Posts Tagged: ‘NAV’

Importance of Selecting the Right Type of Mutual Fund

May 20, 2015 Posted by admin

Even though the Indian mutual fund industry is seen to going through turmoil in the last few years, it has remained a favourite among many investors. The reason for this could be uncertain market conditions and regulatory changes. For people who are keen on knowing as what this industry is all about and how it could benefit them, here’s a comprehensive way to explain this.

In most cases, the mutual fund investments are carried out through a fund manager. He is responsible to make investments into specific security schemes like stocks and bonds. When you invest in a mutual fund, you are buying units or proportions of the mutual fund making you’re a shareholder or unit holder of the fund.

The profits or losses you incur as an investor would be proportionate to the investments you make. These funds normally come out with a number of schemes carrying different investment objectives which are launched from time to time. The type of mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) that regulates securities markets before it can collect funds from the public. Below are the MFs classifies on the basis of structure:

Close-Ended: These have a stipulated maturity period. In most cases, the tenures could be around 5 to 7 years. The funds here are open for subscription but only during a specified period of time. An investor can invest in the scheme at the time of the initial public issue. After that, he can buy or sell the units on the stock exchanges where the units are listed. In a case where an exit route is required, some MFs in this case give an option of selling it back through periodic repurchases at NAV related prices.

Open-Ended: An open-ended type of mutual fund is the most common one in the market. Here, an investor can choose to invest or transact whenever he wants to. Also, there is no limit to the number of investors or overall size of the fund. The book value or share price of these MFs is determined at the market close each day and is called the Net Asset Value (NAV).

Interval based Schemes: This scheme is the one in which the features of open-ended and close-ended are combined into one. Here, the units are traded on the stock market or may be open for sale or redemption during pre-determined intervals of NAV prices.

Before playing it solo in this arena, one should give a thought to hiring a fund manager from any of the top asset management firms in the country. This could prove of great help when decisions are tough to make. A fund manager will always get his expertise and knowledge to every decision you make.

Mutual Funds Where to Invest

February 5, 2015 Posted by admin

Important Tips About Mutual Fund Investing Mutual funds usually invest in a range of securities that include government bonds as well as equity within companies. Each mutual fund has its own time period as well as return rate. While some funds invest solely in one security, other funds diversify their investment in order to strike a balance between risk and return. The idea is to minimise risk as far as possible while attaining as high a rate of return as possible.

A fund manager or a fund management company usually manages mutual funds and all the funds handled by any single entity are said to belong to the same fund family. They are the people one must reach out to in order to understand how to invest in mutual funds. The procedure is not too long or complicated and they will be able to provide you with an in-depth analysis of the types of funds that are available and, more importantly, which suit your particular need.

When judging how productive a mutual fund has been, it is necessary to look at the risk and return that the fund provides. The risk score of a fund is calculated by comparing it to risk free investments and then to the average risk of other funds in its category. Its return score is calculated in much the same manner. The funds risk score is then subtracted from its return score and the final figure is then compared with other funds in the same group to see how well or badly it is doing.

Currently in the large capital category the BNP Paribas Equity Fund is doing quite well followed by the Canara Robeco Large Cap+ and the ICICI Pru Focused Bluechip Equity with a net asset value (NAV) of Rs. 42.73, Rs. 12.59 and Rs. 20.29 per unit respectively. In the small to middle capital category Birla Sun Life MNC fund and the SBI Emerging Business funds are doing very well with a NAV of Rs. 282.94 and Rs. 56.48 per unit. In the diversified equity segment ICICI Pru Dynamic Plan with a NAV of Rs.135.20 and Tata Ethical Fund with an NAV of Rs. 86.02 are said to be the best mutual funds to invest in.

While these rankings are important in terms of understanding how well these funds are doing, it is important to keep in mind that your investment needs may not need you to invest in these particular funds. It is important to discuss with you fund manager and your fund management company what exactly it is you hope to achieve from your investment so that they can provide you with enough information to then take an informed decision.

Death of the Mutual Fund

December 30, 2014 Posted by admin

For many decades the core investment of most individual accounts, 401ks, and IRAs has been the mutual fund. Various structures of loads, annual fees, or 12b-1s may exist but the main concept has stayed the same. This involves the computation of the fund’s NAV (Net Asset Value) on a daily basis with the gain or loss being posted shortly after the market close. In my opinion, this concept will soon go the way of fractional stock quotes due to the emergence of ETFs (Exchange Traded Funds), where efficiency and management effectiveness can be factored into the price.

