Best time to buy shares

The market has been falling for the last few days, so do I buy shares now or wait for the market to fall? Serious money can be made if we buy when the markets are done. Take any example from history. But to make that type of money, you need to change your perspective from short term to long term, but the best thing to do would be to start with SIP and keep putting in small amounts on the day the market falls. This would be a rewarding strategy, if you have a goal which is minimum 3 to 5 years away. You can start becoming happy, when the markets go up. Remember investing in a rising market can make you happy in the short run, but investing in a falling market could make you wealthy in the long run.

If you have seen history, a falling market lasts for about a year and then there would be a listless market for around 5 years. But after that the markets just rise and that is the reason, I said, invest in a falling market and you could make money in the long run. So do not stop your SIP’s when the market is down, buy stocks instead of playing in derivatives, buy stocks after research only and buy from different sectors. Keep some money aside in liquid funds, so that if the market takes time to recover, you do not dip into the investment, instead, you could use the money from the liquid fund. Even if you do not need money for emergencies, it is better to keep it aside. After 5 years if you see the market still down, you could use this money to buy more shares.

Saying all the above investment horizon is the key, you need to look at a minimum period of 5 years from the time the markets start falling. But if you are looking at a period of less than that, do not go for shares.

Direct Investment in Equity Shares

During the last two years many persons told me that they made good returns by investing directly in Equity shares, so this year I asked the same persons what happened last year and they said, there was no loss. Yesterday I asked the same persons and they just told me they were busy. Nobody was ready to talk about the stock market, the reason is the external factors have hit the stock market. Nothing is actually wrong with the stock market, but then we have so much information available that we tend to take very short term view for an asset class which should be looked at from the long term. This is the reason I suggest that even if we want to move into equity, we should go the mutual fund route. If you find it difficult to believe, try this. The amount of money you are ready to put aside for equities, put half of it in a good large cap mutual fund and you play with the other half and let us compare the amount of money you have made after three years.

The chances are that you would have made more money in the mutual funds route after removing all the costs involved with absolutely no headaches. You concentrate at what you are good at and leave market investment to professionals, you will end up making more money. But if you try to concentrate on making money in something which is not your core competency, you will end up losing time and money till you become good at it. That is the reason, businesses employ professionals for every department. So why don’t you behave like a businessman and employ a professional, i.e. a good financial advisor who will suggest how you go about with your investments.  A good financial advisor understands risks and returns and also understands when to exit.

When you try to do it yourself, you have to do all the analysis yourself, which will take time. This is the reason a good businessman concentrates on what he is good at and pays a professional to do a job for what he is good at. One o the basics on equity investing is diversification, you could do the diversification yourself, but then the amount of time you need to study all the sectors will take time, instead a mutual fund will do it for you at fraction of the cost. When you do your investments through a mutual fund you manage to beat the market returns and if you really want to get the best ask your financial advisor to choose the right fund for you.

Care to be taken while investing

All of like to do investments in equity, but we are not sure where to invest, the reason is not that we do not want to put the efforts, but the lack of time and expertise to do it. Avoid some of these regular mistakes

• Invest on tips – When we buy electronics, we usually do some research, speak to some friends or relatives who have purchased same or similar items. The reason is simple, we do not want to lose money. But when it comes to investing in equity, we do not do this. For us research is usually limited to tips given in the newspapers or heard on television or even found through a search engine on the net. We do not usually do our own research.
• Investing for the short term – Whenever we buy equity we say we want to make money and we want to make it fast. Ask yourself, what is the timeframe by which you want to have this money, what is your goal? Most of the tips received is based on short term movements, but if you look at how big market players have made their money, it is over long periods and not short term. If long term is the way to make money they why do you track price movements daily?
• Booking profits – This is the most common mistake most of us do, i.e. sell as soon as we see a profit. If you have invested for a long term, wait for that period, do not book profits early. You end up missing a bigger opportunity.
• Following the crowd – As I had said earlier, just because some market expert says that a particular equity share is good, you have purchased. So if there are many people like us who run after the same equity share, the price of that equity share is bound to rise. Then you start rationalizing. But if you do a bit of research, you should be able to separate the wheat from the chaff.
• Tax – Some people just hold the equity shares for more than a year, so that they do not have to pay capital gains tax. Equity Shares should be purchased and sold based on valuations and not on tax considerations. If the equity share is in profit, but the market outlook for that particular share does not look good, get out of it, it is better to pay taxes than to end up with a loss. Also when the equity share is not doing well and the outlook is also not good, cut your losses. Do not keep holding it for eternity hoping one day it will go up.

