Posts Tagged ‘equity funds’

Weekly Update 24th – 28th May

Global markets nosedived after German financial regulator introduced a temporary ban on naked short selling and naked credit-default swaps of Euro-area government bonds to provide stability to the financial system from the excessive price movements. The move shattered the confidence among investors that the various efforts like 750 bn euro package to tackle the situation are not enough to stem the crisis.

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EU countries efforts to cut down on their deficits by reducing spending & increase in taxes may lead to contraction in the region. The situation poses a serious threat to US & World economy as it could lead to slide in world trade & economic growth.

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According to Emerging Portfolio Fund Research(EPFR), investors withdrew $12 billion from European & US equity funds in the week to May 19. In order to tighten the US finance industry regulation, the senate approved a bill to impose restriction on banks proprietary trading & to create a consumer protection agency having powers to write & enforce rule to ban abusive lending. In another development Fed raised the US growth estimates to a range of3.2% to 3.7% this year & lowered forecast for unemployment & inflation. The European crisis has not only hit hard the equity markets but also commodities as well. With the commodity prices coming down especially oil, it has somewhat reduced the inflationary pressures building up in the economies.

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RBI deputy governor Subir Gokaran said “cautious pace is the best way to go and that is the stance,” after the Global economy outlook changes in the last six weeks. One the domestic positive development for the Indian Government that happened was 3G auction. The government managed to garner close to Rs. 70,000 crore, double the amount it anticipated in the budget estimates. This extra money is likely to lift the pressure on the market borrowing and will give some extra room to the government  for the developmental purposes. For the time being the markets are expected to remain in pressure & will eye on the monsoon to gauge how Indian economy will behave in the rest of year as agriculture is the mainstay for the overall development.

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Overall trend of world stock markets is down though in the short term they are oversold and a bounce can be expected in the coming week which would be more of a relief rally. Till the European markets do not stabilize, the recovery might be short lived. One should be cautious in such markets. Nifty faces resistance between 5040-5120 levels and Sensex between 16800-17100 levels.

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Volatility in the global financial markets is expected to calm down in near term which will lead to some recovery in base metals and crude oil. European Union finance ministers pledged to stiffen sanctions on high-deficit countries and ruled out setting up a mechanism to manage state defaults. Bullions may continue to trade on weaker path as decline in safe haven status can keep the prices pressurized.

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Weakness in local currency has curtailed the volatility in bullions in domestic bourses to greater extent. Key economic releases like US GDP will set the course this week for base metals. Bulls may again take center stage in spices while oilseeds counter may try to find direction taking cues from CBOT and BMD. Wheat and Chana can trade in range with marginal buying.

2009 Turned Out To Be Worst for Gilts Funds

2009 turned out to be a worst for gilt funds

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2009 turned out to be one of the worst for gilt funds, which offered the best returns to investors in a gloomy and uncertain 2008.

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On the other hand, 2009 proved to be a good year for diversified equity mutual funds (MFs).

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Most gilt funds gave more than 20% growth in 2008 with the best one topping the performance chart with a 44.8% increase in a year which saw equity funds post 34.2% to 80.4% losses.

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While diversified equity funds are back on top this year, gilt funds have slipped considerably due to the sharp rise in yields on government securities (G-Secs).

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The yield on the 10-year government bond has moved up by about 2.5% in 2009 bringing down bond prices.

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Prices of the 6.05% 10-year government bond issued in February 2009 is about Rs 11 lower than its opening price.

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Bond prices and bond yields are inversely related.

Rising yields have pushed down bond prices affecting the performance of gilt funds, which invest primarily in G-Secs.

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Only seven out of the 40-odd medium-term and long-term gilt funds have shown growth in 2009 while the 15-odd short-term gilt funds have shown only a marginal increase.

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While the market was expecting net government borrowings at Rs 1.1 lakh crore, it came at over Rs 3 lakh crore.

The gross borrowings for financial 2010 would be around Rs 4.51 lakh crore.

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PE Funds Raising Plummets to Lowest Levels Since 2003

Private equity fund raising plummets to lowest levels since 2003

Private equity fund raising plummets to lowest levels since 2003

Fund raising by global private equity funds has dipped to an over five-year low of $38 billion in the third quarter of 2009, as fund managers are refraining from making any new commitments before next year.

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Fund raising in Q3 of 2009 represents a 55% slump from Q2 of 2009, when the PE funds had raised an aggregate $84 billion globally, according to latest report by a reputed global research firm Preqin.

Private equity fund raising plummets to lowest levels since 2003, with the third quarter figures equivalent to just 45% of the $84 billion raised in Q2 2009.

Many of the funds that are closing are doing so short of target, and a number of fund managers putting their fund raising efforts on hold until 2010, or abandoning them altogether for the foreseeable future.

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However, the report noted that the investment shift from the private equity asset class is only short term and the institutional investors would pull back again in the final quarter of this year and in 2010.

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Over the year the number and aggregate fund raising target has dropped considerably.

Reasons can be the slowdown in launches of fund raising programmes, plus an increase in the number of funds being abandoned.

Institutional investors are not making new commitments at anything close to the rate they were in previous years.

The rate of fund raising to drop by nearly 70% over the course of a year is a dramatic fall and demonstrates just how challenging it has become to raise new funds in the current scenario.

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Investor’s Dilemma : Are ULIPs just another Mutual Fund??

ulips

At almost every investor mind a question is generally cropped up: “What is the difference between a ULIP and a Mutual Fund?”

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The reason, perhaps for the wide extent of confusion, lies largely in the way ULIPs have been sold by agents. As just another mutual fund.

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Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual funds in terms of their structure and functioning.

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As is the case with mutual funds, investors in ULIPs is allotted units by the insurance company and a net asset value (NAV) is declared for the same on a daily basis.

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Similarly ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain, i.e. diversified equity funds, balanced funds and debt funds to name a few.

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Generally speaking, ULIPs can be termed as mutual fund schemes with an insurance component.

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Mutual Fund is a body corporate that pools the money from individual/corporate investors and invests the same on behalf of the investors /unit holders, in various investment avenues like equity shares, Government securities, Bonds, Call money markets etc., as per the pre-specified objective and distributes the profits earned from such investment.

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In India, Mutual Funds are registered with the Securities and Exchange Board of India (SEBI).


ULIPs vs Mutual Funds

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ULIPs are a mix of investment and insurance. 🙂

But very long term investment, not even medium term.

Insurance companies themselves admit, that if your investment horizon is anything less than 7 years, don’t even consider a ULIP.

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Charge structure in a ULIP is vastly different from a mutual fund.

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ULIP investors also have the flexibility to alter the premium amounts during the policy’s tenure.

The freedom to modify premium payments at one’s convenience clearly gives ULIP investors an edge over their mutual fund counterparts.

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In mutual fund investments, expenses charged for various activities like fund management, sales and marketing, administration among others are subject to pre-determined upper limits as prescribed by the Securities and Exchange Board of India.

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Insurance companies have a free hand in levying expenses on their ULIP products with no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory and Development Authority.

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ULIPs also allow you to switch from debt to equity within the same scheme, at no extra charge.

So if you want to get the benefits of long term investment and risk cover in one single product, ULIP is the product for you.

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So it is not an issue, of whether a mutual fund is better or a ULIP. It is about your need.

Both can co-exist in your basket of needs. 🙂

So identify your needs with a financial planner and then pick the product suitable for you.

🙂

ULIPs are a mix of investment and insurance. But very long term investment, not even medium term.

Insurance companies themselves admit, that if your investment horizon is anything less than 7 years, don’t even consider a ULIP.

Charge structure in a ULIP is vastly different from a mutual fund.

ULIP investors also have the flexibility to alter the premium amounts during the policy’s tenure.

The freedom to modify premium payments at one’s convenience clearly gives ULIP investors an edge over their mutual fund counterparts.

In mutual fund investments, expenses charged for various activities like fund management, sales and marketing, administration among others are subject to pre-determined upper limits as prescribed by the Securities and Exchange Board of India. Insurance companies have a free hand in levying expenses on their ULIP products with no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory and Development Authority.

