Saturday, 1 December 2012

Build different portfolios for different financial Goal

                  Anubhav (name changed) started building a kitty for his daughter's education and marriage almost as soon as she was born but now finds himself falling short, Anubhav did the right thing in starting early. But like the orerwhelming Indian majority, he invested in low-yielding instruments. Starting a bank deposit in your child's name or buying a child insurance plan my simply not be enough to secure your child's future. The income grows alright, but so do the cost of education and wedding expenses.
                  Here's a do-it-yourself portfolio plan that you may consider putting in place for your child:
Assess the cost: First assess the future cost of education and marriage expenses. Today education expense is 7% higher compared with a year ago, according to data from the Consumer Price index (CPI). If this were to continue, the cost of a graduate programme of say Rs. % lakh today will more that 10.5 lakh in 11 years. Hence, keep the future value in mind. For wedding, take in to account a 8-9% price riser per year.
Time horizon: Secondly, find out when you need to rach your goals. That will decide the nature of your child's higher education is say 10 years away, you can hold a good proportion in equities - an asset class known to beat inflation over the long term. But if you need the money in say 2-3 years, then you will have to settle for fixed deposits or short-term debt funds,



Both equities as well as options 
such as PPF and NSC are far 
more tax efficient than the 
regular fixed deposits offered 
by banks:



Start early: Starting early allows you to take exposure to high-yielding asset classes besides using the power of compounding in your favour. Option such as systematic investment plan (SIPs) offered by mutual funds allow you to make small investment for the long term in a disciplined way. But you should increase this investment at least once a year, as your income grows.

Separate portfolios: Ensure you have separate investments for different goals. This is important because an investment you choose for a goal that is 10 years away may not be suitable for another goal that is just three years away.
Building a portfolio: Should you have deposits, PPF, mutual funds, child plans or gold? Ideally you should have a combination of these. But if you can take some risk and your child's requirement is a while away, then high yielding asset classes like equity should account at least 50% of your portfolio. Gold can find a place in a marriage portfolio with 5-15% allocation. The rest can be in a combination of debt products such a PPF, deposits, long-term tax-saving bonds and NSC.
Remember, both equities as well as options such as PPF and NSC are far more tax efficient than the regular fixed deposits offered by banks. Also, if you do not understand the child insurance plans offered in the market, then stay away. A portfolio built simply with a combination of regular equity funds and debt should fit   your need as well.
               However, do go for a simple term insurance in your name, to cover the cost of all these goals in case of any eventuality. The premiums are not high and it is the best risk cover you can think of to sucure your child's future.

Source: Times of India, Ranchi (Tuesday, Nov. 27, 2012
             The author is head, mutual fund research, FundsIndia


Friday, 9 November 2012

Provident Funds, pension funds can soon invest in corporate bonds

NEW DELHI: The Finance Ministry said on 09-11-2012 it will soon relax norms to enable pension and provident funds to invest in the corporate bond market, with a view to provide an additional funding source for infrastructure projects. 

Addressing leaders from the infrastructure sector, Department of Economic Affairs Secretary Arvind Mayaram said the government is keen to develop the corporate bond market. 

Among other things, he said relaxation of investment guidelines of pension and provident funds is required to enable the participation of a long term and stable class of investors in corporate bond market. 

"This is one area (relaxation in investment norms) we are very actively looking at and we would be coming out with some new guidelines in the near future," Mayaram said. 

While India has a very advanced G-sec ( government securities) market, the corporate bond market is relatively under-developed. 

A developed corporate bond market provides additional avenues to corporates for raising funds in a cost-effective manner and reduces reliance of corporates on bank financing. 

Also, Mayaram said, strengthening of legal framework for regulation of the corporate debt market is required by amending rule and regulations, like SARFAESI and I-T Act. 

"We are aware of this and looking at that to see how we can amend these to enable the corporate market to get its debts," he said. 

He further said that efforts were on to remove legal and regulatory constraints for nascent products such as municipal bonds, credit-default swaps, credit enhancement and securitisation receipts. 

"We are examining what needs to be done to deepen the corporate bond market. They (steps) are all on the anvil. We are looking at them and we will be announcing those which are feasible very quickly," he later told reporters. 

India requires USD 1 trillion in the 12th Five Year Plan (2012-17) to develop infrastructure and the government expects half of the amount to come from the private sector. 

Mayaram said there is also need to look into the capacity of the private sector to handle large volume of infrastructure works which are expected to be executed during the 12th Plan. 

"The private sector lacks that capacity. We will not be able to produce the kind of large companies and more companies who are in position to bid for large projects," he said. 

In this backdrop, he said it is important to reach out to foreign companies who are capable of executing large projects for encouraging the private sector to form joint ventures. 

He said such joint ventures are needed for expanding implementation and execution capacity of domestic players "because ultimately there would be only as much finance as there are those who can use it". 

