Rajiv Gandhi Equity Savings Scheme(RGESS): Tax Saving Scheme now with Mutual Funds

Rajiv Gandhi Equity Savings Scheme(RGESS): Tax Saving Scheme now with Mutual Funds.

The Rajiv Gandhi Equity Savings Scheme (RGESS) which is a Tax Saving Scheme comes now loaded with Mutual Funds for your investments. After considering the various views of the marketmen and general sentiment in the Mutual Fund Industry, the Finance Ministry is now proposing to add Mutual Funds as one of the products to avail the tax rebates under the amended rules for Salaried employees. Managing to do a delicate act of pleasing both the investors as well as marketmen.

Mutual Fund Market Sentiments.

This is in response to the general market sentiments of the Indian Mutual Fund Industry. The Industry was losing direction and focus. The growth had already tappered off and the clearly it was headed for years of down trending. The AAUM were falling, so were the number of new registration of Folio Numbers. The Regulator re-defined couple of rules which made many Asset management Companies reconsider their business models. The regulator set up firewalls between Industry bodies and Self Regulatory Organisations. It also questioned the logic of various fees structures which were being charged to investors. Finally, a change of guard at the Finance Ministry made few changes evident, one of them being the push for adding  ELSS scheme to the RGESS albeit in reincarnated form.



Reincarnation of Equity Linked Savings Scheme ELSS

The popular ELSS survives the government wrath to be reborn in a new avatar as RGESS. ELSS which was eligible for Tax rebates under the Section 80 C was proposed to be removed. The new Direct Tax Code which was intended to be rolled out, excluded the rebates provided for the ELSS. Thus effectively putting an end to a succesful product which was gaining popularity among the retail investors. It takes huge and consistent  efforts to educate the investors of benefits of any products. It is certainly a product which was gaining lot of momentum and acceptance since its launch more than 5 years ago.



(RGESS)Rajiv Gandhi Equity Savings Scheme

The proposed Rajiv Gandhi Equity Savings Scheme scheme would allow income tax deduction of 50 per cent to new retail investors, who invest up to Rs 50,000 directly in equities, and whose annual income is below Rs 10 lakh. To make the scheme more attractive for retail investors, the Finance Ministry is considering reduction in the lock-in period under the scheme to one year from the proposed three years. Now this will make this a truly retail market product for tax saving instrument. Though as an investor benefits of Mutual Fund investments are better realised over a period of at least 3-4 years. If this product gets launched in the market in the proposed form, it would be the only tax saving instrument with least number of years in terms of the lock-in period. However, this is something no one in currently seems to be worried about.

For first time retail investors investing directly in the equity markets, this would be an option which is definitely worth considering.


Common Benefit and Features of Investing in Mutual Fund.

Mutual Fund is an excellent financial product which allows pooling of resources to reduce overall cost of investing and sharing of risks.

E-Mail/Electronic Communication

Feature of MUtual Fund

Account statements and scheme related documents can be send to your mailbox

Benefit of Fund

Email delivery of your account statements ensure that you do not waste you time in filing your paper statement(physical statements). It also ensures that your account statement do not go to wrong address or unintended/unauthorised person. This benefit of email communication is important from safety and security perspective. It is a eco-friendly option for environment conscious investors. By opting for email statement investors help in saving trees which are destroyed to make paper based physical statements.

Grievance Officer/Customer Complaint/Service Manager

Feature of MUtual Fund

Asset management Companies appoint experience staff to handle customer related complaints.

Benefit of Fund

Unsatisfactory service, delay in credit of dividends, delay in receiving statements, wrong address, incorrect NAV, Incorrect schemes and many other small and major customer service related issues are managed by these officers. They co-ordinate with Local branches and the Main Office of the AMC to resolve issues and ensure good customer service.

Request for Account statement/Annual Reports

Feature of MUtual Fund

Account statement can be requested by customer whenever required.

Benefit of Fund

Customer is provided with an Annual Report of the scheme in which he has invested. One can call on any of the popular Toll free Phone Numbers of Mutual fund to place a request for latest NAV details or updated A/C statement.

