In these uncertain and volatile market conditions, investors are flocking to invest in debt securities to ensure not only stable and certain returns but more importantly capital protection
THE GLOBAL MELTDOWN
Across the globe, financial and economic markets have taken a severe beating and there are expectations of recession in developed countries. In this backdrop, the Indian markets have also been affected but not as badly as the others.
BETTER SAFE THAN SORRY
Investors have seen their wealth, especially in shares, erode faster than they would have imagined or liked. Thus, investors are now increasingly flocking to invest in debt securities. So what are their options and the pros and cons of each investment avenue.
Let’s take a look at some of the attractive ones:
Government Securities:
The bond yield on short term (1-year) government securities (g-secs) is currently approximately 8% to 9% p.a. Due to the inverse relationship between bond prices (carrying fixed interest rates) and interest rates, the current trend of rising interest rates have brought down the prices of bonds and gains thereon. On account of this, the returns on medium-long-term debt funds, including MIP, have been very low over the last year.
Thus, it is advisable for investors to maintain/invest in lower portfolio duration i.e. short-term products (directly in g-secs or through mutual funds in debt mutual funds discussed hereunder) to minimise the impact of rate increases. From a tax standpoint, interest/ short-term capital gains and long-term capital gains from g-secs is taxed at the regular and lower rate of income tax, respectively.
Bank Fixed Deposits:
Banks are now offering higher rate of interest say 10.50% on a FD of a year. From a tax standpoint, interest on FD is also taxed at the regular rate of income-tax ranging from 10.30% to 33.99% and subject to tax deduction at source (TDS) provisions.
Debt Mutual Fund:
Debt funds are tax-efficient for investment since dividend on debt funds is tax-free (however the debt fund would be liable to pay tax on distributed income [DDT] ranging from 14.1625% to 28.325% depending upon the type of holder and type of debt fund) and long-term capital gain (holding period of more than 12 months) is taxable at the rate of 10.30% (without indexation) or 20.60% (with indexation). For an investor falling in the highest tax bracket of 33.99% planning to park funds in debt funds, for short-term investment (holding period not exceeding 1 year) dividend option and for long-term investment (holding period exceeding 1 year) growth option would be more tax-efficient.
Zero Coupon Bonds:
National Bank for Agriculture and Rural Development (Nabard) is issuing ZCB as Bhavishya Nirman Bonds which a 10-year product having issue price of Rs 8,500, face (maturity) value of Rs 20,000 to be listed on the Stock Exchange implying a compounded annualised pre-tax yield of 8.9444%.The table shows that the post-yield is different for each investment and one needs to decide as to invest in which debt instrument considering the pros and cons thereof and which tax bracket one falls in.
Wednesday, June 10, 2009
Saturday, March 21, 2009
Good and Bad deflation
What id Deflation?
In common usage deflation is generally considered to be "falling prices". But there is much more to it than that. Often people confuse deflation with disinflation or with Depression (as in "the Great Depression"). These three terms are related but not synonymous.
According to Investorwords.com the definition of Deflation is "a decline in general price levels, often caused by a reduction in the supply of money or credit. Deflation can also be brought about by direct contractions in spending, either in the form of a reduction in government spending, personal spending or investment spending. Deflation has often had the side effect of increasing unemployment in an economy, since the process often leads to a lower level of demand in the economy. The opposite of inflation.
What casues Deflation?
For a true understanding of both Inflation and Deflation we need to understand Supply and Demand. Just like every other commodity there is a supply of and a demand for "Money".
Price levels are the direct result of the relationship between the supply and the demand for any given item. But the value of the money used to pay for those items is also subject to the same relationship.
For the sake of simplicity let's assume that we are on an island and there are ten equally desirable goods in our universe and ten $1.00 bills available to purchase them with. We can safely assume that each item will end up costing $1.00 each.
If the quantity of money increases to $20 (without increasing the quantity of goods) the price of the goods will increase to $2.00 - that is inflation.
If, however, the quantity of money decreases to $5.00 the price will fall to 50¢ (deflation). This is what the first part of the above definition is referring to. The money supply can also be reduced if someone on our island hoards half of it and refuses to spend it on anything no matter what. This is the second part of the definition (reduction in spending).
So far we have only looked at part of the equation, the supply of money. But what happens if the quantity of goods available increases? What if instead of having ten items we build ten more? We now have twenty items and only $10. 00 so once again each item is worth 50¢.
This form of deflation is the good type. Everyone assumes that deflation is bad because the last major deflation that we had was during the "Great Depression" so deflation and Depression are synonymous in many peoples minds. In actuality if prices go down because the goods can be manufactured more cheaply this ends up increasing everyone's wealth.
This is exactly what happened in the late 1990s , with cheap productivity available from former Communist countries the quantity of goods is increased while the money supply increased at a slower rate.
In modern credit based economies a deflationary spiral is caused by the popping of a bubble, either in equities, or the collapse of a command economy which had run at a higher level of production than it could actually support. Demand falls, and with the falling of demand, there is a fall in prices as a supply glut develops. This becomes a deflationary spiral when prices fall below the costs of financing. Business, unable to make enough profit no matter how low they set prices, are then liquidated. Banks then get assets which have fallen dramatically in value since the loan is made, and if they sell those assets, they further glut supply, which causes another round of price decreases, and more business to go bankrupt, which results in another round of foreclosures. To stop the deflationary spiral, banks will often simply not collect on non-performing loans. This stems deflation for only a short time, because they must then constrict credit, since they do not have money to lend, which reduces demand and so on.
The Austrian school defines deflation and inflation solely in relation to the money supply. Deflation is therefore defined to be a contraction of the money supply. Under this definition, the Austrian school sees deflation as a cause of a general fall in prices, not a general fall in prices itself. They attribute the other main cause of a general fall in prices to be an increase of productivity relative to the money supply.
Austrians view increased productivity (the first scenario) to be a good cause of a general fall in prices, while deflation (the second scenario) as being a bad cause of a general fall in prices. Austrians contend that in the first scenario wages will remain the same because of the unchanged money supply but that a general increase in wealth will be reflected in lower prices. Austrians also take the position that there are no negative distortions in the economy due to a general fall in prices in the first scenario. However, in the second scenario where a general fall in prices is caused by deflation, Austrians contend that this confers no benefit to society. For in this scenario wages will simply be cut in half and lower prices will not reflect a general increase in wealth. In addition, Austrians believe that deflation causes negative distortions in the economy with debtors and creditors as well as other areas.
Is Deflation Good or Bad?
What is Good Deflation?
Good Deflation should not be considered as a hypothetical situation. It is very much a real condition of the economy, characterized by substantial growth and development in some sectors of a country, despite the fact that the prices of products in these sectors has been reducing since a long span of time.
In fact, Good Deflation results from technological progresses, which initiates excess supply of goods.