ETFs are much more efficient than traditional MFs. Most traditional mutual funds have to keep a percentage of the fund’s assets in cash to handle redemptions. This hurts the performance of the fund since investors pay fund managers to invest in companies, not cash. Having to keep cash on hand to deal with this “redemption burden” is one reason that the majority of all mutual funds underperform the S&P 500 each year. Some funds would combat this by having their funds “closed” for most of the year, and only “opening” their funds at a few specific dates for new investor money and redemptions. This is plain scary as many people have recently learned the value of liquidity the hard way due to mortgage or other financial problems. “Penned-up” capital gains have also caught many investors off guard. When investors purchase the recent “hot performing” fund or buy a mutual fund after a market upswing, many do not realize that they are buying into this fund’s capital gains also. Getting a large unexpected capital gain distribution from a recently bought mutual fund can be frustrating and add uncertainty to your tax planning strategies.

How is management effectiveness priced into an MF? In the case of traditional mutual funds, the simple answer is that it is not. Investors have to rely on ratings from Morningstar, Value Line, or even promotional material from the fund itself to evaluate management effectiveness since the fund’s bid price is almost always based on its NAV. Manage effectiveness, like stocks, are best evaluated on a free market basis. Since ETFs trade just like a stock on an exchange, their premium or discount for management effectiveness is factored directly into its trading price.

More and more often I find myself recommending ETFs to my clients instead of mutual funds. I realize that I won’t be getting any all-expense paid trips to some Caribbean island where many mutual fund companies take their top producing brokers for “due diligence meetings”, but I would rather keep my integrity and bring higher performance to my clients instead. The only time I still consider buying a traditional mutual fund for a client is when I am planning for a long-term purchase, with a well-respected fund manager, and no potential needs for liquidity for several years.

Arthur Kaplan invites you to visit to learn more about the stock market and what the financial world is currently undergoing. Feel free to write us directly on our website for any help and/or suggestions.

