GOLD is the proven, quality, long-term wealth store during a slide into deep crisis -the one which everyone else comes to in a bit of a panic. Even if, to begin with, the early buyers are buying gold purely to protect their wealth they still tend to multiply their money, because they are subconsciously anticipating future demand. The best investments do this."
Gold's Greatest Use
People always ask 'But what’s the use of gold?' which encourages some experts to pretend gold is vital for dentistry and electronics. It isn't. The fact is that gold is hardly useful at all in industry, but that certainly does not mean it is not useful at all.
So let's explain clearly why gold has repeatedly become one of the most fundamentally useful things there is in human society, and to do that let's first recognize its main quality - its reliably rare supply.
How Much Gold Is There?#
Even with modern technology gold is still incredibly difficult to find.
In total about 160,000 tonnes of gold have been taken out of the Earth.
That 160,000 tonnes is less than you might think. Formed into a single gold cube it wouldn’t quite cover a tennis court. In fact it would be 2 metres short. But that’s all the gold in the world.
Gold is being mined at about 2,600 tonnes a year, so the above ground supply is expanding at 1.6% per annum. This newly mined supply means the world's cube of gold - currently 20.2 metres across - is growing by just 11 cm per year.
All the world's gold will cover a tennis court when the above ground stock is 205,000 tonnes. This will be some time around 2025.
205,000 tonnes is approximately the sum of the current above ground stocks (approximately 160,000 tonnes) plus the aggregate un-mined known reserves of all the world's gold mining companies (approximately 45,000 tonnes).
That's all the world's gold - both above ground, and known about but still underground.
How Is That Gold Used?#
Gold is not consumed in any meaningful sense. A tiny amount finds some use as false teeth because of its inertness, and some is used in electronics because of its non-corrosive nature and excellent conductivity.
But currently well over 95% of the world's gold is held as a wealth store - either in bullion vaults or as jewelry, which is generally considered a private monetary reserve (particularly in India, the world's biggest gold customer).
This stock of gold isn't disappearing, and its supply is growing at a very slow rate (1.6% pa) compared to its overall stock. This feature of a nearly fixed above ground quantity, growing slowly, has been true for about 4,000 years.
So you can now see that there exists a large, but not too large, and almost fixed quantity of gold in the world, almost all of which is held by its owners as a tangible store of wealth. That is something which is true of nothing else.
By contrast to gold's restricted supply our money systems are currently expanding out of control. Modern loose monetary policies - designed to keep the factories busy - are expanding the supply of currency, under political direction, by at least 11% per annum; and that's for the Euro, the most hawkishly managed of the modern world's major currencies.
In such circumstances gold's reliable rarity is again noticed by savers. Its great use is as a money proxy when artificial forms of money (which are far more common) are not being properly restricted in supply. In such times gold's unexpandable supply causes it to be a much more reliable store of purchasing power than currency. Nothing does this job so reliably and so well as gold, because nothing matches the unimpeachable rarity and stability of gold's above ground supply.
Better still, as people come to remember and appreciate this unique quality their demand for gold causes not just a retention of purchasing power, but a multiplication of it.
Gold - A Tool of Trade#
Here's a 2,000 year old Roman explanation of a vital tool of trade.
"The origin of buying and selling began with exchange.
Anciently money was unknown, and there existed no terms by which merchandise could be precisely valued. Every one, according to the wants of the time and circumstances, exchanged things useless to him, against things which were useful; for it commonly happens that one is in need of what another has in excess.
But it seldom coincided in time that what one possessed the other wanted, or vice versa. So a device was chosen whose value remedied by its homogeneity the difficulties of barter."
Trade is right at the heart of human society, and it creates the need for this 'device' to store value for later exchange. The device needs homogeneity - constancy of form and quantity - which most governments attempt to deliver with paper money, and they are successful most of the time.
But when the going gets tough governments bend their own rules. They start to issue more and more money, and then nothing exists which matches the homogeneity of gold.
The Romans joined a long list of civilisations which chose gold as a reliable, apolitical, monetary medium. Before them there were the great classical civilisations of the Greeks, Persians, Ionians, and the Egyptians. After them there were many more, through the Spanish, French, Ottoman, British and American empires, all of them with gold based monetary systems.
Gold's Record As Money#
But every single one of those gold based currencies eventually failed - the gold stopped circulating as the money of normal transactions, as currency. So it’s best to avoid the misunderstanding of history which leads so-called “gold bugs” to regard gold as the world’s only true and permanent money, because the hard historical fact is that it has been tested - often - and it both disappears and re-appears, depending on the prevailing economic circumstances.
Yet what is different about gold and other forms of money is the way they disappear, and why. Because its natural qualities recommend it as a high quality form of money gold suffers from Gresham’s Law, a common sense law in economics which states that “bad money drives good money out of circulation”.
Think about it for a moment and you’ll see that given a choice of spending good money (gold) or bad money (inflating paper) you’d spend the paper and keep the gold as a store of value. So in an economy where economic and political considerations have combined to produce a paper currency running in parallel with gold, and where that currency is showing the early signs of being dangerously expanded in supply, then people will elect to hold on to gold and spend paper. Magnified millions of times by everyday transactions in a typical economy this eventually stops gold circulating as money.
For much the same reasons when their time is up paper currencies will pour into circulation as people look to buy hard assets, until eventually the best value you will get from the banknote is to use it as heating fuel.
This is the key difference. While paper money forms disappear permanently, and lose all their value, gold disappears temporarily, and retains its value over the very long term.
Every few years, and when circumstances are right, gold returns. It has a history of doing so which has lasted those 4,000 years.
Gold Can Multiply Your Wealth #
The trick with gold is to understand the causes for these rolling phases, to recognise them, and to act appropriately. If you own gold at the right time you will own a fast appreciating asset when normal business assets, and money itself, are tumbling in value.
Owning gold in good phase is very profitable. In the 5 years after the 1929 crash gold's investment purchasing power rose 17 times.
In the decade of the 1970s gold's investment purchasing power rose 15 times.
So far in gold's current re-emergence, with the economic situation looking every bit as as hostile as the 30s and the 70s, gold's price has multiplied by about 3 times. By comparison with those previous cycles it is still nearer the bottom than the top.
And Gold Can Destroy It Too#
But don't forget gold lost nearly seven eighths of its investment purchasing power between 1980 and 2000. That was during the best period for growing businesses in the twentieth century.
That price slide shows that smart investors should not grow too fond of their gold! Even though it's currently pretty grim the time will come when the outlook for business has improved, and most people either will not have realised it, or will still be too nervous to do anything about it.
Then it will be smart to sell your gold, and use its purchasing power to invest in people and businesses, and to participate once again in the dynamic creation of wealth.
The people who manage to do this will be the smartest of all gold buyers. They are not hoarding gold for its own sake. They are positioning themselves to be able to invest actively in a recovery which is a long way off. By doing this they will be both profiting themselves and serving their communities at the same time. Capital which has not been adequately protected right now will simply not be there to invest in the business opportunities of the future
Thursday, December 17, 2009
Bajaj Hindusthan
For Q4FY09, Bajaj Hindusthan reported numbers were in line with our estimates. Net sales dipped by 10.3% YoY on account of lower sugar sales volume while increased by 8.2% on sequential basis. However, on account of higher other operating income of Rs88 cr (up 543.6% YoY) from unwinding of swap transaction on long-term ECB loans, total income grew by 5.5% YoY and 26% QoQ. The company has closing stock of about 0.17 million tons as on Sep 30,2009. The company reported net profit of Rs69 crore (up 15% QoQ) as compared to a loss of Rs87 cr corresponding period last year.
Upturn in sugar cycles led to revival of Bajaj Hindusthan
For Q4FY09, Bajaj Hindusthan reported numbers were in line with our estimates. Net sales dipped by 10.3% YoY on account of lower sugar sales volume while increased by 8.2% on sequential basis. However, on account of higher other operating income of Rs88 cr (up 543.6% YoY) from unwinding of swap transaction on long-term ECB loans, total income grew by 5.5% YoY and 26% QoQ. The company has closing stock of about 0.17 million tons as on Sep 30,2009. The company reported net profit of Rs69 crore (up 15% QoQ) as compared to a loss of Rs87 cr corresponding period last year.
Margins improved on YoY basis
On sequential basis, EBITDA registered a de-growth of 23.3%, driven by higher employees cost (up 39.4%) and stock in trade and consequently EBITDA margins decreased by 1178 bps to 18.3% during the quarter. Led by significant reduction in interest outlays (down 47.7% QoQ) PAT margins improved marginally by 97 bps on QoQ basis. Foray into power will offset the sugar cyclicality To reduce dependence on the cyclical nature of the sugar industry, BHL had proposed expansion of its power generation capacity by 400 MW for Rs1,600 cr. The company plans to set up a 80 MW coal based power capacity each at five locations in Uttar Pradesh. The power plants are expected to be operational by the next 20 months, which would take the total power generation capacity of BHL to 830 MW. The company expect to sell half of the power to the UP government while the other half would be sold in the open market. The management has guided average power selling price at Rs5 per unit while the cost of power is likely to be around Rs2.5-2.8/unit. We have valued coal based power
generation units at Rs36/share based on DCF valuation with a cost of equity of 14.7%.
Incumbent FCCB redemption in Feb-2011 could pressurize balance sheet
BHL had issued US$120 mn zero coupon convertible bonds due 2011. Out of which, the company had repurchased FCCBs aggregating to face value of US$19.9 mn. The aggregate principal amount of bonds which remained outstanding after repurchase is US$99.6 mn. We estimate cash flow from operations at about Rs1,183 crore during FY10-11E. We estimate balance sheet would be little stretched if these bonds will be redeemed at 133.57% of its principal amount on the maturity date. BHL to raise Rs2,000 cr to fund its expansion plans Bajaj Hindusthan had announced for raising of additional long term funds up-to Rs2000 crores in line with our earlier projections, by further issue of equity shares and/or securities convertible into or exchangeable with equity shares, in domestic and/or international market in one or more tranches. Price settlement between UP mills and farmers in line with our estimates After month-long row between farmers and UP mills over cane price, the UP mills agrees to pay Rs190 per quintal for the common variety and Rs 195 for the early variety, which is in line with our earlier estimates of Rs200 per quintal. The impasse between farmers and mills has already delayed crushing season in the state by about a month.
