In an exclusive show on All India Radio, titled Market Mantra, Dhirendra Kumar, CEO, Value Research, answers listeners’ queries to help them make better and more informed decisions on investing their money. In this episode Magnificent Monday tops the viewers interest. Here are the excerpts:
This is a big recovery and the investors needed it badly. Investors were losing patience with systematic investment plans (SIPs). A lot of investors were under the impression that they had done everything right -- they bought a fund, they invested regularly, but they are still down in the dumps, in fact the setback has pushed them back by three years. What wrong have they done? They didn’t indulge in frivolous punts, they did not trade irrationally and they didn’t speculate. So, there was this feeling that it’s not worth venturing out. In this situation, I think the ongoing market rally will be a great comfort for them. And in the latest Bull Run we have seen a big surge in the number of investors coming into mutual funds (MFs) for the first time, its very important for them to hold on.
MFs announced that Monday was no-business day. So, what will happen? Will investors get to know the NAV or not? When will they know the worth of their investment as of now?
If you are invested in MFs then your money would have grown. But no one will be able to buy or sell their investments. And all the people who are invested in MFs will find their investment going up in value. The market has gone up by 20 per cent, so depending upon the portfolio the funds’ NAVs would have gone up nearly 12-25 per cent in terms of equity funds.
If some investors want to sell or buy at Monday’s price then that will not be possible and there is a very important reason behind it. It is a very good step that has been taken because if it was possible for someone to buy or sell at today's price, but the manager is not able to buy or sell at today, then all the investors who have been with the fund for some time will be at a loss.
Because if some one buys on Monday, then the person's money wouldn't have got invested in the fund, so his NAV starts increasing from today but his/her money has not been into the market. In the same way, if someone wants to withdraw from MFs, but the MF manager is not able to sell, then how will the manager carry on redemptions on their part? Today, should be looked at as a Saturday or Sunday. The good news is that the market has gone up and MFs have benefited from it.
I was trying to find MFs with good returns, by good returns I mean a return of 15% on YoY basis in the last 5 years. Do you think it is safe to invest in MFs and could you guide me through it? I have been investing in Reliance Natural Resources Fund for almost the last one or one-and-half-years, all I could see was a lot of demoralization in terms of the value of money presently compared to what I had invested. Should I continue investing there or should I get out?
I would say a lot of your disappointment will be over once you look at the NAV in a day or two. This fund has been able to guard the losses reasonably. But this is not a great fund to have. This is a new fund, the other being it’s a thematic fund and therefore, it is not diversified. I would say when any investor who would choose only one or two funds then he/she should choose a very broad spectrum fund. A fund that would have the liberty to invest everywhere and a fund which has a long history. I would say that Reliance Growth, HDFC Top 200, Birla Sunlife Frontline Equity, DSP Equity these generic funds are better bet than Reliance Natural Resources Fund which will invest only in a specific sector and is a relatively new fund.
I want to know something about the SEBI rule. Monday was a non-business day, so the day's market heights will not be considered as a business day. On Tuesday (19/5/09) what will they take as the closing figure for Nifty – 3,672 (15/5/09) or 4,203 (18/5/09)?
SEBI has nothing to do with the indices. These are decided by the investors’ action, at an average of 50 stocks or 30 stocks in a certain ratio. Because the market on Monday went up way too quickly in a very brief period of time, there is a rule that says if the market goes up in such a brief space of time by this much percentage then trading will be halted. Then it was allowed again and then it halted again because of the same reason. Next day’s stock market indices opening and closing will depend on where the investors bid it to.
I had invested some money in January in Birla Income Plus, Prudential Income Plan and IDFC Dynamic Bond Fund, and the NAV of all three has fallen or not grown at all. Is it advisable to withdraw from the scheme or stay invested? What is the likely future in the timeframe of six months to one year?
On Monday prices would have gone up smartly. The bond yield did go up sharply, by nearly 15 basis points. If you invested in early January, then Monday’s market rise will allow you to recover all your losses -- fixed income funds will certainly break even. I am not very hopeful that the fixed income funds like Birla Income Plus, Prudential Income Plan and IDFC Super Saver will be able to generate substantial returns as bond yield is oscillating in the range of 6-7 %. We have seen this happen in the past one month. So I would say that choose the dynamic bond fund of these fund families like Prudential Dynamic Income or Birla Dynamic Income, because fund managers for these can realign as these are long maturity portfolios. So, they are actually riding this mild curve on the yield. I would say that dynamic funds might be able to capture the returns much better
If someone has invested in tax saving instruments like ELSS through funds such as Fidelity Tax Advantage, HDFC Taxsaver and Magnum Taxgain, the returns of which have not been good last year, then would it be advisable to continue in the long-term, for say, 3-5 years?
Certainly, you should just stick to the plan, equity tax saving funds have the potential to generate substantial returns over a period of time. All the tax saving funds come with a lock-in condition, so stay on course.
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