Posts Tagged ‘MFs’

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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RBI And Its Policies – Part 1

Hello Friends, last month we witnessed loads of action with the RBI’s monetary policy being laid down.

However here we bring more on the RBI policies and projections.

RBI policies and projections

RBI policies and projections

 

The Reserve Bank of India (RBI) laid the groundwork on Tuesday i.e. on 27th Oct in its monetary policy for a rise in interest rates by tightening credit to the commercial property sector, lifting its inflation forecast and warning of the threat of asset price bubbles.

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The RBI had injected in massive liquidity in the banking system in the past one year or so to help revive the domestic economy in the aftermath of the global financial crisis.

For now, the Reserve Bank has decided to keep the policy repo rate unchanged at 4.75 per cent, the reverse repo rate unchanged at 3.25 per cent and the (Cash Reserve Ratio) CRR of banks unchanged at 5 per cent of their (NDTL).


The following measures constitute the first phase of ‘exit’:

– The Statutory Liquidity Ratio (SLR), which has earlier been reduced from 25 per cent of NDTL to 24 per cent, is being restored to 25 per cent.

-The limit for export credit refinance facility, which was raised to 50 per cent of eligible outstanding export credit, is being returned to the pre-crisis level of 15 per cent.

The two unconventional refinance facilities:

(i) special refinance facility for scheduled commercial banks; and

(ii) special term repo facility for scheduled commercial banks [for funding to Mutual Funds (MFs), Non-banking Financial Companies (NBFCs), and Housing Finance Companies (HFCs)] are being discontinued with immediate effect.

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Further, the liabilities of scheduled banks arising from transactions in Collateralized Borrowing and Lending Obligations (CBLO) with Clearing Corporation of India Ltd. (CCIL) would now be subject to the maintenance of the CRR.

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Stay Tuned for more on this in our coming blogs.

We would cover Monetary Projections of RBI and Economy scenario and indicators at the moment.

RBI Raises Concern over Circular Investment Btw. MFs & Banks.

RBI Raises Concern over Circular Investment Btw. MFs & Banks

RBI Raises Concern over Circular Investment Btw. MFs & Banks

As per the latest data released from the Reserve Bank of India, nearly 90% of the funds, which are parked by the banks in mutual funds (MFs) come back into the banks.

The funds come in the form of overnight borrowings through various channels.

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RBI said that the banks parked Rs 66,687 crore in MFs as of September 25, 2009 in debt and liquid schemes.

In turn, the MFs have lent Rs 29,504 crore under the collateralized lending and borrowing obligation (CBLO) platform and Rs 29,328 crore under market repo, respectively.

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CBLO allows non-banks to lend to banks short-term surpluses.

The lending of MF through CBLO and market repo as a percentage of banks’ investment in mutual funds has surged to 88% in September from about 64% in July.

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The objection of RBI came when MFs also subscribe to commercial paper issued by corporates, which is tantamount to lending to corporates by MFs, which is ostensibly from funds raised from banks.

RBI has objected against indirect lending by banks through intermediaries.

In this circular flow, MFs lend to corporates, which the banks themselves hesitate to lend, which exposes banks in a regulatory concern.

However, the more serious is its concern over the circular investment between MFs and banks.

Shape your child’s future through MF investment

child investement plans

Retirement and children’s education are the biggest worry of young parents in metros these days. 🙂
Financial advisors say most queries they receive are related to these two crucial issues.

It is rare to find a parent who hasn’t thought of or bought a children’s insurance plan.

🙂

Children’s education is one of the top priorities of urban couples these days. They rightly believe education will be a costly affair, especially if the kid wants to study abroad.

However, when it comes to planning for the event, only some get it right. Most people buy the wrong products without realising that they won’t be able to achieve their goals.

Wrong products may range from fixed deposits and public provident fund to insurance plans.

Interestingly, these experts are unanimous that the equity route, especially via mutual funds (MFs), is preferable to fund the child’s long-term needs.

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We get long queries from parents who want to plan for their children’s future. Though many people opt for insurance products, there are several others who go for mutual funds,’’ says an expert.

“We ask them to take the equity route generally if it is a newborn baby or a very small child. This is because they can benefit from the possibility of higher returns and power of compounding during the accumulation phase,’’ he adds.