FY09 Performance review
On consolidated basis, the company reported marginal dip of 2.1% YoY in its net sales. However, on account of 557% YoY growth in other operating income total income grew by 8.8%. Led by lower cane crushed (down 39.7% YoY) during the year raw material costs decreased 10.8% YoY. EBITDA registered impressive growth of 193% on account of lower raw material costs and other expenditure (down 15.5% YoY) and consequently margins improved 1386 bps YoY to 20.8% during FY09. The company reported net profit of Rs57.9 cr during FY09 as compared to a loss of Rs197.6 cr same period last year.
Upturn in sugar cycles led to revival of Bajaj Hindusthan
For Q4FY09, Bajaj Hindusthan reported numbers were in line with our estimates. Net sales dipped by 10.3% YoY on account of lower sugar sales volume while increased by 8.2% on sequential basis. However, on account of higher other operating income of Rs88 cr (up 543.6% YoY) from unwinding of swap transaction on long-term ECB loans, total income grew by 5.5% YoY and 26% QoQ. The company has closing stock of about 0.17 million tons as on Sep 30,2009. The company reported net profit of Rs69 crore (up 15% QoQ) as compared to a loss of Rs87 cr corresponding period last year.
Margins improved on YoY basis
On sequential basis, EBITDA registered a de-growth of 23.3%, driven by higher employees cost (up 39.4%) and stock in trade and consequently EBITDA margins decreased by 1178 bps to 18.3% during the quarter. Led by significant reduction in interest outlays (down 47.7% QoQ) PAT margins improved marginally by 97 bps on QoQ basis. Foray into power will offset the sugar cyclicality To reduce dependence on the cyclical nature of the sugar industry, BHL had proposed expansion of its power generation capacity by 400 MW for Rs1,600 cr. The company plans to set up a 80 MW coal based power capacity each at five locations in Uttar Pradesh. The power plants are expected to be operational by the next 20 months, which would take the total power generation capacity of BHL to 830 MW. The company expect to sell half of the power to the UP government while the other half would be sold in the open market. The management has guided average power selling price at Rs5 per unit while the cost of power is likely to be around Rs2.5-2.8/unit. We have valued coal based power
generation units at Rs36/share based on DCF valuation with a cost of equity of 14.7%.
Incumbent FCCB redemption in Feb-2011 could pressurize balance sheet
BHL had issued US$120 mn zero coupon convertible bonds due 2011. Out of which, the company had repurchased FCCBs aggregating to face value of US$19.9 mn. The aggregate principal amount of bonds which remained outstanding after repurchase is US$99.6 mn. We estimate cash flow from operations at about Rs1,183 crore during FY10-11E. We estimate balance sheet would be little stretched if these bonds will be redeemed at 133.57% of its principal amount on the maturity date. BHL to raise Rs2,000 cr to fund its expansion plans Bajaj Hindusthan had announced for raising of additional long term funds up-to Rs2000 crores in line with our earlier projections, by further issue of equity shares and/or securities convertible into or exchangeable with equity shares, in domestic and/or international market in one or more tranches. Price settlement between UP mills and farmers in line with our estimates After month-long row between farmers and UP mills over cane price, the UP mills agrees to pay Rs190 per quintal for the common variety and Rs 195 for the early variety, which is in line with our earlier estimates of Rs200 per quintal. The impasse between farmers and mills has already delayed crushing season in the state by about a month.
FY09 Performance review
On consolidated basis, the company reported marginal dip of 2.1% YoY in its net sales. However, on account of 557% YoY growth in other operating income total income grew by 8.8%. Led by lower cane crushed (down 39.7% YoY) during the year raw material costs decreased 10.8% YoY. EBITDA registered impressive growth of 193% on account of lower raw material costs and other expenditure (down 15.5% YoY) and consequently margins improved 1386 bps YoY to 20.8% during FY09. The company reported net profit of Rs57.9 cr during FY09 as compared to a loss of Rs197.6 cr same period last year.
14 tax-free incomes for FY 2009-10
The taxing season is going to start in next couple of months and following are few items of income which are fully exempt from Income tax.
1. Dividends on shares and units - Section 10(34) & (35)With effect from the Assessment Year 2004-05, the dividend income and income of units of
mutual funds received by the assessee completely exempt from income tax.
2. Long-term capital gains of transfer of securities - Section 10(38)With effect from FY 2004-05, any income arising to a taxpayer on account of sale of long-term capital asset being securities is completely outside the purview of tax liability especially when the transaction has been subjected to Securities Transaction Tax.Thus, if the shares of any company listed in the stock exchange are sold after holding it for a minimum period of one year then there will be no liability to payment of capital gains.This provision would even apply for the old shares which are held by an assessee and are sold after the Finance (No.2) Act, 2004 came into force.
3. Agricultural income:Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax.However, for individuals or HUFs when agricultural income is in excess of Rs 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner which results into "no" tax on agricultural income but an increased income tax on the other income.Agricultural income which fulfils the above conditions is completely exempt from tax. The manner of calculating tax on total income and agricultural income, is explained in the following illustration:
For the assessment year 2010-2011 a male individual has a total income from trading in cloth amounting to Rs 162,000 besides, he has earned Rs 40,000 as income from agriculture.
The income tax payable by him will be computed as under:
On the first Rs 1,60,000 of taxable non-agricultural income - Nil
On the next Rs 40,000 of agricultural income (falling under 10% slab) - Nil
On the next Rs 2,000 of taxable non-agricultural income @ 10% - Rs 200
IT on aggregated income of Rs 202,000 (Rs 162,000 + Rs 40,000) - Rs 200
4. Receipts from Hindu undivided family (HUF)
Any sum received by an individual as a member of a Hindu undivided family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, where such sum has been paid out of the income of the estate
belonging to the family, is completely exempt from income tax in the hands of an individual member of the family under Section
5. Allowance for foreign service
Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India, rendering service outside India, are completely exempt from tax under Section 10(7).This provision can be taken advantage of by the citizens of India who are in government service so that they can accumulate tax-free perquisites and allowances received outside India.
6. Gratuities Under the provisions of Section 10(10) of the IT Act, any death-cum-retirement gratuity of a government servant is completely exempt from income tax.
In respect of private sector employees, however, gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions. The maximum amount of exemption is Rs 3,50,000. Of course, this is further subject to certain other limits like the one half-month's salary for each year of completed service, calculated on the basis of average salary for the 10 months immediately preceding the year in which the gratuity is paid or 20 months' salary as calculated. Thus, the least of these items is exempt from income tax under Section 10(10).
7. Commutation of pension :The entire amount of any payment in commutation of pension by a government servant or any payment in commutation of pension from LIC pension fund is exempt from income tax under Section 10(10A) of IT Act.However, in respect of private sector employees, only the following amount of commuted pension is exempt, namely -
(a) Where the employee received any gratuity, the commuted value of one-third
of the pension which he is normally entitled to receive; and
(b) In any other case, the commuted value of half of such pension.
It may be noted here that the monthly pension receivable by a pensioner is liable to full income tax like any other item of salary or income and no standard deduction is now available in respect of pension received by a tax payer.
8. Leave salary of central government employees:Under Section 10(10AA) the maximum amount receivable by the employees of central government as cash equivalent to the leave salary in respect of earned leave at their credit upto 10 months' leave at the time of their retirement, whether on superannuation or otherwise, would be Rs 300,000.
9. Voluntary retirement or separation payment:Under the provisions of Section 10(10C), any amount received by an employee of a public sector company or of any other company or of a local authority or a statutory authority or a cooperative society or university or IIT or IIM at the time of his voluntary retirement (VR) or voluntary separation in accordance with any scheme or schemes of VR as per Rule 2BA, is completely exempt from tax.The maximum amount of money received at such VR which is so exempt is Rs 500,000. As per Finance (No. 2) Act, 2009 an assessee cannot enjoy both the exemption in respect of VRS upto Rs 500,000 and also a deduction under Section 89.
10. Life insurance receipts:Under Section 10(10D), any sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy, other than u/s 80DDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured, is fully exempt from tax.However, all moneys received on death of the insured are fully exempt from tax Thus, generally moneys received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.
11. Payment received from provident funds:Under the provisions of Sections 10(11), (12) and (13) any payment from a government or recognised provident fund (PF) or approved superannuation fund, or PPF is exempt from income tax.
12. Certain types of interest payment:There are certain types of interest payments which are fully exempt from income tax u/s 10 (15).
These are described below -
(1) Income by way of interest, premium on redemption or other payment on such securities,bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification in the Official Gazette, specify in this behalf.
(2a) In the case of an individual or a Hindu Undivided Family, interest on such capital investment bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e. 7% Capital Investment Bonds);
2b) In the case of an individual or a Hindu Undivided Family, interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e.,9% or 8.5% or 8% or 7% Relief Bonds); (iid) Interest on NRI bonds;
(3a) Interest on securities held by the issue department of the Central Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949;
(3b) Interest payable to any bank incorporated in a country outside India and authorised perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India or with any scheduled bank
(4) Certain interest payable by Government or a local authority on moneys borrowed by it,including hedging charges on currency fluctuation (from the AY 2000-2001), etc.;
(5) Interest on Gold Deposit Bonds;
(6) Interest on certain deposits are: Bhopal Gas victims;
(7) Interest on bonds of local authorities as notified, and
(8) Interest on 6.5% Savings Bonds [Exempt] issued by RBI
(9) Stipulated new tax free bonds to be notified from time to time.