If you find all the above a bit difficult, then just let some experts handle it. It is much safer paying some money for advice than hoping to make money based on free advice.

Asset Allocation of a portfolio

Everyone says that Equity investment is the best option for long term capital appreciation, but as we have seen it is difficult for us to decide on which stocks to buy or sell at any point of time. So the next best option is Mutual Funds. It sounds so easy, but when we go to invest in mutual funds, you have so many choices. One of the easiest things to do is first invest in ELSS schemes, this is the best because you do not have to think too much and it will save you tax. The maximum tax deduction under section 80C is Rs.1.5 Lakhs per year. This has a lock-in period of three years.

Now that the easy part is done, which schemes should we invest in? Your portfolio should be made up of Large Cap, Mid Cap and Small Cap funds. The Large cap funds are usually passively managed funds, there are actively managed funds as well, look at the track record over a long period of time and choose the fund. Then there are Mid Cap funds, these funds are a bit riskier, but they offer better returns then large cap funds. Then there are small cap funds, these are the riskiest, but here again the long term returns are the best. If you have 3 good funds one each in Large, medium and Small Cap, you would have covered most of the market, then you do not need to go for multi-cap, thematic or sectorial funds.

As regards debt, you could have some savings in Provident Funds or you could go for some debt funds. Then there are balanced funds, these are for people who are closer to their retirement, and looking for regular returns. These funds invest in Equity as well as debt. Depending on your stage in life, you could decide on going for debt oriented or Equity oriented balanced funds. The good part of balanced funds is the gains made in equity are protected by debt component. The risk of these funds is usually moderate. Asset Allocation depends on your stage in life or the purpose of investment, so choose wisely, it should not happen that you invest for a particular purpose and when you need the money, the market is down, so sit with your financial advisor, before deciding on your asset allocation.

Income from Safe Investments

RBI did not reduce interest rates this month, during its review, but warned banks that they would have to reduce and reduce they did. If you notice every bank has started advertising that they have reduced the interest rates on loans. If the banks have reduced interest rates on the loans they are giving, they would also reduce interest rates on fixed deposits they are taking. This is natural, as the banks make money on the spread between interest rate given and taken. At the same time Corporates feel even with the reduced rates being given by the bank, the banks are charging higher interest rates. So they are coming directly to us, with interest rates higher that what banks give us, but lesser than what they would pay the banks.

This gives us an opportunity to make higher income. But are all corporates safe? We need to be careful before investing in corporate bonds or Fixed Deposits. It is mandatory for all corporates to get their fixed deposits or bonds rated. If there is no credit rating do not invest. So if the rating is good, then you have safe fixed deposits as good as banks. Go for AAA or AA rated fixed deposits. Yes, there would be a risk, but that would be marginal. We should lock in on the high interest rates being offered by these corporates as these too would keep coming down, but slowly. Do not invest just based on interest rates. If you find this a bit difficult, then just invest in a good debt mutual fund which invests in long term bonds as these too will appreciate as the interest rates come down.

Investment habits to avoid while investing in Mutual Funds

Many persons have made money or have been able to achieve their goals by investing in mutual funds. These have been savvy investors or have got good financial advisors. There are others who also invest in mutual funds because others say they have achieved goals by investing in mutual funds, so they also go about investing in mutual funds. Their way of looking at mutual funds is like investing in the stock market directly without understanding the working. I hear many of them saying invest in the mutual fund when the NAV is low. NAV being low does not mean anything, at that point they argue that they get more units, because they believe that having more at a low price will give them more benefits when the NAV goes up.

