How to Choose best Mutual Funds

Mutual Fund

A mutual fund is a pool of money that is professionally managed for the benefit of all shareholders. As an investor in a mutual fund, you own a portion of the fund, sharing in any increases or decreases in the value of the fund. A mutual fund may focus on stocks, bonds, cash, or a combination of these asset classes.
Things to Remember about Mutual Fund
· Past Performance is not the guarantee for the future performance but it can be taken as a parameter to find out the relative performance.
· There is a cost associated with mutual funds when it is bought which affects the overall returns.
· A mutual fund does not guarantee the safe returns as bank fixed deposit or Govt. bonds even if you buy the MF from bank or even if the MF has banks name associated with it.

There are so many MF in the market and how to decide which one to buy is a difficult question for lot of people. Lot of us depends on our MF agents/advisor and to be honest, not many know about the product themselves, they come with the small knowledge which they have been told by the marketing team. Half knowledge can be very dangerous, so how to choose the MF.
There are few indicators which are used by finance industry to assess the risk towards the MF or stocks or bonds which can be used to check the risk of fund you want to buy.

1. Alpha:
In finance, alpha is a financial measure giving the difference between a fund's actual return and its expected level of performance, given its level of risk (as measured by beta). A positive alpha indicates that a fund has performed better than expected based on its beta, whereas a negative alpha indicates poorer performance.
Simply stated, alpha is often considered to represent the value that a portfolio manager adds or subtracts from a fund portfolio's return. A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%. Correspondingly, a similar negative alpha would indicate an underperformance of 1%. For investors, the more positive an alpha is, the better it is.

2. Beta:
Simply stating Beta is a measure of a stock's volatility in relation to the market. By definition, the market has a beta of 1.0, beta of 1.0 indicates that the investment's price will move in lock-step with the market. A investment that swings more than the market over time has a beta above 1.0. If investment moves less than the market, the investment's beta is less than 1.0. High-beta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower returns.
Conservative investors looking to preserve capital should focus on securities and fund portfolios with low betas, whereas those investors willing to take on more risk in search of higher returns should look for high beta investments.

3. R Squared:
A statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index. An R-squared of 100 means that all movements of a security are completely explained by movements in the index. A high R-squared (between 90 and 100) indicates the fund's performance patterns have been in line with the index. A mutual fund should have a balance in R-square it should not be more than 90 and less than 80 . A mutual fund with less than 80 rsquare shows that they have more tendency to be volatile. Mutual fund investors should avoid actively managed funds with high R-squared ratios, as being “closet” to index funds. In these cases, why pay the higher fees for so-called “professional management” when you can get the same or better results from an index fund.

4. Sharpe Ratio:
The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been. A negative Sharpe ratio indicates that a risk-less asset would perform better than the security being analyzed.

You can visit the Value Search online for your research on mutual funds; this site provides you with all the details you require for any mutual fund.
Some of the Top Fund with high returns are listed below:
1. DSPBR Equity 5Yr Return 29.2%
2. Reliance Diversified Power Sector Retail 5Yr Return 39.1%
3. Canara Robeco Equity Tax Saver 5Yr Return 28.5%
4. Sundaram BNP Paribas Select Midcap Reg 5Yr Return 27.5%
5. HDFC Top 200 5Yr Return 28.34%


Read more about MF VS Jeevan Saral Review hear

Jeevan Saral Vs Term Insurance and MF

My Friend Anand recently bought the Jeevan Saral policy, so I thought of analyzing his investment. It is very good policy and has won the Prestigious GOLDEN PEACOCK award for the best features like higher cover, smoother return , liquidity and lots of flexibility. But some where we need to Self Evaluate , is it really worth?

Anand took the basic cover of 15lacs and his annual premium came out to be 72K i.e. 6K per month. The maturity amount after 15 years will be 2675922 @10% I.R.R. (Internal Rate of Return)

Annual Investment	Maturity Amt.	Basic Insurance cover	Accidental Cover	Term
72000	2675922	1500000	3000000*	15 year

*Accident Benefit & Disability is allowed (with extra premium)

Now let’s see if we can invest the same amount in a better way for Anand.

First let’s take a Term Insurance for Anand’s life cover. Let’s take a Term Insurance of 50lacs for maximum tenure of 30 yrs Premium would be close to 13K. Now after investing 13K for life cover we will be left with 59000 out of 72K.