13. Amount received by way of gift, etc - Section 10(39):As per the Finance (No.2) Act, 2004, gift, etc. received after 1-9-2004 by individual or HUF in cash or by way of credit, etc. is being subjected to tax if the same is not received from relative,etc. However, Section 56(2) provides that the amount received to the extent of Rs 50,000 will, however, be exempt from the purview of income tax.Similarly, amount received on the occasion of marriage from a non-relative, etc. would also be exempted. It may be noted that the gift from relatives. as mentioned in the Section can be received without any upper limit.
14. Tax exemption regarding reverse mortgage scheme - sections 2(47) and 47(x)Any transfer of a capital asset in a transaction of reverse mortgage for senior citizens under a scheme made and notified by the Central Government would not be regarded as a transfer and therefore would not attract capital gains tax. The loan amount would also be exempt from tax.
These amendments by the Finance Act, 2008 apply from FY 2007-08 onwards.10. Life insurance receiptsUnder Section 10(10D), any sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy, other than u/s 80DDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured, is fully exempt from tax.However, all moneys received on death of the insured are fully exempt from tax Thus, generally moneys received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.
1. Dividends on shares and units - Section 10(34) & (35)With effect from the Assessment Year 2004-05, the dividend income and income of units of
mutual funds received by the assessee completely exempt from income tax.
2. Long-term capital gains of transfer of securities - Section 10(38)With effect from FY 2004-05, any income arising to a taxpayer on account of sale of long-term capital asset being securities is completely outside the purview of tax liability especially when the transaction has been subjected to Securities Transaction Tax.Thus, if the shares of any company listed in the stock exchange are sold after holding it for a minimum period of one year then there will be no liability to payment of capital gains.This provision would even apply for the old shares which are held by an assessee and are sold after the Finance (No.2) Act, 2004 came into force.
3. Agricultural income:Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax.However, for individuals or HUFs when agricultural income is in excess of Rs 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner which results into "no" tax on agricultural income but an increased income tax on the other income.Agricultural income which fulfils the above conditions is completely exempt from tax. The manner of calculating tax on total income and agricultural income, is explained in the following illustration:
For the assessment year 2010-2011 a male individual has a total income from trading in cloth amounting to Rs 162,000 besides, he has earned Rs 40,000 as income from agriculture.
The income tax payable by him will be computed as under:
On the first Rs 1,60,000 of taxable non-agricultural income - Nil
On the next Rs 40,000 of agricultural income (falling under 10% slab) - Nil
On the next Rs 2,000 of taxable non-agricultural income @ 10% - Rs 200
IT on aggregated income of Rs 202,000 (Rs 162,000 + Rs 40,000) - Rs 200
4. Receipts from Hindu undivided family (HUF)
Any sum received by an individual as a member of a Hindu undivided family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, where such sum has been paid out of the income of the estate
belonging to the family, is completely exempt from income tax in the hands of an individual member of the family under Section
5. Allowance for foreign service
Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India, rendering service outside India, are completely exempt from tax under Section 10(7).This provision can be taken advantage of by the citizens of India who are in government service so that they can accumulate tax-free perquisites and allowances received outside India.
6. Gratuities Under the provisions of Section 10(10) of the IT Act, any death-cum-retirement gratuity of a government servant is completely exempt from income tax.
In respect of private sector employees, however, gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions. The maximum amount of exemption is Rs 3,50,000. Of course, this is further subject to certain other limits like the one half-month's salary for each year of completed service, calculated on the basis of average salary for the 10 months immediately preceding the year in which the gratuity is paid or 20 months' salary as calculated. Thus, the least of these items is exempt from income tax under Section 10(10).
7. Commutation of pension :The entire amount of any payment in commutation of pension by a government servant or any payment in commutation of pension from LIC pension fund is exempt from income tax under Section 10(10A) of IT Act.However, in respect of private sector employees, only the following amount of commuted pension is exempt, namely -
(a) Where the employee received any gratuity, the commuted value of one-third
of the pension which he is normally entitled to receive; and
(b) In any other case, the commuted value of half of such pension.
It may be noted here that the monthly pension receivable by a pensioner is liable to full income tax like any other item of salary or income and no standard deduction is now available in respect of pension received by a tax payer.
8. Leave salary of central government employees:Under Section 10(10AA) the maximum amount receivable by the employees of central government as cash equivalent to the leave salary in respect of earned leave at their credit upto 10 months' leave at the time of their retirement, whether on superannuation or otherwise, would be Rs 300,000.
9. Voluntary retirement or separation payment:Under the provisions of Section 10(10C), any amount received by an employee of a public sector company or of any other company or of a local authority or a statutory authority or a cooperative society or university or IIT or IIM at the time of his voluntary retirement (VR) or voluntary separation in accordance with any scheme or schemes of VR as per Rule 2BA, is completely exempt from tax.The maximum amount of money received at such VR which is so exempt is Rs 500,000. As per Finance (No. 2) Act, 2009 an assessee cannot enjoy both the exemption in respect of VRS upto Rs 500,000 and also a deduction under Section 89.
10. Life insurance receipts:Under Section 10(10D), any sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy, other than u/s 80DDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured, is fully exempt from tax.However, all moneys received on death of the insured are fully exempt from tax Thus, generally moneys received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.
11. Payment received from provident funds:Under the provisions of Sections 10(11), (12) and (13) any payment from a government or recognised provident fund (PF) or approved superannuation fund, or PPF is exempt from income tax.
12. Certain types of interest payment:There are certain types of interest payments which are fully exempt from income tax u/s 10 (15).
These are described below -
(1) Income by way of interest, premium on redemption or other payment on such securities,bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification in the Official Gazette, specify in this behalf.
(2a) In the case of an individual or a Hindu Undivided Family, interest on such capital investment bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e. 7% Capital Investment Bonds);
2b) In the case of an individual or a Hindu Undivided Family, interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e.,9% or 8.5% or 8% or 7% Relief Bonds); (iid) Interest on NRI bonds;
(3a) Interest on securities held by the issue department of the Central Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949;
(3b) Interest payable to any bank incorporated in a country outside India and authorised perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India or with any scheduled bank
(4) Certain interest payable by Government or a local authority on moneys borrowed by it,including hedging charges on currency fluctuation (from the AY 2000-2001), etc.;
(5) Interest on Gold Deposit Bonds;
(6) Interest on certain deposits are: Bhopal Gas victims;
(7) Interest on bonds of local authorities as notified, and
(8) Interest on 6.5% Savings Bonds [Exempt] issued by RBI
(9) Stipulated new tax free bonds to be notified from time to time.
13. Amount received by way of gift, etc - Section 10(39):As per the Finance (No.2) Act, 2004, gift, etc. received after 1-9-2004 by individual or HUF in cash or by way of credit, etc. is being subjected to tax if the same is not received from relative,etc. However, Section 56(2) provides that the amount received to the extent of Rs 50,000 will, however, be exempt from the purview of income tax.Similarly, amount received on the occasion of marriage from a non-relative, etc. would also be exempted. It may be noted that the gift from relatives. as mentioned in the Section can be received without any upper limit.
14. Tax exemption regarding reverse mortgage scheme - sections 2(47) and 47(x)Any transfer of a capital asset in a transaction of reverse mortgage for senior citizens under a scheme made and notified by the Central Government would not be regarded as a transfer and therefore would not attract capital gains tax. The loan amount would also be exempt from tax.
These amendments by the Finance Act, 2008 apply from FY 2007-08 onwards.10. Life insurance receiptsUnder Section 10(10D), any sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy, other than u/s 80DDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured, is fully exempt from tax.However, all moneys received on death of the insured are fully exempt from tax Thus, generally moneys received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.
Friday, November 20, 2009
VALUE INVESTING
Equity markets around the world continue to be driven by the two powerful emotions of greed and fear, leading many an investor to chase the most talked-about ideas without perhaps as much consideration for the underlying fundamentals and therefore overlooking some great investment opportunities just because these do not find favour with the market. At the same time, far away from the day-to-day clamour of the stock markets, there is a school of investors who quietly work on a disciplined approach to stock picking, making sure that they are buying into low expectations and keeping valuations on their side. Investing to them is not just buying stocks, but using stocks as a conduit for buying into businesses. This is the essence of
Value Investing. This edition of the Perspective takes a look at the concept of Value Investing, its usefulness as an investment style and addresses some of the common misconceptions associated with it.
AT A GLANCE The basics of Value Investing
Value Investing has worked in markets across the world over the long term
Common misconceptions on Value Investing ZOOMING IN WHERE MARKETS REFUSE TO TREAD
"The market is not a weighing machine, on which the value of each issue is recorded by an exact and impersonal mechanism, in accordance with its specific qualities...The market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion,” said Benjamin Graham and David Dodd, professors of finance at the Columbia University in
the USA, who in the 1930s, laid out what is considered to be the framework for value investing. Their concept was actually very simple: identify and invest in companies trading below their inherent worth or intrinsic value.
THE QUEST FOR INTRINSIC VALUE
The value investor looks for stocks with inherently strong fundamentals - including earnings, dividends,book value, and cash flow - that are selling at a lower price, given their quality. The value investor tries to actively identify companies that seem to be incorrectly valued (undervalued) by the market and therefore whose share price has the potential to increase when the market corrects its anomalies in valuation. While a company’s market capitalisation reflects the value of its stock based on what investors are willing to pay for its shares, the intrinsic value seeks to identify what the company is really worth, based on the value of the underlying business. Value investment professionals use different techniques to calculate intrinsic value and there is no universally accepted measure. But, for the most part, they use criteria based on a company’s assets and earnings to evaluate its past performance and estimate its future prospects. Understanding the management, competition and the business model and fundamentals of the company, is also important
in determining the intrinsic value of a company. Then there are other variables such as brand name, trademark, and copyrights that are often difficult to calculate and sometimes not accurately reflected in the market price. Value investors would only be interested to invest in companies that are available at significant discounts
to their intrinsic values. Value investing combines the conservative analysis of determining intrinsic value with the requisite discipline and patience to buy stocks only when a sufficient discount from that value is available in the market.
Because value investing is as much an art as a science, value investors feel the need for a margin of safety to arrive at a decision to invest. A margin of safety is achieved when securities are purchased at prices sufficiently below their intrinsic values to allow for human error, bad luck, or extreme volatility in a
complex, unpredictable, and rapidly changing world.