In reality it does not matter. Any movement in the NAV depends on the portfolio in which the fund is invested and the number of units. So having more units or less units does not matter. Let me give you an example, if the cost of the portfolio is Rs.10,000/- and there are 100 units the NAV will be Rs.100. So if you buy 10 units at Rs.100 your cost would be Rs.1,000/- Now say there are only 10 units, then the NAV would be Rs.1000/- So you would buy only 1 unit at Rs.1,000/- After a year the Market Value of the portfolio become Rs.11,000/- i.e. an appreciation of 10% in this case in the first scenario the NAV would become Rs.110/- and in the second case it would become Rs.1100/- and your return would be the same i.e. Rs.1100/- so if you see, buying at lower NAV is just a sales pitch. Do not fall for it.

There are others who buy because a scheme is giving dividends, again dividends do not mean anything. You should go for dividend option only if you need the money. Remember that when a dividend is paid out, a portion of the dividend has to pay to the government as Dividend Distribution Tax, so in effect, you get less money in hand. If you let the money remain, the fund manager will be able to generate more income out of this and when you remove the money when you need it, you end up with more money in hand. When Dividend is paid the NAV also comes down. This is one more reason why Dividend reinvestment option is also not good. As what gets reinvested is after some money is paid to government.

You do not need to open a demat account to invest in Mutual funds, this is some mis-selling being done by some banks. There is an ease in investing that is all. There are many more platforms not available where you can still have the ease of investing without having a demat account. As I had mentioned earlier, the NAV depends on the portfolio. Here portfolio does not mean just equities, it means any investment in financial assets viz. Bonds, NCD’s, FD’s etc. So mutual funds are an alternative to investing in stock markets or even banks or Company FD’s, NCD’s etc. When is the right time to invest in mutual funds, actually it should be anytime, all depends on your goal, if it is long term go for equities.

Here you should go for Systematic investment option. By this you average out your investment costs and end up with superior returns than a lump sum investment. How do you choose your mutual fund, go by the long term performance of the fund, and just don’t go by the returns over the last year. Last year almost all funds did well. We have to see how the fund did during both the bull and the bear run. Avoid the above habits and make money by investing in Mutual Funds.

Invest in Equities

Everyone makes money in equities, but wherever I put my money, I don’t make money. Does this ring a bell? Historically the equity market has given a return of around 17%, but this return has always been over long periods of time. If you take yearly rolling returns, they would mostly be positive only if you have invested for 7 years or more. That does not mean you do not make money if you invest for a shorter period. Just like Real Estate, equities also go through their cycles, the longer you stay invested, the more the chances you make money. But we are human beings, we are not ready to stay invested and the reason for this is, it is easy to exit. You would not have done the same with real estate, this is because of the amount of hassles involved with registration and taxation, whereas in equities, it is easy, so you try to make a quick buck or track on a daily basis.

Over the last 3 decades, equities have outperformed gold, bank deposit and real estate by a handsome margin. Post tax the returns are even better. Now that we have seen that equities give better returns and you want to make the money, how do you go about? Yes, you have your work to be done and you do not have the time to do research. One way out is to invest in a good mutual fund scheme. The returns would be a little lower that what you would have got, if done directly in equity, but the risk would also be lower. Go for two or three schemes, one large cap, one mid cap and a small cap fund. This way you would diversify your risks as well as participate in the growth of small and midcap equities. The fund managers will be doing all the research for a very small fee.

If your risk taking capacity is low go for a balanced fund. In addition to investing is equities, these funds also invest in fixed income securities, to give stability to the portfolio. The returns in this case would be a little lower compared to equity funds. If you do not have any risk taking capacity, then go for a pure debt fund. The benchmark should be as follows, investment horizon, 7 years or more, go for equity, 3 to 7 years, balanced funds and less than 3 years debt funds.