How to Evaluate and Choose Mutual Funds

December 18, 2014 Posted by admin

>Many investors today utilize mutual funds as part of their overall investment plan. Whether you must make your own mutual fund selections for your 401(K) or employer sponsored retirement plan, or use a professional investment advisor for other types of investment accounts, mutual funds can be an effective way to own baskets of stocks or bonds, with a small amount of investment dollars.Understanding Mutual FundsTo successfully invest in mutual funds, you should understand what they are and how they work, so let’s start with some basics.A mutual fund is a company that gathers money from many investors, and allocates that money by buying stocks, bonds or other assets. A mutual fund is like a big basket which holds a number of investments like stocks or bonds. When you buy a mutual fund, you actually buy a piece of the basket. In this way, you can own a small percentage of many different assets that you might not otherwise be able to afford on an individual basis. The value of the fund is based on the value of the assets it holds. As the stocks or bonds within the fund increase in value, the fund increases in value. Conversely, as the stocks or bonds within the fund decrease in value, the fund also decreases in value. Mutual funds only trade at the end of the day based on their net asset value (NAV). To determine the NAV at the end of the trading day, the mutual fund company looks at all of the assets that are in the basket, determines their value and divides that number by the total number of outstanding shares in the fund.Types of Mutual FundsMutual funds are divided into two categories: closed-end funds and open-end funds.Closed-end funds have a fixed number of shares issued to the public. If you want to purchase a piece of the fund, you have to purchase an existing share from a shareholder that is selling.Open-end funds have an unlimited number of shares. If you want to purchase a piece of the fund, the fund creates a new share and sells it to you. There are significantly more open-end funds than there are closed-end funds. Closed end funds can trade at values that are above or below their NAV, while open end funds only trade at their end of day NAV.Mutual Fund Research – Do Your HomeworkExpensesAll mutual funds have expenses. Some funds’ expenses are low while other funds’ have very high expenses. These include everything from the advisory fee paid the fund manager to administrative costs like printing and postage.With a little bit of homework, you can determine a fund’s expenses before you invest. This is important because those expenses can have a dramatic effect on your investment returns. The three expenses you should be aware of are loads, redemption fees and operating expenses.Loads are commissions or fees that can be charged either when you buy or sell a mutual fund. A front-end load (usually associated with class “A” shares) can be up to 8.5% of your investment. A back-end load (usually called redemption fees, are associated with class “B” shares) can also be quite high, but reduces over the years, the longer you keep your investment in the fund. Class “C” shares do not have a front or back end load, but have extremely high operating expenses deducted each and every year. These loads are usually used to pay a commission to the agent who sold you the fund. No-load funds, on the other hand, do not charge any commission at the front or back end.Operating expenses are generally stated as an annual percentage called the operating expense ratio. These fees cover the operating and trading costs for the fund, as well as management fees that go to pay the fund manager for his expertise and time.12(b)-1 are fees that cover advertising and distribution expenses for the fund. These fees are charged in addition to a front- or back-end load.When doing your homework, look for no load funds that do not charge 12(b)-1 fees, and have a low operating expense ratio. Studies have shown that load funds with high expense ratios perform no better than comparable no-load funds.TaxesAnother point to consider when investing in mutual funds is taxes. When a fund manager sells a stock or bond within the basket for a gain, IRS regulations provide that this gain be taxed to the shareholders of the fund. This means that a fund with a high “turnover” (a fund that buys and sells a lot within the basket each year) could have a great deal of gains that will be taxable to the shareholders. The tax gains are passed through to the shareholders who own the fund as of a specific date each year. This means that someone buying the fund just before the taxable distribution date, will pay the tax on the gain for the entire year, even though they did not own the fund all year. For more tax efficient funds, look for funds that have a low turnover rate.ProspectusBy law, a mutual fund company must outline all of the above expense information, and a great deal more, in their prospectus. A fund’s prospectus will specify a fund’s objectives and its past performance, information about the fund manager and the fees associated with the fund.Past PerformanceA common mistake for novice investors is to select a mutual based solely on its past performance record. Past performance may not be a food indicator of future performance, given possible changes in the global or domestic economy, the markets, or specific sectors the fund invests in. While past performance is a useful tool and one item to consider, it should not be the sole criteria. In many cases last year’s winners are next year’s underperformers.HistoryA fund that has been in existence five to ten years or more has a much better track record to assess than a relatively new fund that have not necessarily had performance measured during various economic or market periods. The longer the period of history you have to review, the higher the quality of historical performance data.Portfolio HoldingsWhen investing in mutual funds (or any investments), it is important to be diversified (see my blog titled “The Truth About Diversification”). Sometimes, owning a few different mutual funds may give the appearance of being well diversified, but on closer inspection, if the funds you own, each have major holdings in the same stocks, you may not be diversified at all. One test is to check the fund’s ten largest holdings. In the more concentrated funds, the ten largest holdings may comprise a significant percentage of the portfolio; in the less concentrated funds, they may hold a much lower percentage. Always know what specific investments your fund or funds own to remain diversified.Portfolio ManagerMutual funds are managed by a portfolio manager, or in some cases, by a team of portfolio managers. The success of a fund by an individual fund manager may be largely dictated by his performance. That is important to know, because a fund with a good track record historically, may perform differently in the future if the fund manager changes. It is always prudent to review the tenure of the fund manager in concert with past performance.StatisticsThere are several key statistical numbers that provide valuable information about a mutual fund. Fortunately, we do not have to calculate those statistical numbers ourselves as they are readily available.Alpha – measures the performance of a fund on a risk-adjusted basis. Alpha calculates a risk factor relative to a fund, and then compares that risk-adjusted performance to a benchmark (such as the S&P 500). A number is then assigned that reflects how that fund performs, relative to the amount of risk the investment is exposed to. For example, a positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%, or a negative alpha of -1.0 would indicate an underperformance compared to the benchmark of 1%. Beta – measures how a mutual fund performs in relation to the market as a whole. A beta of 1 for example, means that a mutual fund will move up or down in value in tandem with the market. A beta of 2.0 would mean a mutual fund would go up twice as much as the market when it the market increases, but it will also go down twice as much when the market decreases. That means this would be a much more volatile fund. A conservative investor would look for investments with a lower beta, rather than a higher one. Standard Deviation – measures the risk, or volatility of a mutual fund or investment. For example, a mutual fund might have a ten year average annual return of 8%. At first blush, that might look very good. But let’s say that this fund had a standard deviation of 20. This would tell us that although the fund had on average returned 8% over ten years, it did not earn 8% each and every year. Some years may have been up and some may have been down, but the average was 8% overall. The standard deviation number tells us that we should expect that this fund “could” return 20% more or 20% less than 8% in any given year, most, but not all of the time. There are certain times, more rare but possible, that a fund might move two or three standard deviations above or below the average 8% (60% more or 60% less). In a down market, that could be painful. The lower the standard deviation, the less risk or volatility a fund has. In conclusion, doing a little homework on mutual funds can really pay off later on not only in terms of performance, but also in terms of understanding risk and diversification. You will find that all of the information discussed above is easily available on a number of internet sites, including Yahoo, MSN, and Morningstar to name a few.