Website/SMS Code/NAV on Mobile Phone

Feature of MUtual Fund

All Major Mutual fund companies have active websites which provide scheme related information.

Benefit of Fund

Daily NAV, Dividend details, key persons, registrar company and various other details are regularly published on websites. Various locations where Mutual fund has service desk, branches are also listed on these sites.

Publishing of NAV Rate

Feature of MUtual Fund

Daily NAV Rates are updated by Mutual fund Companies on websites and newspapers.

Benefit of Fund

Everyday Net Asset Values of schemes are updated on the websites of fund companies. These are also uploaded on AMFI Website(Association of Mutual Funds in India). NAV of major fund houses are published in many regional and national dailies like MINT, ECONOMIC TIMES, BUSINESS LINE etc.

Buy Mutual Funds using your VISA ATM Card.

Feature of MUtual Fund

Use your VISA ATM Card to buy Mutual Funds Units at your ATM Center.

Benefit of Fund

Mutual Fund units can now be purchased by using your ATM Card at any VISA Approved ATM Center. This makes the process of investing in Mutual Funds extremely easy and convenient for many people who do not have time to manage their finances. Investments in Mutual Funds can be made on days when the increments/bonus/pending cheque payments are received. This will assist in parking funds for long-term to build an investment nest.

Back to Basics Series I (Part2) : This article is in response to SEBI's Public Appeal for following the right approach to Mutual Fund Industry.
SEBI Investor Education


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What are features and benefits of Mutual Funds?

Unlike most other financial products like provident fund, insurance and post office schemes, Top Mutual Funds not only provides convenience while investing money, but it also offers a variety of features that benefit investors. A few of most common features and benefits of  top mutual funds are highlighted.

Micro SIP/Chota SIP
Feature of Mutual Fund
Invest as low as Rs 100/- in Mutual Fund Companies

Top Mutual Fund Companies offer its investors an option to invest extremely small amounts such as Rs 100/-, Rs 500/-, Rs 1000/- each month depending on individual’s capacity into many of its mutual fund schemes.

Benefits of Mutual Fund: Benefits of Mutual Fund are for people who want to invest small amounts. Daily Wage Workers, Rickshaw Taxi Drivers, Labourers who wish to invest into Mutual Funds.

Flexibility of Dates
Features of Mutual Fund

Ease of investing on convenient dates

Investor can invest in top Mutual Fund Scheme on their choice of dates. Many large Mutual Fund companies offer multiple dates for investing into its top performing mutual fund schemes. E.g Few dates would be 1st, 5th, 10th, 15th, 25th of each month. This makes regular investments on salary dates possible.

Benefit of Mutual Funds:  Benefits Salaried people who receive money at the end of the month and wish to invest in Mutual Funds.

Timely Payments through ECS
Feature of Mutual Funds

Hassle free, Regular Payments to allow you to concentrate on other important things in life

Investors in Mutual Funds need not worry about making timely payments each month through opting for ECS Payment Method. This ensures regular, hassle free, timely and correct monthly payments.

Benefit of Mutual Fund:  Feature is useful for people who are busy or travel a lot, as he does not have time to keep track of his monthly payments.

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Investing Through POA (Power of Attorney)
Feature of MutualFund

Investing without physical presence

Investments in Mutual Funds can be done through Assignment of a Power of Attorney for effective financial planning. Army Personnel, Officers posted on-duty at far off places, owners/directors of limited companies, Non-Resident Indians, Resident Indian posted onsite/outside India can invest through the convenience of POA.

Benefit of Mutual Fund: Your Financial Planning for family’s benefit cannot be discontinued in your absence. Defense and Police Officers can appoint wife or family members to be POA and allow them to invest on your behalf.

Continue reading

Invest in China with just Rs 10,000 with Hang Seng BeEs ETF

After the mad rush for Gold ETF Asset Management companies were actively scouting go the next big idea to launch to seek cover for their dwindling Assets Under Management(AUM). Accordingly, Benchmark Mutual Fund will be launching an ETF based on the Hang Seng Index. Hang Seng BeEs as it is called would be listed on the NSE on Monday , 15th February. The Purpose of this EFT is to enable investors track Hang Seng Live and reveal hang seng index chart on real-time basis.