Now let’s put 5000 in PPF each year for Anand, so we are left with the 54K. Now let’s do a SIP for Anand of 54K that will be 4.5K per month. Let’s diversify it into 3 Mutual funds so that will be 1.5K per mutual fund per month.

So the total accumulation at the end of 15 yrs will be around 1.45lac from PPF and 30.45lac from mutual fund (Historical return from mutual has been more than 17-18% and last 5 yrs return are more than 25%) . Let’s assume just 15% and not 18-20%, even though it’s possible. We will take pessimistic view and just assume 15% return for mutual funds over a long term view of 15 years. So we have total 31.9lacs corpus build in 15 years.

List of few Best Tax saving mutual funds

Name of MF	Year since launch	Return since Launch	Return in last 5 year
Sundaram BNP Paribas Taxsaver	11(1999)	22.73%	25.89%
HDFC Tax Saver-G	14(1996)	35.25%	25.27%
Magnum Taxgain-G	17(1993)	19.62%	26.45%

So now you can see that the maturity amount at the end of 15 Year is better in case of Term Plan + investment in mutual fund. This can be even better if we invest the amount of PPF also in mutual fund but it is said that your funds should be diversified so we did put some amount in PPF for that matter.

If you don't design your own life plan, chances are you'll fall into someone else's plan. And guess what they have planned for you? Not much. Live Your Own Dream

Few more benefit which we can think of are

• If Anand gets in to some problem and is unable to pay the annual amount still he can just pay 13K for the Life cover and stop the SIP in mutual funds. Doing this he can easily keep covering his life risk which will give protection to his family in case of casualty.

• If Anand dies due to natural cause and not by accident then to his family gets the full amount of 50lacs for which he is covered which is more than 3 times risk amount covered by Jeevan Saral policy.

• In case of casualty the family of Anand not only gets the Insured amount of 50lacs but also gets the amount accumulated in PPF and Mutual funds.

• In case Anand requires money for any emergency requirement then he can withdraw the money from mutual fund easily without having any issue of policy being discontinued or something else happening in policy like less cover or some other clause implied by policy as per agreement for which he might get less than the assured amount etc.

To know more about power of compounding Read Here

Fundamental Interpersonal Relations Orientation

FIRO is a theory of interpersonal relations, introduced by William Schutz in 1958. This theory mainly explains the interpersonal underworld of a small group. The Theory is based on the belief that when people get together in a group, there are three main interpersonal needs they are looking to obtain - affection/openness, control and inclusion. Schutz developed a measuring instrument that contains six scales of nine-item questions that he called FIRO-B. This technique was created to measure or control how group members feel when it comes to inclusion, control, and affection/openness or to be able to get feedback from people in a group.

Please go through the two slides below by Teresa1 and Stella to get know more on this topic.

FIRO B Lecture

See more presentations by Teresa1 | Upload your own PowerPoint presentations

firo b

See more presentations by Stella | Upload your own PowerPoint presentations

Current View on Nifty

Hi,
After long time putting up my views on current scenario of Nifty. Please click on the chart to view the bigger Picture and my comments on left hand side of the chart. Please write in your comments on current situation what are your targets and where do you see us going from here.

Need Financial Analysis for this crisis …

A good story about economics...

It is August. In a small town on the South Coast of France, holiday
season is in full swing, but it is raining so there is not too much
business happening & Everyone is heavily in debt.

Luckily, a rich Russian tourist arrives in the foyer of the small local
hotel. He asks for a room and puts a Euro100 note on the reception
counter, takes a key and goes to inspect the room located up the stairs
on the third floor.

The hotel owner takes the banknote in hurry and rushes to his meat
supplier to whom he owes E100.
The butcher takes the money and races to his supplier to pay his debt.
The wholesaler rushes to the farmer to pay E100 for pigs he purchased
sometime ago.
The farmer triumphantly gives the E100 note to a local prostitute who
gave him her services on credit.
The prostitute goes quickly to the hotel, as she owed the hotel for her
hourly room use to entertain clients.
At that moment, the rich Russian is coming down to reception and
informs the hotel owner that the proposed room is unsatisfactory and
takes his E100 back and departs.

There was no profit or income. But everyone no longer has any debt and
the small town people look optimistically towards their future.

COULD THIS BE THE SOLUTION TO THE GLOBAL FINANCIAL CRISIS ? OR IS THERE A
CATCH HERE ??

Please leave your comments

Source of the above story unknown