Monday, June 23, 2008
Solutionsxgen.blogspot.com
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Tuesday, June 17, 2008
Why Sectoral Funds?
Indian Capital Markets is facing fluctuations of high levels from the latter half of January 2008. Is there a case for sectoral funds? How relevant are them?
The sector specific fund is defined as one having 80% portfolio allocation in the specified segment of the economy. Some sectors in the economy moves faster than the rest and some move along with the market. The co-movement of the segment with the market is captured by the beta measure. Those that move with the market are termed aggressive and those that moves slower than the market are called defensive sectors. Market beta is considered to be 1 universally. One has to define the market index as a broad market index. One Remember, beta measure does not tell you anything about cause and effect of a particular situation. That means, post-mortem analysis needs to be done to find why the co-movement happened in the given manner.
Nevertheless, beta help us to understand whether the secotor in which we are invested, is moving in what way in relation to the market. According to our profile of risk taking, we can be in sector that suits our nature. If we are an aggressive investor, loving to live risk, we invest in aggressive sectors. if we are risk averse, we take position in the defensive segments when the market falls. By changing our position in the appropriate sectors, one can profit from the market situation.
Those who are unable to digest the sector transfer philosophy, can gain market returns by investing in the index funds on a broad market index like BSE sensex or Nifty.
Sectoral funds are avialble in all these and more. The latest entry are of Natural resources Funds, International Funds. We also have sector specific funds like Media and entertainment. What are sectoral betas in Indian Markets?
1. Technology 0.87
2. Pharma 1.00
3. Energy 1.05
4. Banking 0.76
5. MNC 0.76
6. FMCG 0.69
7. Automobile 0.84
8. Services 0.93
9. Infrastructure 1.10
(These beta measures are estimated using beta measures of funds present in the sector weighted by the Assets Under Management as on 31 May 2008)
The sector specific fund is defined as one having 80% portfolio allocation in the specified segment of the economy. Some sectors in the economy moves faster than the rest and some move along with the market. The co-movement of the segment with the market is captured by the beta measure. Those that move with the market are termed aggressive and those that moves slower than the market are called defensive sectors. Market beta is considered to be 1 universally. One has to define the market index as a broad market index. One Remember, beta measure does not tell you anything about cause and effect of a particular situation. That means, post-mortem analysis needs to be done to find why the co-movement happened in the given manner.
Nevertheless, beta help us to understand whether the secotor in which we are invested, is moving in what way in relation to the market. According to our profile of risk taking, we can be in sector that suits our nature. If we are an aggressive investor, loving to live risk, we invest in aggressive sectors. if we are risk averse, we take position in the defensive segments when the market falls. By changing our position in the appropriate sectors, one can profit from the market situation.
Those who are unable to digest the sector transfer philosophy, can gain market returns by investing in the index funds on a broad market index like BSE sensex or Nifty.
Sectoral funds are avialble in all these and more. The latest entry are of Natural resources Funds, International Funds. We also have sector specific funds like Media and entertainment. What are sectoral betas in Indian Markets?
1. Technology 0.87
2. Pharma 1.00
3. Energy 1.05
4. Banking 0.76
5. MNC 0.76
6. FMCG 0.69
7. Automobile 0.84
8. Services 0.93
9. Infrastructure 1.10
(These beta measures are estimated using beta measures of funds present in the sector weighted by the Assets Under Management as on 31 May 2008)
Sunday, June 15, 2008
To sail through a troubled market, use Dividend Yield Funds
What is Dividend yield? It stands for the result you get by dividing the rupee dividend by the purchase price of the equity share.
Dividend Yield Fund is a mutual fund created with dividend paying equity shares holding maximum percentage share in its portfolio. It is a diversified equity fund with only restriction that the portfolio is skewed towards dividend paying companies.
These kind of equity shares are also called value shares in the capital market, as they result in substantial value unlocking only in the event of a discovery, sale of assets, merger/acquistion etc..
Dividend Yield Fund is a mutual fund created with dividend paying equity shares holding maximum percentage share in its portfolio. It is a diversified equity fund with only restriction that the portfolio is skewed towards dividend paying companies.
These kind of equity shares are also called value shares in the capital market, as they result in substantial value unlocking only in the event of a discovery, sale of assets, merger/acquistion etc..
During the last one year as on 12.06.2008, the BSE Sensex returned 7.9% and for three years 30.7% respectively; The Dividend Yield Funds gave 10.22% to 18.58% with exception of Escorts Hi Yield Fund and Birla Dividend Yield Plus.
During the period under study, the diversified equity funds exhibited a standard deviation of 26.4 to 35, the dividend yield funds showed a range of 25-26 . That is why, generally it is said that dividend yield funds are best suitable for risk averse equity invesors.