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Benchmark AMC and its Niche:

Benchmark has carved a niche for itself in the Indian Mutual Fund Industry by successfully launching first ETF in Asia(not only India) Nifty BeEs. It is also credited with launching the Gold ETF first time in India. Shariah based ETF products were first introduced to the Indian Mutual Fund Investors by Benchmark Asset Management Company.

Trade on Hang Seng Stock Exchange:

Hang Seng BeEs would be the first ETF to introduce Indian Stock Market Investors to a closed market like China. India and China are two of the fastest growing economies in the world. Indian investors would largely benefit by the diversification offered with the launch of hang seng index based ETF. Hang Seng Stock Exchange is one of the largest exchanges in the world. Hang Seng Index Charts, Hang Seng Futures, Hang Seng Historical Data can also be now be determined and tracked on a real-time basis.

Hang Seng Timings:

Hang Seng BEnchmark Exchange traded Scheme(BeEs) will trade during the Hong Stock Exchange Timings. The Heng Seng Stock Exchange closes two and half hours prior to the NSE Closing timings. The corresponding time would be between 7.30 am to 1.30 pm Indian Standard Time. The timings are better suited to Indian Stock Market traders and investors alike, compared to US Markets and European market timings. The NAV for the Scheme would also include the currency fluctuation.

Taxation Rules for Trading in Foreign ETF:

The ETF are treated as Debt funds for tax treatment and would therefore attract tax rules which are currently applicable to the non-equity funds in India. The Hang Seng Index currently comprises of 42 Stocks and is the benchmark for the China ETF in India. Rs 10,000 is all you need for your ticket to China: The units are available for a minimum amount of just Rs 10,000. To cater to large masses and enable wider market participation the entry amount is kept at Rs 10000 only. All Major Global Corporations have invested billions of dollars in the Chinese Economy. So why Indian Investor should not join the race and participate to diversify their existing portfolios?

Charges for trading on China ETF:

There are no charges levied by the AMC in form of NIL entry load and NIL exit load for buying and selling on the NSE. A minor bid/ask spread, brokerage for trading and needs to be borne by the investor. Hitherto, only High Net worth Individuals was active in using these innovative financial products. In future retail investors should add such products to their overall portfolio diversification strategy.

F.A.Q’s ETF (PART 3)

ETFs are different from Mutual funds in the sense that ETF units are not sold to the public for cash. Instead, the Asset Management Company that sponsors the ETF (Fund) takes the shares of companies comprising the index from various categories of investors like authorized participants, large investors and institutions. In turn, it issues them a large block of ETF units. Since dividend may have accumulated for the stocks at any point in time, a cash component to that extent is also taken from such investors. In other words, a large block of ETF units called a “Creation Unit” is exchanged for a “Portfolio Deposit” of stocks and “Cash Component”.

The number of outstanding ETF units is not limited, as with traditional mutual funds. It may increase if investors deposit shares to create ETF units; or it may reduce on a day if some ETF holders redeem their ETF units for the underlying shares. These transactions are conducted by sending creation / redemption instructions to the Fund. The Portfolio Deposit closely approximates the proportion of the stocks in the index together with a specified amount of Cash Component. This “in-kind” creation / redemption facility ensures that ETFs trade close to their fair value at any given time.

Some investors may prefer to hold the creation units in their portfolios. While others may break-up the creation units and sell on the exchanges, where individual investors may purchase them just like any other shares.

ETF units are continuously created and redeemed based on investor demand. Investors may use ETFs for investment, trading or arbitrage. The price of the ETF tracks the value of the underlying index. This provides an opportunity to investors to compare the value of underlying index against the price of the ETF units prevailing on the Exchange. If the value of the underlying index is higher than the price of the ETF, the investors may redeem the units to the Sponsor in exchange for the higher priced securities. Conversely, if the price of the underlying securities is lower than the ETF, the investors may create ETF units by depositing the lower-priced securities. This arbitrage mechanism eliminates the problem associated with closed-end mutual funds viz. the premium or discount to the NAV.

