Moneylife Events
Mutual fund workshop on how to select the right scheme

Moneylife foundation conducts 91st seminar – this time on mutual funds.

The workshop on "How to choose the right mutual fund scheme", conducted by Moneylife Foundation trustee, Debashis Basu, at the Moneylife Knowledge Centre, drew a packed and engaged audience. Seeing the current volatility in the market an investor is unable to make a decision whether it is the right time to invest in equity or not due to the uncertain economic outlook. Mr Basu gave the participants a perspective on how investors should invest their money when it comes to investing in equity mutual funds, apart from explaining the different types of mutual funds and how to choose the best schemes.

Mr Basu gave an analysis of the benefits and the risks associated with each of the different types of mutual funds available and their investment strategies.
He explained that capital protection fund or monthly income plans are a misnomer. They invest 80% in fixed income securities and 20% in equity; how would capital be protected when the equities market crash or bond prices don’t go up? It would make more sense for the investor to put his money in a fixed deposit if he seeks no risk and wishes to protect his capital.

While there are hundreds of bond funds, "Bond funds are not for average savers", he said. They often give lower returns than bank fixed deposits (FDs) and have costs and volatility attached to them. Bonds usually come with the notion that they are risk free. But in fact they are not. Bonds come with an interest rate risk, whereby if the interest rate rises, the bond prices fall. No one can judge the rise and fall of interest rates, hence investing in bonds could be considered as speculative. Only those who have a thorough understanding of bonds should invest in these funds, else bank FDs would be better as there is no cost attached to it.

Hybrid funds, which invest certain portion of the portfolio in equity, debt and gold ETFs (exchange traded funds) are to be avoided too, as the performance of the fund is left to the mercy of the asset class in question and the fund manager's market-timing ability. Apart from this investors are left confused as to how such schemes would fit into to their portfolio as the asset allocation is not fixed and depends on the fund manager. Investors with some financial knowledge should do their own allocation and not opt for these funds.

About picking the best equity scheme, he said it was ideal to weigh the performance of the fund over a five-year rolling period. (Moneylife magazine regularly puts out such analyses.) The performance of funds in bear markets is a true test of a fund.

There are usually just four-five fund houses that consistently register good performance. Investors should plan a portfolio that is diversified across all sectors. Therefore, sector funds are better avoided. Investors should also avoid NFOs (new fund offers) and funds with fancy names, Mr Basu said.
Star ratings are often of no value, especially since funds often invest in stocks which are far from their objectives.

On the safe and smart way to invest in a volatile market, regular and periodic investments are the answer. SIPs (systematic investment plans) though a good option, are flawed if they are not adjusted for the growth option. Investors usually don't consider inflation and invest the same amount over the years. In fact, the value of money falls over the years, therefore, investors should incrementally increase their investment amount.

Mr Basu introduced the idea of value averaging, a better option compared to SIP. It is a strategy through which investors should buy more when the NAV is less and vice-versa, thus increasing returns. Over the long term value averaging has beaten SIP and SIP with growth by significant margin.




6 years ago

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Petroleum ministry seeks 2-year extension of tax holiday for refineries

Owing to issues beyond its control resulting in the delay in operationalising its Paradip refinery, IOC had asked the oil ministry to seek a two-year extension of the tax holiday till March 2014. The oil ministry, in turn, has written to the finance ministry requesting the same

New Delhi: The petroleum ministry has asked for a two-year extension of the tax holiday for refineries under the Income Tax Act so that state-owned Indian Oil Corporation’s (IOC) much-delayed Rs29,777 crore Paradip refinery can avail the benefit, reports PTI.

A tax holiday is currently available to units that are commissioned by 31 March 2012, under section 80IB (9) of the Income Tax Act (exemption from payment of tax on income earned from refining).

IOC’s 15 million tonnes per year (MTPA) Paradip refinery is running behind schedule because of several problems the company has faced in executing the mammoth project in Orissa, officials said.

The biggest of these were law and order problems and issues related to land acquisition, which have delayed the project commissioning to September, 2013, from the previous schedule of the first quarter of 2012.

Officials said owing to issues beyond its control, IOC had asked the oil ministry to seek a two-year extension of the tax holiday till March 2014. The oil ministry, in turn, has written to the finance ministry requesting the same.

Currently, refineries commissioned after 31 March 2012 will not be eligible for exemption from payment of income tax on revenues earned in the first seven years of operations. The seven-year income tax holiday for the refining sector ends next year.

IOC plans to sell fuel produced at the Paradip unit in the domestic market, rather than export the products as was earlier planned, due to the rise in fuel demand at home.

The refinery was originally planned to export at least 2.05 million tonnes (MT) of petrol and 124,000 tonnes of naphtha out of its yearly output of 15 MT. But double-digit growth in petrol and diesel consumption meant there would be very little left for exports.

The Paradip refinery will produce 5.97 MT of diesel, 3.4 MT of petrol, 1.45 MT of kerosene/ATF, 536,000 tonnes of LPG, 124,000 tonnes of naphtha and 335,000 tonnes of sulphur, all of which will be for sale in the domestic market.

Some of the 200,000-tonne propylene output of the plant may be exported, the company had earlier said.

IOC had previously stated that the refinery will start producing fuel by March 2012 when it will commission primary units like the crude distillation unit. Secondary units will be commissioned by July 2012 and operations stabilised by November 2012.

The Paradip refinery is being configured to process the toughest, heaviest and dirtiest crudes, which are cheaper than the cleaner and more easily processed varieties.

The refinery will have a Nelson Complexity Index of 13, the highest in the world.


Quantum Multi Asset Fund: Should you go for it?

Is such a scheme meant for those who have no investment in equity, debt or gold? If you are totally confused about where to put your money and how much, this could be the right fund for you

Quantum mutual fund had filed offer document with the Securities and Exchange Board of India (SEBI) to launch Quantum Multi Asset Fund. This Fund of Funds (FoF) scheme will invest in equity, debt / money markets and gold schemes of Quantum.

The following schemes would be used for gaining exposure to particular asset class: Equity—Quantum long term equity fund, Quantum index fund (ETF), debt—Quantum liquid fund and for gold—Quantum gold fund (ETF). The strategy of the scheme is that when equity is not looking bullish, gold may be doing well and this FoF will perform well. Similarly, there are phases when equity would do well and not gold. So, the investor gets to ride different assets in different cycles through the same scheme. At least that is the theory behind these all-in-one schemes.

Does this theory make sense, and should you go for Quantum Multi Asset Fund? The question is where would you place a scheme that divides your money into different assets (equity, debt and gold)? It is not clear to us, how an investor will decide how much to put into a scheme like this, when he already has money invested in gold ETFs and/or equity schemes or FDs. Is such a scheme meant for those who have no investment in equity, debt or gold?

If an investor has investments in equity and not in gold, he could buy some gold ETF. So what specific role does such a scheme perform that existing products cannot? Fund companies do not offer any guide. However, if you are totally confused about where to put your money and how much, this could be the right fund for you.

 The asset allocation under the scheme, under normal circumstances, will be as follows:  Units of equity schemes—25%- 65% with a medium to high risk profile, units of debt / money market schemes—25%- 65% with a low to medium risk profile and units of gold scheme—10%-20% with a medium risk profile and money market instruments, short-term corporate debt securities, CBLO— 0%-10% with a low risk profile.  

The scheme’s performance will be benchmarked against Crisil liquid fund index (40%) + Sensex total return index (40%) + domestic price of gold (20%).


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