Its role:
From the consumer's point of view, Good Deflation is immensely beneficial as it helps those commercial sectors like the bank to deal with sinking prices. The banking sector of a country faces such as a situation, when the value of the collateral (securities) for loans decreases remarkably, having low sale value than what was earlier expected. This condition is far more aggravated by public debts and unemployment problem, which display rising trends.
This situation is controlled to considerable extents by the advent of Good Deflation. In the theoretical sense, Good Deflation does not allow the distribution of corporate gains among the employees, in the form of increase in their wages. Instead, decrease in the prices owing to Deflation is transferred to the consumers. This leads to uniform allocation of the profits, involving those also, who are not directly associated with production.
The debtors should evade price fall, which appears to them in the form of low rates of interest.
Good Deflation can only work when people have full faith in the future of the concept, which is closely related with the consumption and investments on their part. In fact, the customers consume and invest to meet their requirements and not the price expectations.
For Good Deflation to exist in an economy, it is required that there is no interference of any strong union, who may insist on productivity gain on behalf of the employees.
About Bad Deflation:
Bad Deflation is born out of trifling demands. It is an economic situation characterized by reduction in the prices not due to developments in the productivities, but because of a lack of demand induced by crashing down of the stock market. In fact, Deflation becomes bad when the consumers save their money for future uncertainties, or in the expectation that prices may lower further.
Its implications and consequences:
It is the cumulative process of very little generation of demand which affects the population of a country at the time of Bad Deflation. Detection of Bad Deflation thus requires an in-depth study of the overall economic conditions of a nation and not just the price of goods.
Owing to Bad Deflation, the consumers who are the potential purchasers become unwilling to invest and buy, considering the future of their money and the country's economy. This leads to a fast fall in the prices, worsening the overall economic conditions further. Under the impact of Bad Deflation, the recessions are virtually all transformed into depressions. In reality, it is not the price fall of Bad Inflation which matters, but the serious consequences it gives birth to.
Indian economy staring at deflation. Is it good news?
India is staring at deflation, or negative inflation, with the official inflation rate this week falling to 0.44% — the lowest since Financial crisis
Competitive economies Ghosts of 1929US mortgage crisisFive facts on stock falls
1977. Food prices, however, continued to be high, with food grains roughly 9% costlier than a year ago, reinforcing a cruel paradox for consumers that they hear about zero inflation but face high prices when they buy their groceries.
With the wholesale price index (WPI) falling by one point to 226.7 for the week ending March 7, 2009 — the same level at which the index was on March 29, 2008 — it now means the year-on-year inflation rate will become zero by the last week of March even if the index for the current year falls no further. TOI had pointed this out last Friday.
As most commodities are becoming cheaper with every successive week in the recent past, deflation is expected to set in even before that. The rabi harvest should see a drop in foodgrain prices too, and that will only accentuate the trend.
If deflation lasts for some time, as seems possible, it would be a new experience for India. Japan went through a decade-long deflation in the 1990s, termed as the ``lost decade'' for that country. At present, most major economies are witnessing disinflation — a lowering of the inflation rate — and some have also seen deflation kicking in. Japan and China have already reported negative inflation rates in the latest data and there are signs that the US, too, could be heading the same way.
While a fall in prices may sound like good news to most laymen, economists see this as an ominous sign of a collapse in demand in the economy. A recent Citibank report echoed this concern in the Indian context saying that the present trend of decline in inflation was not because of any improved efficiency in the economy but because of falling demand. The report warned that this trend would weaken economic activity and discourage investments, which would affect the economy in the longer term.
The fear about investments not materializing is aggravated by the fact that nominal interest rates are at relatively high levels. When prices are falling, this means the real interest rates — the difference between the nominal rate and the rate of inflation — are becoming very high for producers, making it unviable for them to raise funds.
Demands for the RBI to intervene to induce a further round of cuts in interest rates are bound to mount in the face of the latest data. However, planning commission deputy chairman Montek Singh Ahluwalia on Thursday said that the inflation rate would rebound from its present level. While not ruling out the possibility that inflation could go into negative territory, he maintained that it would last for only a few weeks. Hence, he said, it should not be termed as deflation, a term that implies sustained negative inflation.
From the aam admi's point of view, what makes the situation worse is that prices of essential commodities like foodgrains are stubbornly refuse to come down. According to the latest data, the index for foodgrains rose by 9.3% in the week ending March 7 as against 10.06% in the previous week. Under the ``food articles'' head, inflation fell to 7.4% after having been stable at 8.3% in the previous two weeks.
In common usage deflation is generally considered to be "falling prices". But there is much more to it than that. Often people confuse deflation with disinflation or with Depression (as in "the Great Depression"). These three terms are related but not synonymous.
According to Investorwords.com the definition of Deflation is "a decline in general price levels, often caused by a reduction in the supply of money or credit. Deflation can also be brought about by direct contractions in spending, either in the form of a reduction in government spending, personal spending or investment spending. Deflation has often had the side effect of increasing unemployment in an economy, since the process often leads to a lower level of demand in the economy. The opposite of inflation.
What casues Deflation?
For a true understanding of both Inflation and Deflation we need to understand Supply and Demand. Just like every other commodity there is a supply of and a demand for "Money".
Price levels are the direct result of the relationship between the supply and the demand for any given item. But the value of the money used to pay for those items is also subject to the same relationship.
For the sake of simplicity let's assume that we are on an island and there are ten equally desirable goods in our universe and ten $1.00 bills available to purchase them with. We can safely assume that each item will end up costing $1.00 each.
If the quantity of money increases to $20 (without increasing the quantity of goods) the price of the goods will increase to $2.00 - that is inflation.
If, however, the quantity of money decreases to $5.00 the price will fall to 50¢ (deflation). This is what the first part of the above definition is referring to. The money supply can also be reduced if someone on our island hoards half of it and refuses to spend it on anything no matter what. This is the second part of the definition (reduction in spending).
So far we have only looked at part of the equation, the supply of money. But what happens if the quantity of goods available increases? What if instead of having ten items we build ten more? We now have twenty items and only $10. 00 so once again each item is worth 50¢.
This form of deflation is the good type. Everyone assumes that deflation is bad because the last major deflation that we had was during the "Great Depression" so deflation and Depression are synonymous in many peoples minds. In actuality if prices go down because the goods can be manufactured more cheaply this ends up increasing everyone's wealth.
This is exactly what happened in the late 1990s , with cheap productivity available from former Communist countries the quantity of goods is increased while the money supply increased at a slower rate.
In modern credit based economies a deflationary spiral is caused by the popping of a bubble, either in equities, or the collapse of a command economy which had run at a higher level of production than it could actually support. Demand falls, and with the falling of demand, there is a fall in prices as a supply glut develops. This becomes a deflationary spiral when prices fall below the costs of financing. Business, unable to make enough profit no matter how low they set prices, are then liquidated. Banks then get assets which have fallen dramatically in value since the loan is made, and if they sell those assets, they further glut supply, which causes another round of price decreases, and more business to go bankrupt, which results in another round of foreclosures. To stop the deflationary spiral, banks will often simply not collect on non-performing loans. This stems deflation for only a short time, because they must then constrict credit, since they do not have money to lend, which reduces demand and so on.
