why not stp ?

I am not an avid tracker of all these indices like sensex or Nifty . I have some of my friends who burnt their fingers not knowing what they were doing in the markets. Some of them were told by their mutual fund agents during the 2007-08 that indian exhanges can give you returns of 200 p.a ..What ?

Come on, lets be honest . For any stock to deliver 200 % yoy , the production needs to jump 200% . Agreed indian markets are huge and they have a lot of value .But expecting a ROI of 200% every year is just next to impossible . Investing in Indian equity would give you returns of abt 20-30% over a longer tenure , which is really good .

Taking their advices and tips , my friends investments have eroded big time .I for one never believed in stuff which generates short time happiness . I prefer long term . After some analysis, I did come to know that most Mutual fund AMCs have a product called STP .
Yeah Systematic Transfer plan . Whats so great abt it ? This is very much similar to SIP ( Systematic investment plan ) . But with a minor difference .
Here , you move the money periodically frm debt funds ( check my old article on this ) to equity funds instead of having bulk deposits . This way you if you are in the top tax bracket you save on tax on Savings account as well as you get the fruits of investment in equity . The only catch here is you might not have AMCs which are strong both in debt and equity . And you can have a STP only within a AMC ad not across AMCs.
All AMCs should have these products. You might want to try this product and let me know your feedback .

Madhu
-the financial expert .

Savings A/c or Short Term Debt funds

The Indian equity markets are at dizzy heights and it seems they have taken steroids . They are running up as if they want to catch up with Ben Johnson . Ofcourse this comes with a lot of risk .
Thanks to these heights I have seen a lot of mutual Fund AMCs launching arbit schemes under various names . Though I feel most of them dont have any value addition. I have seen a lot of ppl running behind just because the new funds have no Entry Loads . Should only Equity market be our investing strategy . Why is Debt Funds not being discussed at all ?
Actually Debt Funds should also be given its due . Actually I tell you short term debt funds are more tax efficient that your saving account interests . All this assuming you are in the highest tax bracket and you file your tax returns as a nice and honest citizen . Let me explain how .

We all know SB a/c in any bank gives us a return of 3.5 percent . For an amount of say 10000 the ROI = 350 ( I hope my Maths is correct ) after a Year .
That means all 350 Rupees is taxed at your highest tax level . 350 * 30/100 = 12.25 .(Actually these numbers are small ) but the numbers proptiantely increase if the principal is more .

Lets take the same amount in a reasonable shot term debt fund . Ideally if you are in the highest tax bracket , You should be going for a divident option . this is because the dividend payout is made after the tax . So the dividend that you receive is not taxable . typically the NAV falls after a dividend payout . So you can just keep pocketing the dividend . This would be intune of about 4-4.5 5 (average performing fnuds ).It could go up higher . Another thing about short term funds are its far less riskier that Equity funds ....Of course MFs always comes witha statuatory warning . For short term funds there are no entry/exit loads too :)

You might want to visit this for more details .

Next time chose you better not park your money in SB instead think of investing short term money in Short term funds with dividend options .

Cheers,
Madhu
Money manager

Mergers and Acquistions

Recently we come across the major deals happening ... India Inc. has been going great guns thanks to huge deals taking place recently . 2006 had mergers worth close to a few million dollars. Come 2007 , the feather of India Inc , TATAs made a giant leap in Indian acquistions . Worth Over 19 billion dollars, they took over CORUS over a stiff competion. They had increased the offer price close to 60 Percent over their initial bid to come through the bid successfully . This certainly is one of the major milestones in Indian history. Not that its because of the TATA brand. Its about the size of the deal and the sector of the acquistion. Prior to this India was more considered to be the back office support of the service industry . Come in the acquistion, India Inc is in the foray among the best in world manufacturing . It catapulted Tatas frm abt 50s in steel sector to No.5 which is quite a huge jump. All this has been happening with with so much hue and media attention, here comes another man by name Kumaramangalam Birla , silently took over Novelis.
Novelis is an aluminium company based out of Canada and Hindalco is the flagship of the famous Aditya Birla group. The deal is valued at abt 6 Billion dollars and is an all Cash deal .Kumaramangalam envisaged that his flagship should enter the fortune 500 by 2010. This deal has made the group to sail through the fortune list easily. Seems kumar's hunger is not satisfied . Reports say he is set to prowl on acquiring foreign cement companies.
This acquistions and mergers is not over. Suzlon is hawking at a few energy companies in Europe. Great guys , Indians fighting gloablly and making mark . A couple of years back when Oracle took over Peoplesoft its closest competitor amongst a lot of hue cry and litigations, we knew it was consolidation time for industries .
Now I see the the big Indian guns, Tatas and Birlas not afraid of hunting in foreign grounds and making a mark globally and making Indians proud.

Some time back I happened to see a movie by name "We are not Tata Birlas " ..I think I would make a movie.." We should be Tatas Birla"...
Think Big guys ..We should atleast dream big even if we dont acheive it .

Madhu

Mutual Funds - Basics - Part 1

My Cousin asked me whats a Mutual fund and he asked me to give him some advice on choosing advice on Mutual funds .Well I am not a Warren Buffet to give him advice nor am I a free consultant. So I thought I would give a small write up on Mutual Funds so that the adsense picks up proper ads and I advertise my blog.
Coming back on Mutual Funds, i would like to share the basics on Indian Mutual funds once in a while.

Basic : A Mutual Fund is a company which invests money in the stock market on behalf of investors. The money is pooled in by the investors and inturn they are issued units or shares.

NAV : The net asset value (NAV) of a mutual fund is simply its assets minus its liabilities.
In other words, NAV equals the fund's worth. If a fund has assets of 50,000 and liabilities of 10,000
it would have a Net asset of 40,000.

It is from NAV that the price per unit of a fund is calculated.
By dividing the NAV of a fund by the number of outstanding units, you are left with the price per unit.
In our example, if the fund had 4,000 units outstanding, the price-per-share value would be 40,000 divided by 4,000 which equals 10.

The NAVs of funds are constantly changing and, as such, so are their price per shares.
Funds usually wait until the end of each trading day to recalculate their NAV and individual share prices.

See You after some time on another round of Mutual Funds.

BTW, tip for my cousin :
Some good Mutual funds I am invested are HDFC Prudence, Reliance Growth Fund .

Taxing Taxes

This year's budget was awaited with 'great expectations' by countless middle class people in India. He did not disappoint us . He has resturctured the existing tax regime. Typically the salaried class will be benefitted by his announcement . The minimum taxable income has become 1 lakh which is good . Standard deductions have been abolished. This might look like a negative announcement . But then the increase minimum taxable in answers it all .

Also , he has made investments cleaner . prior to this we had limits on various schemes.ELSS was capped at 10000 . Section 88 had a limit of 70000. Also these were rebates at the taxable income .

He has removed all caps and made the retail investor choose the investment option on his own . For a young and aggressive investor like me his new announcement has come as a boon. This could increase equity inflow thrugh ELSS schemes . These investments would be treated as dedeuctions rather than the already existing rebates . Meaning every investor would save 15% tax more than what he was doing before on his investments . Most of us should not forget that Pension funds should be in ones portfolio along with other asset classes.

He has introduced tax on cash withdrawals .This he claims would be serving as tax trails. 10000 is too less an amount to have this introduced. Tax for the money we have already been taxed !!!!

By far this budget has come as a relief for the middle class salaried people .

Of Course one would always wish that we had lesser taxesl . That's human attitude .The more you are given the more we want .

Madhusoodhanan