According to Graham, "The margin of safety is always dependent on the price paid. For any security, it will be large at one price, small at some higher price, nonexistent at some still higher price."
Conventionally speaking, many of the value investors begin their search by looking for investing in stocks with low price-earnings (P/E) or low price-book value (P/BV) ratios in the tradition of Benjamin Graham. The other ratios used by Graham were Dividend Yield, Return on Equity (RoE), Return on Capital Employed (RoCE), Enterprise Value to Earnings before interest, taxes, depreciation and amortisation (EBITDA), Enterprise Value to Sales and Price to Cash Flow etc. Over time, these ratios have been used in the primary screening criteria by many value investors.
BENJAMIN GRAHAM’S VALUE INVESTING TOOLKIT
Based on years of empirical evidence, Graham developed a screening toolkit which he used extensively to identify value picks.
1. P/E of the stock has to be less than the inverse of the yield on AAA Corporate Bonds
2. P/E of the stock has to less than 40% of the average PE over the last 5 years
3. Dividend Yield > Two-thirds of the AAA Corporate Bond Yield
4. Price < Two-thirds of Book Value
5. Price < Two-thirds of Net Current Assets
6. Debt-Equity Ratio has to be less than 1.
7. Current Assets > Twice Current Liabilities
8. Debt < Twice Net Current Assets
9. Historical Growth in EPS (over last 10 years) > 7%
10. No more than two years of negative earnings over the previous 10 years.
VALUE INVESTING – THE WARREN BUFFETT WAY
Graham's most famous student, Warren Buffett, has taken value investing to another level. He chooses stocks on the basis of their overall potential as companies or businesses. Holding these stocks as longterm plays, Buffett seeks not capital gain but ownership in quality companies extremely capable of generating earnings.
WARREN BUFFETT’S TENETS FOR VALUE INVESTINGBusiness
The business the company is in should be simple and easy to understand.
The firm should have a consistent operating history, manifested in operating earnings that are stable and predictable.
The firm should be in a business with favourable long term prospects.
Management
The managers of the company should be candid. As evidenced by the way he
treated his own stockholders, Buffett put a premium on managers he trusted.
The managers of the company should be leaders and not followers.
Financial
The company should have a high return on equity. Buffett used a modified version
of what he called owner earnings:
Owner Earnings = Net income + Depreciation & Amortization – Capital Expenditures
The company should have high and stable profit margins.
Market
Use conservative estimates of earnings and appropriate discount rate.
Valuable companies can be bought at attractive prices when investors turn away
from them.
SOME OTHER SCREENERS
Here is a list of a few more thumb-rules that some value investors use as rough guides for picking stocks. Do remember that these are guidelines, not hard-and-fast rules:
1. Look at companies with P/E ratios at the lowest decile of all equity securities.
2. PEG (Price to Earnings Growth) should be less than 1.
3. Stock price should be no more than the tangible book value.
WHERE TO LOOK FOR VALUE?
Equity markets, from time to time, present situations which are called “Valuation Anomalies”, in which the market either overlooks or is ignorant of the value – either hidden or emerging out of a shift in business parameters. Value Investors wait for these situations to identify suitable investment opportunities.
There are basically three kinds of valuation anomalies that can be seen in the markets:
Over-pessimism – the entire market becomes pessimistic about something and the stocks start falling.Because the stocks are falling, no one wants to invest in them.
Under-estimated structural earnings potential – this structural change happens in an industry or a business which changes it from a fundamentally bad to a good business. And because the markets are so taken by what is happening currently, they miss the structural change.
Under-estimated change (the extent or pace) – this arises where the extent or pace of change is not properly estimated by the market.
The key point of note here is that market will always present such valuation anomalies. These anomalies in turn, are driven by risk-aversion of market players who would like to stay with the crowd and invest in stocks which are already going up no matter how expensive they are. Markets are going to be driven by greed and fear and this is what will create valuation anomalies.
THE VALUE – GROWTH CONUNDRUM
While Value Investing is focussed on valuation anomalies and buying stocks which trade at a price significantly lower than their intrinsic values, Growth Investing involves buying stocks which have a high earnings growth rate and are likely to be expensive as expectations are high. While both styles of investing have their merits as investment strategies and they come into prominence at different phases in the market cycle, empirical evidence is in favour of value investing over a sustainable period of time. This is mainly because in value investing, one buys into low expectations that are less likely to disappoint whereas investing for growth could lead to underperformance over a period of time as growth rate tends to revert to the mean in a capitalistic economic model. For instance, if there is a high growth opportunity in an industry within an economy, it will attract new players who would invest more capital to set up new capacities. As a result, over a period of time, the industry is likely to lose its competitive edge leading to a reversal to its mean growth rate. It is important to remember that any investment strategy that is based upon buying well-run, good companies and expecting the growth in earnings in these companies to carry prices higher is risky, since it ignores the reality that the current price of the company may reflect the quality of the management and
the firm. If the current price is right (and the market is paying a premium for quality), the biggest risk is that the firm loses its lustre over time, and that the premium paid will dissipate. If the market is exaggerating the value of the firm, this strategy can lead to poor returns even if the firm delivers its expected growth.
COMMON MISCONCEPTIONS ON VALUE INVESTING
1. Value investing is investing in “cheap” shares Value investing does not mean just buying any stock with falling prices and therefore one that seems cheap. Value investors generally do their homework to be certain that they are picking a company that is undervalued in spite of its high quality. It is important to distinguish the difference between a value company and a company that simply has a declining price. Say, for the past year Company A has been trading at about Rs. 25 per share but the price suddenly drops to Rs. 15 per share. This does not automatically mean that the company is selling at a bargain and hence is a value stock. All we know is
that the company is less expensive now than it was last year. The drop in price could be a result of the market responding to a fundamental problem in the company. To be a real bargain, this company must have fundamentals healthy enough to imply it is worth more than Rs. 15. Value investing always compares current share price to intrinsic value not to historic share prices. Picking “cheap” stocks without adhering to a valuation discipline could often lead to “Value traps” where prices go on declining further and the investor is never able to recover his investment.
2. A stock with a lower valuation ratio is a better value pick Contrary to popular belief, value investing is not simply about investing in stocks with lower valuation
ratio like a P/E or P/BV. It is just that stocks which are undervalued will often reflect this undervaluation through a low valuation ratio. A low valuation does not necessarily imply that the stock is a value pick. It could be in response to a fundamental issue or weakness in the company. A value investor would try to
establish the intrinsic value of the company and compare it with the market value. The higher the difference between the market value and intrinsic value, the better is the value pick.
3. Value stocks are difficult to find in a growth/emerging market Value investing has nothing to do with a Growth economy or market. Every market, irrespective of its
nature, is likely to throw up valuation anomalies. These anomalies are more to do with market sentiment than anything else. More often than not, there are situations where the market participants take investment decisions out of either greed or fear. As a result, there are some fundamentally strong stocks which suffer from market pessimism, or the market fails to understand the structural earnings potential in an industry or the pace or extent of change is not appreciated.
4. Value investment can not work in a growth market like India A simple study shows that a notional investment of Rs. 1 lakh in the MSCI India Value Index has given about twice the returns of the same investment in the corresponding Growth Index, over a period of the
last 10 years.
5. Value investing can outperform but with a higher risk
The following table shows the compounded annualised growth of the MSCI India Core, Growth and Value indices across various time periods. It can be clearly seen that the Value index has outperformed the others significantly across time periods. At the same time, the Value Index has not added significant risk as compared to the other two indices, when measured by volatility or annualised standard deviation of monthly returns.
CONCLUSION
Value investing has outperformed other investing styles across global markets over the long term. Irrespective of market cycles and regardless of the fact that it is a high or a slow growth market, there could be valuation anomalies which would provide stock picking opportunities for the focused and disciplined value investor.
For most individual investors, it would be well near impossible to replicate this strategy to build up their own stock portfolios. They would be well-advised to look at investing in value funds offered by mutual fund companies to reap the benefits of value investing and add style diversification to their investments.
Source: Fidelity
Value Investing. This edition of the Perspective takes a look at the concept of Value Investing, its usefulness as an investment style and addresses some of the common misconceptions associated with it.
AT A GLANCE The basics of Value Investing
Value Investing has worked in markets across the world over the long term
Common misconceptions on Value Investing ZOOMING IN WHERE MARKETS REFUSE TO TREAD
"The market is not a weighing machine, on which the value of each issue is recorded by an exact and impersonal mechanism, in accordance with its specific qualities...The market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion,” said Benjamin Graham and David Dodd, professors of finance at the Columbia University in
the USA, who in the 1930s, laid out what is considered to be the framework for value investing. Their concept was actually very simple: identify and invest in companies trading below their inherent worth or intrinsic value.
THE QUEST FOR INTRINSIC VALUE
The value investor looks for stocks with inherently strong fundamentals - including earnings, dividends,book value, and cash flow - that are selling at a lower price, given their quality. The value investor tries to actively identify companies that seem to be incorrectly valued (undervalued) by the market and therefore whose share price has the potential to increase when the market corrects its anomalies in valuation. While a company’s market capitalisation reflects the value of its stock based on what investors are willing to pay for its shares, the intrinsic value seeks to identify what the company is really worth, based on the value of the underlying business. Value investment professionals use different techniques to calculate intrinsic value and there is no universally accepted measure. But, for the most part, they use criteria based on a company’s assets and earnings to evaluate its past performance and estimate its future prospects. Understanding the management, competition and the business model and fundamentals of the company, is also important
in determining the intrinsic value of a company. Then there are other variables such as brand name, trademark, and copyrights that are often difficult to calculate and sometimes not accurately reflected in the market price. Value investors would only be interested to invest in companies that are available at significant discounts
to their intrinsic values. Value investing combines the conservative analysis of determining intrinsic value with the requisite discipline and patience to buy stocks only when a sufficient discount from that value is available in the market.
