BASICS OF MUTUAL FUND

Mutual Fund Basics

Investing is the process of growing your capital by putting it into securities, such as stocks, bonds, insurance etc. However most of us do not understand the intricacies of these. Also, lots of investments have huge minimum amounts as entry barriers. Mutual Funds allow a normal investor to benefit from the firm grasp of key concepts that experts have and grow his money in a steady, relatively safe manner.

What are Mutual Funds? Advantages of investing in Mutual Funds Types of Mutual Funds

What are Mutual Funds?

A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When you invest in a mutual fund, you are buying shares (or portions) of the mutual fund and become a shareholder of the fund. Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in (you don't have to figure out which stocks or bonds to buy). By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification. You could make money from a mutual fund in three ways: Income is earned from dividends declared by mutual fund schemes from time to time. If the fund sells securities that have increased in price, the fund has a capital gain. This is reflected in the price of each unit. When investors sell these units at prices higher than their purchase price, they stand to make a gain. If fund holdings increase in price but are not sold by the fund manager, the fund's unit price increases. You can then sell your mutual fund units for a profit. This is tantamount to a valuation gain.

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Advantages of investing in Mutual Funds

Professional Management The primary advantage of funds (at least theoretically) is the professional management of your money. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments.   Diversification By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. In other words, the more stocks and bonds you own, the less any one of them can hurt you (think about Enron). Large mutual funds typically own hundreds of different stocks in many different industries. It wouldn't be possible for an investor to build this kind of a portfolio with a small amount of money.   Economies of Scale Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than you as an individual would pay.   Liquidity Open-ended mutual funds are priced daily and are always willing to buy back units from investors. This mean that investors can sell their holdings in mutual fund investments anytime without worrying about finding a buyer at the right price. In the case of other investment avenues such as stocks and bonds, buyers are not necessarily available and therefore these investment avenues are less liquid compared to open-ended schemes of mutual funds.   Regulations All Mutual Funds are registered with SEBI and they function under strict guidelines designed to protect the interests of the Investor.   Tax benefits Equity Funds Currently, dividends are tax-free in the hands of the investor. There is no distribution tax payable by the Mutual Fund on dividends distributed. There is no tax deduction at source on dividends as well. Investments for over 12 months qualify for long term capital gains. Moreover for resident investors there is no TDS on redemption of the units. The recently introduced Securities Transaction Tax is applicable to equity fund investments. Debt Funds Currently, dividends are tax-free in the hands of the investor. However, there is distribution tax together with surcharge and education cess, as may be applicable, payable by the Mutual Fund on dividends distributed. There is no tax deduction at source on dividends as well. Investments for over 12 months qualify for long term capital gains. For resident investors there is no TDS on redemption of the units. top

Types of Mutual Funds

Schemes according to Maturity Period:A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.   Open-ended Fund/ Scheme An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices that are declared on a daily basis. The key feature of open-end schemes is liquidity. Close-ended Fund/ Scheme A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis. Schemes according to Investment Objective: A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows: Growth / Equity Oriented Scheme The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time. Income / Debt Oriented Scheme The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations. Balanced Fund The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds. Money Market or Liquid Fund These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. Gilt Fund These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes. Index Funds Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

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CA. VIKAS     KAPAHI
     TREASURER
   JAB WE MET CA
REDEFINING PROFESSIONALISM

ITC tech arm to announce US buy Tuesday

BANGALORE: The information technology arm of ITC Ltd, top cigarette firm, will announce the acquisition of a US based technology firm around noon (0630 GMT) on Tuesday, a public relations firm said in a statement issued on behalf of ITC Infotech.

Further details of the announcement were not immediately available. Last month, ITC Chairman YC Deveshwar said that the company was in talks to acquire a US-based information technology firm and the acquisition would be made through ITC Infotech.

ITC, 31.7-per cent owned by British American Tobacco Plc, has interests in technology outsourcing, retail and packaging, and is expanding a range of foods and personal care products to cut its dependence on cigarettes.

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CA. VIKAS     KAPAHI
     TREASURER
   JAB WE MET CA
REDEFINING PROFESSIONALISM

INVESTOR'S PARADISE

Tuan Huynh, Director & CIO, Deutsche
Bank,PAM


Globally, there are clear signs of risk averseness and analysts worldwide are divided on whether the worst is over and what would be the economic outlook going forward. However, Tuan Huynh, director, chief investment officer — India and China, Deutsche Bank, PAM (private asset amangment) is of the view that investors investing in countries like India have not much to worry. Mr Huynh is of the view that returns would continue to be handsome, but the investment horizon may become a little longer. Based at Singapore, Mr Tuan was in India recently to take stock of the situation.

