Lessons from the Satyam scam The signs of the Satyam scam should have come almost three weeks before when Ramalinga Raju proposed to buy a controlling stake in sister concern Maytas for around Rs 7,000 crore. When the institutional investors opposed vehemently, the company decided to go against it. Three weeks later on January 7, Raju confessed to 'cooking' Satyam's books. Within the next few days, the share price crashed to almost Rs 10 causing losses of over Rs 5,000 crore to around 300,000 investors. In the past five years, a number of companies have been suspended or fallen into bad times with Pyramid Saimira, Deccan Chronicle and Kingfisher Airlines being some of the more prominent examples. Usually, in such situations, individual investors get caught on the wrong side even if they have invested in such stocks through mutual funds. Sample this: When Satyam declared that they are withdrawing the proposal to buy the controlling stake in Maytas, many brokerages were quick to recommend a buy on the stock. So, if institutional investors can get it wrong, there is little retail investors can do. The best they can do is to consistently keep an eye on their investments. Therefore Shriram Subramanian, founder and managing director of InGovern Research feels it is always better to exit a scrip at the first signs of trouble or if things are not seemingly well. Also, if things seem too good to be true, maybe they are. Similarly, be on alert when institutional investors reduce their holding in a stock. Typically, institutional investors and promoters are the first to know if something good or bad is happening in a company. Hence, experts believe investors should be cautious when these two entities sell stake. For instance, promoters held 2.18% in Satyam Computers and FIIs held 44.82%, as on December 2008, according to Capitaline. The other important aspect to keep an eye on is debt on a company's book and the percentage of promoter stake pledged. Take the examples of Kingfisher Airlines and Deccan Chronicle. The total debt on Kingfisher Airlines' book, as on September 2013, stood at Rs 9,139.64 crore. The promoters pledged 67.24% of their stake, as on September 2013. That is, 21.6% of total equity. Deccan Chronicle promoters pledged 99.78% of their stake or 32.59% of total equity. Since April 1, 2013, the Kingfisher stock has fallen over 70% from Rs 14.8. Do not blindly trust an all-star board of directors. In most Indian companies – promoter-owned, MNCs, PSUs - the dominant shareholder drives the agenda and the board functions as a figurehead. "Some 1,400 companies have been suspended so far leaving hundreds of investors in a lurch. And if one notices, one thing common across all these companies was that promoters had cut their holding sharply before the company was suspended,&" says Kishor Oswal of CNI Research. Yes, some investors go for the contra call and may benefit like in the Satyam case. Those who have been invested since January 2009 have made over 800% as the stock went up from Rs 23.75 (on January 9, 2009) to Rs 215.94 (on January 3, 2014). But these are exceptions. "The Satyam case worked out well as the government stepped. This isn't the role of the government and an investor shouldn't expect the government to rescue failing companies always,&" says Subramanian. Source : Business Standard Thanking you
Tuesday, January 7, 2014
Saturday, March 12, 2011
Dear Friends
The new form of self declaration is suicide attempt of the IFA community, Nowadays majority of the investors are very much aware about the nature of the investment and the risk involved in it. Therefore this issue should be addressed to the concern authorities immediately with the support of all our IFA community.
S. Govindarajan
The new form of self declaration is suicide attempt of the IFA community, Nowadays majority of the investors are very much aware about the nature of the investment and the risk involved in it. Therefore this issue should be addressed to the concern authorities immediately with the support of all our IFA community.
S. Govindarajan
Sunday, June 13, 2010
The regulatory authority thinks that they can be able to bring all financial instruments in dmat form, but they have done it in Equities succeeded. Therefore for Mutual Fund also they try to do it and they will. We the IFA have to equip ourselves according to the latest develpments and changes. Otherwise we should look for an alternative business for our survival.
We all IFAs unanimously take drastic decision that not to do business for Mutual Fund showing our agitation against the action of the regulatory authority, which is killing our IFA community by throwing arrows one by one in the recent year.
