Posts Tagged ‘Bank deposits’

Mutual Funds : Marginalise Your Investment Risk

Hello Friends here we come up with another write up on โ€œSMC Gyan Seriesโ€.

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Mutual Funds : Marginalise Your Investment Risk

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Topic is “Mutual Funds : Marginalise Your Investment Riskโ€
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Mutual funds are the best investment tool for the retail investor as it offers the twin benefits of good returns and safety as compared with other avenues such as bank deposits or stock investing.

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Choose the wrong fund and you would have been better off keeping money in a bank fixed deposit.

Keep in mind the points listed below and you could at least marginalize your investment risk:

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1) Past performance –

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While past performance is not an indicator of the future it does throw some light on the investment philosophies of the fund, how it has performed in the past and the kind of returns it is offering to the investor over a period of time.

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Also check out the two-year and one-year returns for consistency.

How did these funds perform in the bull and bear markets of the immediate past?

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Tracking the performance in the bear market is particularly important because the true test of a portfolio is often revealed in how little it falls in a bad market.

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2) Know your fund manager

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The success of a fund to a great extent depends on the fund manager.

The same fund managers manage most successful funds.

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Ask before investing, has the fund manager or strategy changed recently?

For instance, the portfolio manager who generated the fundโ€™s successful performance may no longer be managing the fund.

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3) Does it suit your risk profile?

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Certain sector-specific schemes come with a high-riskย  high-return tag.

Such plans are suspect to crashes in case the industry loses the market men fancy.

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If the investor is totally risk averse he can opt for pure debt schemes with little or no risk.

Most prefer the balanced schemes which invest in the equity and debt markets.

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Growth and pure equity plans give greater returns than pure debt plans but their risk is higher.

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4) Read the prospectus

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The prospectus says a lot about the fund.

A reading of the fundโ€™s prospectus is a must to learn about its investment strategy and the risk that it will expose you to.

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Funds with higher rates of return may take risks that are beyond your comfort level and are inconsistent with your financial goals.

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But remember that all funds carry some level of risk.

Just because a fund invests in does not mean it does not have significant risk.

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Thinking about your long-term investment strategies and tolerance for risk can help you decide what type of fund is best suited for you.

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5) How will the fund affect the diversification of your portfolio?

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When choosing a mutual fund, you should consider how your interest in that fund affects the overall diversification of your investment portfolio.

Maintaining a diversified and balanced portfolio is key to maintaining an acceptable level of risk.

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6) What it costs you?

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A fund with high costs must perform better than a low-cost fund to generate the same returns for you.

Even small differences in fees can translate into large differences in returns over time.

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Finally, donโ€™t pick a fund simply because it has shown a spurt in value in the current rally.

Ferret out information of a fund for at least three years.

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The one thing to remember while investing in equity funds is that it makes no sense to get in and out of a fund with each turn of the market.

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Like stocks, the right equity mutual fund will pay off big โ€” if you have the patience.

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Similarly, it makes little sense to hold on to a fund that lags behind the total market year after year.

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SMC Global Securities : Money Wise Be Wise !

Greed and Fear : Factors that Drive the Stock Market !

fear and greed are the two key factors that drive the stock market :)

Everyone knows that fear and greed are the two key factors that drive the stock market.

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If you talk to any seasoned investors in the market, they would tell you of the stories of how people got carried away by greed and lost all their money in the process.

Stories about people spooked by โ€˜fear factorโ€™ also do the rounds of Dalal Street at regular intervals.

According to a study by SMC Capitals, โ€œthe elements of fear and greed are clearly apparent in the trends of allocation of assets by the investors in terms of cash and stocks.โ€™โ€™

The trend, says the study, can be seen at the levels of market cap and bank deposits in the economy.

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When there is fear among the investing community, the bank deposits go up.

And, when there is widespread optimism, the market cap levels go up.

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โ€œIf you look at investor behavior in the last three years,
the pattern is very clear:

the first year was of over-optimism,

the second was of over-pessimism and

now itโ€™s the recovery period.

This trend is clearly visible if you look at the market cap and bank deposits (or the real wealth),โ€™โ€™ says Jagannadham Thunuguntla, equity head of New Delhi-based SMC Capitals.

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In the study, SMC has compared the BSE market cap from the period starting January 2007, with the aggregate bank deposits in the bank deposits.

The relative measure of the entire market capitalisation of BSE as a percentage of aggregate bank deposits in the entire banking system demonstrates the mindset of the investor community.

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Read the Full Story on The Economic Times

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