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Volatility will Remain for Now

Dhirendra Kumar, in a radio interview, says that the nuke deal is not big enough to stabilize the markets

Was the nuclear deal such a big thing that the Indian stock market jumped so much or considering the positive note on all Asian stocks, should we consider the news of Freddie and Fannie being the main reason why stocks went so high?
I don’t think that we should make a big deal out of this surge in the market, since it’s in a volatile state it is natural that it will go up by 500 points and then fall by another 200 to 400 points. We can see this by simply noticing that like last week Sensex went up by for no apparent reason and then on Friday it fell down on its own. Then today (Monday) it went up by 500 points. Now there are reasons why the market seems so bullish today, because there is some good news and sign of relief. This nuclear deal is significant but I personally don’t think any specific company will derive the benefit out of this and the deal has not concluded as yet, there is a process and it’s a long way from conclusion as of now. But to bring some sort of positive anticipation in the market it’s enough at least in the short run; though it’s not big enough to bring about stability in the market.

Rather than that I think the news of Freddie and Fannie being rescued by the American government is more of impacting news, since many of the foreign investors come from US and are significant players of the stock market and this news will affect them directly. They may not be as big and as such have nearly negligible impact on the US market but for India their decisions will have massive consequences. So if in any way the confidence of institutional investors and big players is restored then it will have its effect on our market. And I think this has been the major reason which has affected a lot of the Indian market since January.

I don’t think fundamentally anything has happened that we can think or consider that market will not fall now and will hit north trend again.

The markets world over have surged between 3 and 5 % on this news that the US government treasury will be rescuing both these mortgage companies.
I think fundamentally this news has affected all the stock markets and is the big impacting news in recent times.

I have bought the ULIP policy of LIC money plus and have invested the amount of rupees 10,000 per annum for the past two years. I will need that money after 15 years. Please give your opinion on my investment?
ULIP is a good policy by LIC but as I always maintain that long term investors like you, should invest in a good equity based mutual fund. Because right now a certain part of your money will go in for your insurance and some will be used for your investment; now it depends on your scheme as to how much will be invested in equity so that higher returns are gained. But if you are serious about investing for 15 years and would want to maximize your gains then it would be better if you would invest in mutual fund on a regular basis.

I have invested in Kotak-30 for past three years through SIP and my question is if I take out from here then where should I invest in again? Kotak-30 is a good fund. Even in this falling market it would have given you returns of 29% or so. Now since you have invested through SIP some investment would have been made in low market and some in high market but despite this it has given good performance. It’s a good fund and I would say hold on to it, if you want to invest more then go ahead, if you don’t want to invest then don’t but let it be there. It is an open-ended good fund, so it will perform. What is important is that when you need this money and would want to take it out then plan it ahead a year and withdraw it slowly.

If some one wants to invest a huge amount in one go then how should it be done? Since you keep saying that one should invest through SIP, so please tell me how can I achieve it when I have got a huge amount that I have received through windfall gain?
First thing what you should do is choose two-three good funds where you would like to invest. Then there are cash funds which generate income on the lines of FD in a bank. And you can leave a standing instruction with the fund house that every month a fixed amount of 30,000 or 40,000 should be transferred to your equity fund, and till the time the amount is not transferred to your equity fund it will generate fixed return. This procedure is known as Systematic Transfer Plan (STP), and this can be achieved with a simple investment and instruction to the fund house.

I had purchased Tata Service Industries Mutual Fund since March 2005, and it was doing pretty decent but since January it has become disappointment, the returns these days are like -17%. My query is, should I stay with this fund or should I choose something else? And is there something wrong with only this fund or is there some other reason?
This is a slightly below average fund, that does not mean it is bad fund nor should it be taken as a good fund either. It is slightly narrow in its mandate and hence would invest only in service companies. And this fund has delivered an average of eight per cent since inception which is good compared to the bank deposit which would have generated only six per cent. Although there are other good funds which you can consider.

Now you should understand that it is not only your fund that is not performing but all equity based funds are going through a bad phase of the market. Now this is part of the market that some time it will give good returns and sometimes it will be little low. People with long term intention, should not consider or get upset with these events.

Tata Service Industries has not given any superior returns and its risk adjusted returns were also not upto the mark. A good diversified option is always better and they are available with Tata and other fund houses offering it; if possible then switch over to one of them, but I don’t think it is as disappointing.

Will the Sensex ever reach 20,000 again?
Now that is a question I generally tend to avoid because it is certain that it will reach that mark again but the question is when. Which is very difficult to say; it might happen in six months or may even take six years, which is not possible to say.

What is the procedure to open a demat account?
Get in touch with your stock broker or most of these new banks; some of the public sector banks can also help you. Among the documents what you need is a bank account and a pan card.

I am a long term investor and have purchased Birla Mutual fund’s Basic Industries, Sundaram’s India leaders and Net fund. What is your opinion on these funds?
Birla’s fund has performed quite well, it focuses mostly on infrastructure and since inception it has given returns of about 33 per cent. If you have a horizon of 3-5 years then I would suggest to stay invested. Similarly India Leaders is also a good fund and it has the potential for long term performance; its mandate is to invest in stocks that are leaders of an industry be it large cap or small cap but it may be slightly expensive as the initial expenses must be getting deducted from your fund.

As per my opinion these are all average and above average funds and therefore if you plan to invest for three to five years then stay invested and do not transfer them anywhere.

FMP as you had said about it previously, I want to know where and how to invest in them?
Well FMPs give return of about 11% but while investing you should keep a margin of about 1% less in its returns. Like FDs these do not guarantee the returns, although its expected that they will give returns of about that much because the money is invested in well rated bonds. For this you can contact any mutual fund broker or banks.

How is this LIC’s market plus scheme? What is your take on Reliance Natural Resources Fund and Reliance Diversified Power Fund?
Market plus is a ULIP plan, some amount goes for your insurance some will be used for investing. And in that also there is a plan if you want to invest all in equity, fixed monthly plan or is it that you want in debt etc. depends on what you have chosen. If investment is your sole objective then I would say do not invest in this scheme.

Reliance Natural Resources Fund is a new fund and it will be investing a small part in stocks of foreign companies that are into natural resources. It started off from January right after the market fall so it was lucky in not incurring heavy losses. But I would suggest to stay away from this because it will always have a tilt towards natural resources and hence will be floating in volatile market; now its not necessary that luck favors it at all times.

Reliance Diversified Power Fund will also be challenging for investors, now it is the biggest fund in the country, therefore the manager will have to be careful in terms of investment. Till now this fund has given excellent performance, that too despite no reforms in the power sector. If you are investing with a view of 3 to 4 years then go ahead and invest in it. But if you are investing for less than that then it might be disappointing for your objective.

Sir I had a talk with my broker regarding demat, he said ‘demat is absolutely safe but if some one gets the slips signed then it can lead to a problem’; is that true what he said? Yes, demat is absolutely safe. In simple terms, in bank your money is safe but if you give someone a blank cheque then it is not the case any more. In the same way your shares are safe in a demat account but if you give some one a signed demat slip then it is not safe and that person can do harm to you.

All I want to know is three mutual funds where I can make SIP investment of Rs 10,000 and then forget about it for five years?
I would suggest a good diversified equity fund, something like DSPML Top 100 Equity Reg, HDFC Top 200 or Birla Sun Life Equity would be a good choice.