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There is a number of schemes in the equity domain. How does one go about it?

For example, you have the option of large-cap funds, mid-cap funds, diversified schemes, index schemes, sectoral and thematic schemes among others under the equity umbrella.

A diversified large-cap scheme is also recommended. One should also avoid thematic schemes that may not last longer as we are talking about 15-20 years here.

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Other experts too advocate index schemes as an option for novices in the stock market.

Since many of these young parents don’t have the experience of investing in stocks, they can go for index schemes with low tracking error (the difference between the index and scheme’s performance) and lower cost.

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Index schemes invest in stocks that form a particular index, that too in the exact weightage each stock has on the index. It is a passive form of investing and considered a cost effective option.

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There are a few things experts want you to remember while investing for children.

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One, always pick up a scheme that has been around for at least five years and been a consistent performer during bull and bear phases.

Also take the money out of equity investments and park it in a safer avenue at least three years before the actual event.

Once you have accumulated the corpus, you should focus on preserving it till the actual event.

You can use the entire corpus if you have to make lump sum payment or use the proceeds from it to fund regular fees.

🙂

Child’s higher education is top priority for urban parents.

Many parents rely on wrong products to achieve the goal.

Equity route is considered best if you have at least 10 years.
You can consider investing in diversified equity scheme or index scheme

Make sure you are picking up a consistently performing scheme.
Transfer money to safer avenues three years before the actual event.

🙂

Retirement and children’s education are the biggest worry of young parents in metros these days. Financial advisors say most queries they receive are related to these two crucial issues. It is rare to find a parent who hasn’t thought of or bought a children’s insurance plan. “Children’s education is one of the top priorities of urban couples these days. They rightly believe education will be a costly affair, especially if the kid wants to study abroad,’’ says a wealth manager, who doesn’t want to be named. “However, when it comes to planning for the event, only some get it right. Most people buy the wrong products without realising that they won’t be able to achieve their goals,’’ he adds. Wrong products may range from fixed deposits and public provident fund to insurance plans. Interestingly, these experts are unanimous that the equity route, especially via mutual funds (MFs), is preferable to fund the child’s long-term needs.

“We get long queries from parents who want to plan for their children’s future. Though many people opt for insurance products, there are several others who go for mutual funds,’’ says Hemant Rustagi, CEO, Wiseinvest Advisors, a wealth management firm. “We ask them to take the equity route generally if it is a newborn baby or a very small child. This is because they can benefit from the possibility of higher returns and power of compounding during the accumulation phase,’’ he adds.

There is a plethora of schemes in the equity universe. How does one go about it? For example, you have the option of large-cap funds, mid-cap funds, diversified schemes, index schemes, sectoral and thematic schemes among others under the equity umbrella. “I would recommend a diversified large-cap scheme. One should also avoid thematic schemes that may not last longer as we are talking about 15-20 years here,’’ says Rustagi. Other experts too advocate index schemes as an option for novices in the stock market. “Since many of these young parents don’t have the experience of investing in stocks, they can go for index schemes with low tracking error (the difference between the index and scheme’s performance) and lower cost,’’ says the wealth manager. Index schemes invest in stocks that form a particular index, that too in the exact weightage each stock has on the index. It is a passive form of investing and considered a cost effective option.

There are a few things experts want you to remember while investing for children. One, always pick up a scheme that has been around for at least five years and been a consistent performer during bull and bear phases. “Never go for ‘flash in the pan’ kind of performance. You should make sure the scheme is actually looking to generate long-term returns rather than taking unnecessary risks to post huge returns during a particular phase,’’ says the wealth manager. Hemant Rustagi also wants you to take the money out of equity investments and park it in a safer avenue at least three years before the actual event. “Once you have accumulated the corpus, you should focus on preserving it till the actual event. You can use the entire corpus if you have to make lump sum payment or use the proceeds from it to fund regular fees,’’ he says.

NO KIDDING WITH JUNIOR’S EDU

Child’s higher education is top priority for urban parents

Many parents rely on wrong products to achieve the goal

Equity route is considered best if you have at least 10 years

You can consider investing in diversified equity scheme or index scheme

Make sure you are picking up a consistently performing scheme

Transfer money to safer avenues three years before the actual event