Assessing Mutual Funds and Purchasing Them Online

December 16, 2014 Posted by admin

Assessing mutual funds should ideally begin not by looking out for the highest returns, but by first assessing the investor’s current financial situation is relation to his financial goals for the near and distant future. One must take into account their incomes, their savings and their plans for the future as well. For example, do you plan to get married, or have children, or buy a house? These decisions are among the most financially taxing you will ever make, and it is best to be clear about these things before investing in a long term security, such as a mutual fund. Also consider your stomach for risk. There is no point in taking on a risky investment if one is not comfortable doing so. After all, it is important to realize that investments are as prone to depreciation as they are to appreciation.

When shopping around for the right fund, look at what the style of the fund is. That is, is it open-ended or close-ended? Does it invest in high value stock or low value stock? What securities would you like to have your money invested in? Once you know this, you will be able to better select an appropriate mutual fund. Also, before investing, look at the fund’s performance over a five or ten year period rather than just seeing how it performed last year. It does not always keep up their good streaks, and a hasty decision might put your money in danger.

Another angle of assessment to consider is the Net Asset Value, or NAV, of a mutual fund. Investors should keep in mind that these are not the same as share prices in the stock market. They do not denote the cost of your investment, but rather the intrinsic value of the mutual fund without any liabilities. Certain investors do not consider this to be an important metric, but for potential investors it can be quite helpful. The higher the Net Asset Value of a fund, the better the fund manager’s performance at choosing which securities to invest in.

Nowadays, one can contribute to mutual funds online at the click of a mouse. This is highly convenient for investors who are serious, but who also have other commitments to stick to, such as a day job. It also eliminates the troublesome paperwork that comes with most investment transactions as everything is conducted online. With the availability of the digital medium, one can expect it in India to become highly popular, as they already are in other markets.

Save Tax With Mutual Funds

November 7, 2014 Posted by admin

In the story about the ant and the grasshopper, the ant was considered smart because he saved all his sugar for a rainy day, while the grasshopper paid the price for squandering away his time. Unfortunately even amongst the most diligent of us humans, whether your personality is like the ant’s or grasshopper’s, if you are earning an income, you’re going to have to save a portion of it for the state as tax. This can get rather, taxing over the long run, so it’s always good to look for ways to park your funds in order to get a tax break. One of the easiest and safest methods is with mutual funds. A mutual fund is an investment product created by a fund company. Investors buy units or shares of a fund and the money collected goes into buying securities. There are various kinds of mutual funds like stock, equity, bond and hybrid funds based on what it is invested in. A fund has a net asset value or NAV which is the rate of a unit share of the mutual fund in the market. Investors generally pay a premium amount at regular intervals till the term of the fund matures. When the return of it is higher than the amount it was bought at, this is referred to as the capital gain which is usually taxed in investments.

Usually capital gains are what are taxable for investors. However with it, there are exceptions. A short-term debt fund that is redeemed within a year is taxable. However if held for longer than a year, the capital gains tax is significantly reduced. Similarly, an equity fund held for more than a year, the tax is seriously reduced and in some cases may be negligible. On the other hand, dividends from both equity and debt funds are bereft of taxation.