Wealth creation has taken a pause after years of secular growth. What is the strategy going forward?

The year witnessed a tough investment environment. Some asset classes gave negative returns. Markets were going up 40% every year and suddenly the meltdown occurred.

Clients are now raising questions as they are concerned about developments. We do believe that there are no clear answers but there is need to take a systematic approach to investing.

What are you advising your clients?

Our investment focus is India specific but for the purpose of diversification, we invest across different asset classes like equity mutual funds, real estate, structured products and commodity. To further diversify our client's portfolio from country specific risk, we are advising them to invest in overseas assets.

For instancee, investing in Latin America to benefit from high commodity prices. Further, there is a need for change in allocation on a continuous basis.

Given the prevalent scenario, what is the risk appetite among your clients?

The portfolios are managed on the basis of risk profile of different investors like having a conservative approach, moderate or balanced approach. At this point of time, we are largely neutral on equities and bullish on assets class like soft commodities and precious metals.

As an investment theme, we continue to believe that soft commodities like corn, soya would still giving good returns due to demand – supply factors. Apart from that, we believe that precious metals like gold would also generate good returns for investors in times to come.

Why do you think markets have not yet bottomed out?

Some of the reasons for our concern are the fate of global financial players. The brief rebound of global markets from mid-march happened due to the Bear Stearns bailout which somewhat took away the systemic risk.

But in June, concerns on financials continued with downgrading by S&P of Merrill Lynch, Morgan Stanley and Lehman Brothers.

What is your macroeconomic outlook on India?

Despite the strong reading for the first quarter, we still feel that the economy will slow due to a combination of rising inputs costs, tight monetary conditions and capacity constraints.

The manufacturing sector has been slowing for several quarters now. We think that RBI's shift to tightening money supply is not just a reaction to higher energy prices but necessary to bring domestic demand in line with a constrained supply-side.

Would this affect your investment decisions in India?

The kind of growth that India has witnessed is one of the best. Going forward there are some risks to economic growth, which would certainly slow the pace of growth.

We have downgraded our GDP target on India. But even then, it will continue to post better growth as compared to other countries. Typically, at this point of time, we are looking at higher returns on a longer investment horizon
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CA. VIKAS KAPAHI
TREASURER
JAB WE MET CA
REDEFINING PROFESSIONALISM

SOUTH INDIAN BANK DECLARES 30 PERCENT DIVIDEND

THIRUVANANTHAPURAM : The Annual General Meeting of Thrissur-based South Indian Bank (SIB) has declared the highest ever dividend of 30 per cent while approving the Board's proposal to come out with a bonus issue and employees stock option scheme.

This was the higest ever rate of dividend declared by the bank in its 79 years of service, an SIB release said here on Monday. The capital bse of the bank had been strengthened by various measures like the rights issue, public issue, follow-on public issue and qualified institutional placement.

The bonus share would be issued to existing shareholders in the ratio of 1:4 on the record date. The employees' stock option scheme would be implemented to reward existing employees who had put in long years of service and also to offer incentive to new staff members.

In the current financial year, the bank would strive to increase the net profit to Rs 190 crore from Rs 150 crore the previous year, SIB's CMD Dr V A Joseph informed the AGM. A total business target of Rs 30500 crore had been set for the current year.

Also, the bank was working to add five lakh new customers in Savings Bank accounts which would mark a three per cent incrase in Current Account and Savings Bank Accounts (CASA) of the bank.

As NRIs form a sizeable clientele group, the bank planned to conduct a one-month long "Pravasi Utsav" to promote its bouquet of proudcts and services to NRIs.

The AGM also re-elected Dr John Joseph, Dr C J Jose and Jose Alapatt to the Director Board.

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CA. VIKAS     KAPAHI
     TREASURER
   JAB WE MET CA
REDEFINING PROFESSIONALISM