Moving from savers to investors

Every time the market goes up all of us start investing into the market. Last quarter saw some very heavy investments. Now the market is down, with uncertainty about who would for the government in Delhi. Let me know frankly, how does it matter? It would matter in the short run, but in the long run, the markets would be up. So if you are investing for the long run this is the time. In every market cycle most of the retail investors invest when the market is up and actual investors invest in every market cycle, depending on the stock and not the market. This is the reason in the last article I had asked if one needs a financial advisor. A financial advisor would advise investing in the market based on the client’s goals and not the market cycle. What is actually happening is Mutual funds come with more schemes when the markets are up, as they are sure to get enough collections. Distributors sell these schemes saying you are getting the fund at a low NAV, price is good etc. The retail investor looks at the market and says yes currently the market is giving good returns for this type of investment and the investment looks safe or they look at past performance.

But the actual way for investing should be why am I investing? What is my risk tolerance and what is my return expectation. This is usually taken care by a financial advisor, who does Investor profiling, what are the investor’s goals or needs and then matches the product with the investor’s needs, goals and risk profile. The Market would continue to perform as always. The Mutual funds companies would then start concentrating on giving better returns and not on new products. SEBI has come with direct plans which help the investor save, but then this is only for an educated, well read and well informed customer. It is not everyone’s cup of tea to decide on where to invest. Some of their decisions might work in the short run.

Let us look at what happened in 2008, there was a meltdown in the US, nothing in India. But our markets fell, why? Just because the FII’s sold and took their money to the US. What did we do at that time? We also sold and are still scared to return to the stock markets. The FII’s returned and invested much more than they actually withdrew and are making money and we are still waiting. If during the melt down we had continued with our investment strategy based on our goals and risk profiles, we would have made much more money. But today the FII’s are making money.  The reason for us not making money is we do not believe in our stocks, but we are the same people who are buying the products made by the very same companies in whom we say we do not trust to buy the stock. We are contributing to the company’s profit by increasing its sales then why should we not participate in its growth and make money? Why sell a stock just because the FII’s have sold?

The other problem with us is we like to buy low and sell high. Remember good stocks will always be priced high. Their prices will be low only when there is distress in the market and when there is distress we just refuse to buy, even when we are getting a stock at a low price. Always remember, everyone buys a stock which is good, so the price will be high. Low price means low quality or the company is not proven. This is the reason why you will see that the FII holdings in good quality stock is high. Why do we refuse to buy into such stocks? You take any stock and check the price along with the dividends paid over 10 year period and you would have noticed that a good stock would have always gone up, irrespective of the market cycle. Take any 10 years period.

We are a nation of savers and not investors. Savings does not beat inflation. So let us slowly start upgrading ourselves to investors and make the money which is there to be made.

Are we making good returns from the stock market

We all have heard of a lot of people make money in the stock market and the return have always been more than what you would have got in any other class of asset. So we all want to get good returns to meet all our goals. So what do we do, looks for tips, read newspapers, watch TV and of course tips in our emails. We also try to be smart and see what the fund managers are buying and selling and then we try to mimic the same. All this in the hope to make more money. We always want to see the returns, before the performance. Everyone is focusing on returns and very few on the performance. Remember in our quest to make more money we forget all other basics i.e. risk taking ability or for the matter the reason for which we want to make the money or even the returns expectation.

The only thing we look at is making a lot of money. All this is nothing but putting the cart before the horse. We should always ensure that our investments are diversified, so that whatever the outcome our goal will be met. All this only impacts the performance of our portfolio as we are taking risks dis-propionate to what we need. We do not try to understand what the underlying reasons are for the fund managers buying or selling or the tips you see, read or hear. This uninformed choice is what leads us to the fear of the stock market. If you make an informed choice you have a lots to gain. Because of such choices we tend to miss actual opportunities.

