Category Archives: Mutual Funds

Personal Finance Website Update

Nine months ago I did not know what a blog is? Stuck up at home due to a back injury, I was casually chatting up with a geeky friend asking him about how to create a website, purely in jest. “Why don’t you begin with a blog and then see if you can make it bigger”, he said and gave me a link of Blogger.

300 posts later, the dream of translating it into a website seems plausible. Just take a look at what I’ve created without knowing html code! (Well, I can figure out the a href link code, but just!!) Now you know why there’s no post here. I have exported these posts to my website blog

RSS readers are requested to take this feed please:

Personal Finance 2.01: It’s a one stop personal finance website and I urge you to take a test drive. Feedback will be of immense help.

Discussion Forum: It’s a forum where you can discuss all your doubts and questions about personal finance, planning and various products like insurance, stocks, mutual funds, etc.

PF 2.01 Blog: I have started a blog focussed on personal finance and I would invite you to share your thoughts. Let’s have a real conversation of PF going on here.

Weblinks: I am regularly out on the web. When I find a great site I list it here for you to enjoy. From the list choose one of my weblink topics, then select a URL to visit.

NewsFeeds: We have some great news feeds to take a look at. Suggestions are welcome.

Financial Advisors Directory: We invite professional and net savvy advisors to register and provide the information needs. This one is a first in India to the best of my knowledge.

The design stage will take another two months after which I’ll be ready to go live. The real action begins only after then. Wish me luck.


Transparency in Mutual Funds

Open letter to SEBI by, a financial planning initiative. It can be reached at I have their permission to reproduce the article.

Dear Mr. Chairman:

The fact sheet of a mutual fund scheme that is released by its Asset Management Company (AMC) is a vital source of information for investors. However, in our view, the information provided by AMCs in these fact sheets is often inadequate and/or incoherent.

At Personalfn, we have always championed the cause of investors. To that end, we present a wish list for disclosure of information in mutual fund fact sheets.

1. Expense ratio The ratio represents the expenses charged by the AMC to the mutual fund for various purposes like investment fees, marketing and selling expenses including agents’ commission and transaction costs among others. These expenses eat into the returns clocked by the investor; expenses in fact have a very significant impact on long-term returns of the scheme. Given its importance, the expense ratio should be published in the fact sheet every month. At present only a handful of AMCs follow such a disclosure policy.

2. Portfolio turnover ratio The portfolio turnover ratio is a measure of how frequently stocks have been bought and sold by the fund manager. The same can offer investors an insight into the fund manager’s investment style. Of course, a higher ‘churn’ also has an implication on the expense ratio. There is a need to ensure that AMCs disclose portfolio turnover ratios in the monthly fact sheet. More importantly, the same needs to be computed in a standard manner. Among the AMCs that choose to reveal portfolio turnover ratios, some make use of a rolling 12-Mth period for the computation, while others consider the financial year as the starting point.

3. Average portfolio maturity It is common to find debt fund fact sheets mentioning the portfolio’s average maturity. As the name suggests, the figure denotes the time to maturity for all the debt instruments in the fund’s portfolio expressed as an average. Conversely, there are others which simply mention the duration (the unit for which is a time period i.e. days/months as well). However, duration (albeit vital) is a distinct measure from the average portfolio maturity. Duration is the tenure for which a portfolio of bonds or a bond must be held, for the investor to be immune to interest rate changes. There is a need to ensure that all debt funds disclose both their average maturities and durations in their fact sheets. Also a standard computation method must be followed so that investors can conduct a meaningful comparison between like schemes across fund houses.

4. Fund manager profile The fact sheets should unambiguously declare the fund manager responsible for every mutual fund scheme along with his profile. Similarly, the period for which he has been managing the given scheme should be mentioned as well. This will prove particularly relevant in situations wherein a successful fund manager, who was responsible for an impressive performance, has been replaced by another fund manager. Investors who are about to get invested in the scheme based on its track record, should be made aware that a new fund manager is now in charge.

