Type & Investment Objective

An open-ended equity fund with a focus on capturing the opportunity presented by the long term growth potential of the Indian Infrastructure Sector. To invest across infrastructure sectors such as Cement, Power, Telecom, Oil and Gas, Construction, Banking etc.

Investment Strategy and Key Features

• To optimize the risk adjusted return by a mix of top-down macro and bottom-up micro research to pick up stocks providing long term potential.
• A multi-sector fund and therefore have a much less concentration risk than a typical sector fund.
• In the medium to long term huge investments are required in areas like Roads, Ports, Power, and Telecom etc. to sustain high economic growth. Apart from government spending, it will also require private participation to make significant progress on developing infrastructure.
• New initiatives such as Public-Private participation, increase in FDI limits and adequate funding support from the government have provided a tremendous boost to the system & therefore companies engaged in this sector have delivered robust performance in the last couple of years.
• Less concentration risk due to the presence of multi sector theme. Based on long term time horizon the fund provides a better investment opportunity.
• This fund has performed well in the recent fall in the market by taking active calls on cash and stocks

Scheme Features

• Options available: Growth and Dividend
• Minimum Investment amount: Rs. 5,000 and in multiples of Rs. 1
• Load Structure: Entry Load: 2.25% for < Rs. 5 Cr. and NIL for => Rs. 5 Cr.
• Exit Load: For < Rs. 5 Cr; 1% if redeemed before 6 months, 0.5% if redeemed bet. 6-12 months.
• Benchmark Index: S&P Nifty

Your Risk Profile

Investors must ascertain their own risk profile. As there are funds that cater to various risk profiles in the market, ranging from very risky to very conservative, its important that investors choose the fund that best suits his/her risk profile. For instance, it doesn’t make sense for a risk-taking investor to invest in debt funds because he would not be satisfied by the kind of conservative returns debt funds give. Similarly, a conservative investor should stay away from equity funds, as they are not suited to stomach the accompanying volatility.

Your Investment Horizon

The amount of time investors are willing to stay invested in the fund also determines the kind of fund suited for him. Equity funds are best suited for investors who have a longer time horizon as equities give the best return amongst all other asset classes over the long term. But for investors who want to invest for a shorter tenure, debt funds are the best options.

Offer Document

It’s just as important to know your fund, as it is to know yourself. The best source of information on a fund is its offer document. It has information on the nature of the scheme, the kind of instruments the fund aims to invest in, its risk-profile, its investment strategies, and so on. It also gives you an idea of how other schemes from the same fund house have performed. It helps to check the potential of the fund and also the track record of the fund house.

How good are its Disclosures?

A mutual fund may promise you high returns and superior service, but how good are its disclosure levels? Check if your fund house discloses its portfolios regularly. Although Sebi rules require fund houses to disclose their portfolios only twice a year, many new-age funds send portfolios and newsletter to their investors on a quarterly basis. Fund houses send you quarterly newsletters by post or display their monthly portfolios on their websites or do both. It helps if your fund regularly discloses such details as it tells you exactly where your money is invested.

Past Performance

If the fund is an existing one, check its past performance. Though past performance is no guarantee of future returns, but it does give you an indication of how well a fund has capitalised on upturns and weathered downturns. The fund’s record also gives an indication of the volatility of its returns. Investors should invest in schemes that deliver high returns with low volatility. Then again, see how well your fund house has performed in the particular class you are planning to invest in. This is especially the case if an investor is putting money in new launches where past performance is absent.

Over the course of the year, the market value of each security within your portfolio earned a different return, resulting in a change in the allocation pie. This might change the investor’s risk profile. While in the short term this may not have an adverse impact, such changes in risk profiles can have a far-reaching impact in the longer run. Portfolio rebalancing is a strategy that allows individuals to keep their risk level in check and minimize risk.

What is re-balancing?

Re-balancing is the process of buying and selling portions of your portfolio in order to set the weight of each asset class back to its original state. In addition, if an investor’s investment strategy or tolerance for risk has changed, he or she can use rebalancing to readjust the weightages of each security or asset class in the portfolio to fulfill a newly devised asset allocation. Assume an investor’s portfolio worth Rs 1,00,000 is invested in equity funds (40%), Bond Funds (40%) and liquid funds (20%). In other words, Rs 40,000 will be invested in equity funds, Rs 40,000 will be invested in bond funds and Rs 20,000 will be invested in liquid funds. Let’s assume that in Year 1, equity funds deliver 50% return, bond funds loose 2% and liquid funds give a modest 4% return. His portfolio, at the end of the year, will look like this:

Overall, the portfolio has returned 8%, but that’s more due to the equities.