The Austrian school defines deflation and inflation solely in relation to the money supply. Deflation is therefore defined to be a contraction of the money supply. Under this definition, the Austrian school sees deflation as a cause of a general fall in prices, not a general fall in prices itself. They attribute the other main cause of a general fall in prices to be an increase of productivity relative to the money supply.
Austrians view increased productivity (the first scenario) to be a good cause of a general fall in prices, while deflation (the second scenario) as being a bad cause of a general fall in prices. Austrians contend that in the first scenario wages will remain the same because of the unchanged money supply but that a general increase in wealth will be reflected in lower prices. Austrians also take the position that there are no negative distortions in the economy due to a general fall in prices in the first scenario. However, in the second scenario where a general fall in prices is caused by deflation, Austrians contend that this confers no benefit to society. For in this scenario wages will simply be cut in half and lower prices will not reflect a general increase in wealth. In addition, Austrians believe that deflation causes negative distortions in the economy with debtors and creditors as well as other areas.
Is Deflation Good or Bad?
What is Good Deflation?
Good Deflation should not be considered as a hypothetical situation. It is very much a real condition of the economy, characterized by substantial growth and development in some sectors of a country, despite the fact that the prices of products in these sectors has been reducing since a long span of time.
In fact, Good Deflation results from technological progresses, which initiates excess supply of goods.
Its role:
From the consumer's point of view, Good Deflation is immensely beneficial as it helps those commercial sectors like the bank to deal with sinking prices. The banking sector of a country faces such as a situation, when the value of the collateral (securities) for loans decreases remarkably, having low sale value than what was earlier expected. This condition is far more aggravated by public debts and unemployment problem, which display rising trends.
This situation is controlled to considerable extents by the advent of Good Deflation. In the theoretical sense, Good Deflation does not allow the distribution of corporate gains among the employees, in the form of increase in their wages. Instead, decrease in the prices owing to Deflation is transferred to the consumers. This leads to uniform allocation of the profits, involving those also, who are not directly associated with production.
The debtors should evade price fall, which appears to them in the form of low rates of interest.
Good Deflation can only work when people have full faith in the future of the concept, which is closely related with the consumption and investments on their part. In fact, the customers consume and invest to meet their requirements and not the price expectations.
For Good Deflation to exist in an economy, it is required that there is no interference of any strong union, who may insist on productivity gain on behalf of the employees.
About Bad Deflation:
Bad Deflation is born out of trifling demands. It is an economic situation characterized by reduction in the prices not due to developments in the productivities, but because of a lack of demand induced by crashing down of the stock market. In fact, Deflation becomes bad when the consumers save their money for future uncertainties, or in the expectation that prices may lower further.
Its implications and consequences:
It is the cumulative process of very little generation of demand which affects the population of a country at the time of Bad Deflation. Detection of Bad Deflation thus requires an in-depth study of the overall economic conditions of a nation and not just the price of goods.
Owing to Bad Deflation, the consumers who are the potential purchasers become unwilling to invest and buy, considering the future of their money and the country's economy. This leads to a fast fall in the prices, worsening the overall economic conditions further. Under the impact of Bad Deflation, the recessions are virtually all transformed into depressions. In reality, it is not the price fall of Bad Inflation which matters, but the serious consequences it gives birth to.
Indian economy staring at deflation. Is it good news?
India is staring at deflation, or negative inflation, with the official inflation rate this week falling to 0.44% — the lowest since Financial crisis
Competitive economies Ghosts of 1929US mortgage crisisFive facts on stock falls
1977. Food prices, however, continued to be high, with food grains roughly 9% costlier than a year ago, reinforcing a cruel paradox for consumers that they hear about zero inflation but face high prices when they buy their groceries.
With the wholesale price index (WPI) falling by one point to 226.7 for the week ending March 7, 2009 — the same level at which the index was on March 29, 2008 — it now means the year-on-year inflation rate will become zero by the last week of March even if the index for the current year falls no further. TOI had pointed this out last Friday.
As most commodities are becoming cheaper with every successive week in the recent past, deflation is expected to set in even before that. The rabi harvest should see a drop in foodgrain prices too, and that will only accentuate the trend.
If deflation lasts for some time, as seems possible, it would be a new experience for India. Japan went through a decade-long deflation in the 1990s, termed as the ``lost decade'' for that country. At present, most major economies are witnessing disinflation — a lowering of the inflation rate — and some have also seen deflation kicking in. Japan and China have already reported negative inflation rates in the latest data and there are signs that the US, too, could be heading the same way.
While a fall in prices may sound like good news to most laymen, economists see this as an ominous sign of a collapse in demand in the economy. A recent Citibank report echoed this concern in the Indian context saying that the present trend of decline in inflation was not because of any improved efficiency in the economy but because of falling demand. The report warned that this trend would weaken economic activity and discourage investments, which would affect the economy in the longer term.
The fear about investments not materializing is aggravated by the fact that nominal interest rates are at relatively high levels. When prices are falling, this means the real interest rates — the difference between the nominal rate and the rate of inflation — are becoming very high for producers, making it unviable for them to raise funds.
Demands for the RBI to intervene to induce a further round of cuts in interest rates are bound to mount in the face of the latest data. However, planning commission deputy chairman Montek Singh Ahluwalia on Thursday said that the inflation rate would rebound from its present level. While not ruling out the possibility that inflation could go into negative territory, he maintained that it would last for only a few weeks. Hence, he said, it should not be termed as deflation, a term that implies sustained negative inflation.
From the aam admi's point of view, what makes the situation worse is that prices of essential commodities like foodgrains are stubbornly refuse to come down. According to the latest data, the index for foodgrains rose by 9.3% in the week ending March 7 as against 10.06% in the previous week. Under the ``food articles'' head, inflation fell to 7.4% after having been stable at 8.3% in the previous two weeks.
Wednesday, August 13, 2008
P Notes
A Securities and Exchange Board of India proposal to tighten the rules for purchase of shares and bonds in Indian companies through the participatory note route took the breath away of the Indian stock market and it suffered its biggest fall in history.
So what are these participatory notes? And why do they have this huge impact on the Indian securities markets?
P-Notes
Participatory Notes -- or P-Notes or PNs -- are instruments issued by registered foreign institutional investors to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India.
Financial instruments used by hedge funds that are not registered with Sebi to invest in Indian securities. Indian-based brokerages to buy India-based securities / stocks and then issue participatory notes to foreign investors. Any dividends or capital gains collected from the underlying securities go back to the investors.
Why P-Notes?
Since international access to the Indian capital market is limited to FIIs. The market has found a way to circumvent this by creating the device called participatory notes, which are said to account for half the $80 billion that stands to the credit of FIIs. Investing through P-Notes is very simple and hence very popular.