Govindarajan S.
We all IFAs unanimously take drastic decision that not to do business for Mutual Fund showing our agitation against the action of the regulatory authority, which is killing our IFA community by throwing arrows one by one in the recent year.
Govindarajan S.
Wednesday, March 11, 2009
DIVIDEND YIELD FUND
What is wrong with dividend yield funds?
Dividend yield funds were meant to be win-win: providing returns both in rising and falling markets. But they have failed to deliver
Kayezad E. Adajania
page 1 of 1
Mutual funds have a knack for coming out with ideas regularly as an excuse to launch new funds. Take a look at dividend yield (DY) funds. Their main premise was to offer some kind of protection in falling markets by investing in high dividend-yielding companies that were available at cheap valuations. Mutual fund (MF) houses said that while dividend yields would ensure a steady income in falling markets, they would also earn you a decent capital appreciation during rising markets. Five out of six such schemes were launched in 2004 and 2005.
The bad news is that as on 10 May, DY funds gave a negative return of 6 per cent in the past one year, as against 2 per cent by diversified equity funds and 5 per cent by the benchmark S&P CNX 500 index. The story was the same in 2006. DY funds returned just 9 per cent as against 34 per cent by the S&P CNX 500. In fact, ABN AMRO Dividend Yield Fund (ADYF) returned -3.2 per cent; the only diversified equity fund to lose your money in 2006 (See Sideshow: A Conservative Path).
What is dividend yield? The dividend yield of a stock is the latest dividend declared by the company divided by its current share price, expressed in per cent. It indicates what an investment made in the stock at today’s prices is likely to earn if the benefits came solely in the form of dividend payments. Stocks that pay out a high dividend in relation to their share price are referred to as dividend yield stocks. Typically, good dividend yield stocks aim to provide the best of both worlds—high periodic returns and appreciation—and are sought after in bear markets. Even if the market doesn’t look up, typically, you will still take home returns in the form of dividends. DY funds aim to invest in such high dividend yield stocks.
What went wrong with DY funds? The dividend yield strategy did not work well during the recent escalation in the markets. With Indian economy poised to grow at eight per cent in coming years, stockmarkets have fancied growth stocks— those that show a potential of exponential growth in sales and profits—in the past three years. Dividend yield stocks are usually those that choose to distribute high dividends instead of deploying them back into their businesses.
Many such companies, also known as value-oriented, have low share prices and appreciate only when they unlock their value through developments such as restructuring, work force trimming or huge gains from sale of land or property and the stockmarkets recognise it. Low share prices and steady dividends make such companies high dividend yielding.
Says Nikhil Johri, CEO, ABN AMRO MF: “Most of the dividend yield companies in India are in the oil and gas sectors or public-sector banks, whose valuations have not changed. Their private sector counterparts have performed better. Besides, in India the range of sectors that meet the criteria of divided yield is not huge. It has become a narrow segment.”
The past three years have seen funds with a mid-cap orientation returning around 60 to 100 per cent in a year. Even diversified equity funds have fared better than DY funds. Although it’s unfair to compare conservative funds like DY funds with aggressive ones like mid-cap and mid-cap oriented diversified equity funds, it demonstrates the nature of the Indian equity markets and the place of DY funds in them.
Illiquid holdings. On account of depressed share prices and low demand, many dividend yield scrips also suffer from illiquidity. Exiting them during volatile or falling markets may pull their share prices down and your DY fund can lose money if it is invested in them.
ESAB India, RSWM, NRB Bearings and Navneet Publications are just some examples of dividend yielding stocks suffering from low liquidity that DY funds have either held or currently hold. UTI Dividend Yield Fund currently holds RSWM, ING Vysya Dividend Yield Fund (IVDYF) has held NRB Bearings since March 2006 and Birla Dividend Yield Plus (BDYP) held ESAB India consistently in 2006.