In year 2, assume equity markets fall. So assume, equity funds fall by 10%. Also assume that Bond funds on the other hand rebound and return 9%, while liquid funds continue with 4%.

Now assume two scenarios, viz. one where the above investor switches back to his original asset allocation, and the other where the investor doesn’t reallocate his assets as per his original allocation and ignores the change.

As per the above example, while the rebalanced portfolio appreciates to Rs 1,20,480, the value of the ignored portfolio actually falls to Rs 1,18,360. As can be seen, the ignored portfolio got swayed by the equity return in Year 1 and therefore chose not to go back on the original asset allocation, not knowing that equities as an asset class can be quite volatile in the short run. A fall drop in the equities in Year 2 was enough to result in the ignored portfolio to under-perform the rebalanced portfolio. Re-balancing strategy is, therefore, the optimal strategy.

Benefits of portfolio rebalancing

Disciplined investing
Re-balancing is a vital part of investment policy – there can be no asset allocation target without the discipline to preserve that target.

Reduces risk
A plan may incur higher risk if no rebalancing policy exists. This is true particularly for equity allocations, which can rapidly rise in a bull market. For instance, portfolio rebalancing ensures that in rising equity markets, the asset allocation doesn’t get skewed towards equities and the portfolio correctly reflects the investor’s risk profile. It also ensures that the portfolio is adequately diversified.

Buy low, sell high
Rebalancing is a mechanism for sensible timing – the process naturally buys low and sells high. This strategy ensures that the portfolio returns are enhanced. A clear re-balancing policy avoids the risks of ad-hoc and costly portfolio revisions.

Balanced Funds – a better way to portfolio re-balancing

One way to rebalance the portfolio is to do it ourselves. In other words, investments can be made in equity and debt funds separately and then adequate re-balancing can be done depending on how the equity and debt markets perform.

Another simple way to ensure portfolio re-balancing is to invest in Balanced Funds. Here, the fund manager does the re-balancing and not the investor. Usually, all balanced funds invest around 65-70% in equity markets and the rest in debt and money market instruments as per their stated asset allocation mix.

So when equity markets keep rising consistently, Balanced Funds are mandated to book profits and bring their equity allocation back to their stated levels. This way, balanced funds carry a low downside risk as when equity markets fall, balanced funds take a lesser hit than diversified equity funds, as their exposure to equities is low.

When equity markets turn volatile, they cause a lot of anxiety, tensions and even sleepless nights. In the volatile times many investors abandon a carefully made investment plan in a knee jerk reaction and pay the price for it. Obviously, it is not a smart thing to do. The investors should realize that volatility exists in the market place and will remain so. After all, volatility is a statistical measure of the tendency of the markets to rise and fall. While volatility can be described as a natural phenomenon, there is a need for investors to develop ways to deal with it.

Mutual Funds, offering benefits such as diversification, professional management, and convenience, had emerged as an alternative route for small investors to invest in equity vis-à-vis taking a direct exposure. Systematic Investment Planning was one strategy, which was being actively encouraged by the mutual funds.

Broadly speaking, we need to try and understand

a. Is the market investment worthy?
b. If so, is this the right time to invest?

Is the market investment worthy?

We all know that in the long run stock markets are ultimately a reflection of the performance of the companies listed on the exchange. In short term there could be many factors such as liquidity, Govt. changes, monsoon, global factors, etc. which could make the markets volatile. But if the long-term fundamentals of the economy are intact, the markets will finally achieve the levels, which are line with the economic growth.

As things stand today, the fundamentals of Indian economy still remain strong. India is still predominantly a closed economy, with its’ own demand dynamics. The young demographic profile looks promising. A lot of fresh investment is happening in all the three sectors of economy viz. agriculture, services & manufacturing, not to mention infrastructure. There is as yet nothing to suggest that the GDP growth of 6.5-8% will not be consistently achieved over the next 2-3 years.