What are hedge funds?
Hedge funds, which invest through participatory notes, borrow money cheaply from Western markets and invest these funds into stocks in emerging markets. This gives them double benefit: a chance to make a killing in a stock market where stocks are on the rise; and a chance to make the most of the rising value of the local currency.
Who gets P-Notes?
P-Notes are issued to the real investors on the basis of stocks purchased by the FII. The registered FII looks after all the transactions, which appear as proprietary trades in its books. It is not obligatory for the FIIs to disclose their client details to the Sebi, unless asked specifically.
What is an FII?
An FII, or a foreign institutional investor, is an entity established to make investments in India.
However, these FIIs need to get registered with the Securities and Exchange Board of India. Entities or funds that are eligible to get registered as FII include pension funds; mutual funds; insurance companies / reinsurance companies; investment trusts; banks; international or multilateral organisation or an agency thereof or a foreign government agency or a foreign central bank; university funds; endowments (serving broader social objectives); foundations (serving broader social objectives); and charitable trusts / charitable societies.
The following entities proposing to invest on behalf of broad based funds, are also eligible to be registered as FIIs:
Asset Management Companies
Investment Manager/Advisor
Institutional Portfolio Managers
Trustees
How does Sebi regulate FIIs?
FIIs who issue/renew/cancel/redeem P-Notes, are required to report on a monthly basis. The report should reach the Sebi by the 7th day of the following month.
The FII merely investing/subscribing in/to the Participatory Notes -- or any such type of instruments/securities -- with underlying Indian market securities are required to report on quarterly basis (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec).
FIIs who do not issue PNs but have trades/holds Indian securities during the reporting quarter (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec) require to submit 'Nil' undertaking on a quarterly basis.
FIIs who do not issue PNs and do not have trades/ holdings in Indian securities during the reporting quarter. (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec): No reports required for that reporting quarter.
Who can invest in P-Notes?
a) Any entity incorporated in a jurisdiction that requires filing of constitutional and/or other documents with a registrar of companies or comparable regulatory agency or body under the applicable companies legislation in that jurisdiction;
b) Any entity that is regulated, authorised or supervised by a central bank, such as the Bank of England, the Federal Reserve, the Hong Kong Monetary Authority, the Monetary Authority of Singapore or any other similar body provided that the entity must not only be authorised but also be regulated by the aforesaid regulatory bodies;
c) Any entity that is regulated, authorised or supervised by a securities or futures commission, such as the Financial Services Authority (UK), the Securities and Exchange Commission, the Commodities Futures Trading Commission, the Securities and Futures Commission (Hong Kong or Taiwan), Australian Securities and Investments Commission (Australia) or other securities or futures authority or commission in any country , state or territory;
d) Any entity that is a member of securities or futures exchanges such as the New York Stock Exchange (Sub-account), London Stock Exchange (UK), Tokyo Stock Exchange (Japan), NASD (Sub-account) or other similar self-regulatory securities or futures authority or commission within any country, state or territory provided that the aforesaid organizations which are in the nature of self regulatory organizations are ultimately accountable to the respective securities / financial market regulators.
e) Any individual or entity (such as fund, trust, collective investment scheme, Investment Company or limited partnership) whose investment advisory function is managed by an entity satisfying the criteria of (a), (b), (c) or (d) above.
Sebi not happy
However, Indian regulators are not very happy about participatory notes because they have no way to know who owns the underlying securities. Regulators fear that hedge funds acting through participatory notes will cause economic volatility in India's exchanges.
Hedge funds were largely blamed for the sudden sharp falls in indices. Unlike FIIs, hedge funds are not directly registered with Sebi, but they can operate through sub-accounts with FIIs. These funds are also said to operate through the issuance of participatory notes.
30% FII money in stocks thru P-Notes
According to one estimate, more than 30 per cent of foreign institutional money coming into India is from hedge funds. This has led Sebi to keep a close watch on FII transactions, and especially hedge funds.
Hedge funds, which thrive on arbitrage opportunities, rarely hold a stock for a long time.
With a view to monitoring investments through participatory notes, Sebi had decided that FIIs must report details of these instruments along with the names of their holders.
Sebi Chairman M Damodaran has said that the proposals were against PNs but not against FIIs. The procedures for registering FIIs were in fact being simplified, he said.
Sebi has also proposed a ban on all PN issuances by sub-accounts of FIIs with immediate effect. They also will be required to wind up the current position over 18 months, during which period the capital markets regulator will review the position from time to time.
Sebi chairman M Damodaran, in a recent interview Business Standard, said that the amount of foreign investment coming in through participatory notes keeps changing and is somewhere between 25-30 per cent. "Recent indications are that it has gone up a little but again after the sub-prime crisis, there have been some exits. But it's a fairly significant percentage, it's not something you can ignore."
When asked if he was comfortable with almost one-fourth of the market being held by P-Notes, he said that he wasn't 'entirely uncomfortable.'
So what are these participatory notes? And why do they have this huge impact on the Indian securities markets?
P-Notes
Participatory Notes -- or P-Notes or PNs -- are instruments issued by registered foreign institutional investors to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India.
Financial instruments used by hedge funds that are not registered with Sebi to invest in Indian securities. Indian-based brokerages to buy India-based securities / stocks and then issue participatory notes to foreign investors. Any dividends or capital gains collected from the underlying securities go back to the investors.
Why P-Notes?
Since international access to the Indian capital market is limited to FIIs. The market has found a way to circumvent this by creating the device called participatory notes, which are said to account for half the $80 billion that stands to the credit of FIIs. Investing through P-Notes is very simple and hence very popular.
What are hedge funds?
Hedge funds, which invest through participatory notes, borrow money cheaply from Western markets and invest these funds into stocks in emerging markets. This gives them double benefit: a chance to make a killing in a stock market where stocks are on the rise; and a chance to make the most of the rising value of the local currency.
Who gets P-Notes?
P-Notes are issued to the real investors on the basis of stocks purchased by the FII. The registered FII looks after all the transactions, which appear as proprietary trades in its books. It is not obligatory for the FIIs to disclose their client details to the Sebi, unless asked specifically.
What is an FII?
An FII, or a foreign institutional investor, is an entity established to make investments in India.
However, these FIIs need to get registered with the Securities and Exchange Board of India. Entities or funds that are eligible to get registered as FII include pension funds; mutual funds; insurance companies / reinsurance companies; investment trusts; banks; international or multilateral organisation or an agency thereof or a foreign government agency or a foreign central bank; university funds; endowments (serving broader social objectives); foundations (serving broader social objectives); and charitable trusts / charitable societies.
The following entities proposing to invest on behalf of broad based funds, are also eligible to be registered as FIIs:
Asset Management Companies
Investment Manager/Advisor
Institutional Portfolio Managers
Trustees
How does Sebi regulate FIIs?
FIIs who issue/renew/cancel/redeem P-Notes, are required to report on a monthly basis. The report should reach the Sebi by the 7th day of the following month.