Some things to look out for when you want to make sure you’re investing in a tax saving fund is to look at the kind of fund you are investing in i.e. whether it’s equity or debt, the term you plan to hold the fund i.e short-term or more than a year, whether the income is dividend or capital gains. Some capital gains may be reinvested to save on tax, so make sure to check on this. It’s worthwhile to do some research on the top mutual funds to invest in and have a look into the fine print. The tax benefits will usually be mentioned so make sure to compare them to arrive at what suits you best.

Learn to Calculate Your Mutual Fund Returns

October 18, 2014 Posted by admin

New investors often get confused by the terms fund managers use. It might seem like gibberish – but with a little effort though, you can understand it. So here’s a rundown on something that investors are most interested in – mutual fund returns. After all, isn’t that the whole reason for someone investing? The returns on your investments can be calculated in different ways. With some effort, you can learn to gauge how your fund is performing at given periods of time. Read on to know more about calculating mutual fund returns.

Investing seems quite tricky, but it can be simple when you understand the underlying basics. One of the many things that investors are often confused about is the return they get from their investment. They often believe that net asset value – or NAV – is an indicator of how much return they will get. This is by no means true – NAV is simply the price at which a share is bought or sold. However, NAV can help you analyse the fund’s performance over a period of time. Generally, the calculated time is the entry date and the exit date of the fund. This method is known as the point-to-point return method. Generally, the point-to-point method is preferred for periods shorter than a year. Now, using this method, if you were to calculate the increase in NAV between one day and another, you would get the absolute return. This is the change in price – also known as profit or loss – of the NAV. In other words, you express the change in your portfolio as a percentage.

But if you would rather know the change in your fund on an annual basis, then you can check the Compounded Annual Growth Rate or CGAR. It is more commonly called the annual return. The problem with this method of calculation is that you get the average return in a year. This means that you don’t know whether there has been a dip or rise in the interim. Usually, this is counteracted by the rolling returns method. This method employs continuous calculations for specific intervals. The intervals can be days, weeks, months or years. Suppose you hold a share for two years. Each day’s change will be calculated by the point-to-point method for the entirety of the two years. The average of trading days in a year will be taken as the rolling return for one year for your portfolio. Once you have the average rolling return for your portfolio, you can compare it with the average rolling return for the entire category. This will help you understand whether or not your fund has performed up to mark.

Calculating your returns generally helps you decide whether you want to continue holding a share or whether you would be better of ridding yourself of it. If you find that these methods are too complex to use on a regular basis, then you can make use of the many mutual fund calculators available on the internet. They usually save you a lot of hassle. But keep in mind that you sh\ould occasionally cross check your results by manual calculation too.

Mutual Fund Investments

September 25, 2014 Posted by admin

It is usually observed that an investor, investing capital in mutual funds (MF) for the first time, is apprehensive about the investment all together and more so about the safety of his capital. The disclaimer that haunts the investor is ‘Mutual funds are subject to market risk, please read all scheme related documents carefully before investing’. However, the risks when compared to other market investments are substantially low. But what is a mutual fund really?

MF is a kind of trust that stands primarily on five pillars. They are: unit holders, trustees, sponsors, a custodian and an Asset Management Company (AMC). In simple words, it is an indirect investment plan. It is an investment where the primary investor does not have a clue as to where his capital has been invested. However, he is assured of a fixed amount of interest. It is a collective scheme where a big investor collects different amounts of capital from smaller investors and invests them in some bigger opportunities. It is from these big investments that big returns are received and later distributed to the smaller primary investors. The sum that is passed on to the primary level is a pre-assured one. The big investor assures the smaller investors of the minimum amount of interest or profit they would be getting, thus minimising the risks for the smaller investors. Some MFs are ‘open – ended’. It means that the investors can buy or sell the shares of the fund at any given time.

The next most important part in understanding what is a mutual fund, is to understand how it is different than the other market investments. MFs invest in securities like; bonds, convertible bonds, debentures, shares etc; depending on what is the expected result of the investment scheme. Such a fund has two clear benefits: one, the profit earned; and second, any capital appreciation realised by the sale in the process. In India, the investments in mutual funds are in consonance with the regulations of the Securities and Exchange Board of India (SEBI). Mutual funds are different from other kinds of investments as they are not individual investments.
After understanding the components of the mutual funds investments, it is necessary to understand what NAV or Net Asset Value of a scheme is. It is basically, the performance indicator of the scheme. It is the market value of the securities held by the scheme. The Net Asset Value changes each day, with the changing value of the security invested in by the scheme. The per unit value of the NAV is the market value of the securities invested in for the scheme, divided by the total number of units of the scheme at any particular point in time.

