dec 2012 04:07 AM PST


If you thought equities are the only option to generate capital gains from inve s t m e n t s, think again. While there is no denying the merits of buying equities, profits in abundance can be generated in other forms of products. For a moment, put your equity bias aside and look around.


The world of bonds and fixed income securities offer no less an opportunity to generate capital gains. Interest rates keep changing in long cycles and when the rate cycles trend downwards, they create tremendous opportunities for capital gains.


Predicting the interest rate cycles correctly and making intelligent investments in fixed income securities and bonds will leave you richer than you imagined. Investment legends like Bill Gross and Warren Buffett generated prolific profits playing the debt cycles. The important thing is that you can do just as well if you set your sight right.


How does this work?


When interest rates fall, bonds and fixed income securities issued at higher rates tend to appreciate as investors are willing to pay more for higher return-generating papers. The term of the papers also tends to impact the extent of appreciation. Currently, interest rates have peaked out and one rate reduction of 50 basis points has happened. RBI is expected to reduce rates going forward and any drop in inflation will hasten the process of reduction.


As inflation drops sequentially, interest rate reductions will inevitably follow. This process happens over a 24-30 month horizon. The drop in interest rates tends to raise the prices of bonds and fixed income securities. Buying the right fixed income securities with a term that matches your expectations on interest rates will ensure you profit significantly as rates progressively drop. When the interest rates get closer to a bottom, you would have made bumper profits in your debt portfolio if you built it right.


What should you do?


If you know how to price bonds and fixed income, you can buy the right papers directly. An effective alternative is to buy the right schemes of mutual funds that invest in gilts, bonds or a mix of both. If your return expectations are higher, you must choose gilt funds that have a portfolio of papers with the right term. Typically, a 24-30 month term should ensure that rates drop adequately to generate above-average returns. Buying portfolios with a very long term may not generate very high returns as the cycles could reverse within the term of the paper and this could cap profits. In fact, papers with very long tenures may not give as much returns as those with medium tenures. So choose the right fund with the right tenure and let the competent fund manager do your bidding.


What should you prepare for?


Conviction is a prerequisite and constant self-doubt will hardly help. Be prepared for little or no returns in the initial quarters and for bumper returns when interest rates fall sharply. The progressive cuts in interest rates by RBI will catalyze returns and you must show adequate patience. Close monitoring of inflation data, the liquidity position and the government's borrowing plans are essential as they tend to influence interest rates. Importantly, you need to understand that returns inevitably get lumped up in the later quarters and adequately compensate for the earlier quarters.



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Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap FundsInvest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap FundsInvest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
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      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap FundsInvest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector FundsInvest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
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Franklin MF dividend

Posted: 03 Dec 2012 03:04 AM PST

Franklin Templeton Mutual Fund has announced Rs 0.52 per unitdividend for individuals and HUFs under Franklin templeton fixed tenure fund-series IX-plan B.

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax PlanInvest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online


    ----------------------------------------

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap FundsInvest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap FundsInvest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap FundsInvest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap FundsInvest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector FundsInvest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund


Invest in Tax Saving Mutual Funds Download Any Application Forms
Buy Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now

Sundaram Capital Protection Oriented Fund 3 Years

Posted: 03 Dec 2012 12:38 AM PST

Sundaram Capital Protection Oriented Fund 3 Years

Sundaram Capital Protection Oriented Fund 3 yrs-Series 9 The scheme's investment objective is only oriented towards protecting your principal investment

FEATURES: A close-ended fixed income fund with a partial equity orientation, this fund is the latest in a series of similar hybrid close-ended funds by Sundaram Mutual Fund, nineth as far as three-year tenured ones are concerned, which try to attract using the term `capital protection' in their names.


TENURE & BENCHMARK: It is a three-year tenured scheme benchmarked to Crisil MIP Blended Index.


ASSET ALLOCATION & INVESTMENT STRATEGY: Scheme document states it will invest 80-100 per cent in debt securities and up to 20 per cent in equities. Debt portfolio will mainly be in triple-A-rated non-convertible debentures (NCDs) and if enough of these are not available, then in bank certificate of deposits (CDs) of publicsector banks. Securitised debt and securities of four sectors ­ real estate, micro finance, airlines and information technology ­ will not be invested in. Equity portion will be re-balanced on a dynamic basis. PEER PERFORMANCE: Five schemes, series two to six, of Sundaram's earlier three-year capital protection-oriented schemes, operational between December 2010 and October 2011, have delivered an 8.03 average one-year return of per cent as on November 12 NAVs from Capitaline NAV database. This is significantly lower than 9.37 per cent average one-year return of 14 peer three-year cap-protection schemes of other mutual funds. Crisil MIP Blended Index had a one-year return of 10.12 per cent.


Like every scheme with `capital protection' in their name, this scheme too, does not guarantee capital protection. The scheme's investment objective is only oriented towards protecting your principal investment. But being a three-year scheme, if you only get back, say Rs 100, principal at the end of three years, you have actually lost risk-free interest on bank deposits, which at 8 per cent per annum amounting to roughly Rs 24. You get your Rs 100 back but you would have got Rs 124 back in a bank. Your minimum expectation should, therefore, be Rs 124 and not Rs 100 from a three-year investment. For this hybrid debt-equity scheme to give you Rs 124 at the end of three years, and assuming Rs 20 out of the principal to be invested in equities (as per maximum limits in asset allocation) to fetch, in a worse case scenario, say, only Rs 10, the debt portfolio will have to be invested in securities yielding 12.53 per cent compound annual growth rate (CAGR). A 12.5 per cent CAGR is not quite easy to get from triple-A-rated NCDs or bank CDs.


This, along with below-average performance of peer three-year schemes within Sundaram MF, makes the scheme avoidable for investment purpose.
 

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online


Invest in Tax Saving Mutual Funds Download Any Application Forms
Buy Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now

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