Because value investing is as much an art as a science, value investors feel the need for a margin of safety to arrive at a decision to invest. A margin of safety is achieved when securities are purchased at prices sufficiently below their intrinsic values to allow for human error, bad luck, or extreme volatility in a
complex, unpredictable, and rapidly changing world.
According to Graham, "The margin of safety is always dependent on the price paid. For any security, it will be large at one price, small at some higher price, nonexistent at some still higher price."
Conventionally speaking, many of the value investors begin their search by looking for investing in stocks with low price-earnings (P/E) or low price-book value (P/BV) ratios in the tradition of Benjamin Graham. The other ratios used by Graham were Dividend Yield, Return on Equity (RoE), Return on Capital Employed (RoCE), Enterprise Value to Earnings before interest, taxes, depreciation and amortisation (EBITDA), Enterprise Value to Sales and Price to Cash Flow etc. Over time, these ratios have been used in the primary screening criteria by many value investors.
BENJAMIN GRAHAM’S VALUE INVESTING TOOLKIT
Based on years of empirical evidence, Graham developed a screening toolkit which he used extensively to identify value picks.
1. P/E of the stock has to be less than the inverse of the yield on AAA Corporate Bonds
2. P/E of the stock has to less than 40% of the average PE over the last 5 years
3. Dividend Yield > Two-thirds of the AAA Corporate Bond Yield
4. Price < Two-thirds of Book Value
5. Price < Two-thirds of Net Current Assets
6. Debt-Equity Ratio has to be less than 1.
7. Current Assets > Twice Current Liabilities
8. Debt < Twice Net Current Assets
9. Historical Growth in EPS (over last 10 years) > 7%
10. No more than two years of negative earnings over the previous 10 years.
VALUE INVESTING – THE WARREN BUFFETT WAY
Graham's most famous student, Warren Buffett, has taken value investing to another level. He chooses stocks on the basis of their overall potential as companies or businesses. Holding these stocks as longterm plays, Buffett seeks not capital gain but ownership in quality companies extremely capable of generating earnings.
WARREN BUFFETT’S TENETS FOR VALUE INVESTINGBusiness
The business the company is in should be simple and easy to understand.
The firm should have a consistent operating history, manifested in operating earnings that are stable and predictable.
The firm should be in a business with favourable long term prospects.
Management
The managers of the company should be candid. As evidenced by the way he
treated his own stockholders, Buffett put a premium on managers he trusted.
The managers of the company should be leaders and not followers.
Financial
The company should have a high return on equity. Buffett used a modified version
of what he called owner earnings:
Owner Earnings = Net income + Depreciation & Amortization – Capital Expenditures
The company should have high and stable profit margins.
Market
Use conservative estimates of earnings and appropriate discount rate.
Valuable companies can be bought at attractive prices when investors turn away
from them.
SOME OTHER SCREENERS
Here is a list of a few more thumb-rules that some value investors use as rough guides for picking stocks. Do remember that these are guidelines, not hard-and-fast rules:
1. Look at companies with P/E ratios at the lowest decile of all equity securities.
2. PEG (Price to Earnings Growth) should be less than 1.
3. Stock price should be no more than the tangible book value.
WHERE TO LOOK FOR VALUE?
Equity markets, from time to time, present situations which are called “Valuation Anomalies”, in which the market either overlooks or is ignorant of the value – either hidden or emerging out of a shift in business parameters. Value Investors wait for these situations to identify suitable investment opportunities.
There are basically three kinds of valuation anomalies that can be seen in the markets:
Over-pessimism – the entire market becomes pessimistic about something and the stocks start falling.Because the stocks are falling, no one wants to invest in them.
Under-estimated structural earnings potential – this structural change happens in an industry or a business which changes it from a fundamentally bad to a good business. And because the markets are so taken by what is happening currently, they miss the structural change.
Under-estimated change (the extent or pace) – this arises where the extent or pace of change is not properly estimated by the market.
The key point of note here is that market will always present such valuation anomalies. These anomalies in turn, are driven by risk-aversion of market players who would like to stay with the crowd and invest in stocks which are already going up no matter how expensive they are. Markets are going to be driven by greed and fear and this is what will create valuation anomalies.
THE VALUE – GROWTH CONUNDRUM
While Value Investing is focussed on valuation anomalies and buying stocks which trade at a price significantly lower than their intrinsic values, Growth Investing involves buying stocks which have a high earnings growth rate and are likely to be expensive as expectations are high. While both styles of investing have their merits as investment strategies and they come into prominence at different phases in the market cycle, empirical evidence is in favour of value investing over a sustainable period of time. This is mainly because in value investing, one buys into low expectations that are less likely to disappoint whereas investing for growth could lead to underperformance over a period of time as growth rate tends to revert to the mean in a capitalistic economic model. For instance, if there is a high growth opportunity in an industry within an economy, it will attract new players who would invest more capital to set up new capacities. As a result, over a period of time, the industry is likely to lose its competitive edge leading to a reversal to its mean growth rate. It is important to remember that any investment strategy that is based upon buying well-run, good companies and expecting the growth in earnings in these companies to carry prices higher is risky, since it ignores the reality that the current price of the company may reflect the quality of the management and
the firm. If the current price is right (and the market is paying a premium for quality), the biggest risk is that the firm loses its lustre over time, and that the premium paid will dissipate. If the market is exaggerating the value of the firm, this strategy can lead to poor returns even if the firm delivers its expected growth.
COMMON MISCONCEPTIONS ON VALUE INVESTING
1. Value investing is investing in “cheap” shares Value investing does not mean just buying any stock with falling prices and therefore one that seems cheap. Value investors generally do their homework to be certain that they are picking a company that is undervalued in spite of its high quality. It is important to distinguish the difference between a value company and a company that simply has a declining price. Say, for the past year Company A has been trading at about Rs. 25 per share but the price suddenly drops to Rs. 15 per share. This does not automatically mean that the company is selling at a bargain and hence is a value stock. All we know is
that the company is less expensive now than it was last year. The drop in price could be a result of the market responding to a fundamental problem in the company. To be a real bargain, this company must have fundamentals healthy enough to imply it is worth more than Rs. 15. Value investing always compares current share price to intrinsic value not to historic share prices. Picking “cheap” stocks without adhering to a valuation discipline could often lead to “Value traps” where prices go on declining further and the investor is never able to recover his investment.
2. A stock with a lower valuation ratio is a better value pick Contrary to popular belief, value investing is not simply about investing in stocks with lower valuation
ratio like a P/E or P/BV. It is just that stocks which are undervalued will often reflect this undervaluation through a low valuation ratio. A low valuation does not necessarily imply that the stock is a value pick. It could be in response to a fundamental issue or weakness in the company. A value investor would try to
establish the intrinsic value of the company and compare it with the market value. The higher the difference between the market value and intrinsic value, the better is the value pick.
3. Value stocks are difficult to find in a growth/emerging market Value investing has nothing to do with a Growth economy or market. Every market, irrespective of its
nature, is likely to throw up valuation anomalies. These anomalies are more to do with market sentiment than anything else. More often than not, there are situations where the market participants take investment decisions out of either greed or fear. As a result, there are some fundamentally strong stocks which suffer from market pessimism, or the market fails to understand the structural earnings potential in an industry or the pace or extent of change is not appreciated.
4. Value investment can not work in a growth market like India A simple study shows that a notional investment of Rs. 1 lakh in the MSCI India Value Index has given about twice the returns of the same investment in the corresponding Growth Index, over a period of the
last 10 years.
5. Value investing can outperform but with a higher risk
The following table shows the compounded annualised growth of the MSCI India Core, Growth and Value indices across various time periods. It can be clearly seen that the Value index has outperformed the others significantly across time periods. At the same time, the Value Index has not added significant risk as compared to the other two indices, when measured by volatility or annualised standard deviation of monthly returns.
CONCLUSION
Value investing has outperformed other investing styles across global markets over the long term. Irrespective of market cycles and regardless of the fact that it is a high or a slow growth market, there could be valuation anomalies which would provide stock picking opportunities for the focused and disciplined value investor.
For most individual investors, it would be well near impossible to replicate this strategy to build up their own stock portfolios. They would be well-advised to look at investing in value funds offered by mutual fund companies to reap the benefits of value investing and add style diversification to their investments.
Source: Fidelity
Thursday, November 19, 2009
DSP BlackRock World Mining Fund
DSP BlackRock Investment Managers announces the launch of DSP BlackRock World Mining Fund. The scheme is a fund of funds Scheme investing into the BlackRock Global Funds (BGF) – World Mining Fund (WMF) which invests in equity securities of mining companies globally. These companies generally operate across various geographies and enjoy considerable pricing flexibility. The New Fund Offer (NFO) will commence on November 23, 2009 and close on December 18, 2009.
Unique Features
DSP BlackRock World Mining Fund provides Indian investors with a unique investment opportunity to benefit from potential growth prospects in the mining sector by investing into mining companies globally. The unique features of this product are:
§ Provides access to BGF–WMF, one of the largest funds in its category in the world, with a long term performance track record
§BGF World Mining Fund is highly regarded and rated by independent agencies.
§The scheme provides investors the opportunity for global diversification combined with access to fundamentals of the mining sector and the growth potential of equities
§The team responsible for BGF-WMF is one of the strongest Natural Resources Teams in the industry, managing around US$ 31.9 billion in assets as on Oct 30, 2009. Four of the team’s five portfolio managers are geologists/geophysicists – a definite advantage for successful investing in this sector. The core of the team has worked together for over ten years, which has enabled them to build up invaluable experience with regards to the gold, mining and mining resources industry.
Areas into which this scheme invests
DSP BlackRock World Mining Fund will invest into the BGF-WMF and other similar Mutual Fund schemes, and will provide investors with access to the fundamentals of the mining sector. BGF - World Mining Fund invests mostly in the equity securities of mining and metals companies whose predominant economic activity is the production of base metals and industrial minerals such as iron ore and coal. The scheme may also hold the equity securities of companies whose predominant economic activity is in gold or other precious metals or mineral mining.