Currently what is happening is the fund manager makes a call, we read it and we make a decision. But should it not be the other way, what I want as an investor, what is my risk tolerance and what are my return expectations, in the short, medium and long run. Based on this the call on where and what I need to invest needs to be taken. The focus should be on right investment, this is where the Financial Advisor comes in. There will be good times and bad times in the stock market, but some stocks will always give you returns, some in good times some in bad times. So you need to choose rightly. In investing emotions have to be kept aside. A good Financial Advisor will look at your risk taking ability and your goals before suggesting a stock or a portfolio for you. Want good returns from the stock market, focus on your risk appetite and goals before deciding on the stock. Ensure proper asset allocation and be ready to change your portfolio over time, based on the situation at that point of time.

Creating Wealth through Equities

The sensex is going up and I can see that I can make money, so I want to invest in the stock market. This is what I hear from every second person. This is a good opportunity to create wealth through equities. Is it so easy, if it was everyone would have been making money. The fact is, it is not, you need to have knowledge and time, and best part is you should also be ready to lose some money if the market falls. As mentioned you need to have knowledge, time and risk taking appetite, not having even one is a sure shot disaster. So what are the options? One option is to go for investing in Equity Mutual funds. In this you are into equities indirectly. Indirectly means you do not own the stocks directly, but you put your money into a fund, which invests into equity.

Some of the benefits of investing through mutual funds are

• Knowledge – This aspect is taken care of because of the fund employs professionals who have the knowledge.
• Time – As these professionals are employed for the fund, they have the time
• Amount – You do not have to do big investments, you can start with as little as Rs.500/-, if you go for portfolio management, the amount to be invested would be a minimum of Rs. 25 Lakhs.
• Cost – the costs of portfolio manager are much higher compared to the costs of a mutual fund, as there are limits placed by SEBI.
• Liquidity – It is easier to get you money back, with minimal paper work.
• Tax – Mutual funds are tax friendly, you do not pay tax as your portfolio is churned, based on the market situation. In case of portfolio managed funds, you have to pay tax on every sell, depending on the period the stock was held.

Looking at the advantages, one can easily say, investing in the stock market through mutual funds is comparatively less risky.

Want Guarantees for your investments

There are some persons who would like to see their investment grow, but cannot think of anything other than Fixed Deposits. If you suggest anything else, they want a guarantee. But you are aware that in Mutual Fund investments there are no guarantees, whether it’s Equity or Debt. Ask any financial planner and he would say, if you want to grow your wealth and beat inflation, go with equity. So what do these people do, they invest where they have guarantees i.e. Fixed Deposit, Post office, Insurance, etc. and these are the very investment which erode your wealth in real terms. Many of them had burnt their fingers with equity investments in 2008 and with the many scams which took place.

This year they saw the market go up all the time and now they are again scared to invest in equity, because of their fear, which is, the market can crash anytime. Such investors should go for hybrid funds, which invest in both debt and equity. The debt portion would take care of the security of the investment and Equity would take care of the growth. This is one of the safe investments in mutual funds which would ensure you do not erode your wealth.

One of the most commonly named funds in this hybrid category are monthly Income plans. These funds invest around 75% in Debt and the balance in equity. The debt portion increases if the market is too heated. So the debt portion gives you a stable return just like fixed deposits and depending on market situation equity would give growth. So when the going is good, the returns would go to say 13-15%, but in a bad market the returns could be from 11-13%, which is not bad at all. If you look at all the Monthly Income plans the average returns for the last 5 years is around 12.5%. Here as I had said earlier, we still cannot give guarantees for returns.

Investments in these funds should be for a minimum of 3 years, as a major portion of the funds are invested in debt, these are treated as debt funds for income tax purposes and if you have read some of my earlier posts, you would have seen, that debt funds definitely beat fixed deposits if the investment is for more than 3 years. So Monthly Income Plans are tax efficient investments as well. If you go for dividend option, it’s even better as Dividends are tax free, but remember, the income tax department taxes their pound of flesh, in the form of dividend distribution tax, which is quite heavy at around 28% after adding surcharge and tax. So it is better to go for growth option and withdraw any time after 3 years when you need the money or go for a systematic withdrawal plan after 3 years.