F.A.Q’s ETF (PART 2)

Exchange Traded Funds (ETF) and its advantages:

Advantages of ETFs

While many investors have similar outlooks, no two are exactly alike. Due to the unique structure of ETFs, all types of investors, whether retail or institutional, long-term or short-term, can use it to their advantage without being at a disadvantage to others. They allow long-term investors to diversify their portfolio at one shot at low cost and insulate them from short-term trading activity due to the unique “in-kind” creation / redemption process. They provide liquidity for investors with a shorter-term horizon as they can trade intra-day and can have quotes near NAV during the course of trading day. As initial investment is low, retail investors find it simple and convenient to buy / sell. They facilitate FIIs, Institutions and Mutual Funds to have easy asset allocation, hedging, equitising cash at a low cost. They enable arbitrageurs to carry out arbitrage between the Cash and the Futures markets at low impact cost.

ETFs provide exposure to an index or a basket of securities that trade on the exchange like a single stock. They offer a number of advantages over traditional open-ended index funds as follows :

* While redemptions of Index fund units takes place at a fixed NAV price (usually end of day), ETFs offer the convenience of intra-day purchase and sale on the Exchange, to take advantage of the prevailing price, which is close to the actual NAV of the scheme at any point in time.

* They provide investors a fund that closely tracks the performance of an index throughout the day with the ability to buy/sell at any time, whereby trading opportunities that arise during a day may be better utilized.

* They are low cost.

* Unlike listed closed-ended funds, which trade at substantial premia or more frequently at discounts to NAV, ETFs are structured in a manner which allows Authorized Participants and Large Institutions to create new units and redeem outstanding units directly with the fund, thereby ensuring that ETFs trade close to their actual NAVs.

* ETFs are like any other index fund, wherein, subscription / redemption of units work on the concept of exchange with underlying securities instead of cash (for large deals).

* Since an ETF is listed on an Exchange, costs of distribution are much lower and the reach is wider. These savings in cost are passed on to the investors in the form of lower costs. Further, the structure helps reduce collection, disbursement and other processing charges.

* ETFs protect long-term investors from inflows and outflows of short-term investors. This is because the fund does not incur extra transaction cost for buying/selling the index shares due to frequent subscriptions and redemptions.

* Tracking error, which is divergence between the NAV of the ETF and the underlying Index, is generally observed to be low as compared to a normal index fund due to lower expenses and the unique in-kind creation / redemption process.

* ETFs are highly flexible and can be used as a tool for gaining instant exposure to the equity markets, equitising cash or for arbitraging between the cash and futures market.

The first ETF in India, “Nifty BeEs (Nifty Benchmark Exchange Traded Scheme) based on S&P CNX Nifty, was launched in January 2002 by Benchmark Mutual Fund. It may be bought and sold like any other stock on NSE. Its symbol on NSE is “NIFTYBEES”.

F.A.Q’s ETF (PART 1)

ETFs are just what their name implies: baskets of securities that are traded, like individual stocks, on an exchange. Unlike regular open-end mutual funds, ETFs can be bought and sold throughout the trading day like any stock.

Most ETFs charge lower annual expenses than index mutual funds. However, as with stocks, one must pay a brokerage to buy and sell ETF units, which can be a significant drawback for those who trade frequently or invest regular sums of money.

They first came into existence in the USA in 1993. It took several years for them to attract public interest. But once they did, the volumes took off with a vengeance. Over the last few years more than $120 billion (as on June 2002) is invested in about 230 ETFs. About 60% of trading volumes on the American Stock Exchange are from ETFs. The most popular ETFs are QQQs (Cubes) based on the Nasdaq-100 Index, SPDRs (Spiders) based on the S&P 500 Index, iSHARES based on MSCI Indices and TRAHK (Tracks) based on the Hang Seng Index. The average daily trading volume in QQQ is around 89 million shares.

Their passive nature is a necessity: the funds rely on an arbitrage mechanism to keep the prices at which they trade roughly in line with the net asset values of their underlying portfolios. For the mechanism to work, potential arbitragers need to have full, timely knowledge of a fund’s holdings.

In essence, ETFs trade like stocks and therefore offer a degree of flexibility unavailable with traditional mutual funds. Specifically, investors can trade ETFs throughout the trading day as in stocks. In comparison, in a traditional mutual fund, investors can purchase units only at the fund’s NAV, which is published at the end of each trading day. In fact, investors cannot purchase ETFs at the closing NAV. This difference gives rise to an important advantage of ETFs over traditional funds: ETFs are immediately tradable and consequently, the risk of price differential between the time of investment and time of trade is substantially less in the case of ETFs.

ETFs are cheaper than traditional mutual funds and index funds in terms of fees. However, while investing in an ETF, an investor pays a commission to the broker. The tracking error of ETFs is generally lower than traditional index funds due to the “in-kind” creation / redemption facility and the low expense ratio. This “in-kind” creation / redemption facility ensures that long-term investors do not suffer at the cost of short-term investor activity.

ETFs can be bought / sold through trading terminals anywhere across the country. Table No. 1 presents a comparative view ETFs vis-à-vis other funds.
ETFs Vs. Open Ended Funds Vs. Close Ended Funds

Parameter Open Ended Fund Closed Ended Fund Exchange Traded Fund

Fund Size Flexible Fixed Flexible

NAV Daily Daily Real Time

Liquidity ProviderFund itself Stock Market Stock Market / Fund itself
Sale Price At NAV plus load, Significant Premium Very close to actual NAV of Scheme
if any / Discount to NAV

Availability Fund itself Through Exchange where listedThrough Exchange where listed / Fund

Portfolio Disclosure Monthly Monthly Daily/Real-time

Uses Equitising cash – Equitising Cash, Hedging, Arbitrage

Intra-Day Trading Not possible Expensive Possible at low cost

Applications of ETFs

* Efficient Trading : ETFs provide investors a convenient way to gain market exposure viz. an index that trades like a stock. In comparison to a stock, an investment in an ETF index product provides a diversified exposure to the market. Depending on the index, investors may obtain exposure to countries/ markets or sectors.

* Equitising Cash : Investors with idle cash in their portfolios may want to invest in a product tied to a market benchmark like an index as a temporary investment before deciding which stocks to buy or waiting for the right price.

* Managing Cash Flows : Investment managers who see regular inflows and outflows may use ETFs because of their liquidity and their ability to represent the market.

* Diversifying Exposure : If an investor is not sure about which particular stock to buy but likes the overall sector, investing in shares tied to an index or basket of stocks provides diversified exposure and reduces stock specific risk.

* Filling Gaps : ETFs tied to a sector or industry may be used to gain exposure to new and important sectors. Such strategies may also be used to reduce an overweight or increase an underweight sector.

* Shorting or Hedging : Investors who have a negative view on a market segment or specific sector may want to establish a short position to capitalize on that view. ETFs may be sold short against long stock holdings as a hedge against a decline in the market or specific sector.

We dont need no ULIP’s anymore.

Now various mutual fund houses have introduced Funds with insurance cover. And the product seems to a good match to ULIP. If product such as RELIANCE SIP, Century SIP from Birla MF catch on, the insurance agent might well be history.

Ganpat Bhai is an insurance agent. Be it the wedding of his friend’s daughter or a relative’s friend never misses a chance to sell a unitlinked insurance plan (Ulip) or two. Ganpat Bhai has sold them for years, playing on the twin emotions of fear and greed commonly found in human beings. For those who feared the future, he sold Ulip as insurance. And, for thhose who wanted their money to multiply, he sold them as investments.
Never mind the fear of mis-selling, client profiling which required, he managed to sell same product to all.
Mutual Funds often lost out because Ulip had this liquid-like property, where they took the shape of whatever vessel they were poured into. MF’s were rigid-they were purely investment products and did not provide for worldly happenings such as death.
Then, fund houses suddenly woke up. Take a leaf out of the insurance companies’ book, they started offering plans that offered insurance, too. DejaVu, the life of insurance agents turned into nightmares all of a sudden. The sky high commissions, mis-selling that they were used to all seemed to disappear in thin air.