Of course, there are concerns on the oil prices, the interest rates, infrastructure bottlenecks, strength of the dollar, performance of global economies etc., which could affect growth in India too.

But looking at the pros and the cons, the balance still seems to be in the favour of decent and consistent growth.

Is it the right time to invest?

Generally investors’ will buy when the markets are rising and sell when the markets are falling but they should do the contrary. The important lesson we need to learn from the long history of the stock market is that ‘No one can time the market’. It is TIME spent in the market, which is important than the TIMING.

And the purpose of SIP is precisely that

It does away with our fruitlessly trying to predict the tops and the bottoms. And it removes emotions from our buying decisions. We buy more units when the markets are down and fewer units when the markets are high. So, we un-emotionally go on investing. And that is the secret of success of a long-term investor at the stock markets. The markets will be volatile. That is the inherent nature of the market. Consistent, long term investing in equity has delivered superior returns. SIPs iron out the volatility risk, associated with one-time investing.

In fact, the true benefit of SIP will follow by investing when the markets are down. We will now get more units. Our average cost of acquisition will go down and as markets recover, our recovery would also be faster. Though, of course, SIPs will not deliver profits if the long-term economic performance looks shaky and markets are consistently going down.

Therefore, the question whether SIPs make sense in falling market is inherently flawed. As long as one is confident of the economic growth going forward, SIP makes sense in any market – falling, rising or steady. Also, we need to be realistic about our expectations.

Source: NDTV

Infrastructure growth in an economy is often described as the growth engine of the economy. In the last 15 years Indian economy has witnessed a drastic change with services and manufacturing sectors driving growth vis-à-vis earlier periods when economic growth was dependent upon agricultural growth. As the Indian economy is opening to global economies the economy has started to grow at fast pace leading to prosperity in India.

Economic growth at inception drives aspiration amongst people as well as companies as witnessed in India at present. Since India at present is growing at fast pace, the economic growth is facing hindrance in the form of infrastructure, as the present infrastructure is not sufficient for the future growth. Infrastructure sector covers following areas where growth is needed in India:

Transportation: Roads, Railways, Airports, Ports etc..

1. Transportation: Roads, Railways, Airports, Ports etc..

2. Power: Corporate growth especially manufacturing sector is dependent upon power

3. Communication: Telecom, IT, BPO etc

4. Real Estate and Construction

5. Water, sanitation etc

6. For financing all these sectors development in Financial sector

According to 11th Five-year plan, Indian economy requires an investment of Rs. 14560 bn in the next five years.

Our Govt. is very serious in completing these infrastructure products with the help of public private partnerships. Hence the ongoing infrastructure development to drive growth in all the basic industries on a sustained basis for next 5-10 years. On back of stupendous growth in this sector these funds have already outperformed other diversified funds in the past year, expect this out performance to continue in future as well.

Fund Overview

Kotak Opportunities Fund is an open-ended diversified equity fund with a flexible investment style. It invests in sectors which the fund manager believes will outperform others in the short to medium term. The fund looks well positioned to increase concentration in sectors which look promising due to its flexible investment pattern.

Investment Strategy

• The Indian economy is expected to do well over medium to long term on back of favorable demographics fueling consumption demand, growing exports, & government’s thrust on infrastructure development.

• Corporate earnings are too on a rise as is evident from the robust tax collections. It is therefore reasonable to expect India’s growth momentum to sustain over a longer period.

• Indian economy is a consumption led economy as almost 67% of India’s GDP is based on consumption, rendering sustainability to this growth engine.

• The fund has increased it exposure to banking stocks. The fund generally follows bottom-up stock picking, but it also does not hold back itself from realizing opportunities from sectors which exhibit potential.

• The fund has a blend of large & mid cap with a tilt towards large cap stocks irrespective of the mandate that the fund has to focus on sector which is currently attractive.

• Fund follows an active portfolio management strategy & rarely does it takes concentrated bets. The fund manager also believes in booking profits as & when the opportunity arises.

• According to the fund manager equity as an asset class is typically recommended for investors with a long term investment horizon.

Features of the Scheme

• Entry Load: 2.25% for < Rs. 5 Cr. and Nil for => Rs. 5 Cr.