The FII merely investing/subscribing in/to the Participatory Notes -- or any such type of instruments/securities -- with underlying Indian market securities are required to report on quarterly basis (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec).
FIIs who do not issue PNs but have trades/holds Indian securities during the reporting quarter (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec) require to submit 'Nil' undertaking on a quarterly basis.
FIIs who do not issue PNs and do not have trades/ holdings in Indian securities during the reporting quarter. (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec): No reports required for that reporting quarter.
Who can invest in P-Notes?
a) Any entity incorporated in a jurisdiction that requires filing of constitutional and/or other documents with a registrar of companies or comparable regulatory agency or body under the applicable companies legislation in that jurisdiction;
b) Any entity that is regulated, authorised or supervised by a central bank, such as the Bank of England, the Federal Reserve, the Hong Kong Monetary Authority, the Monetary Authority of Singapore or any other similar body provided that the entity must not only be authorised but also be regulated by the aforesaid regulatory bodies;
c) Any entity that is regulated, authorised or supervised by a securities or futures commission, such as the Financial Services Authority (UK), the Securities and Exchange Commission, the Commodities Futures Trading Commission, the Securities and Futures Commission (Hong Kong or Taiwan), Australian Securities and Investments Commission (Australia) or other securities or futures authority or commission in any country , state or territory;
d) Any entity that is a member of securities or futures exchanges such as the New York Stock Exchange (Sub-account), London Stock Exchange (UK), Tokyo Stock Exchange (Japan), NASD (Sub-account) or other similar self-regulatory securities or futures authority or commission within any country, state or territory provided that the aforesaid organizations which are in the nature of self regulatory organizations are ultimately accountable to the respective securities / financial market regulators.
e) Any individual or entity (such as fund, trust, collective investment scheme, Investment Company or limited partnership) whose investment advisory function is managed by an entity satisfying the criteria of (a), (b), (c) or (d) above.
Sebi not happy
However, Indian regulators are not very happy about participatory notes because they have no way to know who owns the underlying securities. Regulators fear that hedge funds acting through participatory notes will cause economic volatility in India's exchanges.
Hedge funds were largely blamed for the sudden sharp falls in indices. Unlike FIIs, hedge funds are not directly registered with Sebi, but they can operate through sub-accounts with FIIs. These funds are also said to operate through the issuance of participatory notes.
30% FII money in stocks thru P-Notes
According to one estimate, more than 30 per cent of foreign institutional money coming into India is from hedge funds. This has led Sebi to keep a close watch on FII transactions, and especially hedge funds.
Hedge funds, which thrive on arbitrage opportunities, rarely hold a stock for a long time.
With a view to monitoring investments through participatory notes, Sebi had decided that FIIs must report details of these instruments along with the names of their holders.
Sebi Chairman M Damodaran has said that the proposals were against PNs but not against FIIs. The procedures for registering FIIs were in fact being simplified, he said.
Sebi has also proposed a ban on all PN issuances by sub-accounts of FIIs with immediate effect. They also will be required to wind up the current position over 18 months, during which period the capital markets regulator will review the position from time to time.
Sebi chairman M Damodaran, in a recent interview Business Standard, said that the amount of foreign investment coming in through participatory notes keeps changing and is somewhere between 25-30 per cent. "Recent indications are that it has gone up a little but again after the sub-prime crisis, there have been some exits. But it's a fairly significant percentage, it's not something you can ignore."
When asked if he was comfortable with almost one-fourth of the market being held by P-Notes, he said that he wasn't 'entirely uncomfortable.'
Sunday, April 6, 2008
Straddle and Strangle stretegy
What is Straddle?
An options strategy with which the investor holds a position in both a call and put with the same strike price and expiration date.
Why it should be used?
An investor who is convinced a particular index will make a major directional move, but not sure whether up or down.
An investor who anticipates increased volatility in an index, up and/or down around its current level, and a concurrent increase in overlying options’ implied volatility.
An investor who would like to take advantage of the leverage that options can provide, and with a limited dollar risk.
Example :
Let’s assume the price is currently at $15 and we are currently in April 05. Suppose the price of the $15 call option for June 05 has a price of $2. The price of the $15 put option for June 05 has a price of $1. A straddle is achieved by buying both the call and the put for a total of $300: ($2 + $1) x 100 = 300. The investor in this situation will gain if the stock moves higher (because of the long call option) or if the stock goes lower (because of the long put option). Profits will be realized as long as the price of the stock moves by more than $3 per share in either direction. A strangle is used when the investor believes the stock has a better chance of moving in a certain direction, but would still like to be protected in the case of a negative move.
For example, let's say you believe the mining results will be positive, meaning you require less downside protection. Instead of buying the put option with the strike price of $15, maybe you should look at buying the $12.50 strike that has a price of $0.25. In this case, buying this put option will lower the cost of the strategy and will also require less of an upward move for you to break even. Using the put option in this strangle will still protect the extreme downside, while putting you, the investor, in a better position to gain from a positive announcement.
Strangle
An options strategy where the investor holds a position in both a call and put with different strike prices but with the same maturity and underlying asset. This option strategy is profitable only if there are large movements in the price of the underlying asset.
This is a good strategy if you think there will be a large price movement in the near future but are unsure of which way that price movement will be.
The strategy involves buying an out-of-the-money call and an out-of-the-money put option. A strangle is generally less expensive than a straddle as the contracts are purchased out of the money.
An options strategy with which the investor holds a position in both a call and put with the same strike price and expiration date.
Why it should be used?
An investor who is convinced a particular index will make a major directional move, but not sure whether up or down.
An investor who anticipates increased volatility in an index, up and/or down around its current level, and a concurrent increase in overlying options’ implied volatility.
An investor who would like to take advantage of the leverage that options can provide, and with a limited dollar risk.
Example :
Let’s assume the price is currently at $15 and we are currently in April 05. Suppose the price of the $15 call option for June 05 has a price of $2. The price of the $15 put option for June 05 has a price of $1. A straddle is achieved by buying both the call and the put for a total of $300: ($2 + $1) x 100 = 300. The investor in this situation will gain if the stock moves higher (because of the long call option) or if the stock goes lower (because of the long put option). Profits will be realized as long as the price of the stock moves by more than $3 per share in either direction. A strangle is used when the investor believes the stock has a better chance of moving in a certain direction, but would still like to be protected in the case of a negative move.
For example, let's say you believe the mining results will be positive, meaning you require less downside protection. Instead of buying the put option with the strike price of $15, maybe you should look at buying the $12.50 strike that has a price of $0.25. In this case, buying this put option will lower the cost of the strategy and will also require less of an upward move for you to break even. Using the put option in this strangle will still protect the extreme downside, while putting you, the investor, in a better position to gain from a positive announcement.
Strangle
An options strategy where the investor holds a position in both a call and put with different strike prices but with the same maturity and underlying asset. This option strategy is profitable only if there are large movements in the price of the underlying asset.
