With equity markets drawing near the 12,000-point mark, most investors would be faced with the same query 'where do we invest now?'
We have an investment idea for the present scenario -- start your annual tax-planning exercise. Gone are the days when the month of March was designated for making tax-saving investments in a select few instruments.
The wide range of investment options coupled with changes in tax laws have necessitated adopting a new approach to tax-planning. In the erstwhile tax regime (Section 88), investments of the assured return variety i.e. National Savings Certificate (NSC), Public Provident Fund (PPF) and infrastructure bonds, among others dominated the tax-saving portfolio.
Investments up to Rs 10,000 in tax-saving funds were eligible for tax sops. Conversely in the new tax regime (Section 80C), sectoral caps on investment avenues don't exist. Hence an investment up to Rs 100,000 in tax-saving funds is eligible for deduction from income, as is an investment in NSC.
As a result, investors have finally been granted the opportunity to conduct their tax-planning exercise in line with their risk profile and rightly so.
However, investors need to have sufficient time on their hands to be able to optimally utilise the available opportunity. For example, making lump sum investments in tax-saving funds may not be a prudent move. Instead, starting off a systematic investment plan (SIP) which runs over the ensuing 6-month period could give investors the opportunity to benefit from the volatility in the market by lowering the cost of purchase.
Similarly, this would be a good time to draw out a detailed investment plan for your tax-planning investments in consultation with your investment advisor and then execute it in a time bound manner.
The BSE Sensex appreciated by 1.20% and closed the week at 11,919 points, while the S&P CNX Nifty ended at 3,471 points (up by 1.05%). It was a good week for investors in the mid cap segment; the CNX Midcap posted a gain of 3.52% to close at 4,505 points.
Leading open-ended diversified equity funds
| Diversified Equity Funds | NAV (Rs) | 1-Wk | 1-month | 6-month | 1-year | SD | SR |
| Magnum Emer. Business | 25.71 | 6.20% | 11.64% | -5.37% | 12.66% | 9.37% | 0.43% |
| Taurus Starshare | 34.07 | 5.91% | 14.68% | 3.43% | 32.36% | 9.59% | 0.41% |
| Discovery Stock | 13.85 | 5.24% | 18.17% | -5.20% | -7.42% | 11.15% | 0.28% |
| Franklin Opportunities | 22.69 | 5.24% | 13.73% | 14.25% | 42.88% | 8.78% | 0.42% |
| UTI - Dynamic Equity | 30.35 | 5.13% | 9.73% | -11.15% | 2.95% | 8.54% | 0.28% |
(The Sharpe Ratio is a measure of the returns offered by the fund vis-à-vis those offered by a risk-free instrument) (Standard deviation highlights the element of risk associated with the fund.)
Expectedly, funds with predominant mid cap holdings featured in this week's top performers' list. Magnum Emerging Business (6.20%) led the pack followed by Taurus Starshare (5.91%) and Discovery Stock (5.24%). Franklin India Opportunities (5.24%) also featured in the list.
Leading open-ended long-term debt funds
| Debt Funds | NAV (Rs) | 1-Wk | 1-month | 6-month | 1-year | SD | SR |
| Grindlays Dyn. Bond | 13.15 | 0.66% | 1.28% | 3.59% | 5.36% | 0.48% | -0.43% |
| Magnum Income | 19.45 | 0.65% | 1.22% | 3.40% | 3.47% | 0.52% | -0.47% |
| Principal Income | 17.05 | 0.58% | 1.54% | 4.15% | 5.66% | 0.42% | -0.29% |
| PruICICI Income | 21.01 | 0.55% | 1.49% | 3.52% | 4.04% | 0.43% | -0.47% |
| Reliance Income | 22.63 | 0.44% | 0.99% | 2.95% | 4.47% | 0.35% | -0.35% |
The 10-year 7.59% GOI yield closed at 7.70% (September 8, 2006), 17 basis points below the previous weekly close. Bond yields and prices are inversely related with falling yields translating into higher bond prices and net asset value (NAV) for debt fund investors.
Grindlays Dynamic Bond Fund (0.66%) emerged as the leader in the debt funds segment. Magnum Income (0.65%) and Principal Income (0.58%) occupied second and third positions respectively.
Leading open-ended balanced funds
| Balanced Funds | NAV (Rs) | 1-Wk | 1-month | 6-month | 1-year | SD | SR |
| HDFC Prudence | 101.12 | 2.90% | 8.22% | 8.53% | 33.94% | 4.73% | 0.54% |
| FT India Balanced | 29.40 | 2.75% | 7.39% | 7.87% | 29.42% | 5.36% | 0.35% |
| Canbalance | 26.23 | 2.10% | 6.71% | -3.17% | 12.29% | 5.16% | 0.17% |
| Tata Balanced | 43.59 | 1.99% | 6.86% | -0.61% | 26.36% | 5.87% | 0.37% |
| LIC Balance | 41.29 | 1.98% | 6.17% | -0.67% | 27.81% | 5.72% | 0.31% |
HDFC Prudence (2.90%) pitched in the best performance in the balanced funds segment, followed by FT India Balanced (2.75%). Canbalance (2.10%) also featured in the top performers' list.
While it is common place for investment advisors and financial planners to recommend the SIP mode of investing in mutual funds, there is a 'dark' side to SIPs that is rarely discussed.
SIPs are not a foolproof method of investing and there are instances when they may not deliver; likewise there are a host of wrong reasons for investing in SIPs.
For example, an SIP is a means for achieving one's financial goals and not an end by itself. Starting off aimlessly with an SIP in isolation may not be the right step. Instead, the SIP should be a part of a broader financial plan (like planning for retirement) and be targeted at achieving a predetermined objective.
Furthermore, an investment in a poorly managed fund is a bad investment, irrespective of the mode of investment i.e. SIP or lump sum. Investment advisors are known to promote SIPs in certain funds, thanks to the attractive cash incentives offered by fund houses.
In such a scenario if the fund is a flawed one or inappropriate for the investor, it would be a case of the SIP proving beneficial for the investment advisor and detrimental for the investor.
From the investor's perspective it is vital, that the SIP be made in the right (read apt for the investor) fund and for the right reasons as well.
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