When the BSE Sensex was subject to high fluctuations during 2003-2005, the dividend yield funds led by Birla Dividend Yield plus gave very good returns. But when the market enetered the phase of secular rise after 2005 till January 2008, they whithered in rate return per annum. However, they regained their status now again from Jan 2008. Thus Dividend Yield as a strategy is giving good returns only in troubled situations. So if any one is planning their funds in 50:50 for all seasons, then a suggestion could be to split between the P/E funds and Di Yi Funds. When one half is failing, the other half will support. But who can tell us when the market will turn good and when the market will turn bad? Only the market knows at best..
ABN AMRO dividend yield fund got merged with their opportunities fund w e f 10 Feb 2008 probably because of the secularly growing market from 2006 through Jan 2008.
Birla Dividend Yield Plus (Feb 2003)
Tata Dividend Yield fund(Oct 2004)
UTI Dividend Yield Fund(May 2005)
ING Dividend Yield fund(Oct 2005)
Principal Dividend Yield Fund(Sept 2004)
ABN AMRO Dividend Yield Fund(Aug 2005)
Escorts High Yield Fund(Dec 2006)
Templeton India Equity Income Fund(Apr 2006)
After 2006, No funds entered this area till date.
Sunday, June 1, 2008
SAI & SID: The twins born out of Offer Document
23 May 2008 gave a big push to the MF industry by announcing the split of repeated informations and scheme specific informations submitted to the SEBI through the Offer Document (OD)by the MFs on launching the schemes.
The MF Regulations 1996 envisaged an Offer Document but the clarity was brought in 1998 with standardised Offer Document and Key Information Memmorandum that made a distinguishion between information provided by the MF and the information collected from the Investor respectively.
After 10 years, SEBI has moved one step forward in splitting the OD into SAI and SID. SAI stands for Statement of Additional Information that deals with relatiovely stable information like Sponsor, Trustee, Banks, Auditirs, Fund Manager, Chief Operating Officer, Compliance Officer, etc.. about fund constituents, rights and duties of the investor, tax and legal matters and the MF risk clause.
SID consists of all that is required to be known about the specific scheme. Type of scheme :Equity, Debt or Call Money ; Portfolio related information like the proportionof these asset classes, Whether large Cap/Mid cap or small cap; Managed in aggressive or passive or defensive style etc.. ; It also provides information as to minimum and maximum investments etc..
KIM continues to retain all its previous characteristics: Informations from the investor and all that instructions for filing it in proper manner and place. His Name, Address.... Payment details
Changes in OD
Previously OD was revised every two years. Addendum got circulated with OD and KIM. In the new system, Addendum shall be attached to existing SID and KIM till stocks are exhausted. Within 7 days of the change, SEBI needs to informed on the same . SID to be updated within 3 months from the end of the financial year.
Same applies to KIM also. Additionally, public notice is to be given in one nation-wide English news paper and a vernacular Newspaper published from the place where the HQ of the MF is situated.
This move help MFs to reduce recurring expenses of printing oft repeated items any time a scheme is launched. It is also expected to add speed in reaching the market with new products as certain market flavours remain very short on the scene.
Customer is the King even in MFs!
The MF Regulations 1996 envisaged an Offer Document but the clarity was brought in 1998 with standardised Offer Document and Key Information Memmorandum that made a distinguishion between information provided by the MF and the information collected from the Investor respectively.
After 10 years, SEBI has moved one step forward in splitting the OD into SAI and SID. SAI stands for Statement of Additional Information that deals with relatiovely stable information like Sponsor, Trustee, Banks, Auditirs, Fund Manager, Chief Operating Officer, Compliance Officer, etc.. about fund constituents, rights and duties of the investor, tax and legal matters and the MF risk clause.
SID consists of all that is required to be known about the specific scheme. Type of scheme :Equity, Debt or Call Money ; Portfolio related information like the proportionof these asset classes, Whether large Cap/Mid cap or small cap; Managed in aggressive or passive or defensive style etc.. ; It also provides information as to minimum and maximum investments etc..
KIM continues to retain all its previous characteristics: Informations from the investor and all that instructions for filing it in proper manner and place. His Name, Address.... Payment details
Changes in OD
Previously OD was revised every two years. Addendum got circulated with OD and KIM. In the new system, Addendum shall be attached to existing SID and KIM till stocks are exhausted. Within 7 days of the change, SEBI needs to informed on the same . SID to be updated within 3 months from the end of the financial year.
Same applies to KIM also. Additionally, public notice is to be given in one nation-wide English news paper and a vernacular Newspaper published from the place where the HQ of the MF is situated.
This move help MFs to reduce recurring expenses of printing oft repeated items any time a scheme is launched. It is also expected to add speed in reaching the market with new products as certain market flavours remain very short on the scene.
Customer is the King even in MFs!
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