Key drivers in the Mining sector
The global mining and metals sector is faced with the challenge of responding to the rising demand for resources. While deposits are becoming scarcer and harder to locate, new production is being limited by supply chain bottlenecks and skills shortages.
Current outlook on the Mining Sector
The first half of 2009 saw China aggressively restocking. This drove up the demand for commodities in the first half of the year and caused commodity prices to rise significantly from the lows seen in late 2008. For example, by the end of June 2009, copper had risen 92% from its lows. We are yet to see evidence of a material restocking cycle in the US or Europe but once signs of sustainable economic recovery emerge, restocking in these regions should also be supportive for commodity prices. Despite a supposed slowdown in industrial demand, there were record levels of imports for copper, iron ore and coking into China during the first half of 2009. We have also seen signs of economic recovery in the Western World with some restocking seen in selected areas e.g. steel, but the full effect is yet to be felt, in our opinion.
As we look forward to 2010, it is likely that the impact of stimulus spending on infrastructure projects should begin to come through into the market, as well as a potential recovery in private sector demand. If demand does recover then the supply side is unlikely to be able to respond to the same extent.
The credit crisis has resulted in widespread production cutbacks across most metals. Some of this capacity has been taken offline permanently and the remainder will not be able to be brought back online instantaneously. In addition, a large number of planned expansion projects have been shelved as appetite for taking on development risk has diminished and the ability to finance the projects has reduced. Such constraints on the supply side lead us to believe that a demand recovery could provide a constructive environment for commodity prices, which are the key earnings driver for mining companies.
Why Invest DSP BlackRock World Mining Fund?
As mentioned earlier, DSP BlackRock World Mining Fund will invest into the BGF-WMF (Fund).
·This Fund has a strong long-term performance track record – The Fund is ranked no. 1 in its sector over 5 years, 10 years and since launch and has produced impressive cumulative returns ahead of benchmark over the long term.
·The Fund offers Regional and sub-sector diversification – By investing in DSP BlackRock World Mining Fund, which will invest into the BGF-WMF, Indian investors will have the opportunity to diversify investments away from country based asset allocation strategies and gain exposure to sectors of the market which tend to outperform at various phases of the business cycle.
·The Fund is managed by an Expert, Experienced Team – The Team is one of the industry’s acknowledged specialists, with extensive industry contacts and significant research capabilities, managing US$31.9 bn (As on Oct 30, 2009)* in assets on behalf of clients. The latest August 2009 Standard & Poor’s report refers to the Fund as being “Managed by BlackRock’s expert natural resources team”.
·The Fund benefits from an In-depth research process – the managers really apply a kick-the-tyres approach to the companies in which they invest. It is only by meeting with company management, attendance at industry events and research trips to company assets, as well as extensive commodity and equity analysis that the stock-specific risks within the portfolio can be evaluated fully.
·The Fund has been awarded the maximum AAA ratings from both Standard & Poor’s and OBSR. The Fund was also awarded an “ELITE” Morningstar Rating in July 2009. The fund achieved “Twenty four 1st place awards” for performance excellence worldwide in 2008 from a number of recognised ratings agencies and publications.
The Fund strategy
The Fund endeavors to incorporate the ‘best ideas’ in the portfolio instead of just following a benchmark driven approach. The wide experience of the portfolio managers as well as their sector perspective of companies across the globe helps them ensure that the best global ideas are reflected in the portfolio. The Fund focuses on a bottom-up approach to portfolio construction coupled with a top-down sub-sector overlay.
Unique Features
DSP BlackRock World Mining Fund provides Indian investors with a unique investment opportunity to benefit from potential growth prospects in the mining sector by investing into mining companies globally. The unique features of this product are:
§ Provides access to BGF–WMF, one of the largest funds in its category in the world, with a long term performance track record
§BGF World Mining Fund is highly regarded and rated by independent agencies.
§The scheme provides investors the opportunity for global diversification combined with access to fundamentals of the mining sector and the growth potential of equities
§The team responsible for BGF-WMF is one of the strongest Natural Resources Teams in the industry, managing around US$ 31.9 billion in assets as on Oct 30, 2009. Four of the team’s five portfolio managers are geologists/geophysicists – a definite advantage for successful investing in this sector. The core of the team has worked together for over ten years, which has enabled them to build up invaluable experience with regards to the gold, mining and mining resources industry.
Areas into which this scheme invests
DSP BlackRock World Mining Fund will invest into the BGF-WMF and other similar Mutual Fund schemes, and will provide investors with access to the fundamentals of the mining sector. BGF - World Mining Fund invests mostly in the equity securities of mining and metals companies whose predominant economic activity is the production of base metals and industrial minerals such as iron ore and coal. The scheme may also hold the equity securities of companies whose predominant economic activity is in gold or other precious metals or mineral mining.
Key drivers in the Mining sector
The global mining and metals sector is faced with the challenge of responding to the rising demand for resources. While deposits are becoming scarcer and harder to locate, new production is being limited by supply chain bottlenecks and skills shortages.
Current outlook on the Mining Sector
The first half of 2009 saw China aggressively restocking. This drove up the demand for commodities in the first half of the year and caused commodity prices to rise significantly from the lows seen in late 2008. For example, by the end of June 2009, copper had risen 92% from its lows. We are yet to see evidence of a material restocking cycle in the US or Europe but once signs of sustainable economic recovery emerge, restocking in these regions should also be supportive for commodity prices. Despite a supposed slowdown in industrial demand, there were record levels of imports for copper, iron ore and coking into China during the first half of 2009. We have also seen signs of economic recovery in the Western World with some restocking seen in selected areas e.g. steel, but the full effect is yet to be felt, in our opinion.
As we look forward to 2010, it is likely that the impact of stimulus spending on infrastructure projects should begin to come through into the market, as well as a potential recovery in private sector demand. If demand does recover then the supply side is unlikely to be able to respond to the same extent.
The credit crisis has resulted in widespread production cutbacks across most metals. Some of this capacity has been taken offline permanently and the remainder will not be able to be brought back online instantaneously. In addition, a large number of planned expansion projects have been shelved as appetite for taking on development risk has diminished and the ability to finance the projects has reduced. Such constraints on the supply side lead us to believe that a demand recovery could provide a constructive environment for commodity prices, which are the key earnings driver for mining companies.
Why Invest DSP BlackRock World Mining Fund?
As mentioned earlier, DSP BlackRock World Mining Fund will invest into the BGF-WMF (Fund).
·This Fund has a strong long-term performance track record – The Fund is ranked no. 1 in its sector over 5 years, 10 years and since launch and has produced impressive cumulative returns ahead of benchmark over the long term.
·The Fund offers Regional and sub-sector diversification – By investing in DSP BlackRock World Mining Fund, which will invest into the BGF-WMF, Indian investors will have the opportunity to diversify investments away from country based asset allocation strategies and gain exposure to sectors of the market which tend to outperform at various phases of the business cycle.
·The Fund is managed by an Expert, Experienced Team – The Team is one of the industry’s acknowledged specialists, with extensive industry contacts and significant research capabilities, managing US$31.9 bn (As on Oct 30, 2009)* in assets on behalf of clients. The latest August 2009 Standard & Poor’s report refers to the Fund as being “Managed by BlackRock’s expert natural resources team”.
·The Fund benefits from an In-depth research process – the managers really apply a kick-the-tyres approach to the companies in which they invest. It is only by meeting with company management, attendance at industry events and research trips to company assets, as well as extensive commodity and equity analysis that the stock-specific risks within the portfolio can be evaluated fully.
·The Fund has been awarded the maximum AAA ratings from both Standard & Poor’s and OBSR. The Fund was also awarded an “ELITE” Morningstar Rating in July 2009. The fund achieved “Twenty four 1st place awards” for performance excellence worldwide in 2008 from a number of recognised ratings agencies and publications.
The Fund strategy
The Fund endeavors to incorporate the ‘best ideas’ in the portfolio instead of just following a benchmark driven approach. The wide experience of the portfolio managers as well as their sector perspective of companies across the globe helps them ensure that the best global ideas are reflected in the portfolio. The Fund focuses on a bottom-up approach to portfolio construction coupled with a top-down sub-sector overlay.
RELIANCE MIP
Fund Manager View
Globally, the monetary policy reversal has begun, with Reserve Bank of Australia becoming second central bank to raise the key policy rate after Israel. Taking cues from global developments, RBI raised SLR in the policy meeting. Robust IIP numbers, rising food inflation, anaemic credit growth, appreciating rupee were the other key highlights of the month. In the quarterly monetary policy review, RBI left the key policy rates unchanged (Repo Rate: 4.75%, Reverse Repo Rate: 3.25%, CRR: 5.00%). However, RBI increased the statutory liquidity ratio (SLR) to former level of 25% from 24%, giving clear indication that the monetary policy reversal has already began as it announced the closure of some of the unconventional liquidity support measures provided earlier. WPI and IIP numbers continue to show an upward trend. After remaining in negative zone for three consecutive months, WPI inflation rate grew at 0.51% in September and stood at 1.51% for week ending October17. For last couple of months, food prices have been driving up the inflation rate on account of erratic monsoon. Similar concerns are reflected in Consumer price index (CPI) inflation for industrial workers (with higher weightage of food). CPI-IW continues to be in doubledigit (Aug’09: 11.7%) for third month in row. On currency front, the rupee appreciated sharply by 4% against US dollar in October (after marginally depreciating in September). The appreciation was mainly driven by dollar weakness and foreign inflows on back of economic turnaround. Indian industrial production (IIP) continued to grow robustly for third month in row. It grew at
10.4% in August driven mainly by favourable base effect. Broad-based recovery across the sectors suggests that the economic activities have certainly picked up. On a cumulative basis, IIP growth during April-August was up 5.8% as against 4.8% in same period last year. Credit offtake continued to post dismal performance, with credit growth coming down to 10.8% by Oct 9 as against 13% in Sept, 14.5% in Aug and 15% in July. This was primarily due to base effect and still low non-food credit offtake. However, this has been to a large extent made up by more inflows from other domestic sources (in form of public issues and private placements) and external sources (like FDI, ECBs, GDR, ADRs). Corporate bonds witnessed a lack-luster month with longer end yields moving in a band of 10-15 bps. 10 year AAA was range-bound and moved in band of 8.75%-8.85%. Good support was Reliance Monthly Income Plan (An open ended fund. Monthly Income is not assured and is subject to availability of distributable surplus) witnessed in 2 & 3 year bucket on account of comfortable liquidity. Yields in 2 & 3 year bucket were quoted around 6.90%-7% and 7.80%-7.95% respectively throughout the month. The liquidity conditions continued to be comfortable with the average LAF balances above Rs.1,02,500 crore during the month. The overnight call rates hovered in the range of 2.00% to 4.10% levels during the month. The CD levels were range-bound, with CDs trading in the range of 3.25%-5.60% as against the previous month’s level of 3.00%-6.25%.