Reliance SIP and Birla Sun Life Mutual Fund’s Century SIP is the latest in that line. Birla’s SIP is a systematic investment plan (SIP) that is optional. The plan should not be confused with a mutual fund scheme. While a scheme has a specific investment objective, an SIP is just a mode of investment that can be applies to any of the various schemes offered by a fund house. At present, Century SIP will be available on all 18 open-ended equity scheme offered by the fund house.
To participate in this plan, an investor needs to invest a minimum of Rs.1,000 every month. There is no upper limit for this investment. Under this plan, an MF investor will get insurance cover on his life 45 days after paying the first instalment. While some fund house charge a fee for this cover, Birla MF is offering it free of charge. In the first 45 days, only accidental deaths will be compensated.
The cover will be available to the investor till he or she turns 55. So the tenure of the cover under Century SIP will be 55 years minus the current age of the investor.
For an investor aged 40 years and five months, the tenure of the Century SIP insurance cover will be 14 years and seven months. Let’s say an investor starts an SIP of Rs 5,000 per month. If he dies within the first year of paying his instalments, his nominee is eligible for a cover of 19 times the SIP amount- Rs 50,000. If he dies during the second year of SIP payments, the nominee get 50 times the SIP amount as the life cover – Rs2.5 lakh. And if he dies any time in the third year or after that, the nominee gets 100 times the monthly SIP amount Rs5 lakh. Here again, thecover is subject to a maximum of Rs20 lakh.
The cover cannot be claimed if the SIP is discontinued before the completion of three years or if the investor defaults on payments of instalments on two consecutive occasions.
Investor who can afford to set aside at least Rs. 1,000 every month for equity investments can take this offer, depending, of course, on the underlying scheme’s compatibility with your investment goal. Thus, if none of the Birla schemes fits your needs, you should not take one just because it offers free insurance. But if one does, the Century SIP is a good reason to make that switch.
Ganpat Bhai still believes only insurance companies can offer good insurance. But, sooner or later, as the trend catches on, be sure even he will come around to seeing sense.


Investors who wish to seek general information on Know Your Client (KYC) Compliance, may mail their queries/suggestions to: cvlhelpdesk@cdslindia.com
Western Region

Phiroze Jeejeebhoy Towers,
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Mumbai – 400 001
Phone :91-22-2721383, 91-22-32485170 (Direct lines),
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Mutual-Funds-Glossary(Part 2)


The systematic repayment (e.g., monthly, quarterly, or yearly) of a debt or loan, such as a bond or mortgage, over a specific time period.

Annual Report

The corporate financial statement that shareholders eagerly receive each year. It includes financials of the company’s performance over the previous year.

Annual Return

The percentage of change in a mutual fund’s net asset value over a year, after factoring in dividend receipts, capital gains, and reinvestment of these distributions.


The simultaneous purchase and selling of a security in order to profit from a differential in the price. This usually takes place on different exchanges or marketplaces. Asset Anything that has monetary value. Typical personal assets include stocks, real estate, jewelry, art, cars, and bank accounts. Corporate assets are found on the company’s balance sheet and include cash, accounts receivable, short- and long-term investments, inventories, and prepaid expenses.

Asset Allocation

Dividing investment dollars among various asset classes, typically among cash investments, bonds, and stocks.

Asset Classes The three major asset classes are cash, bonds, and stocks.

Average Maturity

The average of all maturity dates for securities in a money market or bond fund. The longer the average maturity, the more volatile a fund’s share price will be, moving up or down as interest rates change.

Balanced Funds

Funds that invest in both stocks and bonds. The relative weightage may differ with fund manager.

Balance Sheet

A company’s financial statement that reports its assets, liabilities, and net worth at a specific time.

Basis Point

Most often used relating to changes in interest rates. One basis point is 1/100 of a percentage point, therefore 100 basis points make 1 %.

Bear Market

When the overall market loses value over an extended period of time. There is no “official” definition of what makes a bear market.


