Prajna Capital

How Equity Mutual Funds Triggers Work?
Use Debt Funds to Invest lump sum Amount
Beta - Volatility Measure

Posted: 15 Mar 2015 06:56 AM PDT

Trigger funds have the trigger facility built in. It allows you to define a specific event, which may be related to time or value, in advance and when this event takes place, the trigger is activated. A recent offering of this type was the closed-end equity fund from Union KBC AMC. This fund will be wound up as soon as the NAV of the fund rises by 30% or upon completion of three years. Baroda Pioneer will launch a similar fund soon where the fund will hit the trigger when it rises 50% or after three years.

The above funds define their triggers. Diversified-equity funds also offer this facility. Here you can set triggers according to your liking. In ICICI Prudential MF's schemes, for instance, you can put your money in a debt fund and have it invested in an equity fund when the Sensex falls to a certain level or the fund's NAV declines by a certain percentage. Similarly, you can set a variety of options for redeeming or switching from equity funds when the market rises.

The short comings

Trigger funds don't operate based on valuation parameters. When equities go up, you should book profits only if valuations have turned expensive. Just because the Sensex has gone up by 25 or 30% or touched a certain level does not mean that you should exit equities. What if the outlook for equities remains positive and valuations have not yet turned exorbitant? In that case, you would lose out on further gains by moving out.

These funds also don't allow you the flexibility to delay booking profits and escape paying short-term capital gains tax. Imagine a situation where your trigger fund hits its target of 30% gain in less than a year. The trigger gets activated, gains get booked, and you are forced to pay tax on short-term capital gains. If you had not chosen the trigger option, you could have delayed booking profits by three months.

When you use the trigger facility you may have to repeatedly set triggers. Multi-asset funds and hybrid funds are more convenient for maintaining a particular level of asset allocation in your portfolio.

What should you do?

If you decide to use the trigger facility, keep a couple of points in mind. Avoid setting the trigger too low. By setting your return expectations just above the returns from fixed-income instruments, you may miss out on a good part of the high gains that equities are capable of delivering over the long term.

Also, keep in mind the tax implications and exit loads when setting triggers. Try to avoid paying both.

Finally, disciplined investors should rebalance their portfolios themselves. Only those who habitually ignore rebalancing should opt for the trigger facility.

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

Invest in Tax Saver Mutual Funds Online -

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

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You can write to us at

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Leave a missed Call on 94 8300 8300

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Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

Use Debt Funds to Invest lump sum Amount

Posted: 15 Mar 2015 04:48 AM PDT

There was a lot of unrest amid debt fund investors after Finance Minister Arun Jaitley increased the holding tenure for debt funds to three years for tax benefits in the last Budget. However, despite this reduction in liquidity, the fortunes of these funds are likely to change as the economy enters a lower interest rate regime, which will lead to a rise in prices of the underlying debt papers.

The question is whether one should use systematic investment plans (SIP) or the lump sum route to invest. When interest rates ease further, one- third of the debt corpus can be invested in lump sum and the rest through SIPs.

The lump sum route because he expects volatility in the falling rate scenario to be less than when interest rates are rising. We expect benign interest rates scenario to stay for at about three years. So, the idea should be to reduce your re- investment risk. Hence, one should pick up a fund, which has a modified duration longer than your investment horizon. If you have an investment horizon of three years, then pick up an income fund with a modified duration of nine to 10 years or you can even consider a gilt fund.

However, staying invested for at least three years will be important if investing a lump sum because of the tax consideration.

If you withdraw before three years, the capital gains will be added to your income and taxed according to the bracket. On the other hand, after three years, the taxation will be 10 per cent without indexation and 20 per cent with indexation – a big benefit in years when the consumer price inflation is high.

Investors who do not have a lump sum can use the SIP route. Since the SIP route is taken to reduce volatility, use this route only for short term or income funds. Ultra short term and money market funds are less volatile; so the benefit of averaging from such funds is limited. But income funds stay invested across the interest rate cycle and investors can benefit from investing through SIP. Recommends a dynamic bond or income accrual funds when interest rates settle down because once there are no more gains to be made by investing in longer tenure papers, these funds will reduce the average maturity of the portfolio or invest in corporate bonds.

However, remember that each SIP has to complete three years to get the tax benefit, much like SIPs in equity- linked savings schemes. This makes the process cumbersome when withdrawing

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

Invest in Tax Saver Mutual Funds Online -

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

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

Leave your comment with mail ID and we will answer them

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

Leave a missed Call on 94 8300 8300

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

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

Beta - Volatility Measure

Posted: 15 Mar 2015 02:42 AM PDT

Beta is the measure of a fund's volatility relative to the market or benchmark. A higher beta implies higher volatility

It is common knowledge that mutual funds are benchmarked against particular market indices. In general, diversified funds are benchmarked against Sensex or Nifty, while sectoral funds are benchmarked against their particular sector index. It is fair to then assume that the ups and downs of any index will affect the funds that are benchmarked against it. In other words, if the Sensex falls, you can expect a diversified fund to fall as well.

But while some funds might be affected more by an index's volatility, others might not. So, then how does an investor get an idea of how volatile a fund is with respect to its index?

Here is where beta enters the picture. Beta is the measure of a fund's (or stock's) volatility relative to the market or benchmark.

For example, if a fund is benchmarked against the Sensex, a beta of more than 1 would imply that the fund is more volatile than the index. And of course, a beta of less than 1 would imply lesser volatility.

Allow us to explain further. Let's say there are two funds, one with a beta of 2.5 and the other with 0.4, both benchmarked against the same index. Now, if the market rises by 1 per cent, the first fund will rise by approximately 2.5 per cent, while the latter will rise by 0.4 per cent. A similar relationship will take place in a falling market. In simpler words, beta is a quantitative measure of a fund (or stock) relative to the market.

In effect, beta expresses the fundamental trade-off between minimizing risk and maximising return. This means that while an investor can expect high returns from a fund that has a beta of 2, he can also expect the fund to be more risky and drop much more when the market falls. A fund with a beta of 1 would flourish or diminish in the same vein as the market.

So, how effective is beta in judging a fund's volatility? Well, that depends on the index used to calculate it. If the beta of a large-cap fund is calculated against a mid-cap index, the resulting value would have no meaning. This is because the large-cap fund would not be invested in the stocks making up the small-cap index.

Beta is fairly straightforward and offers a lucid, quantifiable and convenient measure of a fund's volatility. However, beta does have its limitations. Beta is essentially a historic tool and does not incorporate new information. For example, a company may venture into a new business and assume a high debt level, but this new risk will not be captured by beta. Beta relies on past movements and does not take new happenings into account. Hence, beta cannot be calculated for new funds or stocks that have insufficient history.

In conclusion, investors should remember that beta is just an indication of a fund's (or stock's) volatility. It gives a fair idea of the same and can be used as a reference, but should not be relied upon completely since beta depends on past movements, which are not fool proof predictors of future behaviour.

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds