Posts Tagged ‘fund management’

Let’s Talk About Mutual Funds ;)

mutual-funds-basics

Friends we will discuss now as to what are mutual funds before going on to seeing why to invest in mutual funds instead of stock ๐Ÿ™‚

What is a Mutual Fund?

A mutual fund is an investment that pools money from many investors, and that money is used to invest in stocks, bonds and other securities.

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One mutual fund share includes a portion of a share of each stock held in the fundโ€™s portfolio.

The stocks these mutual funds have are very fluid and are used for buying or redeeming and/or selling shares at a net asset value.

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Mutual funds posses shares of several companies and receive dividends in lieu of them and the earnings are distributed among the share holders.

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Who Decides What a Mutual Fund Invests In?

Mutual fund managers decide what securities to buy or sell guided by the mutual fundโ€™s objectives.

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If a mutual fundโ€™s objective is to invest in the energy sector, the manager cannot buy shares in technology stocks.

Fund objectives let you know what to expect now and in the future.

Mutual funds can be either or both of open ended and closed ended investment companies depending on their fund management pattern.

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An open-end fund offers to sell its shares (units) continuously to investors either in retail or in bulk without a limit on the number as opposed to a closed-end fund.

Closed end funds have limited number of shares.

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Why Invest in Mutual Funds Instead of Stock?

You can invest in both mutual funds and individual stocks, but mutual funds are particularly useful in some cases.

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*Diversification: If you do not have a lot of money to invest, creating your own diversified portfolio to spread risk will be difficult.

Diversification is automatic in mutual funds.

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*Time : Successful investors take hours every week to analyze their holdings, stock market conditions and to educate themselves further on investing.

Mutual funds are a wise choice for those who lack the time to follow stocks so closely.

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* Experience: Consistently investing well takes a few years of experience and learning from mistakes and successes.
If you are not experienced with trading stocks but want returns over and above what a savings account offers, investing in mutual funds is a good way to grow your personal assets.

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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: โ€œWhat is the difference between a ULIP and a Mutual Fund?โ€

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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. ๐Ÿ™‚

But very long term investment, not even medium term.

Insurance companies themselves admit, that if your investment horizon is anything less than 7 years, donโ€™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 policyโ€™s tenure.

The freedom to modify premium payments at oneโ€™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. ๐Ÿ™‚

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

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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, donโ€™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 policyโ€™s tenure.

The freedom to modify premium payments at oneโ€™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.

Sanlam joined hands with SMC Global, eyeing India fund launch by Feb.

Sanlam joined hands with SMC Global

South African financial services firm Sanlam expects to start mutual fund operations in India by February next year and hopes to break-even in three to five years, a top executive said on Tuesday. ๐Ÿ™‚


The firm, which has joined hands with Indian broking firm SMC Global for asset management and wealth management businesses,ย  has received an in-principal approval from the market regulator and is currently hiring a fund management team.

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“Unless something goes strangely wrong, we are hoping to get operational round about Feb. 1,” said Sanjeev Gupta, chief executive of Sanlam’s emerging market investment unit.


The firm, South Africa’s second-biggest insurer, will join the likes of

Italian bank UniCredit’s arm – Pioneer Global,

South Korea’s Mirae Asset,

France’s Axa and Japan’s Shinsei

These have started operations in India’s fiercely competitive fund industry over the last two years.


The market will become even tougher for fund managers, and particularly hostile to small and new players, as a ban on entry fees charged by mutual funds — to be imposed from Aug. 1 — slows growth and raises distribution costs.

The firm is not hopeful of making money in the initial years as it spends on building brand and strengthening distribution.

“Anytime between the third and the fifth year we feel we will probably turn the tide,” Gupta said.

To start with, the firm plans to tap offshore clients to invest in India-dedicated funds and leverage 1,800 offices of its local partner SMC to attract domestic investors.


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.