Arbitrage Funds

We have heard of different types of mutual funds and during that conversation sometimes you hear arbitrage funds or you might not have heard of it at all. What are Arbitrage Funds? To understand Arbitrage funds let us go to the definition of Arbitrage. Arbitrage means buying a product in one market and selling it in another to make a profit due to the difference on price.

So now that we know what arbitrage means how does it apply to the stock market? In the stock market trades are done in cash or future and the price in both these are different. In such a case, if the price in the future market is higher than the cash price, one can purchase the stock in cash today and deliver it in the future market at a higher price and make a profit.

That means if we invest in these funds you will never lose your capital. Then why have arbitrage funds not caught up. One reason is, the profit will take place only on a future date and if you want to exit in between there could be a chance of loss. This chance of loss is what is holding people back. But if you are ready to wait for some time, the returns are good, even better that debt funds.

Arbitrage funds are good in a rising market, as the future prices will most of the time be higher. So keep a watch on the cash and future prices of around 10 stocks and if you see the average difference reducing, it’s time to move out of the arbitrage fund.

The other advantage in arbitrage funds is taxation. Since they are mostly equity funds and for equity funds there is no long term capital gain. Even in case of short term capital gain, the tax is just 15% of the capital gain. This is better than debt funds where short term capital gain is taxable as per your tax slab.

So if you are looking at short term, arbitrage funds are better than debt funds, but for long term, equity funds are the best.

Investment in Equity

21000 or 22000 that is the number everyone is talking about, but what is it. It is where all the analyst are saying the Sensex would touch. So if it touches this magic number means it is going up. Yes by the simple logic, if something is at 20000 and reaches 21000, it is going up. So if I invest in the sensex 20000 today and I sell when it reaches 21000, I will make 1000. But I cannot invest in the sensex unless I invest in a sensex mutual fund. I want to invest in equity directly, what should I do?

Do I invest today or wait till it falls more, so that I can make more money. Going by the current environment if I am not careful, I could lose heavily. So if you have not invested in equity earlier, you need to be careful. Most of the time, I have seen, when people invest for the first time in equity, they just invest based on reading in the newspaper, magazine or listening to a friend or relative or now the latest fad TV. It’s better to do your homework. Since this is your first time in equity, you need to tread with caution.

Investing in equity is similar to gambling, but this is more of authorized gambling. You would have a heard of many persons making a fortune in equity Warren Buffet is one of them. But you would have also heard of many of them losing money as well and you would not like to be one of them. Many have made a lot of money in a short span of time, some to longer. You may call it luck, but the one who made the money would call it educated investment and timing. Anyways you have decided that this is the best option, so what do you do?

First of all, you need to open a trading and demat account. You cannot do any investment in the market without a demat account. What do you do next? Instead of what to do next, let’s see what not to do. As it is your first time, do not buy in large quantities, I’m sure you do not want to lose too much money till you start understanding how the market works. Don’t try to do bottom fishing, i.e. trying to enter the market when the price is low. It is never the right time. Even the best of professionals have not been able to time the market.

Do your study and buy a stock which you very strongly feel would do well. Do not go by tips, most of the time tips are leaked by persons who are trying to get out of a particular stock. Last of what not to do, is sell in panic. There would be many times when the whole market falls, whenever the whole market falls, your stock would also fall, so wait for the market to recover. If you have done your study and you are sure of the stock, stick to it, unless your study shows some fundamental change.

Don’t try to enter and exit the market at a fast pace, that is for professional gamblers, whom we all call day traders. This is a whole time activity. All day traders do not consistently make money. There are ups and downs in everything we do. If you invest in equity, do it for the long term. Long term in equity always gives good returns. Studies have shown that the stock market is the only market all over the world which has always grown and its returns are always better than inflation. Some time back I said trading in equity is gambling and as you were reading you agreed, but then why are we still suggesting investing in equity.