To bypass the problem of low liquidity and lack of fundamentals of high dividend yielding stocks, it is possible that your DY fund may cross the line once in a while. For instance, BDYP’s offer document mandates investment in scrips whose dividend yield is twice that of the Sensex. However, between November 2005 and March 2006, its dividend yield was marginally less than twice the Sensex’s dividend yield as per its month-end portfolios.
Falling corpus. Except BDYP, the corpuses of all other DY funds have dropped significantly since their inception (see The Investor Reacts). ADYF and IVDYF—the biggest losers—have lost 95 and 90 per cent, respectively, of the corpus that they had collected during their new fund offer (NFO) period. BDYP may sport a higher corpus today than what it had collected in its NFO, but it too lost 43 per cent of its corpus (Rs 406.30 crore in April 2007, down from Rs 708.50 crore in January 2006) in the past year and a half.
Fund managers feel that investors have moved out of DY funds because of their underperformance compared to growth-oriented funds. Although it is not a good strategy to switch to an aggressive fund if your risk profile is cut out for a conservative fund, a falling corpus is bad news for DY fund investors. When there is a consistent outflow of money from mutual fund schemes, they are forced to sell off their liquid stocks, sometimes at a loss. This impacts the net asset value (NAV) of a fund adversely and also increases the scrip concentration.
DY funds like ADYF, which are finding the going tough, have changed their strategies. Effective January, ADYF started investing in scrips with dividend yields of at least 0.5, as against earlier when it used to pick scrips with a dividend yield higher than the Sensex’s. Johri claims that this strategy is under observation and if the scheme’s performance doesn’t improve soon, they would not hesitate in merging ADYF with another equity scheme.
The road ahead. Although DY funds have failed in the past year and a half, they have given average returns over a longer period of time. BDYP and Tata Dividend Yield Fund returned 22.6 and 25.8 per cent compounded, respectively, over the past two-year period.
But DY funds are not as conservative as MFs would have you believe. If equity markets enter a correction phase, there’s no telling how much the stock prices of their underlying scrips that are illiquid or lack fundamentals would fall.
If you are a conservative investor, stick to exchange traded funds (ETF). Unlike DY funds, ETFs do not carry the fund manager’s risk and give returns in line with the market. If you are looking for growth, opt for diversified equity funds.
Source : Outlook Money
Saturday, January 31, 2009
Dt. 31.1.09 WHERE TO PARK YOUR MONEY SAFELY IN 2009.
Most people who invested their money in 2006 and 2007 and saw their valuations going down in 2008 are wondering what to do in 2009. There is speculation that the Sensex may hit further low, say around 7,000 to 8,000 and the worst is expected to come mid 2009, after which the consolidation may occur. Further the continuing recessionary trend and in increasing threat of job cuts has further sensitized the risk perception of the average investor. But what is the safest investment option today and where to park money? This is the question in the mind of each and most investors today. The following avenues can be considered:
Considering the current interest rates scenario - the rates are falling and falling interest rates make a good opportunity of investment in income funds. Income funds invest in bonds, debentures, government securities and short-term instruments like commercial papers and repos. In case we believe that the rates have reached their peak and will only further come down, then it will be a good idea to be parking the funds with income funds.
Bank deposits currently the most attractive investment avenue as fixed deposits are offering higher interest and steady returns on their deposits without having to track their performance. However in case of taking a corporate deposit the credit rating of the company should be properly scrutinized .But like cash, bank deposits also don’t provide protection against inflation and taxes.
Equity investment has always been a preferred option for active investors. People investing in equities no doubt have to take the risk to get good rewards. But it should be noted that time is the biggest risk factor in equities.
If we are looking at the half glass full, then it would be a great opportunity to buy stocks and mutual funds that are available at highly discounted prices, but with a fairly long-term investment horizon
Investment in the real estate has always been an attractive option for the investors as it is an appreciating asset. Buying flats/apartments may not be a good option right now as the industry is expected to have a further correction in the coming months and also selling flats/apartments can be a painful exercise in case of liquidity requirement. There may be various other avenues available for investment and we can very well have a steady return on investment we are moving in the right direction like having well strategized financial plan or having a good asset allocation model with constant monitoring.