A standard to which the performance of something can be compared. Beta A measure of the relative volatility of a stock or other security as compared to the volatility of the entire market. A beta above 1.0 shows greater volatility than the overall market, and a beta below 1.0 is less volatile.

Blue-Chip Stocks

Really good, large companies that have been around long enough to have a solid history of rewarding shareholders. Think Hindustan Lever Ltd.

A debt instrument issued by a company, state or the central government (or its agencies), with a promise to pay interest at regular intervals and return the principal on a specified date.

Bond Rating

An evaluation of the possibility of default by a bond issuer, based on an analysis of the issuer’s financial condition and profit potential. Bond rating services are provided by, among others, CRISIL and Fitch.

Book Value

A company’s assets, minus any liabilities and intangible assets. Book value is literally the value of a company that can be found in the accounting ledger and is often represented as a per-share value by taking the company’s shareholder equity and dividing by the current number of shares outstanding.

One who sells financial products. Whether in insurance, real estate, stocks, or mutual funds.

Bull Market

A market that has been gaining value over a prolonged period.


The amount of money invested by an investor.

Capital Appreciation

One of the two components of total return, capital appreciation is how much the underlying value of a security has increased. If you bought a stock at Rs.10 per share and it has risen to Rs.13, you have enjoyed a 30% return or appreciation on the original capital you invested. Dividend yield is the other component of total return. Capital Gain/Loss The difference between the price at which an asset is sold and its original purchase price (or “basis”).

Cash Flow

A measure that tells an investor whether a company is actually bringing cash in to the company’s coffers.

Certificate Of Deposit (CD) An insured, interest-bearing deposit at a bank, requiring the depositor to keep the money invested for a specific length of time.

Closed-End Fund

A mutual fund that has a fixed number of shares and is typically listed on a major stock exchange. These funds often trade perpetually at a discount to their net asset value (NAV).

Commercial Paper

A promissory note issued by a large company to secure short-term financing. Commission

A fee charged by a broker for executing a securities transaction. Compounding When an investment generates earnings on reinvested earnings. Consumer Price Index (CPI) An inflation tracker, much followed by the mainstream media. It is the measure of the price change in consumer goods and services.

Coupon/Coupon Rate

The interest rate that a bond issuer is obligated to pay the bond holder until the bond matures. Cyclical Stock Stock of a company whose performance is generally related (or thought to be related) to the performance of the economy as a whole. Paper, steel, and the automotive stocks are thought to be cyclical because their earnings tend to be hurt when the economy slows and are strong when the economy turns up. Food and drug stocks, on the other hand, are not considered “cyclicals,” as consumers pretty much need to eat and care for their health regardless of the performance of the economy.


A debt obligation that is not backed by collateral, but usually rated by a credit rating agency.


A financial contract whose value is “derived” from an another underlying asset, such as stocks, bonds, commodities, or a market index such as NSE 50. The most common types of derivatives are options, futures, and mortgage-backed securities.

The difference between the lower price paid for a security and the security’s face amount at issue.


Investing in separate asset classes (stocks, bonds, cash) and/or stocks of different companies in an attempt to lower overall investment risk. Dividends Realized profits that a mutual fund distributes to unitholders.

Earnings Per Share (EPS)

A company’s earnings, also known as net income or net profit, divided by the number of shares outstanding. Equities Shares of stock in a company. Because they represent a proportional share in the business, they are “equitable claims” on the business itself.

Ex-Dividend Date

The date during the quarter by which you must own a stock to receive its quarterly dividend payout. The term “ex” means out or without in Latin. So, on the ex-date, you buy the stock without the dividend. Obviously, the company needs some time to get its records straight; it cannot pay the dividend to someone who buys the stock the morning the checks go out.

Expense Ratio

The percentage of a mutual fund that is taken out of the pockets of shareholders to pay. If you are investing in mutual funds, look for funds with a low expense ratio.

Fiscal Year

A 12-month accounting period. From April 1st to March 31st.

Floating Rate Bond

A bond with a variable interest rate. Adjustments to the interest rate are usually made every 6 months and are tied to a certain money-market index. Example MIBOR.

