Investment Query from 25 yr old

----- Original Message -----
From: NITESH kATHPAL
To: goodfundadvisor@yahoo.com
Cc: sharesher@indiatimes.com
Sent: Sat, 9 Aug 2008 00:01:51 +0530 (IST)
Subject: Gd mutual funds at this time

Sir,

My age is 25 years and i live with my mother.she has a Ulip policy whose 3 years are over.Now,I am thinking of stopping that and invest the same amount into 2-3 Mutual funds through SIP.Can you tell me which are good MF on which one can rely upon?

I am very new to the mutual funds.kindly suggest which one to go for ELSS/Equity diversified/sectoral/larg cap/mid cap etc..Growth or dividend?

i m very confused into this?please help me out.

As i have read on many sites that there is a restriction of money withdrawal in ELSS scheme. But one financial planner told me that we can withdraw money in ELSS by paying the exit Load.Is it true?

I am also looking for a mediclaim of Rs. 2 Lac can you suggest that also?

Regards,
Nitesh Kathpal.


SRIKANTH SHANKAR MATRUBAI's reply :

Dear Nitesh,
First of all, it is good to see that you have realised the foolishness of investing in ULIPs.
Whoever told you that you cannot withdraw from ELSS, is completely wrong. Even your financial advisor is wrong when he says that you can withdraw from ELSS by paying exit load. There is no restriction from withdrawing your amount from ELSS after your investment has crossed the statutory period of 3 years. You need to get a financial advisor to avoid such glaring mistakes.

Regarding your confusion as to where to invest, viz.., ELSS/Equity diversified/sectoral/larg cap/mid cap etc..Growth or dividend. I think the answer can be provided when you give your time horizon, age, risk profile.

There is no difference between Growth and Dividend Reinvestment. In both cases, your fund value remain the same, only the no. of units increases in case of Div Reinvestment ( and the NAV decreases), and in case of Growth, though the no. of units remain the same, the NAV will not decrease when the Dividend is announced and paid.

Go for Dividend Payout option only if you are in the higher tax bracket (as the Dividends are tax free) or if you want a supplement to your regular income.

Regarding ELSS, invest in them more for the sake of tax saving option and convenience of very small lumpsum(500), rather than pure invesment. You could as well invest in Diversified Funds.
After looking at your profile, (age, no of dependents), I advise you to go for Good Diversified Equity Funds with a small percent of investments in Sector funds only as an asset diversification.

My pick of funds for you is as follows:-
1. Birla Sunlife Equity Fund
2. DSPML World Gold Fund
3. Fidelity Equity Fund
4. HDFC Prudence Fund
5. HDFC Top 200 fund
6. Mirae Asset India Opportunity Fund
7. Reliance Growth Fund
8. Sundaram Select Focus Fund
9. DWS Opportunities fund
10. Templeton India Equity Income Fund

Always invest sips and keep reviewing your portfolio every 6 months. If possible, invest in sip right now in Birla and Reliance, as you will the additional benefit of Free Life Insurance.

Visit www. goodfundadvisor.blogspot.com
Best of luck,
Srikanth

Diversified Equity Funds - Your Best Bet

Dear all,
" “..the best way to own common stocks in through an index fund..”
-Warren Buffett, 1997 (Berkshire Hathaway Inc. 1996 Shareholder Letter)""

When the World's richest investor says so, you have to accept without any second thought.
Index Funds, by definition, mirror the returns of the stock market (Sensex/Nifty,etc) they track. These funds typically invest in the index they track, in the same propotion and percentage in the stocks that the index has.

Index funds are perfect for the buy-and-hold investor - the kind of person who likes to sit back and let their investment grow, rather than moving in and out of the market in an effort to beat the market.

Index Funds are very popular in US and Europe. The trend is yet to catch up in India, mainly because some Index Funds have not only not able to match the Index returns but also lagged substantially in performance (ex. LICMF Index Plan).
Why is this so?.
This could be mainly because of the Tracking Error. The Fund Manager may not be track the stocks 100% as the Index has, leading to tracking error.

The obvious advantages of Index Funds are:
1. Index Funds Have Lower Fees
They should have lower fees simply the fund house do not have to hire costly Research Analysts to analyse stocks for them, the Index does it. And Being Passive, churning costs are down. These should typically lower costs to funds, which in turn passes to the investor.
2. Index Funds help you Achieve Diversification
The biggest benefit of investing in index funds is the fact that it helps in achieving diversification at no additional cost and time. The investor saves on the time and money required to do the research and analysis on selecting the stocks for a diversified portfolio. The diversification is achieved automatically as soon as the investor invests in an index which is nothing but a collection of diverse stocks.


