Too many ULIPs

Mr. Arun wrote :
Dear Shrikant

Just gone through your blog. I would like to take ur advice on my investment. I am working abroad and planning to be here for another couple of years. I have the LIC policies of 5L,2.5L and prulife of 10L apart from that LIC ULIP market plus G of 10k halfyearly.
MF SIP 3000 each on DSP Merril Lynch TIGER Reg G , SBI Magnum Contra G, Kotak Opp G all six months old and 30K one time in ICICI prud infra G fund.

I am 30 now and just married. I can save 20K avg monthly. Now I see all my MFs are in red for the past couple of months. Can you tell me whether I am in right track of investment. Till I am abroad I can do investment taking risk. . Also I read that invest in many funds is not a good method.
Can you please guide me with funds I shud invest.

Thanks
arun


SRIKANTH SHANKAR MATRUBAI replied
Dear Arun,
Yet again, same mistake of treating Insurance as Investment. You can see my other posts and you will know that I hate ULIPs. Ulips are the most mis-sold (conned should be the word) product in this country. These Ulips have very little transperancy, high premium charges, tough exit conditions. Yet, people, even educated ones fall in the trap laid by the Insurance Sales Agents and blindly invest in them.
You continue your investment in Endowment Policies and Term Insurance products. But, please please, STOP and SELL your ULIP investments immediately and instead invest in Mutual funds, which are cheaper, more transperant and definitely easy to exit.
Stay invested in the Lumpsum investment of ICICI Infrastructure Fund for now. Do review again around March, when the conditions could be slightly for Infrastructure Stocks and thus, this fund.
Continue your 3000 sip in both SBI Magnum Contra Fund and Kotak Opportunities Fund for now. Both are good funds with a reasonable track record. Note that SBI Magnum Contra Fund is not a Contra Fund, with more than 60% in Large Cap Holdings.
However, you can discontinue your further sips in DSPML Tiger Fund, as Infrastructure Funds may take time to deliver returns and also, you have sufficient exposure to Infrastructure Sector through ICICI Infrastructure Fund also.
You should add a Good Large Cap Fund to your portfolio, which is sorely lacking now, especially in these Bearish Times. Do consider investing in
Birla Sunlife Frontline Equity Fund
DSPML Top 100 Fund
HDFC Top 200 Fund
HSBC Equity Fund
Sundaram Select Focus Fund
Of course, age is on your side. But that does not mean, you can invest in only High Risk High Return Funds. You do need to have sufficient Large Cap and diversified Fund in your portfolio.
Best of luck,
Srikanth shankar Matrubai

20 lakhs in 3 years for Child Education.

Ms. Priya Sharma wrote :

Hi,

I accidently came across your blog while searching for advice on mutual funds. I want your help in investment. I have the following investment

AVIVA little master- 2000/ m SIP

Bajaj alliance unit gain-4000/m SIP

HDFC tax saver-2000/m SIP

PPF-2000/m SIP

The first two are ment for my kids education they are now 6 and 2

I can invest 15000/ month . Can you suggest some funds.

I require 20 laks after 3 years. I have 7 laks now

thanking you

priya

SRIKANTH SHANKAR MATRUBAI advised ::

Hai Priya,
I am very sorry to say this, but your investments are not at all good. Your investments in Aviva Little Master and Bajaj Allianz Unit Gain are both ULIPs. And as you may already be knowing, ULIPs are the most missold (conned by agents, I should say) products in this country. These ULIPs have high Premium Charges which eat into your returns and thus leave you with lesser returns when compared with Mutual Funds. If you can consider stopping and cancelling these Ulips, please do so immediately. They are a waste of your money.
You have much better options and alternatives for investing for your children's education. First of all, take adequate Term Insurance to give security to your family. Then start investing in Good Diversified Equity funds.
Your investment in HDFC Tax Saver is a good one. Stay invested in the fund for now. However, you can stop future sips and rather consider investing in DWS Tax Saving Fund. This Fund has not only a good track record in its short history, but also as a added bonus give FREE LIFE INSURANCE 5 TIMES YOUR INVESTMENT.
For your 15000 per month investment, You can consider investing in the following funds.
1000 * 2 (two different dates) in birla sunlife Frontline Equity Fund (2000)
500 * 3 (3 different dates ) in Fidelity Equity Fund (1500)
1000 * 1 in JM contra fund (1000)
1000 * 2 in Kotak K30 Fund (2000) (Invest through Kotak Star Kid Facility to avail Free Life Insurance)
1000 * 2 (2 different dates) in HDFC Prudence Fund (2000)
1000 * 2 in HSBC equity Fund (2000)
500 * 2 in Reliance Growth Fund (1000)
500 * 2 in Reliance Natural Resources Fund (1000)
500 * 3 in Sundaram Select Focus Fund (1500)
1000 * 1 in Tata Pure Equity Fund (1000)

Achieving 20 Lakhs in 3 years is bit difficult, even after considering that you have 7 lakhs right now. So, in effect, to get another 13 lakhs in 3 years, even at 20% returns, you need to invest nearly 27000 per month.
So, either scale down your expectation or increase your monthly sip outgo.
Best of luck,
Srikanth Shankar Matrubai.

How is DSML Tiger and Reliance Power Fund?

Mr.Arun Jhakar wrote :

Hi Srikanth,

I have read few of your replies on goodfundadvisor bolgs regarding Mutual Funds and was thinking to get a second opinion about my funds from your side.

I have got following two MF in my portfolio where i am investing Rs 5000 (each of them) per month (SIP) since Nov 2007.

