Getting Started with Mutual Funds!!

Mutual fund is the best investment tool for the retail investor as it offers the twin benefits of good returns and safety as compared with other avenues such as bank deposits or stock investing. Having looked at the various types of mutual funds, one has to now go about selecting a fund suiting your requirements. Choose the wrong fund and you would have been better off keeping money in a bank fixed deposit. Keep in mind the points listed below and you could at least marginalize your investment risk.

Past performance
While past performance is not an indicator of the future it does throw some light on the investment philosophies of the fund, how it has performed in the past and the kind of returns it is offering to the investor over a period of time. Also check out the two-year and one-year returns for consistency. How did these funds perform in the bull and bear markets of the immediate past? Tracking the performance in the bear market is particularly important because the true test of a portfolio is often revealed in how little it falls in a bad market.

Know your fund manager
The success of a fund to a great extent depends on the fund manager. The same fund managers manage most successful funds. Ask before investing, has the fund manager or strategy changed recently? For instance, the portfolio manager who generated the fund's successful performance may no longer be managing the fund.

Does it suit your risk profile?
Certain sector-specific schemes come with a high-risk high-return tag. Such plans are suspect to crashes in case the industry loses the marketmen's fancy. If the investor is totally risk averse he can opt for pure debt schemes with little or no risk. Most prefer the balanced schemes which invest in the equity and debt markets. Growth and pure equity plans give greater returns than pure debt plans but their risk is higher.

Read the prospectus
The prospectus says a lot about the fund. A reading of the fund's prospectus is a must to learn about its investment strategy and the risk that it will expose you to. Funds with higher rates of return may take risks that are beyond your comfort level and are inconsistent with your financial goals. But remember that all funds carry some level of risk. Just because a fund invests in government or corporate bonds does not mean it does not have significant risk. Thinking about your long-term investment strategies and tolerance for risk can help you decide what type of fund is best suited for you.

How will the fund affect the diversification of your portfolio?
When choosing a mutual fund, you should consider how your interest in that fund affects the overall diversification of your investment portfolio. Maintaining a diversified and balanced portfolio is key to maintaining an acceptable level of risk.

What it costs you?
A fund with high costs must perform better than a low-cost fund to generate the same returns for you. Even small differences in fees can translate into large differences in returns over time.

Finally, don't pick a fund simply because it has shown a spurt in value in the current rally. Ferret out information of a fund for at least three years. The one thing to remember while investing in equity funds is that it makes no sense to get in and out of a fund with each turn of the market. Like stocks, the right equity mutual fund will pay off big -- if you have the patience. Similarly, it makes little sense to hold on to a fund that lags behind the total market year after year.

Asset Allocation: Investment Mgmt. without MF

Many Investment Gurus, with a straight face and a gleam in their eye, will insist that successful investing is a function of expansive research, skillful market timing, and detailed technical analysis. Others emphasize fundamental information about companies, industries, and markets. But trends and numbers are secondary to a thorough understanding of the basic principles of Investing and Management, and their interrelationships.

The ingredients for a successful investment portfolio are these: stubborn belief in the Quality, Diversification, and Income trinity from Investments 101, and operations that employ the Planning, Leading, Organizing, and controlling skills introduced in Freshman Management. Here are some things to keep in mind while you season your experience with patience and marinate your investment process with discipline:

A viable Investment Program begins with the private development of an Investment Plan. The first step is the identification of personal goals and objectives and a time frame for goal achievement. The end result should be a near autopilot, long-term and increasing, retirement income. Asset Allocation is used to structure the portfolio so that it operates in a goal directed manner. The finished Plan must be flexible in design, based upon reasonable expectations, simple in structure and operation, and easy to supervise.

Use a cost based Asset Allocation Model. Although most of the Investment World operates on a Market Value basis for everything from performance analysis to Asset Allocation and Diversification decision modeling, you will improve your long-term results and stay within your allocation and diversification guidelines better by using a system based upon Working Capital. This widely unknown Asset Allocation "model" takes the hype out of daily stock market reporting and keeps the income investor's focus on appropriate statistics.

Control your emotions, among other things. Clearly, fear and greed are the two that require the most control in the investment environment. .. particularly in these days of a reckless media, Internet empowered scam merchants, high-speed information gathering/processing, and cheap personalized trading capabilities. Love and hate need to be dealt with as well, but there are fewer out-of-body influences on these. Only strictly disciplined decision makers need apply for your Investment Management position... and you may not be the ideal candidate. Investment Management is a continual responsibility, not a weekend and occasional evening’s avocation.