As I mentioned if invested properly equity investments can give you good returns, yes you could lose money as well. But equity investment is not for the light hearted, you should be able to take the hit. As it is said, high risk gives high returns. There will be times when you would lose money and you should be able to take that into your stride. The first year will be your learning period. As you start investing and tracking your investments, you will start getting more insights of the complicated market and the number of factors you need to look at.

As I said there will be times you would lose money and sometimes you would make money. But as you start tracking you will learn a lots, let’s give you a start. As we said invest in a stock which you feel strongly about. But what do you look for in that stock. Ensure that the stocks Year on profit is not going down, profits might be good, but also check that there are operating profits as well. Initially go for stocks which are part of the index. These are just some tips. Rest is just study and invest.

Enjoy investing in Equity.

Asset Allocation Funds

Financial Advisors always tell us stick to your investment plan. Keep investing regularly asyou’re your plan. The plan is usually dependent on your age and investment objective. So they will tell you put X% in Equity and Y% in Debt etc. But tell me is it possible to keep regular track and then when the market goes up or down, or when the interest rate goes up or down, rebalance your portfolio.

At the same time we do not want to employ a portfolio manager, since his cost would be high and s/he will not look at small amounts. Also SEBI has increased the minimum size of portfolio to Rs. 25 lakhs for portfolio management services. So for a small portfolio, you have to do it on your own. For such persons there is an option, take a look at asset allocation funds.

These are funds which invest in different mutual fund schemes and keep the allocation in different funds depending on the pre-determined asset allocation. The asset allocation is done by a fund manager; s/he would take care of asset allocation as well as buying and selling funds depending on how they are doing in the market.

Though it does not replace financial planning, it helps us in a way. The fund objective would always be known, so if it is close to your financial plan, then you should go for it. There are usually two types of asset allocation funds, single manage asset allocation funds and multi manager asset allocation funds. Single manager funds are those which invest in funds on the same mutual fund house, whereas multi manager funds invest across different fund houses.

Just going by the definition, it is obvious that multi manager funds should be better. The most important is the fund manager has a wider choice. He is not stuck to his own fund house, where he has to choose the best from the worst, if the schemes are not doing well. This reduces the risk of the portfolio. This is the best if you have long term objectives and do not have time.

As mentioned earlier, you chose the scheme which is close to your objective. The schemes objectives usually remain fixed, but for an individual, his/her objective keeps changing over time, so as your objective changes, move your money to a scheme which is much closer to your most recent objective.

Gold

These days everyone says buy gold or better buy gold based mutual funds. But is it actually what they claim it to be?

First of all why gold and not any other metal. This is only because gold is the most sought after metal and was used as monetary exchange. Though we only look at gold being used as Jewellery, it is also used in Industry like Electronics. In the international market gold is priced in Troy ounce, which is equivalent to 480 grams.

Gold prices have kept fluctuating from time to time from a low of $252 in 1999 to a high of $850 in 1980. The 1980 high was never overtaken till 2008. From 1999 to 2008 the price has gone up almost 4 times i.e. 400%. The major reason for the rise in gold prices is said to be because of increase in money supply in the market, inflation and high fiscal deficit of US.

But like all investments the price of gold also depends on demand and supply. But unlike other investments the biggest problem with gold is hoarding. Since there is always a steady demand for gold, but because of hoarding the supply gets limited and this raises the price.

Major part of gold mined goes into production and only around 15 to 20 % goes in Jewelley and Exchange traded funds.

As per the world gold council, the annual production of gold is around 2500 tonnes whereas the demand is around 3500 tonnes making the demand over supply to be around 1000 tonnes.

When it comes to investing in gold, it is always compared to stocks. The major difference between buying gold directly and stocks is holding cost of gold. You have to store gold and sell to get returns, but in case of stocks other than selling, you also get dividends. Gold will always have a demand, but the demand of a stock keeps fluctuating depending on a number of circumstances.

So the risk factor is low in case of gold. The only other risk in case of gold is holding risk. In that case ETF become a better option.