Referring to Exchange Traded Funds (ETFs), which can be used for funding infrastructure, Mayaram said they are yet to take off in a big way.

Source: Economic Times

Tuesday, 14 August 2012

Interesting Read


One of Benjamin Graham's most famous quotes goes thus: "In the short run, the market is a voting machine but in the long run it is a weighing machine." That is indeed so true. In the short to medium term, share markets may witness wide irrational swings. But in the long run, share market valuations tend to reflect the true fundamentals.

How do share markets function in the short to medium term? It is important to understand that stock prices usually reflect the future expectations of market participants from the real economy. It may so happen that a bull run commences months before earnings actually show an improvement. Similar, markets may start falling even before earnings show any deterioration. Of course, it is impossible to determine the lead and lag time in such cases. Moreover, the market expectations may not always translate into reality. On many occasions markets are prone to false anticipation.


Source: The 5MINUTWARPUP

Friday, 30 March 2012

Oil Prices


March 28, 2012
By Jason Simpkins, Managing Editor, Money Morning
With oil prices soaring ever higher, Saudi Arabia stepped in last week and vowed to increase its production by 25% if necessary.

But while that assurance managed to siphon a few dollars off of oil futures, the reality is there's nothing Saudi Arabia - or anyone else, for that matter - can do about rising oil prices.

In fact, crude is still on track to reach $150 a barrel by mid-summer.
Latest Oil Prices

As Saudi Oil Minister Ali Naimi pointed out last week, current oil supplies already exceed global demand by 1 million-2 million barrels per day.

For its part, Saudi Arabia is already breaking its own OPEC-imposed production quota limit, churning out about 10 million barrels of oil per day - close to its 12.5 million barrel capacity.

Yet the effect of that production has been negligible.

Oil is still trading at $106 a barrel on the NYMEX - something that has clearly flummoxed the world's largest oil producer.

"I think high prices are unjustified today on a supply-demand basis," said Naimi. "We really don't understand why the prices are behaving the way they are."

Naimi and his colleagues may not understand oil's price gyrations, but Dr. Kent Moors, an adviser to six of the world's top 10 oil companies and energy consultant to governments around the world, does.

"Despite the excess storage capacity in both the U.S. and European markets and the contracts already at sea, oil traders set prices on a futures curve," said Moors. "In a normal market the price is set at the expected cost of the next available barrel. During times of crisis, on the other hand, that price is determined by the cost of the most expensive next available barrel."

And with tensions with Iran running high, we are currently in crisis mode. Pushed to the brink by Western sanctions, Iran has threatened to close the Strait of Hormuz - the narrow channel in the Persian Gulf through which 35% of the world's seaborne oil shipments and at least 18% of daily global crude shipments pass.

If Iran closes the Strait of Hormuz, crude oil prices will pop by between $30 and $40 a barrel within hours. Should the strait remain closed for 72 hours, oil trading will push up the barrel price to $180 in New York, and closer to $200 in Europe.

The situation is further complicated by potential military conflict - such as an Israeli air strike on Iran's nuclear facilities.

And with indications that Iran will have the ability to develop nuclear weapons in the next 18 to 24 months, Western powers have apparently shifted their focus from halting Iran's nuclear program to sowing instability in the country with the hopes of catalyzing a regime change.

So what does that mean for investors?
Making the Most of High Oil Prices
First and foremost, it means oil prices are set to go even higher - particularly as we approach the high end of seasonal demand.

To be clear, the only ones who stand to benefit from the situation in Iran are commodities brokers. Whether Iran successfully develops a nuclear bomb, Western powers intervene with military force, or the country's political regime is overthrown, the resulting turmoil will lead to an oil price spike.

Consider the effect the Libyan civil war had on the energy markets last year: Libya's revolution took oil prices from $83.13 a barrel on Feb. 15 to $113.39 a barrel on April 29.

That's a 36% surge in a period of about two and a half months.

At that time, Libya was only the world's 17th-biggest oil producer. Iran is the world's fourth-largest oil producer.

The country pumps out about 3.6 million barrels of oil a day, which is about 5% of the world's total supply. By comparison, Libya produced about 1.5 million barrels of oil per day prior to its civil war, or about 2% of the world's total.

And the situation would be further exacerbated if Iran follows through on its threat to close the Strait of Hormuz.

So here are some steps you can take to brace yourself now, if you haven't already.

The easiest way to play the looming rise in oil prices is through exchange-traded funds (ETFs).

There are several from which to choose, including: The iPath S&P GSCI Crude Oil Total Return ETF (NYSE: OIL), the PowerShares DB Oil Fund (NYSE: DBO), the SPDR S&P Oil & Gas Explorers & Producers Fund (NYSE: XOP) and the SPDR Oil & Gas Equipment & Services Fund (NYSE: XES).

Friday, 3 February 2012

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Friday, 16 December 2011

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