Avoid hindsightful analysis, and uninformed (or salesperson) criticism. It is painfully comical how hindsight has taken over in our society... in sports, finance, politics, and the professions, everywhere… everyone you hear is second-guessing and finger pointing. No one is willing to take responsibility for their own actions and everyone is willing to sue whoever coulda', woulda' or shoulda' prevented whatever happened. Investors cannot afford to be Little League crybabies. Make one of the three basic decisions (which are?) and don't look back. No person or program can predict the future, and your portfolio requires management today. The playing field for the investment game is uncertainty.

Establish a profit-taking target for every security you purchase. The purpose of investing is to make more money than you could in a guaranteed, non-negotiable instrument. This larger money making expectation comes with an assumption of some form of risk... there are several, and its "in there" in all investments. In Equities, set a reasonable profit target and take less if you can get it quickly. With income investments, never say no to a profit equal to a year's income, or 10% if you like round numbers. There are always new investment opportunities, and there is no such thing as a bad profit... or a good loss.

Examine Market Value numbers at intelligent intervals. Frequent examination is stressful and non-productive. There are no averages or indices that compare with a properly diversified Investment Portfolio, particularly if your Equity selections are screened for Quality and Income. Investing is a long-term endeavor, and neither Shock (sic) Market symbols nor current yields operate on a calendar year schedule. Look at market peaks and troughs over significant time periods that include "cycles"... and do separate your analysis by class.

Avoid what the crowd is doing and shun investment products. Consumers buy products; Investors buy securities. The crowd is driven by the very emotions that you must learn to control. Stay focused on your plan; analyze your annual income and trading statistics. Buy and hold creates more real tax problems than real millionaires, and gimmicks and fads last just slightly longer than spring fashions. Always buy good stuff on bad news and sell into good news announcements.

Don't try to save the world with your investment decisions. Never limit your investment opportunities artificially. Votes work better when it comes to changing your world, and corporations should not be the targets of your political hates... get rid of incumbents, state and local, until there are changes in the tax code, social security, tort law, environmental issues, etc. In the meantime, invest with your head, not your heart. The business of a capitalist society is...

Keep in mind that you need Income to pay the bills, and that your cost of living in retirement will be higher than you think. If you insist on some income from every Equity security you ever own, and beat-the-bank income from income securities, you will obtain two important things: An annually increasing cash flow that will rise at a rate greater than most normal inflation rates, and a higher quality investment portfolio for better long-term investment performance. (If you use a cost based Asset Allocation model with at least 30% invested in income securities and no open end Mutual Funds or Index ETFs.) Never settle for tiny short-term yields or get hooked on those that are unsustainably high.

Investing is not a competitive event, ever. You don't need to beat the market. You need to accomplish a set of personalized goals. Not even your twin's portfolio should be the same as yours. The faster you run, the less likely it is that you will succeed over time. Big risks, foolproof gimmicks, and exotic computer programs occasion more failures than success stories. Remember the Investment gods? They created Stocks and Bonds... only Stocks and Bonds!

Avoid Unrealized Gains, Embrace Volatility, Increase Annual Income, and remember that all key investment moments are only visible in rear view mirrors. Most unrealized gains become Schedule D realized losses. As of today there has never been a correction (rally) that has not succumbed to the next rally (correction). Only an increasing income level can beat back inflation... a bigger market value number just doesn't do it.

UTI Wealth Builder Fund

Points to consider:-

*UTI MF has launched a flexi cap fund “UTI Wealth Builder Fund “(UTIWBF) which is likely to have broadened investment horizon across different market capitalization.
*The Fund House is bullish on a long term basis. The fire to the funds growth would be added by demographics, burgeoning middle class, higher literacy rate, better and innovated products & services along with the robust realty boom.
*The fund is likely to have an asset allocation of 65-100% in equity or Equity related Instruments and the rest 0-35% in Debt & Money Market instruments.
*The fund is expected to have a growth based investment strategy. UTIWBF aims to capitalize on stocks which have huge potential to appreciate in the coming years.
*UTIWBF is a five year close ended equity scheme and upon maturity the scheme will automatically be converted into open-ended scheme.
*During the tenure of five years, exit option will be available once every six months and upon conversion into an open ended scheme exit option will be available on all business days.

