Tuesday, March 28, 2017

Humans are pattern-seeking animals

Humans are Pattern-Seeking Animals! 

A man is a pattern-seeking animal. We see patterns where none may exist. We have seen Ganesh idol in the clouds and we have seen India map on highways between trees.
Those are fine, so long as our lives are not affected. However, when one starts putting serious money while looking at patterns, one may be in for a very big surprise.

Read the full article here ...


Monday, March 27, 2017

What are feeder funds?

Here is my article on the subject "What are feeder funds?", published in Mid-day Gujarati edition.

The English translation is as under:
In some of our earlier articles, we have talked about gold mutual funds. These come in two varieties – Gold ETFs and Gold Savings Fund. While the former invests in gold, the latter invests in the units of a Gold ETF. Such an arrangement makes it a feeder fund.
A feeder fund is a type of mutual fund that invests in the units of another mutual fund scheme. Unlike a fund of funds, which invests in multiple schemes, a feeder fund invests in only one scheme.
One may wonder:
·      Why should a mutual fund scheme invest into another?
·      Why can’t one launch a new scheme?
The questions are valid and still we have a few feeder funds.
So let us start with what kind of feeder funds we have in India. We have already referred to one category: Gold savings funds that invest in units of Gold ETFs. The second category of funds invests in units of another international mutual fund. An international mutual fund may be investing in various assets outside of India.
First of all, when SEBI allowed mutual funds to buy gold, it was only under the ETF structure. However, as the limitations of ETFs surfaced, the chief among those being that one could not do systematic investing in an ETF, need was felt for an open-ended fund that allowed investment in gold. Instead of going to SEBI for change in regulations, the mutual fund companies found out that even within the existing regulations, it was possible to create a feeder fund structure and that is how gold savings funds came into existence.
The other structure – funds feeding into international mutual funds – was a result of costs involved in managing schemes investing in international markets while being in India and of small size. The costs involved may become prohibitively high and all the potential gains through active management may vanish. So funds innovated and came out with feeder funds feeding into some of the global biggies’ funds – most often, their parent company’s schemes.
Thus, feeder funds came due to one of two reasons: (1) limitations imposed by regulations, or (2) economic viability
In both the cases a feeder fund was the most appropriate option.
- Amit Trivedi, Author of "Riding The Roller Coaster - Lessons from financial market cycles we repeatedly forget"

Friday, March 17, 2017

Monday, March 6, 2017

A mutual fund scheme that is good for one may not be good for another ...

What is appropriate for an investor in one situation may not be good for another investor. In fact, the same scheme may not be appropriate for the same investor in some other situation. To understand more read my article in Gujarati Mid-day today ... Click on the link below:

A mutual fund that is good for one may not be good for another


The English translation is as under:

“Where should I invest my money? Should I buy a particular stock, or a mutual fund or fixed deposit?” This is a very common question asked by many investors.
Very often, the expectation of the person asking this question is to get names of mutual fund schemes or stocks, in the expectation that the future returns would be high from these investments.
However, it is important to understand that the best funds for someone may be a bad choice for someone else. The best funds for someone in one particular situation may be a bad idea for the same person in another situation. Focus on what is important rather than what is generally best.
So how does one know what is appropriate for one in a given situation? In order to understand what is proper for a certain situation, one must understand the situation, to begin with.
This can be assessed through analysis of one’s financial situation, i.e. by looking at income, expenses, assets and liabilities. Also add the financial goals that one wishes to achieve in future.
You also need to consider certain other details like number of dependents in the family as against the number of earning members; whether you are adequately insured or not, etc.
Your investment plan can be made only on the basis of these details. Once you have done this analysis, one would come to understand which category of mutual fund schemes to be chosen. It is only after the selection of categories that one must consider which scheme is required I the portfolio.
Incidentally, if you find this too intimidating, please get in touch with a financial advisor or a financial planner.
- Amit Trivedi