‘C’ Is For Crypto-currency

What are cryptocurrencies and how have they become so valuable?Click on the link below to read ...

The article carries my quote, too.

‘C’ Is For Crypto-currency

Beware of framing, as it affects behavior

Is the glass half-full or is it half-empty? We have grown up with this question. It is said that an optimist sees the glass half-full, whereas a pessimist sees it otherwise.

However, look at the other way. Instead of just seeing the glass, what would happen if you have to explain about this point on optimism/pessimism to someone? Psychologists have done various experiments on questions similar to this and concluded that the way you present a message can change its interpretation.

Click here to read the full article

Mutual funds to participate in commodities derivatives - will it help?

Some time back, SEBI issued a consultation paper inviting comments from the public on permitting mutual funds and portfolio managers to participate in commodity derivatives market. 

Click here to read further ... 

 __________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________

The English translation is as under:

Some time back, SEBI issued a consultation paper inviting comments from the public on permitting mutual funds and portfolio managers to participate in commodity derivatives market.

Currently mutual funds are permitted to participate in equity and interest rate derivatives markets. Many funds have taken advantage of this provision by launching various products, e.g. arbitrage funds, dynamic funds and equity savings funds.

As per the present regulations, the only commodity that mutual funds can invest in is gold. Mutual funds have launched gold ETFs (Exchange Traded Funds). And gold savings funds.

The recent consultation paper issued by SEBI seeks to allow mutual funds to launch schemes not just investing in silver, but also many other commodities.

One of the highlights of the consultation paper is the positioning of commodities as an asset class that has low correlation with equity markets, as can be seen from the table below:

The above table is taken from point no. 4 of the consultation paper.

As can be seen, all the commodities mentioned here have a negative correlation with equity markets. Even among the commodities, the correlation is quite low, especially between gold and crude or between gold and copper. This provides for good diversification. This could be one of the most important uses of commodity derivatives markets for the mutual funds.

If the proposal goes through, we may soon see many mutual fund launching either pure play commodities funds or asset allocation schemes that can offer a diversified portfolio.

The second use of derivatives could well be in the form of arbitrage opportunities. Many of you must be familiar with the arbitrage mutual fund schemes, which take the advantage of arbitrage opportunities between cash equity markets and the equity derivatives markets.

These provisions may also mean a lot for the commodities derivatives markets, which do not have a large institutional presence so far. If these proposal go through, we may see a different commodities derivatives market, too.

It is important to note here is that this is just a consultation paper, seeking feedback from the investors as well as market participants, and not a regulation.

 

If you choose right, mutual funds sahi hai ...

In the last article, we saw that many investors are flocking to mutual funds since the interest rates on fixed deposits have come down. So often, the investors do not understand the risks and invest in equity related mutual fund schemes, while shifting money out of fixed deposits, where the risk levels are very different.

Someone wrote to us asking if the money may be shifted from fixed deposits to debt mutual funds. Good idea. Both debt mutual funds and fixed deposits may appear to have similar risk profile as both are debt assets. However, it would be important to understand whether such an assumption is safe enough. ...

Click on the link below to read my article on this subject
______________________________________________________________________________________________________________

The English translation is as under:

In the last article, we saw that many investors are flocking to mutual funds since the interest rates on fixed deposits have come down. So often, the investors do not understand the risks and invest in equity related mutual fund schemes, while shifting money out of fixed deposits, where the risk levels are very different.

Someone wrote to us asking if the money may be shifted from fixed deposits to debt mutual funds. Good idea. Both debt mutual funds and fixed deposits may appear to have similar risk profile as both are debt assets. However, it would be important to understand whether such an assumption is safe enough.

The big difference between debt mutual funds and bank fixed deposits is the flexibility of investing. In case of fixed deposits, the tenure is fixed, which means money is invested in a fixed deposit for a predefined time period. On the other hand, an open-ended fixed income fund (or debt fund) does not have a fixed term and hence money can be invested in a debt fund for any time horizon. In the same scheme of a debt fund, an investor may come in for one year, whereas another might have invested for two years. This has some major implications: each fixed deposit is treated as a unique product, whereas debt funds are pooled investment vehicles.

When investors can come in and get out of the scheme on any business day, there must be a mechanism to offer fair price to each. This price is linked to the NAV of the scheme, which is calculated on a daily basis. Since the NAV is dependent on the daily market prices of the securities in which the scheme has invested, the same may be subject to fluctuations as per the investments made.

This exposes a debt fund investor to daily fluctuations. Due to this, the investment returns are unpredictable for an investor in a debt fund. On certain occasions, some schemes may also see drop in the NAV for brief periods of time – yes, it is true even for debt funds. (We have written about this in some of our earlier articles and hence one should take care to choose a debt fund scheme that is appropriate for one’s situation).

An investor does not witness such uncertainties or fluctuations in a bank fixed deposits. An investor coming in a debt fund must understand this.

This is where it becomes crucial to understand that all mutual funds are not the same, and also that all debt funds are not the same. There are various types of debt fund schemes, suitable for different needs of investors. If you make a proper choice, there are reasonably good chances that you would get good results.

Knowledge is power – understand debt funds and then invest. After all, if you understand and choose well, mutual funds sahi hai.