• Exit Load: 1% if redeemed before 6 months

• Minimum Application: Rs. 5000/- & in multiples of Rs. 1000

• Investment Options: Growth and Dividend (Payout and Reinvestment)

• Benchmark Index: CNX 500.

The mutual fund universe is filled with hundreds of schemes. And this universe is expanding very rapidly. This is a good development. More schemes mean more choices for an investor. Also, the increasing competition amongst the Asset Management Companies (AMCs) has raised the fund management quality, improved the service standards and spread the investment culture.

But as the universe expands to unmanageably large size, it becomes increasingly difficult to spot the brightest of the stars. One has to patiently work through the universe using certain yardsticks and separate the brighter stars from the not-so bright ones.

Type of Fund

Today we have to live with the mid-cap funds, small cap funds, multi-cap funds, large cap funds, emerging companies funds, lifestyle funds, dividend-yield funds, PE funds and a host of sector specific funds. As a first step, therefore, identify the set of schemes, which meet your investment objectives such as the diversification, return expectation, time horizon and risk appetite. Say you are a risk taker and have 3-5 years horizon. Then a small-cap fund could meet your needs. Such companies can give spectacular returns but need time to prove their worth in the market. Or if you are a passive investor, index funds would best suit you. Having chosen the desired set matching with your needs, further yardsticks are applied to choose the specific funds.

Past Track Record

The past performance is undoubtedly the most important criterion. Has the scheme been among the top performers in the past? How does it compare with the benchmark? There is, of course, no guarantee that a fund, which has done well in past will continue with its’ good performance in future too. But, it is a reasonable assessment that a fund which has shown consistent performance over the last 3-5 years period, is most likely to perform well in the future. Therefore, it is important to assess performance over longer time frame, especially during market downturns. A 3-5 years is a good enough period to look at. A shorter time frame of 1-2 years may not be a sufficient indicator.

Quality of Returns

The fund may have been an excellent performer. But it is possible that the risk it is taking is more than what your risk appetite warrants. The ‘quality’ will determine how much risk a fund is taking to generate the returns. Equity investing is a risky business and it is important that a fund should be managing risks effectively. This is especially true now when the market has run-up quite sharply and the valuations are stretched. In the event of a sharp correction, it is the quality funds, which will usually fall less and also rise up faster when the up-turn begins .

Portfolio Characteristics

Funds come in all shapes and sizes. Some are too diversified and some too concentrated. Some are too small and some too big. A too small a fund may not be able to adequately diversify, while too large a fund may not find sufficient investment options. The corpus size needs to be commensurate with the investment space. Diversification beyond a point may prove counterproductive. Too large a portfolio may mean both dilution in returns and less efficient fund management. On the contrary, too much of concentration in few stocks would tend to increase the fund risk. Percentage holding in the top 10 stocks and the number of stocks in the portfolio will give a fair idea about level of diversification.

Expenses

One should be aware of the costs involved. Primarily, there are two expenses. One is the sales expenses i.e. the entry/exit load. This is payable at the time of buying/selling the fund. And, second is the annual fund management expense.

One should evaluate whether these expenses are in line with the industry standards of comparable funds and offer the right value for money. For example an index fund will typically have a lower fund management expense than an actively managed fund.

The Fund House

Who are the promoters? What has been their past experience? How many funds do they manage? What has been the performance of the various funds? Does the fund house enjoy impeccable reputation in the market? Do the key personnel keep changing frequently? The fund manager plays an important role, but he is not the only key person. He may be the visible face, but one must not forget that the behind-the-scenes supporting cast – the management which defines the basic investment philosophy, the parameters & methodology, the research group which identifies the suitable stocks, the sales force, the back-office team etc.    

The Service Standards

How happy has been your investing experience in the past? Or what have been your first impressions about the client servicing? Is the staff courteous? Is the staff helpful? And more importantly, is the staff knowledgeable? Many a times the staff may be eager and efficient in taking your money, but are they equally eager and efficient to give back your money when you need it? Have they delayed your redemption proceeds? Do you get your statements on time? Do they offer other conveniences such as online access to your portfolio, electronic withdrawals & credits etc?

All these will define the service standards, which are also a key factor apart from performance. Not all bright stars of today will remain bright tomorrow; some not-so-bright stars of today may become the bright stars of tomorrow; not all of your choices may turn out to be the best. You win some you lose some.

Source: Moneycontrol