This is a good strategy if you think there will be a large price movement in the near future but are unsure of which way that price movement will be.
The strategy involves buying an out-of-the-money call and an out-of-the-money put option. A strangle is generally less expensive than a straddle as the contracts are purchased out of the money.
Tuesday, February 5, 2008
Effect of treasury stock
Picked up from one blog.... to keep in in my notes when i wanted to go through it.. i have not done analysis..
After reading an article in Business week (online dated Jul-2/2007) about the top 100 tech companies ranked by ROE and discovering Accenture’s ROE as 66%. I calculated its ROE for the last five years (as of Aug-31 for the corresponding year). To my surprise I found that the ROE has reduced over the period of 5 years. It was at an astonishing high level of 131% on Aug-31/2002. Following table gives a snapshot of some important numbers pertaining to its ROE for last five years.
In millions
2006 2005 2004 2003 2002
Book value $1,890 $1,690 $1,470 $831 $438
Net sales $18,200 $17,090 $15,110 $13,390 $13,100
Net income before minority interest $1,430 $1,500 $1,220 $1,040 $576
Minority interest $460 $568 $532 $549 $332
Net income $973 $940 $691 $498 $245
ROE (net income) 51.48% 55.62% 47.01% 59.93% 55.94%
ROE (net income before minority interest) 75.66% 88.76% 82.99% 125.15% 131.51%
The reason I have calculated two ROEs is to demonstrate the effect of dual share class that has given rise to minority interest , as this amount is significant so it distorts the net income. This is evident from the fact that the ROE calculated by considering net income before minority interest varies from 75% to 131%. Whereas the other ROE (calculated just from net income) varies from 51% to 55%.
NOTE : Return on equity (ROE) is defined as (net income / shareholder’s equity)
A close look at the different components of book value reveals the following:
In millions
2006 2005 2004 2003 2002
Class 'A' common shares $14.00 $13.00 $13.00 $10.00 $10.00
Class 'X' common shares $6.00 $7.00 $9.00 $11.00 $13.00
Restricted share units (related to Class 'A' shares) $482,289.00 $365,708.00 $475,240.00 $669,860.00 $848,218.00
Deferred compensation $0.00 $0.00 -$150,777.00 -$112,251.00 $0.00
Additional paid in capital $701,006.00 $1,365,013.00 $1,643,652.00 $1,501,136.00 $1,397,828.00
Treasury shares -$869,957.00 -$763,682.00 -$132,313.00 -$88,198.00 -$315,486.00
Treasury shares owned by Accenture ltd share employee compensation trust $0.00 $0.00 -$296,894.00 -$308,878.00 -$221,110.00
Retained earnings $1,607,391.00 $962,339.00 $46,636.00 -$641,915.00 -$1,190,415.00
Accumulated other comprehensive loss -$26,494.00 -$232,484.00 -$113,760.00 -$188,233.00 -$80,432.00
SHAREHOLDER'S EQUITY $1,894,255.00 $1,696,914.00 $1,471,806.00 $831,542.00 $438,626.00
From the above table three things are clear :
1. The high ROE in 2002 was because of a large deficit in retained earnings that in turn reduced the book value. This started in the year 2001 ($1.43bn deficit) when the company broke from its traditional partnership type organization and became public. It can be seen that this got reduced in subsequent years and in 2006 was $1.6 bn
2. Additional paid in capital has decreased since 2002 and treasury stock has increased since then. Both together have decreased the book value.
3. As the company’s Net income before minority interest grows and its effect of minority interest gets reduced so the difference between two ROEs will also get reduced.
EFFECT OF TREASURY SHARES cost of shares in millions
Year Treasury shares COST
2002 12.5mn -$315,486
2003 5.2mn -$88,198
2004 6 mn -$132,313
2005 32mn -$763,682
2006 36mn -$869,957
Above fig shows the amount of treasury shares held by the company. It can be seen that the figure has been changing every year. As a conservative estimate let us assume that the number of treasury shares would have remained 6mn on Aug-31,2006 instead of 36 mn. The amount against treasury shares would have reduced from 869 mn to 144 mn. This would have increased the book value at least by 725mn. Thus making the book value around $2.6 bn. Making the two ROEs as 37% and 53% (ROE with net income before minority interest) instead of the present 51% and 75%.
CONCLUSION : So if you are comparing Accenture to its competitors and are impressed by its ROE then you might want to look at the details of its competitors’ book value and make sue you are comparing apples to apples.
Posted by Dayanand Menashi at Monday, June 25, 2007
Labels: Analysis of Accenture's stock
After reading an article in Business week (online dated Jul-2/2007) about the top 100 tech companies ranked by ROE and discovering Accenture’s ROE as 66%. I calculated its ROE for the last five years (as of Aug-31 for the corresponding year). To my surprise I found that the ROE has reduced over the period of 5 years. It was at an astonishing high level of 131% on Aug-31/2002. Following table gives a snapshot of some important numbers pertaining to its ROE for last five years.
In millions
2006 2005 2004 2003 2002
Book value $1,890 $1,690 $1,470 $831 $438
Net sales $18,200 $17,090 $15,110 $13,390 $13,100
Net income before minority interest $1,430 $1,500 $1,220 $1,040 $576
Minority interest $460 $568 $532 $549 $332
Net income $973 $940 $691 $498 $245
ROE (net income) 51.48% 55.62% 47.01% 59.93% 55.94%
ROE (net income before minority interest) 75.66% 88.76% 82.99% 125.15% 131.51%
The reason I have calculated two ROEs is to demonstrate the effect of dual share class that has given rise to minority interest , as this amount is significant so it distorts the net income. This is evident from the fact that the ROE calculated by considering net income before minority interest varies from 75% to 131%. Whereas the other ROE (calculated just from net income) varies from 51% to 55%.
NOTE : Return on equity (ROE) is defined as (net income / shareholder’s equity)
A close look at the different components of book value reveals the following:
In millions
2006 2005 2004 2003 2002
Class 'A' common shares $14.00 $13.00 $13.00 $10.00 $10.00
Class 'X' common shares $6.00 $7.00 $9.00 $11.00 $13.00
Restricted share units (related to Class 'A' shares) $482,289.00 $365,708.00 $475,240.00 $669,860.00 $848,218.00
Deferred compensation $0.00 $0.00 -$150,777.00 -$112,251.00 $0.00
Additional paid in capital $701,006.00 $1,365,013.00 $1,643,652.00 $1,501,136.00 $1,397,828.00
Treasury shares -$869,957.00 -$763,682.00 -$132,313.00 -$88,198.00 -$315,486.00
Treasury shares owned by Accenture ltd share employee compensation trust $0.00 $0.00 -$296,894.00 -$308,878.00 -$221,110.00
Retained earnings $1,607,391.00 $962,339.00 $46,636.00 -$641,915.00 -$1,190,415.00
Accumulated other comprehensive loss -$26,494.00 -$232,484.00 -$113,760.00 -$188,233.00 -$80,432.00
SHAREHOLDER'S EQUITY $1,894,255.00 $1,696,914.00 $1,471,806.00 $831,542.00 $438,626.00
From the above table three things are clear :
1. The high ROE in 2002 was because of a large deficit in retained earnings that in turn reduced the book value. This started in the year 2001 ($1.43bn deficit) when the company broke from its traditional partnership type organization and became public. It can be seen that this got reduced in subsequent years and in 2006 was $1.6 bn
2. Additional paid in capital has decreased since 2002 and treasury stock has increased since then. Both together have decreased the book value.