5. Is the fund manager invested in the scheme? It is always comforting for consumers to know that the “cook eats his own cooking”. Similarly, a fund manager investing in a fund managed by him can be source of confidence for investors. The monthly fact sheet should have a disclosure in terms of whether or not the fund manager is invested in the scheme.

6. Unambiguous investment objectives Investment objectives like “to achieve log-term capital appreciation” are commonplace in the mutual funds segment. Such objectives are inconclusive and offer no aid to a prospective investor who is contemplating investing in the fund. An ideal investment objective must be unambiguous and comprehensive.
For example, the objective could read, “a growth-styled fund, the fund aims to achieve long-term capital appreciation by investing predominantly (at least 70% of assets) in stocks from the large cap segment. Long-term being defined as at least 5 years and companies with a market capitalisation of over Rs 50 bn (Rs 5,000 crores) at the time of investment qualifying as the large cap segment. The fund can also invest upto 30% of its assets in debt/money market instruments for defensive considerations”.

A rigidly defined investment objective ensures that the investor is decidedly aware of the investment proposition offered by the fund and can make an informed investment decision. The regulator should make this mandatory. Furthermore, the Board of Trustees can at preset time intervals (say semi-annually) offer their comments on the AMC’s adherence/success in achieving the stated investment objective.

7. Portfolio disclosure AMCs have increasingly stopped disclosing entire portfolios in their fact sheets (the printed versions, which are sent to investors). For example, in the case of equity funds most fact sheets simply reveal the top 10 stock holdings. So the fact sheet for an equity fund which holds say 50% of net assets in the top 10 stock holdings doesn’t reveal half the portfolio. Similarly there is also a case for more meaningful disclosure. Related sector holdings can be clubbed to reveal the true diversification levels in the fund’s portfolio. For example, holdings in related sectors like Auto and Auto Ancillaries can be clubbed and shown under a common heading i.e. Auto.

The regulator should make it mandatory for schemes to disclose their complete portfolios and also to follow a standardised classification of companies into sectors.

We believe that the inclusion of the aforementioned disclosure norms will go a long way in furthering the cause of investor empowerment.

Financial Literacy Drive Treasure Post

This post links to a treasure trove of information on personal finance. Actually, April was National Financial Literacy Month in the US and JDR (GetRichSlowly) has the ultimate collection of posts covering everything on Personal Finance.

Other than the 20 posts linking to the literacy drive, he also links to his popular articles and the websites which provide such information. Maybe it’s all dry information, but you can do well to bookmark that post and keep coming back to it. It’s dry, but important for you. Why? Look at the following questions and then decide.

How much do you know about money? Have you learned about the power of compounding? Do you know how the stock market works? What is a bond? Can you tell the difference between an Income Statement, a Balance Sheet, and a Cash Flow Statement? Do you even know why you would want to?

Do you know how to keep a budget? Do you understand how your taxes are used and why we pay them? Do you know what it takes to purchase a house? How much insurance do you need?

Head on to this treasure trove. Even though some posts are US specific, the concepts are useful and important to learn.

Is ULIP for you?

ULIP is a hot selling insurance product these days. Unit Linked Insurance policy is an insurance policy where the funds are invested in the Capital market and the policyholder bears all the investment risks.

Insurance companies are falling over each other to bring out ULIPs in new and attractive packages, thanks to it being accepted across India in huge numbers. More than 80% of the new premium income of Insurance companies come from ULIPs today.


  • Tax benefit under Sec 80C
  • Better returns than other insurance policies like endowment and moneyback.
  • But shouldn’t this product be left to Mutual Funds who have been dealing with investments in the capital market with much more transparency and disclosures?

    Well, the Insurance companies have only added the insurance angle and are charging separately for that too.

    Let’s look at the charges for investing in a ULIP. Generally, a Mutual Fund charges 2.5% as entry load and 1-2% as Fund Management charges.

