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

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firo b

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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

Kenny Roger- The Gambler

True Wording ..... I love the song. Life is a gamble.

"If you're gonna play the game, boy, ya gotta learn to play it right.

You got to know when to hold 'em, know when to fold 'em,
Know when to walk away and know when to run.
You never count your money when you're sittin' at the table.
There'll be time enough for countin' when the dealin's done."

Power of Compounding – Get Rich Slowly

Power of Compounding – Get Rich Slowly

What Kind of Retirement are you looking for and at what age you would like to retire? IF you are in age group of 20-25 and you think its not the right time to think about retirement,If you are saying … I’ll think about it may be 5 or 10 years later. Think again. The more you wait the more you would have to pay. You may Delay your planning but the time will not delay.

Lets take a look at the two Friends Raj and Rohan. Raj starts to invest at an early age and invests 5000 each year for the 5 years and Rohan was enjoying all this time spending all his money on unnecessary things. 5 year later he also starts investing …now look below the table assuming 15% rate of return. Raj stops investing after 5 years and let his money grow without touching it till he is 50 while Rohan keeps investing till the end of 50 year. 

	Raj		Rohan
Age	Annual Investment	Year End Value	Annual Investment	Year End Value	Rate of return
21	5000	5750			15
22	5000	12362.5			15
23	5000	19966.875			15
24	5000	28711.90625			15
25	5000	38768.69219			15
26		44583.99602	5000	5750	15
27		51271.59542	5000	12362.5	15
28		58962.33473	5000	19966.875	15
29		67806.68494	5000	28711.90625	15
30		77977.68768	5000	38768.69219	15
31		89674.34083	5000	50333.99602	15
32		103125.492	5000	63634.09542	15
33		118594.3158	5000	78929.20973	15
34		136383.4631	5000	96518.59119	15
35		156840.9826	5000	116746.3799	15
36		180367.13	5000	140008.3368	15
37		207422.1995	5000	166759.5874	15
38		238535.5294	5000	197523.5255	15
39		274315.8588	5000	232902.0543	15
40		315463.2376	5000	273587.3625	15
41		362782.7233	5000	320375.4668	15
42		417200.1317	5000	374181.7868	15
43		479780.1515	5000	436059.0549	15
44		551747.1742	5000	507217.9131	15
45		634509.2504	5000	589050.6001	15
46		729685.6379	5000	683158.1901	15
47		839138.4836	5000	791381.9186	15
48		965009.2561	5000	915839.2064	15
49		1109760.645	5000	1058965.087	15
50		1276224.7	5000	1223559.9	15
Total Investment	25000		125000

 

Vooo …. You see now Raj has invested only 25 thousand while Rohan has invested 1 lac and 25 thousand still the return for Raj is more than Rohan. For Raj 25K turns to 12.76lac and for Rohan 1.25lac turns to 12.23lac so that’s the power of compounding. So you can choose to be Raj and invest early and enjoy the rest of life without investing as Raj Enjoyed for remaining 45 Years or be Rohan and pay all your life for starting late. (Even if you feel that the 15% return figure is unrealistic still with any constant rate of return you will get similar type of statastics only number may differ.)Do you want to know what would have be the value at end of 50 year if Raj would have kept investing till the end with Rohan it would have been 25 lacs with just investment of 5k per year.

There is nothing new about Power of compounding, the only thing is that we are ignorant most of the time and don’t take the steps which should have been taken long time back. Another thing saying I can’t afford to invest now is nothing but just mental laziness, if sit down and exercise your brain you will see that there are many ways and you will be able to figure out a plan for yourself. Think of the loan term benefits and goals. Time is more valuable than money, learn to value your time and time will value you.

Nothing can stop you from getting Rich now। If you Don’t earn a lot and have lot of responsibility, start early start with little amount and get rich slowly. Patience pays you just need to have a little of it. If you do not spend less than you earn, and if you do not save the difference, you cannot build the wealth you desire. The rich are not rich because they earn a lot of money; the rich are rich because they save a lot of money.

At Last i would just live to quote few words by Jim Rohn

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.