Outlook
In coming months, we expect G-secs yields to be range-bound. The market will take cues from RBI policy reversal, GDP and IIP numbers, inflation numbers, announcement related to Government borrowing and actions from global central banks. G-Sec market will take further cues from various events like auction outcomes, credit-deposit growth data and fiscal measures to fight drought conditions. In Q4 FY10, the yields might come under pressure on expectations of RBI raising the policy rates. Going forward, the corporate bond yields are likely to follow G-Sec movement and corporate bond issuance.
About Monthly Income Plan Category
Hybrid Funds seek to benefit by investing in both worlds of fixed income and equity
instruments.
MIPs are hybrid investment avenues that invest a minor portion of their portfolio (around 15 per cent-30 per cent) in equities and the balance in debt and money market instruments (i.e.bonds, certificates, G Secs etc).
The asset allocation pattern is designed in such a way that there is a cap of 10%-30% on the equity exposure in the portfolio which during a bear market phase helps in minimizing risk because of limited downside seen during bad times and also aims to generate above average returns in a good equity market phase. Therefore, the equity component provides MIPs with just the edge it needs to outperform conventional debt funds.
MIPs provide income to investors, but the periodicity depends upon the option chosen(Monthly/Quarterly) and the distributable surplus available in the fund. Growth Option provides income in the form of capital gains/appreciation. Case for Investment in the Fund
With the current levels of market volatility, MIPs can be a good option considering their exposure to debt instruments. This helps in maintaining a comparatively low-risk portfolio and generates regular and stable returns. Stability, rather than quick and high returns, is usually the priority for a typical MIP investor.
The equity exposure in the portfolio during a bear market phase helps in minimizing risk because of limited downside seen during bad times and also aims to generate above average returns in a good equity market phase. Therefore, the equity component provides MIPs with just the edge it needs to outperform conventional debt funds.
Investor Profile
Investors who are conservative in their investment approach but still want to earn marginally better returns than a debt-only portfolio then MIP is definitely a fund category to be considered.
Portfolio Analysis and Strategy
Debt Portfolio Analysis
Emphasis is more on accrual-based returns than on active trading. MIP portfolio reflects an optimum blend of both fixed and floating rate instruments comprising of Certificate of Deposits to take care of liquidity needs and plain vanilla bond specially to take care of yield enhancement, Government Securities enhance the credit quality and shall enable in benefiting from the bond market play.
Equity Portfolio Analysis
Though investment into equity and equity linked securities forms a minor part (maximum 20%) of the portfolio, right timing and selection of stocks has been able to generate the alpha returns, thus resulting in the growth of capital.
From January 2008 till date, financial markets have witnessed its peak of volatility due to various global and domestic factors. Both, Nifty and Sensex has seen its highs and lows. During this period, the equity exposure in Reliance MIP has been roughly between 10%-20%, depending upon the market opportunities.
During the above mentioned period, the fund had taken equity exposure across all market caps in various sectors like Banking, Auto, Finance, Petroleum Products, Software etc.
However, the entry and exit to and from particular stock or sector has been done according tothe market timing and opportunities in a particular sector/company.
Fund Strategy
Reliance Monthly Income Fund seeks to generate moderate level of returns for its investors by taking advantage of almost every opportunity available in the fixed income market space.
An active duration management strategy is followed along with a close monitoring of the portfolio on a regular basis. The fund is suitable for investors with 1.5 – 3 years investment horizon and a low to moderate appetite for risk.
We will have a bottom up approach of stock selection in our equity portfolio consisting of a mix of mid cap and large cap stocks. The equity investment philosophy will tend to be more aggressive with the idea of generating an alpha to the portfolio.
1] Point to Point ReturnsNAV Performance report as on 31/10/2009
Compound Annualized
1 Year 3 Years 5 Years Since Inception
Reliance MIP - Growth 33.88 12.58 13.42 11.96
Crisil MIP Blended Index 18.84 7.35 8.52 6.92
*Past Performance may or may not be sustained in the future.
Compounded annualized returns of Growth Option. (Inception Date: 13th Jan 2004)
Calculations assume that all payouts during the period have been reinvested in the units of the
scheme at the then prevailing NAV.
2] Quartile Analysis
Quartile Analysis of the "Hybrid Monthly Income" which consists of 39 MIP schemes was done for
the 1 month, 6 month, 1 year, 3 year and 5 year period as on 12.11.09. The peer group consists’ of 39 schemes uptil 6 months time period 37 schemes uptil 3 year tenure and 36 schemes for 5 year tenure.RMIP has found a place in 1st quartile across all the above mentioned tenors. Reliance MIP has also been rated as a Five Star Fund by Value Research Online. Source: www.valueresearchonline.com
Product Features
Investment Objective:
The primary investment objective of the Scheme is to generate regular income in order to make regular dividend payments to unit holders and the secondary objective is growth of capital.
Choice of Plans/Option
Growth Plan
Dividend Plan
Monthly Dividend Plan (Payout & Reinvestment)
Quarterly Dividend Plan (Payout & Reinvestment
Minimum Application Amount
For Resident and Non Resident Investors
In Monthly Dividend Plan: 25,000 *
In Quarterly Dividend Plan: Rs. 10,000*
In Growth Plan: Rs.10,000 *
*Any purchases thereafter can be made in multiples of Re.1. The minimum amount is specified
above.
Portfolio Features as on 31.10.09
Weighted Average Maturity: 2.21 years
Weighted Average Yield: 5.40 % p.a
Scheme Details
Date of Inception: 13th Jan 2004
Fund Size : Rs.1414.48 crore (as on 31.10.09)
Load Structure
Entry Load: Nil
In terms of SEBI circular no. SEBI/IMD/CIR No.4/ 168230/09 dated June 30, 2009, no entry load will be charged by the Scheme to the investor effective August 1, 2009. Upfront commission shall be paid directly by the investor to the AMFI registered Distributors based on the investors' assessment of various factors including the service rendered by the distributor
Exit load: 1% if the units are redeemed/switched out on or before completion of 1year from the date of allotment of units. There shall be no exit load after completion 1year from the date of allotment of units.
Source: Reliance Mutual Fund
Globally, the monetary policy reversal has begun, with Reserve Bank of Australia becoming second central bank to raise the key policy rate after Israel. Taking cues from global developments, RBI raised SLR in the policy meeting. Robust IIP numbers, rising food inflation, anaemic credit growth, appreciating rupee were the other key highlights of the month. In the quarterly monetary policy review, RBI left the key policy rates unchanged (Repo Rate: 4.75%, Reverse Repo Rate: 3.25%, CRR: 5.00%). However, RBI increased the statutory liquidity ratio (SLR) to former level of 25% from 24%, giving clear indication that the monetary policy reversal has already began as it announced the closure of some of the unconventional liquidity support measures provided earlier. WPI and IIP numbers continue to show an upward trend. After remaining in negative zone for three consecutive months, WPI inflation rate grew at 0.51% in September and stood at 1.51% for week ending October17. For last couple of months, food prices have been driving up the inflation rate on account of erratic monsoon. Similar concerns are reflected in Consumer price index (CPI) inflation for industrial workers (with higher weightage of food). CPI-IW continues to be in doubledigit (Aug’09: 11.7%) for third month in row. On currency front, the rupee appreciated sharply by 4% against US dollar in October (after marginally depreciating in September). The appreciation was mainly driven by dollar weakness and foreign inflows on back of economic turnaround. Indian industrial production (IIP) continued to grow robustly for third month in row. It grew at
10.4% in August driven mainly by favourable base effect. Broad-based recovery across the sectors suggests that the economic activities have certainly picked up. On a cumulative basis, IIP growth during April-August was up 5.8% as against 4.8% in same period last year. Credit offtake continued to post dismal performance, with credit growth coming down to 10.8% by Oct 9 as against 13% in Sept, 14.5% in Aug and 15% in July. This was primarily due to base effect and still low non-food credit offtake. However, this has been to a large extent made up by more inflows from other domestic sources (in form of public issues and private placements) and external sources (like FDI, ECBs, GDR, ADRs). Corporate bonds witnessed a lack-luster month with longer end yields moving in a band of 10-15 bps. 10 year AAA was range-bound and moved in band of 8.75%-8.85%. Good support was Reliance Monthly Income Plan (An open ended fund. Monthly Income is not assured and is subject to availability of distributable surplus) witnessed in 2 & 3 year bucket on account of comfortable liquidity. Yields in 2 & 3 year bucket were quoted around 6.90%-7% and 7.80%-7.95% respectively throughout the month. The liquidity conditions continued to be comfortable with the average LAF balances above Rs.1,02,500 crore during the month. The overnight call rates hovered in the range of 2.00% to 4.10% levels during the month. The CD levels were range-bound, with CDs trading in the range of 3.25%-5.60% as against the previous month’s level of 3.00%-6.25%.
Outlook
In coming months, we expect G-secs yields to be range-bound. The market will take cues from RBI policy reversal, GDP and IIP numbers, inflation numbers, announcement related to Government borrowing and actions from global central banks. G-Sec market will take further cues from various events like auction outcomes, credit-deposit growth data and fiscal measures to fight drought conditions. In Q4 FY10, the yields might come under pressure on expectations of RBI raising the policy rates. Going forward, the corporate bond yields are likely to follow G-Sec movement and corporate bond issuance.