Currently for short term objectives (1-2 years), fixed deposit may be the best option. If you are looking to be invested for the medium term (3-5 years), mutual funds can be a good option for. For long term goals (10-20 years) equities/real estate can be chosen.
Source : ET/31.1.09
Most people who invested their money in 2006 and 2007 and saw their valuations going down in 2008 are wondering what to do in 2009. There is speculation that the Sensex may hit further low, say around 7,000 to 8,000 and the worst is expected to come mid 2009, after which the consolidation may occur. Further the continuing recessionary trend and in increasing threat of job cuts has further sensitized the risk perception of the average investor. But what is the safest investment option today and where to park money? This is the question in the mind of each and most investors today. The following avenues can be considered:
Considering the current interest rates scenario - the rates are falling and falling interest rates make a good opportunity of investment in income funds. Income funds invest in bonds, debentures, government securities and short-term instruments like commercial papers and repos. In case we believe that the rates have reached their peak and will only further come down, then it will be a good idea to be parking the funds with income funds.
Bank deposits currently the most attractive investment avenue as fixed deposits are offering higher interest and steady returns on their deposits without having to track their performance. However in case of taking a corporate deposit the credit rating of the company should be properly scrutinized .But like cash, bank deposits also don’t provide protection against inflation and taxes.
Equity investment has always been a preferred option for active investors. People investing in equities no doubt have to take the risk to get good rewards. But it should be noted that time is the biggest risk factor in equities.
If we are looking at the half glass full, then it would be a great opportunity to buy stocks and mutual funds that are available at highly discounted prices, but with a fairly long-term investment horizon
Investment in the real estate has always been an attractive option for the investors as it is an appreciating asset. Buying flats/apartments may not be a good option right now as the industry is expected to have a further correction in the coming months and also selling flats/apartments can be a painful exercise in case of liquidity requirement. There may be various other avenues available for investment and we can very well have a steady return on investment we are moving in the right direction like having well strategized financial plan or having a good asset allocation model with constant monitoring.
Currently for short term objectives (1-2 years), fixed deposit may be the best option. If you are looking to be invested for the medium term (3-5 years), mutual funds can be a good option for. For long term goals (10-20 years) equities/real estate can be chosen.
Source : ET/31.1.09
Saturday, January 3, 2009
Advantages of investing in Mutual Funds
Professional Management:
Asset Management Companies (AMC) are managed by professionals and carry out the specialized investment activity.
Diversification:
Diversification among a number of investments helps reduce the risk of any single holding.
Convenient Administration:
The facility of making investments through Individual Financial Advisors.
Return Potential:
By allocating the right asset mix Mutual Funds offer a chance of higher potential returns. The high concentration of risky assets would lead to a higher return and vice-versa.
Low Costs:
Given its size, an AMC would be in a position to negotiate better brokerage terms for the sale and purchase of its investments.
Liquidity:
Open-ended schemes offer liquidity through on-going sale and repurchase facility. Thus the investor does not have to worry about finding a buyer for their investments.
Transparency:
Information available through fact sheets, offer documents, annual reports and promotional materials helps provide the investor with the knowledge about their investments.
Flexibility:
Mutual Funds offer flexibility in terms choosing a scheme that matches the investment to an investor's investment objective.
Choice of Schemes:
The investors can chose from various kinds of schemes available to them. The investors with a higher appetite for risk can go for more aggressive schemes while those needing a fixed sum every month can go for MIPs and so on.
Tax Benefits:
For equity funds, dividends received from equity schemes of Mutual Funds (i.e. schemes with equity exposure of more than 65%) are completely tax-free. Neither does the Mutual Fund have to pay dividend distribution fee nor does the investor have to pay income tax.
Well Regulated:
Mutual Funds in India are well regulated with SEBI monitoring the activities of the mutual funds.