Analyzing the NFO--The Fund
Wealth Builder Fund is from the fund house, which is well known for creating value for the investors in this long period.

UTI MFs equity schemes have generated better returns compare to average equity funds returns. UTI MFs Equity plans have generated compounded annualized average returns of 30.25% on a five year basis.

The Scheme

• UTI Wealth Builder Fund is 5 year close-ended flexi cap equity fund which will invest in large, mid and small cap companies.
• The fund will has a special hedge qualities linked to the Index level.
• UTI Wealth Builder fund aims to focus on the science of building capital through patient disciplined long term investing in stocks which adheres to three way approach i.e. good value, clear & transparent management along with a good business potential.

Equity Investment Scenario & future with UTIWBF

• Investment scenario is looking good with economy witnessing a high GDP growth of over 7% in the last few years and the same trend is expected in coming years.
• Though there are concerns over rising interest rate, inflation, crude oil, geopolitical situations are likely to dominate the market movements.
• Investment is taking place in all the major sectors, which may deliver value over the next few years. UITWBF will capitalize on this opportunity to deliver decent returns.

Fundhouse's View:

• The fund has a diversified portfolio with built in hedging feature.
• As we know diversification is inversely proportional to the inherent risk this fund has good measures for lowering the risk. This dual feature of the fund makes it’s best available in its class.
• This fund is a close ended fund, which will become open ended after five years. This will suit families or SME’s, who are sitting on surplus cash and are looking to multiply their investments in five years to fulfill their future needs
• Investing in UTI Wealth Builder Fund would be recommendable considering the long term growth prospects for equities.

Birla Long Term Advantage Fund (BLTAF)

Points to consider:-
* Birla SunLife Asset Management Company has launched a five year closed-end equity scheme “Birla Long Term Advantage Fund (BLTAF)” with an objective of providing for long-term capital appreciation, by investing predominantly in a diversified portfolio of equity and equity related securities.
* BLTAF will invest across market capitalizations. BLTAF will invest in diversified portfolio of large, mid and small cap companies.
* BLTAF aims to capitalize on expansion plans of companies and the long term good performance of Birla Mutual Fund.
* Birla Long Term Advantage Fund would invest in a portfolio of reasonably priced stocks that are expected to post attractive growth in the next 3-5 years' horizon.
* The corpus of the Scheme will be primarily invested in diversified equity and equity related securities of the companies that have a potential to appreciate in the long run.

Analyzing the NFO-The Fund

• Long Term Advantage Fund is from the fund house, which is well known for creating value for the investors in this long period.
• Birla MFs equity schemes have generated better returns compare to Benchmark returns. Top performing Birla MF Equity scheme has given compounded annualized returns of 45.76% over 5 year. Whereas Benchmark had given 26.62% returns, Birla
• MF equity schemes have outperformed the benchmark on the 5 year basis.

The Scheme
*Birla Long Term Advantage Fund is 5 year close-ended pure diversified fund. It would seek to benefit from investing in under priced opportunities in all segments of the market.
*The Fund would take advantage of derivatives to create hedges during volatile times. Derivatives, when used for hedging, can aid in reducing the volatility of the portfolio. Therefore investors can benefit from the same levels of return but at reduced levels of risk (as measured by volatility).
*BLTAF aims to focus on the science of building capital through patient disciplined medium term investing in quality business.
*BLTAF will invest 80-100% of its corpus in Equity and Equity related securities and remaining 0-20% in Fixed Income Securities.

Equity Investment Scenario & future with BLTAF

*Investment scenario is looking good with economy witnessing a high GDP growth of over 7% in the last few years and the same trend is expected in coming years.
*Though there are concerns over rising interest rate, inflation, current themes such as capex, domestic consumptions and outsourcing is unlikely to affect in a major way.
*Investment in capacity creation is taking place, which may deliver value over the next few years. BLTAF will capitalize on this opportunity to deliver better returns.

Our View:
There are number of advantages applying for BLTAF:-
Equity investment scenario looking good with an Indian economy expected to grow at good pace.

The Fund will select stocks of companies that have demonstrated a potential ability to grow at a reasonable rate for the long term.

Since the Fund is closed ended for 5 years the Fund Manager won’t have any redemption pressure & the fund comes with an added advantage of Derivatives, which prevents capital erosion of the fund so investors can allocate some part of their Portfolio to this Diversified Equity Fund. We recommend investing in this fund with 5 years investment horizon.