The main purpose of investing in the MF is the traditional investment idea. Collective investments always run a lesser risk, as compared to individual investments in the market. Individual investments might be able to give higher returns, but when the markets are volatile, it may result in catastrophic loss, unlike mutual funds, which always assure the primary capital to be safe.

Tax Saving Mutual Fund Basics

September 11, 2014 Posted by admin

There are many ways that you can use to save tax. One of the most lucrative methods though, is by using mutual funds. These are by their very nature bound to give you good returns. When you add the fact that you’ll be getting tax cuts, it’s quite a bit like hitting the jackpot. But you need to make sure that you’re choosing the right tax saving fund. Because there are quite a few tax saver mutual funds in the market. The thing to bear in mind at all times, is that you need to choose a fund that both saves you tax and performs well. This is your criteria; if this doesn’t fit – then you might as well pay the tax and get it over with, because you’ll be losing money either way. Here are something that you should look at, so that you know you can choose that particular fund.

The first thing to check is the net asset value also known as the NAV. Generally, funds have lock in periods, which vary from three to five years. You need to know that a fund has performed well and done so consistently for at least three consecutive years, before you consider actually putting money in it. This way, even though your money is inaccessible to you, you know that it is growing steadily until the lock-in period ends. Keep in mind that you have to look at both bull runs as well as bear markets. Your fund should have performed well – or at least better than its competitors – through ups and downs in the market. Generally funds that survive such ups and downs have a clear and concise investment strategy – and this can be priceless. Look for such things when you’re going through different mutual funds, whether online or in person.

You should be able to understand how much of your money is in stocks in advance. Make sure that the investment does go through as it is supposed to – raise questions if it doesn’t. You’ll know that the manager isn’t going to randomly invest random amounts of money anywhere he or she pleases. You would know the risks you would be taking with your money, and if it isn’t something you’re comfortable with, you can pull out. This is where the volatility of the fund comes in – if you’re not a risk taker, then you might want to avoid equity funds. Keep in mind that your success depends a great deal on your research about any given fund and the fund manager and his or her strategy before you invest.

Planning Your Finances With Mutual Funds

August 22, 2014 Posted by admin

When planning your finances it is important to be very clear as to what your goals are. Once you have them clearly defined it becomes easier to select investment options based on your needs. The next step is to have all the knowledge possible about where you are investing your money. Knowledge equals power in the financial world, and the more you have, the better off you will be.

There are a number of avenues to invest your money in, but one of the largest growing financial products in India is mutual funds. Most Indian’s are very conservative in terms of the investments they make. Culturally we prefer safety to risk when it comes to our money. Therefore, mutual funds offer us an excellent avenue as they reduce the risk factor for individual investors while maintain either a dynamic or secure return rate, depending on how the fund’s assets have been allocated.

One of the best ways to invest into mutual funds is through the systematic investment plan or the SIP. When investing through an SIP you decide on how much you wish to invest every month in a particular fund and also for how long. Let as assume that you wish to invest Rs. 5000 every month for 3 years. Then every month that money will be deposited into the fund from your account. The advantage of this is that if the fund is not doing well and the cost per unit or NAV drops, then for the same amount invested, you are receiving more units, which will increase your return through volume. Whereas if the fund is doing well and the NAV increases then, even though you purchase fewer funds per instalments, your returns at least are high.

Thus an SIP helps to make the best out of any situation that the market creates for it. Also, once all the initial paperwork is completed it is hassle-free as the amount is simply removed from your account every month and deposited into the fund at regular intervals. However, simply because we have mentioned the many advantages does not mean that it is the ideal investment avenue for you.

Sometimes it is necessary to invest in funds that definitely come with a higher risk like ELSS funds or equity linked saving schemes. These funds invest their capital solely into the equity of companies thus generating an extremely dynamic rate of return. However these funds stand at a higher risk as the equity market is far more volatile and hence riskier than investing in government bonds and so forth. In the end, you must always pick the investment route that matches your needs and helps you to achieve your financial goals.