KNOWLEDGE

Why Invest In Mutual Fund:

Mutual funds are investment vehicles, and you can use them to invest in asset classes such as equities or fixed income. It is widely recommended by experts that you use the mutual fund investment route rather than invest yourself, unless you have time and expertise

Investing in Mutual Funds offers several benefits:

• Professional expertise:
  Fund managers are professionals who track the market on an on-going basis. With their mix of professional qualification and market knowledge, they are better placed than the average investor to understand the markets.
• Diversification:
  Diversification of a portfolio is amongst the primary tenets of portfolio structuring. And a necessary one to reduce the level of risk assumed by the portfolio holder. Most of us are not necessarily well qualified to apply the theories of portfolio structuring to our holdings and hence would be better off leaving that to a professional. Mutual funds represent one such option.

Since a Mutual Fund scheme invests in number of stocks and/or debentures, the associated risks are greatly reduced.

• Relatively less expensive:
  When compared to direct investments in the capital market, Mutual Funds cost less. This is due to savings in brokerage costs, de-mat costs, depository costs etc.
• Liquidity:
  Investments in Mutual Funds are completely liquid and can be redeemed at their Net Assets Value-related price on any working day.
• Transparency:
  You will always have access to up-to-date information on the value of your investment in addition to the complete portfolio of investments, the proportion allocated to different assets and the fund manager’s investment strategy.
• Flexibility:
  Through features such as Systematic Investment Plans, Systematic Withdrawal Plans and Dividend Investment Plans, you can systematically invest or withdraw funds according to your needs and convenience.
• SEBI regulated market:
  All Mutual Funds are registered with SEBI and function within the provisions and regulations that protect the interests of investors. AMFI is the supervisory body of the Mutual Funds industry.

Selecting the right Mutual fund

The important thing is to choose the right mutual fund scheme, which suits your requirements. The offer document of the scheme tells you its objectives and provides supplementary details like the track record of other schemes managed by the same Fund Manager. Some factors to evaluate before choosing a particular Mutual Fund are the track record of the performance of the fund over the last few years in relation to the appropriate yardstick and similar funds in the same category. Other factors could be the portfolio allocation, the dividend yield and the degree of transparency as reflected in the frequency and quality of their communications.
Mutual Fund investment decisions require consistent effort on the part of the investor. Before investing in Mutual Funds, the following steps must be given due weightage to decide on the right type of scheme:

1. Identifying the Investment Objective
2. Selecting the right Scheme Category
3. Selecting the right Mutual Fund
4. Evaluating the Portfolio

An average Ideal period of holding the investments

Private equity

Private equity investing may broadly be defined as "investing in securities through a negotiated process". Private equity investment is typically a transformational, value-added, active investment strategy. Investing in private equity offers the investor the opportunity to generate higher absolute returns whilst improving portfolio diversification.

Private equity is a broad term that refers to any type of equity investment in an asset in which the equity is not freely tradable on a public stock market. Categories of private equity investment include leveraged buyouts, venture capital, growth capital, angel investing, mezzanine capital and others.

IPO

An initial public offering (IPO) is the first sale of a corporation's common shares to investors on a public stock exchange. The main purpose of an IPO is to raise capital for the corporation.

Foreign Currency Convertible Bond - FCCB

A type of convertible bond issued in a currency different than the issuer's domestic currency. In other words, the money being raised by the issuing company is in the form of a foreign currency. A convertible bond is a mix between a debt and equity instrument. It acts like a bond by making regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock.

Qualified Institutional Placement-QIP

QIP is an additional mode for listed companies to raise funds from domestic market by placing the securities to Qualified Institutional Buyers. Qualified Institutional Buyers are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets.

AIM

The Alternative Investments Market (AIM) is a sub-market of the London Stock Exchange, allowing smaller companies to float shares with a more flexible regulatory system than is applicable to the Main Market. The AIM was launched in 1995 and has raised almost £24 billion for more than 2,200 companies.

GDR

Global Depositary Receipt is a negotiable certificate held in the bank of one country representing a specific number of shares of a stock traded on an exchange of another country.

ADR

A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas.
In other words, American depositary receipt (ADR) is a stock that trades in the United States but represents a specified number of shares in a foreign corporation. ADRs are bought and sold on American markets just like regular stocks, and are issued/sponsored in the U.S. by a bank or brokerage.

PORTFOLIO MANAGEMENT SERVICES

When it comes to investing, individuals and corporations have unique needs based on their own objectives and risk profiles. We recognize the difference, and manage the portfolios to achieve specific investment objectives. Our endeavor is to achieve optimal and consistent returns based on the specific risk profile.
Here are a few aspects on which portfolio managers say they score over the standardised products offered by other financial instrument:

Asset allocation: With PMS, an asset allocation plan is tailor-made for you, after a detailed check on your investment goals, savings pattern and appetite for risk.

Timing: You probably need help with regard to timing of investments. Once you hire a portfolio manager, you can expect assistance on when you should be investing more money into equities and when you should be bailing out. A portfolio manager may also switch a portion of your portfolio into cash, if he perceives a big risk to stock prices. The focus is on preserving value.

Flexibility: In a PMS, you can expect the portfolio manager to accommodate your sector preferences when he invests. But don't expect to completely dictate what stocks or sectors your portfolio manager will buy for you, as he will be the best judge of that.

Also, portfolio managers do not have to stick to any rigid rules on what proportion of your money will be invested in each sector or stock. They can also use liberal doses of cash or derivative instruments to pep up your returns. Mutual fund managers have their hands tied on these aspects by SEBI regulations.

What to expect from PMS

»   You can expect to have a personal relationship manager through whom you can interact with the fund manager at any time of your choice. You can also expect frequent (maybe monthly) interaction with the portfolio manager to discuss any concerns that you might have. Expect to be consulted on any major changes in asset allocation or in the investment strategy relating to your portfolio. All administrative matters, including operating a bank account and dealing with settlement and depository transactions, will be handled by the PMS.

»   If you are the type who likes to watch over your money like a baby, the disclosures offered by a PMS may be just right for you. On handing over your money, you will receive a user-ID and password from the PMS, which will grant you online access to your portfolio details. You can use these to check back on your portfolio as often as you like.

»   Keeping track of capital gains (and losses) for the taxman can be a depressing chore, when you have furiously churned your investments through the year. Opting for PMS will free you of this chore, as a detailed statement of the transactions on your portfolio for tax purposes comes as a part of the package.

Who should hire a portfolio manager?

Anybody with a nest egg, which meets the minimum investment requirement, can consider using a PMS. However, a PMS may only add significant value in the following cases:

»    Equity bias: Portfolio management services may be ideal for a person who seeks a substantial investment in the stock markets. An equity portfolio also offers greater scope for a manager to add value than does a debt portfolio. Several of the established players in the PMS business focus on equity investments, though some also offer hybrid products.

»    Large surplus to invest: The minimum portfolio size that portfolio managers accept for a customised portfolio ranges from Rs 25 lakh to Rs 5 crore. So consider a PMS only if you have a substantial surplus to invest in stocks. If you don't, evaluate if you can use the services of a financial planner or an advisor, instead of a PMS.

If you are willing to handle the paperwork associated with investing, you can get a financial planner or advisor to construct an asset allocation plan and guide you on the choice of investments for a one-time fee of Rs 5,000-15,000.