  • Premium allocation charges: Companies charge from 5% to 70% as premium allocation charges in the first year. Ofcourse it comes down in the second and third year but still is substantial. This means that only the balance percentage will be invested in funds and the charge goes into commission and other administrative charges.
  • The Mortality Charge of the Life Insurance Coverage: This is common for all the companies and depends on their mortality table.
  • Fund Management Charge ranges from 0% to 2% depending on the Insurance company.
  • Policy Administration Charges
  • Sum Assured charge
  • Surrender charges
  • Last but definitely not the least, the commission ranges from 10% to 32% for your friendly advisor.
  • Companies also run schemes where they take high performing advisors to Singapore, Brazil et al.

    And the investors will be taken to the cleaners!!

    So look befor you leap for a ULIP!!

    Take Responsibility for Your Finances

    Slideshare is a wonderful way of sharing your slides and powerpoint presentations. It is a place to share and discover slideshows. You can embed the slideshows in your blog, tag, comment and have fun.

    I have embedded a presentation I have made on “Taking responsibility for your finances”

    Click here for the slides

    What do you have to say? Please subscribe by Email or Feeds

    Mutual Funds v/s Direct Stocks Investing

    Investing in the equity market directly is exciting and sexy. You are in the thick of things and are able to take responsibility for yourself. Though the volatility and the information overload makes it a daunting task.

    How about investing through Mutual finds? Doesn’t it have its own loading and administrative charges and the fund managers making merry on your hard earned money? And can’t we see the best performing mutual funds and follow their portfolio?

    Here are some points to ponder:

    We should allocate our time to investment decisions in proportion to our income generation goals.

    Convenience and hassle free investing should be a major factor.

    Fund managers are into it full time. If we able to identify fund managers who have consistently performed over last 3-5 years, nothing like it.

    The fund manager also has the muscle power of crores of Rupees and is able to take entry and exit decisions impartially.

    MFs continuosly churn their portfolio. When MFs buy and sell stocks, they don’t have to pay capital gains as you do when you churn.

    We are likely to panic over market crashes. MFs can take advantage of a crash!
    With Systematic Investment plans (SIP), you can start investing with as low as Rs 500 per month.

    There is another financial product called ETF: Exchange Traded Funds. They are the least expensive and manage themselves on their own.

    Take your call.

    What are Exchange Traded Funds

    Basically, Exchange Traded Funds (ETFs) are open-ended index fund that can also be traded on the stock market.

    Compared to Mutual funds, there are many advantages of ETFs, one is real time pricing, secondly long term investors are protected from short term traders. Hence it proves to be an ideal instrument for both long term as well as short term investors and also it is easy to buy and sell from the exchange.

    One major disadvantage of ETF is that the investor should have a demat account and a broking account.

    There are two types of advantages over index funds – one is the expense ratio which is currently lower in ETFs as compared to normal index funds. The second advantage is the distribution costs- the other index funds have to pay trail commission to the broker, while ETF does not pay the same. So the ETF cost will be lower.

    In addition to the above-mentioned expenses, there also exist some `hidden’ costs like transaction costs. Such costs do not form a part of the expense ratio like brokerage and STT. The transaction costs however, are incurred by index funds but not by ETFs. This is another area where ETFs score over regular index funds.

    ETFs don’t incentivise their product, which other regular mutual funds can do, hence there is no one pushing it.

    But internationally what has happened that over a period of time people have found out that ETFs are ideal instruments and it has become more popular.

    In India the ETFs have outperformed the actively managed funds over the last year.

    Even though the actively managed funds have done better on a 3/5 year scale, the net difference would be lower or non existent because of the higher cost. The active funds charge you 2-2.5% while the ETFs charge around 0.5% only. The extra Fund management charges will even out the difference, I guess.

    I wonder why a good product like index funds does not sell like hot cakes. Comparatively an expensive product like ULIP is selling like hot cakes even though it is much more expensive than the MFs??!!

    I guess it boils down to lack of knowledge/information and that the agents have no interest in selling them.

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