Equity Linked Saving Scheme (ELSS)
Equity Linked Saving Scheme is an open-ended equity growth scheme that is offered by mutual funds in line with existing ELSS guidelines. The investments under this type of scheme are subject to a lock-in period of 3 years and, as per the Finance Act 2005, are allowed the benefit of income deduction up to Rs. 1,00,000. ELSS offers the benefits of tax saving and capital gains. Instead of spreading your investments across different instruments such as PPF, ELSS, NSC and infrastructure bonds, you can now invest the entire limit of Rs. 100,000 available under Sec 80C in ELSS.
Advantages of ELSS
Lock-in for three years prevents unnecessary withdrawals and allows your money to grow over a period of time
Investments in equity over a long-term delivers better returns than that of other savings instruments and similar to other equity schemes
Tax savings and high returns
Flexibility to Invest in small amounts through a Systematic Investment Plan
Systematic Investment Plan
Systematic Investment Plan (SIP) is a convenient way to accumulate wealth in a disciplined manner over a long-term period. It helps you to invest regularly in small installments and thereby build wealth over a period of time.
SIP is a method of investing in a mutual funds scheme. Mutual fund schemes are offered by the Asset Management companies (AMC) to customers through a distributor. A customer wanting to invest in a mutual fund scheme can avail of the Systematic Investment Plan option through Bank by giving ECS mandate.
Advantages of SIP Power of Compounding
SIP helps you to start investing at an early age to meet the greater expenses of your life.
Saving a small sum of money regularly makes money work with greater power of compounding with significant impact on wealth accumulation.
Rupee Cost Averaging
SIP minimizes the effects of investing in volatile markets.
It helps you average out your cost by generating superior returns in the long run. It reduces the risk associated with lump sum investments.
Since you get more units when the NAV drops and fewer when it rises, the cost averages out over time Thus the average cost of your investment is often reduced.
Convenience and Regularity
SIP gives you the convenience to pay through Bank Electronic clearance service (ECS) or Auto Debit.
You can decide the amount and the mutual fund scheme.
A fixed amount will automatically get debited from your account on a date specified by you.
Disciplined approach towards investment.
Since you invest regularly, it makes you disciplined in your savings, which leads to wealth accumulation.
Disciplined investing is vital to earning good returns over a longer time frame.
How to invest in SIP?
Step 1: Select a mutual fund scheme of your choice with the payment option as SIP
Step 2: Decide the Investment periodicity (frequency of making payments). You can
choose to make your investment on a monthly or quarterly basis.
Step 3: Select the minimum investment amount. For instance, if you choose to invest Rs 12,000 every year with a monthly SIP Option. Therefore you would be investing Rs 1,000 every month in your fund. By the end of a year, you would have invested Rs 12,000 in your fund.
Step 4: The amount gets converted into units, depending on the Net Asset Value (NAV). NAV is the market value per unit of a fund.
Step 5: The units get accumulated over a period of time. You can stay invested till the time you wish and redeem your units when you wish to exit from the scheme. The units are redeemed at the market value (NAV) and you get back your money with returns.
For investing in SIP, all you need to call me and just fill up a simple application form.
Disclaimer
Mutual Fund investments are subject to market risk. Please read the offer document carefully before investing
Professional Management:
Asset Management Companies (AMC) are managed by professionals and carry out the specialized investment activity.
Diversification:
Diversification among a number of investments helps reduce the risk of any single holding.
Convenient Administration:
The facility of making investments through Individual Financial Advisors.
Return Potential:
By allocating the right asset mix Mutual Funds offer a chance of higher potential returns. The high concentration of risky assets would lead to a higher return and vice-versa.
Low Costs:
Given its size, an AMC would be in a position to negotiate better brokerage terms for the sale and purchase of its investments.
Liquidity:
Open-ended schemes offer liquidity through on-going sale and repurchase facility. Thus the investor does not have to worry about finding a buyer for their investments.
Transparency:
Information available through fact sheets, offer documents, annual reports and promotional materials helps provide the investor with the knowledge about their investments.