ULIPs also allow you to switch from debt to equity within the same scheme, at no extra charge. So if you want to get the benefits of long term investment and risk cover in one single product, ULIP is the product for you.

So it is not an issue, of whether a mutual fund is better or a ULIP. It is about your need.

Both can co-exist in your basket of needs.

So identify your needs with a financial planner and then pick the product suitable for you.

What are ULIPs? How is it different from Mutual funds ?

ULIPs are a mix of investment and insurance

ULIPs are a mix of investment and insurance

At almost every investor mind a question is generally cropped up: “What is the difference between a ULIP and a Mutual Fund?”

The reason, perhaps for the wide extent of confusion, lies largely in the way ULIPs have been sold by agents. As just another mutual fund.

Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual funds in terms of their structure and functioning.

As is the case with mutual funds, investors in ULIPs is allotted units by the insurance company and a net asset value (NAV) is declared for the same on a daily basis.

Similarly ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain, i.e. diversified equity funds, balanced funds and debt funds to name a few.

Generally speaking, ULIPs can be termed as mutual fund schemes with an insurance component.

And as you would be aware about Mutual Fund, it is a body corporate that pools the money from individual/corporate investors and invests the same on behalf of the investors /unit holders, in various investment avenues like equity shares, Government securities, Bonds, Call money markets etc., as per the pre-specified objective and distributes the profits earned from such investment.

In India, Mutual Funds are registered with the Securities and Exchange Board of India (SEBI).

ULIPs vs Mutual Funds

ULIPs

Mutual Funds

Investment amounts

Determined by the investor and can be modified as well

Minimum investment amounts are determined by the fund house

Expenses

No upper limits, expenses determined by the insurance company

Upper limits for expenses chargeable to investors have been set by the regulator

Portfolio disclosure

Not mandatory*

Quarterly disclosures are mandatory

Modifying asset allocation

Generally permitted for free or at a nominal cost

Entry/exit loads have to be borne by the investor

Tax benefits

Section 80C benefits are available on all ULIP investments

Section 80C benefits are available only on investments in tax-saving funds

ULIPs are a mix of investment and insurance. But very long term investment, not even medium term.Insurance companies themselves admit, that if your investment horizon is anything less than 7 years, don’t even consider a ULIP.

Charge structure in a ULIP is vastly different from a mutual fund.

ULIPs invest for the long term, as they expect investors to stay for the long term. And the purpose of a ULIP is also different build assets through a pension plan, retirement plan or child plan. All of which, need very long term investing, say 10-15 years or even more.

ULIP investors also have the flexibility to alter the premium amounts during the policy’s tenure.

For example an individual with access to surplus funds can enhance the contribution thereby ensuring that his surplus funds are gainfully invested; conversely an individual faced with a liquidity crunch has the option of paying a lower amount (the difference being adjusted in the accumulated value of his ULIP).

The freedom to modify premium payments at one’s convenience clearly gives ULIP investors an edge over their mutual fund counterparts.

In mutual fund investments, expenses charged for various activities like fund management, sales and marketing, administration among others are subject to pre-determined upper limits as prescribed by the Securities and Exchange Board of India. Insurance companies have a free hand in levying expenses on their ULIP products with no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory and Development Authority.

Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis, albeit most fund houses do so on a monthly basis. Investors get the opportunity to see where their monies are being invested and how they have been managed by studying the portfolio.

*There is lack of consensus on whether ULIPs are required to disclose their portfolios. While some insurers claim that disclosing portfolios on a quarterly basis is mandatory, others state that there is no legal obligation to do so.

ULIPs also allow you to switch from debt to equity within the same scheme, at no extra charge. So if you want to get the benefits of long term investment and risk cover in one single product, ULIP is the product for you.

So it is not an issue, of whether a mutual fund is better or a ULIP. It is about your need.

Both can co-exist in your basket of needs.

So identify your needs with a financial planner and then pick the product suitable for you.