Investment

CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. ) (9017 Points)

29 January 2008

Hi friends and foes (none till date),

It is during this time every year we are required to plan our impost and make investment to avail ourselves of various tax benefits the IT Act, 1961 provide. Section 80C gives us a benefit of Rs.1,00,000 if we make investment in certain specified funds/schemes by March 31,’ 08(although Mr. Ananthu would like you to complete the formalities by December31,’ 07).However, since most of you have sought advice on equity oriented Mutual Funds (MF), I shall restrict myself to MF only. Besides, it makes more sense to invest in equity MFs as no other avenues of investment will fetch you such high return notwithstanding the risk involved. Since all of you are young professionals, you can afford to take the risk (systematic) of equity market today rather than a decade hence from now, and especially when India is riding on an unprecedented economic boom which is not going to die down in whimper any time soon.

I have elicited a list of eleven equity oriented diversified MFs’ from a universe of myriad schemes available, based on parameters like------- return generated, risk involved, expense ratio, fund size, level of diversification, liquidity, long term track record, et al . A perfunctory glance at the schemes selected will give you a clear indication that while selecting schemes of MFs’, I have shown a marked predilection for old funds (all these funds, save one, were launched in mid- nineties). The reason is very simple. These funds have very long and established track records. They have faced both the boon and bane of economic upturn and downturn respectively. These funds have faced at least two major crises viz., East Asian crisis in 1997 and Dot Com bubble burst in 2001. In comparison, a new fund or for that matter an NFO has no track record. Besides, the expense/cost of new fund during the initial years tends to be higher which will negatively affect your return. Further, some of you may argue------- Why open ended MF? Why not closed ended fund (more popularly known as ULIP)? Well, an open ended MF has certain distinct edge over a ULIP, like ---- transparency, liquidity, disclosure and strict accountability. The only difference is that in case of an open ended MF, you will lock your investment for three years’ on your own volition and yet enjoy the prerogative to liquidate if need arises. But in ULIP, your investment will be locked in for three years’ perforce.

I have set out three different investment options viz., Aggressive, Moderate and Conservative. You can choose any of these depending on your risk-return appetite. While seasoned investors and those who have a good grasp of the market can go for either Aggressive or Moderate option, neophytes and tyros are advised to start-off with Conservative option.( For details, see the excel sheet attached herewith )

Option- I (Aggressive) Option- II (Moderate) Option-III (Conservative)

Schemes Allocation Schemes Allocation Schemes Allocation

Reliance Growth 30 % Franklin Templeton India HDFC Prudence 40 %

Prima Plus 25 %

Sundaram BNP

Select Midcap 30 % Magnum Contra 25 % HDFC Equity 30 %

Magnum Global 25 % HDFC Equity 15 % Magnum Contra 15 %

Reliance Vision 15 % HDFC Prudence 15 % Franklin Templeton India Prima Plus 15 %

100 % 100 %

Reliance Growth 20 %

100 %

Postscripttt: While the above discourse may not be a recipe to make you a billionaire, it will certainly give you an insight into investment. Always remember, investment in stock market is a marathon, not a