Stocks, Mutual Funds, Etf's etc

March 2013

Investing in Dividend Yield Stocks

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One of the most traditional form of investment, which involves identifying such stocks that are likely to give good dividends. The dividends get paid no matter what direction the stocks move and can provide a higher yield on investment in any market.

Hence, even if the market remains volatile, going ahead, an investor can still expect to get a decent return on investment. Such stocks can be identified by studying the dividend history, cash position, and macro economic condition.

Some of the stocks which have had a past record of good dividends are :

Company
 Price 01.03.2013
Yield
Dividend Per Share
FY10
FY11
FY12
Clariant Chemicals (I) Ltd.
552.15
11.01
25
30
60
HCL Infosystems Ltd.
31
8.7
7.8
7.9
3
SRF Ltd.
185.75
7.04
14
14
14.1
Gateway Distriparks Ltd.
128.95
4.44
3.5
6
6
VST Industries Ltd.
1579
3.85
30
45
65
TATA Steel Ltd.
341.1
3.29
8
12
12
Rural Electrification Corp
213.6
3.12
6.1
7.5
7.5
Power Finance Corporation
191.65
2.94
4.5
5.2
6
Karur Vysya Bank Ltd.
466.95
2.91
12
12.1
14
JK Bank
1282.2
2.57
22
26
33.5
Needless, to say one needs to use his own judgement before picking up stocks. So please consider your current investment scenario, risk profile before taking any actions.
Source : Geojit BNP Paribas

January 2013

Top ELSS mutual funds for investing in 2013

Top ELSS funds for investing 2013, Mutual Funds, Tax Saver Mutual Funds, HDFC Tax Saver, ICICI Pru Tax saver

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The following ELSS mutual funds can be considered by investors this tax season. Well, actually the best mechanism for investing is to do a SIP throughout the year.

However, incase you are planning on investing in the last few months until 31st March 2013, you can consider the following top performing ELSS funds. And also, if possible continue to SIP for the rest of the year as well for the next financial year.

I have provided the performance measures alongside which will help you make a informed decision.

The article on “How do you compare and evaluate Mutual Fund Performance” might be helpful in case you would like to know more about evaluating mutual funds.

Reliance Tax Saver
Scheme 1 yr 3yr 5yr
Reliance Tax Saver 25.45% 9.34% 8.44%
Inception 22-Sep-05
AUM (31-Dec 2012) 2105 crs
Fund Mgr Ashwani Kumar
Beta 0.98
Std Deviation 19.72%
R squared 89.95
Sharpe Ratio 0.31
Portfolio Turnover 60.80%
Expense 1.90%
Benchmark BSE 100
ICICI Pru Tax Plan
Scheme 1 yr 3yr 5yr
ICICI Pru Tax Plan 24.27% 9.19% 8.51%
Inception 19-Aug-99
AUM (31-Dec 2012) 1468 crs
Fund Mgr Chintan Haria
Beta 0.92
Std Deviation 17.58%
R squared 95.84
Sharpe Ratio 0.26
Portfolio Turnover 148%
Expenses 1.99%
Benchmark S&P CNX 500
Franklin India Tax Shield
Scheme 1 yr 3yr 5yr
Franklin India Tax Shield 22.83% 11.40% 8.37%
Inception 10-Apr-99
AUM (31-Dec 2012) 942 crs
Fund Mgr A Radhakrishnan
Beta 0.79
Std Deviation 15.26%
R squared 95.36
Sharpe Ratio 0.36
Portfolio Turnover 53.60%
Expense Ratio 2.10%
Benchmark S&P CNX 500
Canara Robeco Tax Saver
Scheme 1 yr 3yr 5yr
Canara Robeco Tax Saver 21.82% 6.92% 8.89%
Inception 31-Mar-93
AUM (31-Dec 2012) 456 crs
Fund Mgr Krishna Sanghvi
Beta 0.82
Std Deviation 17.07%
R squared 83.09
Sharpe Ratio 0.15
Portfolio Turnover 45.20%
Expense Ratio 2.33%
Benchmark BSE 100
HDFC Taxsaver
Scheme 1 yr 3yr 5yr
HDFC Taxsaver 17.40% 7.72% 7.17%
Inception 31-Mar-96
AUM (31-Dec 2012) 3448 crs
Fund Mgr Vinay Kulkarni
Beta 0.83
Std Deviation 16.11%
R squared 93.39
Sharpe Ratio 0.17
Portfolio Turnover 25.20%
Expense Ratio 1.85%
Benchmark S&P CNX 500

 ** The Volatility / risk performance measures are of 3 years. Happy Investing.

Understand the Risks in Debt Mutual Funds

risks in debt mutual funds, credit risk, interest rate risk, reinvestment risk, yield curve, YTM, yield to maturity

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Debt funds carry indexation benefits and hence are more tax efficient than FD’s. Many financial planners recommend debt funds as a replacement for FD’s. However the debt funds do carry certain risks.

And it makes sense to be aware of those risks.

Investments in debt funds are subject to various risks like credit risk, interest rate risks, liquidity risks, market risks, reinvestment risks etc. Let us look at what these risks mean and how understanding these risks can make you a better investor.

1. Credit Risk : This refers to the risk that the issuer of a fixed income security may default (which means that, he will be unable to make timely principal and interest rate payments on the security)

2. Interest rate risks : This risk results from the change in demand and supply of money and other macroeconomic factors and creates price changes in the value of debt instruments. Hence, the NAV of the scheme may change due to the fluctuations. Prices of long term securities generally fluctuate more in response to interest rate changes than do short term securities. Thus, this risk may expose the schemes to capital erosion.

3. Liquidity Risk : This refers to the ease with which the security can be sold at or near to it’s valuation yield-to-maturity (YTM).

4. Market Risk : Market perception of interest rate sensitivity, general market liquidity, credit worthiness etc. may cause price volatility and hence lead to capital erosion.

5. Reinvestment Risk : This risk refers to the interest rate levels at which cash flows are received for the securities in the scheme is reinvested. The risk is that the rate at which the interim cash flows can be reinvested may be lower that that originally assumed.

So, how do fund managers try to mitigate these risk factors :

a. Interest rate risk : By keeping the maturities of the schemes in line with interest rate expectations. (Note the key here is expectations, so if the expectations go wrong, the strategy can mis fire).

b. Credit Risk or Default Risk : By investing in high investment grade fixed income securities rated by SEBI registered credit rating agencies. Eg: investing in AA/A rated securities carry a higher credit risk compared to AAA rated securities. Note, historically, though , the default rates for investment grade securities (BBB & above) has been less.

c. Reinvestment Risk : This is limited to the extent of coupons received on the debt instruments, which will typically be a very small portion of the portfolio

d. Market risks : The schemes may take positions in interest rate derivatives to hedge this risk.

Understand the risks, become aware and deal with these risks to make informed decisions towards building wealth.

You can read more about debt mutual funds here.