About Monthly Income Plan Category
Hybrid Funds seek to benefit by investing in both worlds of fixed income and equity
instruments.
MIPs are hybrid investment avenues that invest a minor portion of their portfolio (around 15 per cent-30 per cent) in equities and the balance in debt and money market instruments (i.e.bonds, certificates, G Secs etc).
The asset allocation pattern is designed in such a way that there is a cap of 10%-30% on the equity exposure in the portfolio which during a bear market phase helps in minimizing risk because of limited downside seen during bad times and also aims to generate above average returns in a good equity market phase. Therefore, the equity component provides MIPs with just the edge it needs to outperform conventional debt funds.
MIPs provide income to investors, but the periodicity depends upon the option chosen(Monthly/Quarterly) and the distributable surplus available in the fund. Growth Option provides income in the form of capital gains/appreciation. Case for Investment in the Fund
With the current levels of market volatility, MIPs can be a good option considering their exposure to debt instruments. This helps in maintaining a comparatively low-risk portfolio and generates regular and stable returns. Stability, rather than quick and high returns, is usually the priority for a typical MIP investor.
The equity exposure in the portfolio during a bear market phase helps in minimizing risk because of limited downside seen during bad times and also aims to generate above average returns in a good equity market phase. Therefore, the equity component provides MIPs with just the edge it needs to outperform conventional debt funds.
Investor Profile
Investors who are conservative in their investment approach but still want to earn marginally better returns than a debt-only portfolio then MIP is definitely a fund category to be considered.
Portfolio Analysis and Strategy
Debt Portfolio Analysis
Emphasis is more on accrual-based returns than on active trading. MIP portfolio reflects an optimum blend of both fixed and floating rate instruments comprising of Certificate of Deposits to take care of liquidity needs and plain vanilla bond specially to take care of yield enhancement, Government Securities enhance the credit quality and shall enable in benefiting from the bond market play.
Equity Portfolio Analysis
Though investment into equity and equity linked securities forms a minor part (maximum 20%) of the portfolio, right timing and selection of stocks has been able to generate the alpha returns, thus resulting in the growth of capital.
From January 2008 till date, financial markets have witnessed its peak of volatility due to various global and domestic factors. Both, Nifty and Sensex has seen its highs and lows. During this period, the equity exposure in Reliance MIP has been roughly between 10%-20%, depending upon the market opportunities.
During the above mentioned period, the fund had taken equity exposure across all market caps in various sectors like Banking, Auto, Finance, Petroleum Products, Software etc.
However, the entry and exit to and from particular stock or sector has been done according tothe market timing and opportunities in a particular sector/company.
Fund Strategy
Reliance Monthly Income Fund seeks to generate moderate level of returns for its investors by taking advantage of almost every opportunity available in the fixed income market space.
An active duration management strategy is followed along with a close monitoring of the portfolio on a regular basis. The fund is suitable for investors with 1.5 – 3 years investment horizon and a low to moderate appetite for risk.
We will have a bottom up approach of stock selection in our equity portfolio consisting of a mix of mid cap and large cap stocks. The equity investment philosophy will tend to be more aggressive with the idea of generating an alpha to the portfolio.
1] Point to Point ReturnsNAV Performance report as on 31/10/2009
Compound Annualized
1 Year 3 Years 5 Years Since Inception
Reliance MIP - Growth 33.88 12.58 13.42 11.96
Crisil MIP Blended Index 18.84 7.35 8.52 6.92
*Past Performance may or may not be sustained in the future.
Compounded annualized returns of Growth Option. (Inception Date: 13th Jan 2004)
Calculations assume that all payouts during the period have been reinvested in the units of the
scheme at the then prevailing NAV.
2] Quartile Analysis
Quartile Analysis of the "Hybrid Monthly Income" which consists of 39 MIP schemes was done for
the 1 month, 6 month, 1 year, 3 year and 5 year period as on 12.11.09. The peer group consists’ of 39 schemes uptil 6 months time period 37 schemes uptil 3 year tenure and 36 schemes for 5 year tenure.RMIP has found a place in 1st quartile across all the above mentioned tenors. Reliance MIP has also been rated as a Five Star Fund by Value Research Online. Source: www.valueresearchonline.com
Product Features
Investment Objective:
The primary investment objective of the Scheme is to generate regular income in order to make regular dividend payments to unit holders and the secondary objective is growth of capital.
Choice of Plans/Option
Growth Plan
Dividend Plan
Monthly Dividend Plan (Payout & Reinvestment)
Quarterly Dividend Plan (Payout & Reinvestment
Minimum Application Amount
For Resident and Non Resident Investors
In Monthly Dividend Plan: 25,000 *
In Quarterly Dividend Plan: Rs. 10,000*
In Growth Plan: Rs.10,000 *
*Any purchases thereafter can be made in multiples of Re.1. The minimum amount is specified
above.
Portfolio Features as on 31.10.09
Weighted Average Maturity: 2.21 years
Weighted Average Yield: 5.40 % p.a
Scheme Details
Date of Inception: 13th Jan 2004
Fund Size : Rs.1414.48 crore (as on 31.10.09)
Load Structure
Entry Load: Nil
In terms of SEBI circular no. SEBI/IMD/CIR No.4/ 168230/09 dated June 30, 2009, no entry load will be charged by the Scheme to the investor effective August 1, 2009. Upfront commission shall be paid directly by the investor to the AMFI registered Distributors based on the investors' assessment of various factors including the service rendered by the distributor
Exit load: 1% if the units are redeemed/switched out on or before completion of 1year from the date of allotment of units. There shall be no exit load after completion 1year from the date of allotment of units.
Source: Reliance Mutual Fund
Wednesday, November 18, 2009
Can NRIs Invest in India?
Investments by NRI’s in Mutual Funds can be made on a repatriable or on a non-repatriable basis, as preferred by the investor
Repatriable Basis
To invest on a repatriable basis, you must have an NRE or FCNR Bank Account in India. The Reserve Bank of India (RBI) has granted a general permission to Mutual
Funds to offer mutual fund schemes on repatriation basis, subject to the following conditions:
1.The mutual fund should comply with the terms and conditions stipulated by SEBI.
2.The amount representing investment should be received by inward remittance through normal banking channels, or by debit to an NRE / FCNR account of the non-resident investor.
3.The net amount representing the dividend / interest and maturity proceeds of units may be remitted through normal banking channels or credited to NRE / FCNR account of the investor, as desired by him subject to payment of applicable tax.
Non-Repatriable Basis
The Reserve Bank of India (RBI) has granted a general permission to Mutual Funds to offer mutual fund schemes on non-repatriation basis, subject to the following conditions:
1.Funds for investment should be provided by debit to NRO account of the NRI investor. Alternatively, funds may be invested by inward remittance or by debit to NRE / FCNR Account.
2.The current income in the form of dividends is allowed to be repatriated.
No permission of Reserve Bank either by the Mutual Fund or the NRI investor is necessary.
Which schemes of Mutual Fund can NRI does invest in?
NRI’s can invest in all schemes of AMC Mutual Fund. In particular, the funds contained herein have not been and will not be registered under the United States Securities Act of 1933 (the "Securities Act") or under the securities laws of any state and the funds have not been and will not be registered under the Investment Company Act of 1940 (the "Investment Company Act").
Units in the funds may not be offered or sold within the United States or to United States Persons, except in a transaction not subject to, or pursuant to an exemption from, the registration requirements of the Securities Act and any applicable state securities laws and which would not require the funds to register under the Investment Company Act. The term "United States Person" shall have the meaning ascribed to such term in Regulations under the Securities Act.
Does an NRI need any approvals from the Reserve Bank of India to invest in mutual fund schemes?
No. As an NRI one does not need any specific approval from the RBI for investing or redeeming from Mutual Funds. Only OCBs and FIIs require prior approvals before investing in Mutual Funds.
Repatriable Basis
To invest on a repatriable basis, you must have an NRE or FCNR Bank Account in India. The Reserve Bank of India (RBI) has granted a general permission to Mutual
Funds to offer mutual fund schemes on repatriation basis, subject to the following conditions:
1.The mutual fund should comply with the terms and conditions stipulated by SEBI.
2.The amount representing investment should be received by inward remittance through normal banking channels, or by debit to an NRE / FCNR account of the non-resident investor.
3.The net amount representing the dividend / interest and maturity proceeds of units may be remitted through normal banking channels or credited to NRE / FCNR account of the investor, as desired by him subject to payment of applicable tax.
Non-Repatriable Basis
The Reserve Bank of India (RBI) has granted a general permission to Mutual Funds to offer mutual fund schemes on non-repatriation basis, subject to the following conditions:
1.Funds for investment should be provided by debit to NRO account of the NRI investor. Alternatively, funds may be invested by inward remittance or by debit to NRE / FCNR Account.
2.The current income in the form of dividends is allowed to be repatriated.
No permission of Reserve Bank either by the Mutual Fund or the NRI investor is necessary.
Which schemes of Mutual Fund can NRI does invest in?
NRI’s can invest in all schemes of AMC Mutual Fund. In particular, the funds contained herein have not been and will not be registered under the United States Securities Act of 1933 (the "Securities Act") or under the securities laws of any state and the funds have not been and will not be registered under the Investment Company Act of 1940 (the "Investment Company Act").
Units in the funds may not be offered or sold within the United States or to United States Persons, except in a transaction not subject to, or pursuant to an exemption from, the registration requirements of the Securities Act and any applicable state securities laws and which would not require the funds to register under the Investment Company Act. The term "United States Person" shall have the meaning ascribed to such term in Regulations under the Securities Act.
Does an NRI need any approvals from the Reserve Bank of India to invest in mutual fund schemes?
No. As an NRI one does not need any specific approval from the RBI for investing or redeeming from Mutual Funds. Only OCBs and FIIs require prior approvals before investing in Mutual Funds.
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