1) DSPML T.I.G.E.R. Fund

2) Reliance Diversified Power Sector Fund

As of now the absolute return is -21% and the current situation for DSP Meryll Lynch as well as Power sector is not too good.

What do you suggest -

-- should i continue or stop the SIP and wait.

-- should i invest in some other MF to get better results.

Can you please reply this mail with your opinion or send me the link where i can check your comment.

Thanking in anticipation!!

Arun

SRIKANTH SHANKAR MATRUBAI advised :

Dear Arun Jakhar,
Both of your investments are into Sector/Theme Funds, which I strongly advise AGAINST investing, especially if these are going to be the only funds in your portfolio. And the fact that you started your sip in the PEAK of the Bull Run has only compounded your losses.
You need to immediately stop your sips in Both the Funds. You need to invest in Diversified Equity Funds. Sector/Theme Funds do have huge volatility and tend to outperform the markets when the trend goes against their invested Sectors. Diversified Funds on the other hand, as their name suggests invest in a Basket of Stocks across Sectors and thus insulated from any Downturn in any sector. And also, most importantly, note that if the Fund Manager Does find any Sector (Power, Infrastructure, in your case) attractive, he WILL invest in these sectors.
DSPML Tiger Fund has a Better Track Record than most funds in Infrastructure Sector. But still, you would be better off by investing in DSPML Equity Fund or DSPML Top 100 Fund.
Your other investment is in Reliance Diversified Power Sector Fund. This fund had a great run. However, the same is very unlikely to be repeated in future. Even an Average Return should be difficult from this fund. This fund has the highest Corpus among all the funds in India right now. Servicing such huge corpus in these bearish times, should be a very very challenging task for the Fund Manager.
You can stop the sip in this fund and can consider investing in Birla sunlife Equity Fund and/or Fidelity Equity Fund. These funds would not only protect you from downside but also have the potential to give you more return than the funds you are currently invested in.
BEst of luck,
Srikanth Shankar Matrubai

Why Even Cheaper Crude is Grim News

One of my friends Mr.Vinod Tantri forwarded this article he picked up from the net.

Why Even Cheaper Oil Is Grim News

The sharp drop in crude prices is further fallout from the Wall Street crisis and evidence of economic weakness

Getty Images

Any other day, Wall Street would have cheered a 5.4% drop in oil prices. That decline for crude futures, however, was accompanied by a nearly 5% tumble for the Standard & Poor's 500 index on Sept. 15. Stocks—as was made painfully clear to investors—are no longer trading inversely with oil prices.

Analysts say that investors, who had been pouring funds into commodities as an alternative to creaky stock markets, are now pulling out of the market. The withdrawal reflects a fear that the economic picture will remain bleak, causing reduced demand in both developed and developing countries. The price of a barrel of West Texas Intermediate crude oil slid $5.47, to settle at $95.71 on the New York Mercantile Exchange (CME). It was the first settlement below $100 per barrel in six months. "A weak economy and financial turmoil mean lower demand; that means lower [oil] prices," says Craig Pirrong, professor of finance and energy markets at the Bauer College of Business at the University of Houston.

The impetus for the Sept. 12 drop was the implosion (BusinessWeek.com, 9/14/08) of several investment banks. Lehman Brothers (LEH) filed for bankruptcy protection, while Merrill Lynch (MER) agreed to be acquired by Bank of America (BAC). Insurance giant American International Group (AIG) is hunting emergency financing as it attempts to stay in business.

Trumping the Bulls

Lehman, Merrill Lynch, and other institutional investors helped fuel the commodities boom of the past year. As funds flooded the commodities markets, the price of oil, precious metals, and grains hit historic highs. But now the economic crisis is trumping bullish signals in the oil market, such as production halted by Hurricane Ike and simmering tensions between Russia and Georgia (BusinessWeek, 9/11/08). Energy stocks also took a hit on Sept. 15. Exxon Mobil (XOM) fell 5.5%, to 73; BP (BP) slid 5.2%, to 51; Chevron (CVX) shed almost 5%, to 80; and ConocoPhillips (COP) dropped 6.4%, to 68.

According to a report released on Sept. 10 by Michael Masters, principal of Masters Capital Management, institutional investors "began a mass stampede for the exits" in mid-July of commodities indexes like the S&P Goldman Sachs Commodity Index. Investors withdrew about $39 billion from the index, resulting in the selling of about 127 million barrels of West Texas Intermediate crude futures.

The strengthening of the dollar has also eroded oil prices. Stephen Schork, an energy consultant in Villanova, Pa., and editor of The Schork Report, a daily energy newsletter, says that investors have moved from commodities to currencies markets as an alternative to the stock market. The upshot is that, for now, commodities and equities markets will fall together. "The fact that oil is low at the same time of the stock market reflects the depth of the financial setback we're facing," says Peter Beutel, president of Cameron Hanover, an energy risk-management firm in New Canaan, Conn.

Is $70 Oil a Possibility?

In other words, the severity of the economic crisis means that lower oil prices are seen as a harbinger of an economic slowdown, not an increase in purchasing power that would lift equities. "The poor economy weakens the price of crude, and causes traders to sell; in turn, their selling weakens the price of crude," says Joel Fingerman, president of FundamentalAnalytics.com, a Chicago energy consulting firm. He sees oil heading to $70 or $80 a barrel in the near future.

If lower oil prices are here to stay, will consumers return to old patterns of consuming more petroleum products? Many analysts think not. "The demand destruction is irreversible," says Schork. "It's a situation of once bitten, twice shy. Prices may be down for now, but consumers know they could eventually move high again."

Thank you Vinod Tantri for the article.