Flexibility:
Mutual Funds offer flexibility in terms choosing a scheme that matches the investment to an investor's investment objective.
Choice of Schemes:
The investors can chose from various kinds of schemes available to them. The investors with a higher appetite for risk can go for more aggressive schemes while those needing a fixed sum every month can go for MIPs and so on.
Tax Benefits:
For equity funds, dividends received from equity schemes of Mutual Funds (i.e. schemes with equity exposure of more than 65%) are completely tax-free. Neither does the Mutual Fund have to pay dividend distribution fee nor does the investor have to pay income tax.
Well Regulated:
Mutual Funds in India are well regulated with SEBI monitoring the activities of the mutual funds.
Equity Linked Saving Scheme (ELSS)
Equity Linked Saving Scheme is an open-ended equity growth scheme that is offered by mutual funds in line with existing ELSS guidelines. The investments under this type of scheme are subject to a lock-in period of 3 years and, as per the Finance Act 2005, are allowed the benefit of income deduction up to Rs. 1,00,000. ELSS offers the benefits of tax saving and capital gains. Instead of spreading your investments across different instruments such as PPF, ELSS, NSC and infrastructure bonds, you can now invest the entire limit of Rs. 100,000 available under Sec 80C in ELSS.
Advantages of ELSS
Lock-in for three years prevents unnecessary withdrawals and allows your money to grow over a period of time
Investments in equity over a long-term delivers better returns than that of other savings instruments and similar to other equity schemes
Tax savings and high returns
Flexibility to Invest in small amounts through a Systematic Investment Plan
Systematic Investment Plan
Systematic Investment Plan (SIP) is a convenient way to accumulate wealth in a disciplined manner over a long-term period. It helps you to invest regularly in small installments and thereby build wealth over a period of time.
SIP is a method of investing in a mutual funds scheme. Mutual fund schemes are offered by the Asset Management companies (AMC) to customers through a distributor. A customer wanting to invest in a mutual fund scheme can avail of the Systematic Investment Plan option through Bank by giving ECS mandate.
Advantages of SIP Power of Compounding
SIP helps you to start investing at an early age to meet the greater expenses of your life.
Saving a small sum of money regularly makes money work with greater power of compounding with significant impact on wealth accumulation.
Rupee Cost Averaging
SIP minimizes the effects of investing in volatile markets.
It helps you average out your cost by generating superior returns in the long run. It reduces the risk associated with lump sum investments.
Since you get more units when the NAV drops and fewer when it rises, the cost averages out over time Thus the average cost of your investment is often reduced.
Convenience and Regularity
SIP gives you the convenience to pay through Bank Electronic clearance service (ECS) or Auto Debit.
You can decide the amount and the mutual fund scheme.
A fixed amount will automatically get debited from your account on a date specified by you.
Disciplined approach towards investment.
Since you invest regularly, it makes you disciplined in your savings, which leads to wealth accumulation.
Disciplined investing is vital to earning good returns over a longer time frame.
How to invest in SIP?
Step 1: Select a mutual fund scheme of your choice with the payment option as SIP
Step 2: Decide the Investment periodicity (frequency of making payments). You can
choose to make your investment on a monthly or quarterly basis.
Step 3: Select the minimum investment amount. For instance, if you choose to invest Rs 12,000 every year with a monthly SIP Option. Therefore you would be investing Rs 1,000 every month in your fund. By the end of a year, you would have invested Rs 12,000 in your fund.
Step 4: The amount gets converted into units, depending on the Net Asset Value (NAV). NAV is the market value per unit of a fund.
Step 5: The units get accumulated over a period of time. You can stay invested till the time you wish and redeem your units when you wish to exit from the scheme. The units are redeemed at the market value (NAV) and you get back your money with returns.
For investing in SIP, all you need to call me and just fill up a simple application form.
Disclaimer
Mutual Fund investments are subject to market risk. Please read the offer document carefully before investing
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