The biggest disadvantage of Index Funds (especially in India) is that they tend to underperform the Markets and other Diversified Funds. Even though, research reports point out, that in US S&P 500 returns have beater 80% of Diversified Equity Funds, it is unthinkable in India, because of inefficient markets. Our indicies do not have the whole universe of Diversification. Even Real Estate was added to the Index only last year. At present, there is no place for Shipping, Textiles in the Index. So, in effect, Index Funds will not be able to invest in these sectors and many other sectors which do not have a place in Index and miss out on the opportunities available.



In fact, let me illustrate this with an example,.


====================================================================
====================================================================

Febraury 2000 December 2004
Sensex 5883 5961
Rel Growth 47.23 96.53
HDFC Prudence 22.30 52.16
HDFC Top 200 29.02 45.18
FT Prima 42.12 95.30
FT Bluechip 30.50 57.20
Rel Vision 29.88 72.61

====================================================================
====================================================================

So, the message is obvious.
If you had invested in Reliance Growth Fund in Feb 2000, when the Sensex was 5883, your value of money would have doubled in year 2004, though Sensex was nearly the same at that point of time.

The takeaway from the above illustration, is , Market Volatility should not be a concern for you, if have invested in the Right Fund.

And, another BIG lesson is, Don't try to time the market, invest in Diversified Equity Mutual funds.

Warren Buffet is not wrong. Obviously, the world's most successful investor can't be wrong. But in Indian context, his thoughts may not be relevant.

Of course, as an asset allocation, you should have an index fund, but don't have an over ownership of the same. Do invest across baskets and squeeze maximum returns on your investments.
Invest in the best Diversified Equity Funds and become a Passive Investor and see your money grow BIG.
Best of luck,
Regards,
Srikanth

20 yr old doubting benefits of SIP

One boarder by name Money Boy wrote :: ""hi im 20 i have been reading about the benfits of sip so i started an sip of Rs 2000 p.m it been 8 mnths it is giving me negative returns so will i be rich if i invest for 10 years?""


SRIKANTH SHANKAR MATRUBAI replied :: "
"""

Dear money boy, Just 8 months into investments and already complaining. This is a boring work, money boy, this sip business. Keep investing and stay invested, is the mantra for becoming rich. Your investment horizon of 10 years should definitely work in your favour. And you are only 20 now, so why worry? Of course, it would have been better if you had given the funds you have invested in, for me to give you a more clear answer. Either way, I would say, you should not be losing any money if your investment horizon is 10 years. Visit goodfundadvisor dot blogspot dot com for learning about investments in Mutual Funds. Regards, Best of luck, Srikanth""""

56 yr old NRI wants to invest in Mutual Funds

A boarder wrote :
i am 56yrs old NRI and new to MF.i have invested 1 lakh each in Reliance growth,Sund,select focus and Tata bal.i am plannining to invest 8 lakh every year in MFs over a period of another 5 yrs,Please advice mr to construct my portfolio


SRIKANTH SHANKAR MATRUBAI replied ::

Dear Moin,
First of all, welcome to the Mutual Fund world.
considering your age and being a newcomer, you have to be complimented for selecting Good Funds, as your initial investment. But, the fact that you have invested in one go is not at all laudable. You should have staggered your investment through the SIP or STP method.

Considering your age profile, you should have at least 50% of your investment in Fixed Instruments/Debt Funds to avoid volatility and ensuring steady revenue. You can also include some Arbitrage Funds, as they too provide stabilised returns.

Among Debt Funds, you can consider
HDFC Monthly Income Plan (with 30% equity exposure)
DSPML Savings Plus Aggresive
Birla Sunlife Income Plus among others.

Among Equity Funds, you should preferably invest in Large Caps, and some Diversified Equity Funds and strictly avoid Sector/Themetic Funds. Also use the SIP/STP method of investment to take advantage of volatility in NAV.

Among others, you can consider the following for your equity portion of investments.
Birla Sunlife Frontline Equity
DSPML Top 100 Fund
Fidelity Equity Fund
HDFC Prudence Fund
HDFC Top 200 fund
Kotak K30
Reliance Vision Fund


Best of luck,
Regards,
Srikanth