change your thinking

It will take just 37 seconds to read this and change your thinking. Two men, both seriously ill, occupied the same hospital room. One man was allowed to sit up in his bed for an hour each afternoon to help drain the fluid from his lungs.His bed was next to the room's only window. The other man had to spend all his time flat on his back. The men talked for hours on end. They spoke of their wives and families, their homes, their jobs, their involvement in the military service, where they had been on vacation. Every afternoon, when the man in the bed by the window could sit up, he would pass the time by describing to his roommate all the things he could see outside the window. The man in the other bed began to live for those one hour periods where his world would be broadened and enlivened by all the activity and colour of the world outside. The window overlooked a park with a lovely lake. Ducks and swans played on the water while children sailed their model boats. Young lovers walked arm in arm amidst flowers of every colour and a fine view of the city skyline could be seen in the distance. As the man by the window described all this in exquisite details, the man on the other side of the room would close his eyes and imagine this picturesque scene.One warm afternoon, the man by the window described a parade passing by. Although the other man could not hear the band — he could see it in his mind's eye as the gentleman by the window portrayed it with descriptive words. Days, weeks and months passed. One morning, the day nurse arrived to bring water for their baths only to find the lifeless body of the man by the window, who had died peacefully in his sleep.She was saddened and called the hospital attendants to take the body away. As soon as it seemed appropriate, the other man asked if he could be moved next to the window. The nurse was happy to make the switch, and after making sure he was comfortable, she left him alone. Slowly, painfully, he propped himself up on one elbow to take his first look at the real world outside.He strained to slowly turn to look out the window besides the bed. It faced a blank wall. The man asked the nurse what could have compelled his deceased roommate who had described such wonderful things outside this window. The nurse responded that the man was blind and could not even see the wall. She said, 'Perhaps he just wanted to encourage you.' Epilogue: There is tremendous happiness in making others happy, despite our own situations. Shared grief is half the sorrow, but happiness when shared, is doubled. If you want to feel rich, just count all the things you have that money can't buy. 'Today is a gift, that is why it is called The Present,' The origin of this letter is unknown, but it brings good luck to everyone who passes it on. Do not keep this letter.
BY: CA DIVYA SHARMA

SEBI REDUCES TIME DURATION FOR RIGHT ISSUE TO 43 DAYS

MUMBAI: The Securities and Exchange Board of India (SEBI) on Wednesday reduced the time duration for a rights issue from 109 days to 43 days.

“The reduction in timelines would reduce the market risk faced by investors and issuers and would ensure faster turnaround of money for investors,” said C. B. Bhave, Chairman, SEBI, while addressing a press conference here after its board meeting.

The board also approved the proposal for prescribing and standardising the format for abridged scheme-wise annual report and reduction in time period for dispatching the annual report to mutual fund unit holders from six months to four months.

The new time limit for dispatching will be made applicable for the annual reports of 2008-09 onwards..

To reduce the time duration for a rights issue, SEBI has decided to amend the SEBI (DIP) guidelines and the listing agreement.

Reduction in timeline approved include: the number of days for the notice period for a board meeting will be reduced from seven days to two working days; the notice period for record date will be reduced from 15/21/30 days to seven working days for all scrips; issue period will be reduced from a minimum of 30 days to a minimum of 15 days with a maximum of 30 days and the time period for completion of post-issue activity will be reduced from 42 days to 15 days.QIP pricing norms

The SEBI board has decided to revise the pricing norms for QIP (qualified institutional placement) and preferential allotment: Floor price may be based on the two weeks average for making a QIP or for making preferential allotment to QIBs (qualified institutional buyers); and relevant date for QIP will be the date on which the board of the company or the committee of directors duly authorised by the board of the company meets to take the decision to open QIP.

Quarterly results

Further the SEBI board decided to amend Clause 41 of the listing agreement.
Accordingly, a listed entity in addition to submitting quarterly and year-to-date standalone financial results within one month of end of the quarter, may also submit consolidated financial results to the stock exchanges within two months from the end of the quarter.
“A listed entity opting to submit consolidated financial results in addition to standalone results to the stock exchanges will be required to publish consolidated financial results only.”

A listed entity would also be required to place the limited review report on unaudited financial results before its board of directors or committee before submission to stock exchanges only if the variation (as defined in present Clause 41) between unaudited financials and financials amended pursuant to limited review for the same period exceeds 10 per cent.

SEBI also decided that “where the listed entity chooses to submit unaudited financial results for the last quarter (instead of submitting audited financial results for the entire financial year within three months of end of the financial year), the limited review report will be submitted for the last quarter also.”Ahmedabad office

The board approved the opening of Western Regional Office of SEBI at Ahmedabad. This office will look after the regulatory aspects of investor protection and market regulation and supervision regarding issuers, investors and intermediaries.

PTI reports:

Belying expectations, the SEBI took no decision on restrictions on issue of Participatory Notes by foreign institutional investors (FIIs) but it gave an in-principle nod to the National Stock
Exchange for starting currency futures.

VANDE MATARAM
HAPPY INDEPENDENCE DAY TO ALL ON 61st ANNIVERSARY OF INDEPENDENCE
PROUD TO BE AN INDIAN
JAI HIND