3. As the company’s Net income before minority interest grows and its effect of minority interest gets reduced so the difference between two ROEs will also get reduced.
EFFECT OF TREASURY SHARES cost of shares in millions
Year Treasury shares COST
2002 12.5mn -$315,486
2003 5.2mn -$88,198
2004 6 mn -$132,313
2005 32mn -$763,682
2006 36mn -$869,957
Above fig shows the amount of treasury shares held by the company. It can be seen that the figure has been changing every year. As a conservative estimate let us assume that the number of treasury shares would have remained 6mn on Aug-31,2006 instead of 36 mn. The amount against treasury shares would have reduced from 869 mn to 144 mn. This would have increased the book value at least by 725mn. Thus making the book value around $2.6 bn. Making the two ROEs as 37% and 53% (ROE with net income before minority interest) instead of the present 51% and 75%.
CONCLUSION : So if you are comparing Accenture to its competitors and are impressed by its ROE then you might want to look at the details of its competitors’ book value and make sue you are comparing apples to apples.
Posted by Dayanand Menashi at Monday, June 25, 2007
Labels: Analysis of Accenture's stock
Sunday, January 27, 2008
Good artice on P/E ratio
The short-term outlook
Liquidity, demand-supply scenario, political uncertainties, budget, corporate announcements etc are some of the factors, which affect the price of a stock in the short-term.
Suppose there is good news flow for the steel industry. Then practically all the steel stock prices will move up even though some of these companies may not be performing too well.
Therefore, buying and selling in the short-term is more of a trading call than an investment call. It is suited more for a person who can invest his time daily to the stock market.
Therefore, buying and selling in the short-term is more of a trading call than an investment call. It is suited more for a person who can invest his time daily to the stock market.
The long-term outlook
The real benefit of investing in equity markets accrues through long-term investing.
Hence it is more pertinent to understand the stock valuation from a long-term perspective.
Hence it is more pertinent to understand the stock valuation from a long-term perspective.
In the long run, the price of a stock is the reflection of the operational performance of the company. The expected growth and future profits will determine the price. And because we have to take a view on the future prospects of the company, the industry and the economy in general, assessment of the 'right price' becomes difficult, subjective and prone to large volatility depending on how the future unfolds.
The Price/Earning ratio or the PE ratio is the term commonly used to assess the fairness of the stock price.
PE ratio is defined as the ratio of market price to earning per share (EPS).
PE ratio = Market price of the share /Earning per share (EPS)
EPS in turn = Profit After Tax (PAT) / Number of shares in the share capital
The common sense would dictate that lower P/E ratio means that the price is undervalued and higher P/E ratio means that the price is overvalued. Unfortunately, life is not so simple. If it were so, you would not be reading this article. You would be sitting on the stock market and minting money by buying low P/E ratio stocks and selling high P/E ratio stocks.
In absolute terms there is no 'right' PE. One cannot say that PE of a stock of say 10 or 15 is good or bad.One can only make sense of a P/E number of a particular stock bycomparing it with P/E of other companies in the same line of business comparing it with the benchmark indices say Sensex P/E or Mid-cap P/E assessing the growth potential of the industry assessing the growth potential of the particular company
Let's look at a couple of cases - Banking & IT - to get a better appreciation of the P/E number. Banking as an industry enjoys an average P/E of around 8-10, vis-�-vis IT, which enjoys PE exceeding 25-30. The reason is simple - growth.
In a normal scenario the profits of a bank are the spread it earns between the interest rates on deposits and lending. And this usually varies between 2-4 per cent.
If the interest rates on deposit go up, the lending rates will also go up and vice versa. Therefore, the profit potential of a bank is limited. And hence the P/E ratio for banks is usually below 10. The only option for a bank to grow is by increasing the asset size.
Banks like HDFC and ICICI are rapidly increasing their asset base every year vis-�-vis the nationalised banks. Hence, they enjoy much higher P/Es of 20-25.
On the contrary most IT companies are growing at 30-40 per cent p.a. Therefore, in anticipation or likelihood of such high growth rates, the P/E ratios of 25-30 are not unreasonable even for average IT companies. The larger and better companies may even enjoy P/E in excess of 30-35.
Therefore, one should keep in mind that:
There no concept of an absolute right PE
It is quite normal to invest in a high growth industry like IT with P/E of say 20, but not so for a low growth industry like bank
A low P/E vis-�-vis the industry average (e.g. Bank A is quoting at 3 PE as compared to the average of 8 PE for the banks) does not necessarily mean it is cheap. The PE may be low because the bank is having some problems and hence may not be expected to do well in the future.The P/E number requires careful analysis. Only then can one assess the over or under-valuation of a stock and decide on the investment worthiness of the stock.
author is executive director, Infra Solutions (India) Pvt. Ltd.
Wednesday, January 23, 2008
New NFO's and news
AIG Infrastructure and Economic Reforms Fund — A diversified theme
The fund: AIG Infrastructure and Economic Reforms Fund is an open-ended equity fund that aims to invest in companies that are likely to benefit from the above-mentioned issues. This includes sectors such as cement, metals and capital goods. Identification of economic reforms early on and the opportunities they would create for such sectors as banking or financial services, retail and investment is also one of the fund’s objectives.
Risk profile: Given the above investment strategy, the fund’s universe appears more diversified than regular theme funds and may therefore carry lower risks than concentrated sector funds. Nevertheless, the fund would call for more active entry and exit strategies by an investor than warranted by diversified equity funds. The fund could at best be a diversification option for the portfolio.
Pros and cons: A good number of existing funds with an infrastructure/capital goods theme do have a broad based investment universe in their mandate. For instance, Tata Infrastructure has substantial exposure to metals and financial services. There are also funds that seek to capitalise on opportunities that arise from capex spending.
AIG Infrastructure’s key distinguishing feature may be its plan to identify companies that have ‘multi-year opportunities’ that would outlast the primary infrastructure development. These companies may participate in infrastructure building but later branch out to complementary areas once the primary infrastructure needs are met.
However, given the plethora (over 15) of funds with a broadly similar theme now available in the market, AIG may at best be one more option in the space for now. Funds that entered at an early stage of the infrastructure spending by the Government have been the ones that have delivered the best performance. The fund house also has a limited track record in India, managing one diversified equity fund, AIG India Equity launched in May 2007.
Details: The offer closes on January 31. Mr Tushar Pradhan is the manager.
Source :Hindu
Fund Name : Reliance Natural Resources Fund from ADAG Reliance Mutual fund(Reliance Capital Asset Management Ltd.)
Issue Open 01-Jan-2008 and Closes on 30-Jan-2008
Scheme ObjectiveReliance Natural Resources Fund is an open-ended equity scheme.
To invest and generate capital appreciation & provide long-term growth opportunities by investing in companies principally engaged in the discovery, development, production, or distribution of natural resources .
Fund Class Equity Diversified/Open-EndedInvestment plan GrowthFund Manager Ashwani KumarEntry Load 2.25 %/Exit Load 0.00 %
SBI Mutual Fund has launched SBI Tax Advantage Fund - Series I, a 10-year close ended Equity Linked Savings Scheme.
The scheme opens for subscription on Dec. 03, 2007 and closes on Mar. 03, 2008.
The units of the scheme will be available at Rs 10 per unit during the New Fund Offer period.
ObjectiveSBI Tax Advantage Fund - Series I aims at generating capital appreciation over a period of ten years by investing predominantly in equities of companies across large, mid and small market capitalization, along with income tax benefit.
The scheme does not offer facility of Systematic Investment Plan and Systematic Withdrawal Plan.
The scheme aims at raising a minimum of Rs 30 million during the New Fund Offer Period.
Investment made in the scheme will qualify for a deduction from Gross Total Income upto Rs 100,000 (along with other prescribed investments) under section 80 C of the Income Tax Act, 1961.
Asset AllocationThe scheme aims at investing 80% to 100% in equity and equity linked instruments and 0% to 20% in debt and money market instruments.
Load StructureAs it is a close-ended scheme there will not be any entry load further the scheme will also not charge any exit load.Investment Strategy
The investment strategy of the fund will be to invest in equities of companies, which will be highly tilted towards midcap companies that have the potential to grow at a reasonable rate in the long term.
.Performance and ManagementThe performance of the scheme will be measured against BSE 100 and the fund manager is Ritesh Sheth.
Sorce :IRIS
JM Financial MF launches JM Core 11 Fund-Series I
JM Financial Mutual Fund launched JM Core 11 Fund-Series I. It is a three-year close-ended equity oriented growth scheme with multiple series launched thereafter at such periods as may be decided by the AMC. The investment objective of the fund is to provide long-term growth by investing predominantly in a concentrated portfolio of equity and equity related instruments of companies. The fund will invest 65%-100% in equity and equity related securities with medium to high-risk profile. The fund will invest 0%-35% in money market and debt instruments including securitised debt. Securitised debt will not include foreign securitized debt. Exposure to derivatives would be capped at 50% of equity portfolio of the scheme.
The fund: AIG Infrastructure and Economic Reforms Fund is an open-ended equity fund that aims to invest in companies that are likely to benefit from the above-mentioned issues. This includes sectors such as cement, metals and capital goods. Identification of economic reforms early on and the opportunities they would create for such sectors as banking or financial services, retail and investment is also one of the fund’s objectives.
Risk profile: Given the above investment strategy, the fund’s universe appears more diversified than regular theme funds and may therefore carry lower risks than concentrated sector funds. Nevertheless, the fund would call for more active entry and exit strategies by an investor than warranted by diversified equity funds. The fund could at best be a diversification option for the portfolio.
Pros and cons: A good number of existing funds with an infrastructure/capital goods theme do have a broad based investment universe in their mandate. For instance, Tata Infrastructure has substantial exposure to metals and financial services. There are also funds that seek to capitalise on opportunities that arise from capex spending.
AIG Infrastructure’s key distinguishing feature may be its plan to identify companies that have ‘multi-year opportunities’ that would outlast the primary infrastructure development. These companies may participate in infrastructure building but later branch out to complementary areas once the primary infrastructure needs are met.
However, given the plethora (over 15) of funds with a broadly similar theme now available in the market, AIG may at best be one more option in the space for now. Funds that entered at an early stage of the infrastructure spending by the Government have been the ones that have delivered the best performance. The fund house also has a limited track record in India, managing one diversified equity fund, AIG India Equity launched in May 2007.
Details: The offer closes on January 31. Mr Tushar Pradhan is the manager.
Source :Hindu
Fund Name : Reliance Natural Resources Fund from ADAG Reliance Mutual fund(Reliance Capital Asset Management Ltd.)
Issue Open 01-Jan-2008 and Closes on 30-Jan-2008
Scheme ObjectiveReliance Natural Resources Fund is an open-ended equity scheme.
To invest and generate capital appreciation & provide long-term growth opportunities by investing in companies principally engaged in the discovery, development, production, or distribution of natural resources .
Fund Class Equity Diversified/Open-EndedInvestment plan GrowthFund Manager Ashwani KumarEntry Load 2.25 %/Exit Load 0.00 %
SBI Mutual Fund has launched SBI Tax Advantage Fund - Series I, a 10-year close ended Equity Linked Savings Scheme.
The scheme opens for subscription on Dec. 03, 2007 and closes on Mar. 03, 2008.
The units of the scheme will be available at Rs 10 per unit during the New Fund Offer period.
ObjectiveSBI Tax Advantage Fund - Series I aims at generating capital appreciation over a period of ten years by investing predominantly in equities of companies across large, mid and small market capitalization, along with income tax benefit.
The scheme does not offer facility of Systematic Investment Plan and Systematic Withdrawal Plan.
The scheme aims at raising a minimum of Rs 30 million during the New Fund Offer Period.
Investment made in the scheme will qualify for a deduction from Gross Total Income upto Rs 100,000 (along with other prescribed investments) under section 80 C of the Income Tax Act, 1961.
Asset AllocationThe scheme aims at investing 80% to 100% in equity and equity linked instruments and 0% to 20% in debt and money market instruments.
Load StructureAs it is a close-ended scheme there will not be any entry load further the scheme will also not charge any exit load.Investment Strategy
The investment strategy of the fund will be to invest in equities of companies, which will be highly tilted towards midcap companies that have the potential to grow at a reasonable rate in the long term.
.Performance and ManagementThe performance of the scheme will be measured against BSE 100 and the fund manager is Ritesh Sheth.
Sorce :IRIS
JM Financial MF launches JM Core 11 Fund-Series I
JM Financial Mutual Fund launched JM Core 11 Fund-Series I. It is a three-year close-ended equity oriented growth scheme with multiple series launched thereafter at such periods as may be decided by the AMC. The investment objective of the fund is to provide long-term growth by investing predominantly in a concentrated portfolio of equity and equity related instruments of companies. The fund will invest 65%-100% in equity and equity related securities with medium to high-risk profile. The fund will invest 0%-35% in money market and debt instruments including securitised debt. Securitised debt will not include foreign securitized debt. Exposure to derivatives would be capped at 50% of equity portfolio of the scheme.
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