Gilt Funds

Funds that invest in government securities, which may be short or long-term in nature. Higher the maturity of the portfolio, greater will be the volatility when interest rates change. Growth Funds Funds which invest a majority of their corpus in equity.

Income Fund

A mutual fund that invests in bonds with higher-than-average dividends.

Index Fund

A passively managed mutual fund that seeks to match the performance of a particular market index. Partially due to lower expenses, index funds outperform the majority of actively managed mutual funds. Inflation A rise in the prices of goods and services.

Initial Public Offering (IPO)

A company’s first offering of common stock to the public. Institution Investors Institutions investors include pension funds, insurance funds, mutual funds, and hedge funds. Investment Adviser An entity that makes the recommendations and/or decisions regarding a portfolio’s investments. Alternatively called a portfolio manager. Issued Share Capital The portion of a corporation’s equity obtained from issuing shares in return for cash or other considerations.

Liabilities Outstanding debts

LIBOR (London Interbank Offer Rate) This is the rate of interest at which banks borrow funds from other banks, in marketable size, in the London interbank market. Liquidity A measure of how quickly a stock can be sold at a fair price and converted to cash. Illiquid stocks are stocks that don’t trade in high volume. Thus, having too many shares of a stock that doesn’t trade frequently would make for a position that cannot necessarily be sold. Load A sales commission paid when purchasing shares of a mutual fund (called a front-end load) or when redeeming shares of a mutual fund (called a back-end load).

Management Fee

The money paid to the manager(s) of a mutual fund, annuity subaccount, or other type of professionally managed investment. Also called an advisory fee. Maturity/Maturity Date The date on which the issuer of a certificate of deposit or a bond agrees to repay the principal to the buyer. MIBOR (Mumbai Interbank Offer Rate) This is the rate of interest at which banks borrow funds from other banks, in marketable size, in the Mumbai interbank market. Money Market Fund Mutual fund that invests typically in short-term government instruments (treasury bills) and commercial paper (CPs) and Certificates of Deposit (CDs). These funds tend to be lower-yielding, but less risky than most other types of funds.

Net Asset Value

The worth, in market terms, for each unit of the fund. It is calculated as the market value of all investments in the fund less liabilities and expenses divided by the outstanding number of units in the fund. Most schemes announce their NAVs on a daily basis. Net Worth The amount by which a person’s assets exceed their liabilities.

Open-End Fund

A mutual fund that has an unlimited number of shares available for purchase. Most mutual funds are open-ended. Operating Expenses The cost of doing business. Operating expenses are deducted from revenues, and the result is, hopefully, profits. Option A call option is a contract in which a seller gives a buyer the right, but not the obligation, to buy the optioned shares of a company at a set price (the strike price) for a certain period of time. If the stock fails to exceed the strike price before the expiration date, the option expires worthless. A put option is a contract that gives the buyer the right, but not the obligation, to sell the stock underlying the contract at a predetermined price (the strike price). The seller (or writer) of the put option is obligated to buy the stock at the strike price.


All the securities held by an individual, institution, or mutual fund. Preferred Stock Preferred stock pays a dividend on a regular schedule and is given preference over common stock in regard to the payment of dividends or — heaven forbid — any liquidation of the company. Their share prices tend to remain stable, and will generally not carry the voting rights that common stock does. Premium The difference between the higher price paid for a security and the security’s face amount at issue. Price-To-Earnings Ratio (P/E) The share price of a stock, divided by its per-share earnings over the past year.

Rate of Return

The difference between the price paid for a security and the security’s sale price including any cash distribution expressed as a percentage. Record Date The date on which a company’s books are closed in order to identify share owners and distribute quarterly dividends, proxies, or other financial documentation.

Risk Tolerance

The measurement of an investor’s willingness to suffer a decline (or repeated declines) in the value of investments while waiting and hoping for them to increase in value. Generally investors are risk averse. Rupee Cost Averaging Strategy of making regular investments into a mutual fund and having earnings automatically reinvested. This way, when the share price drops, more shares are bought at lower prices.

Sector Fund

A mutual fund that invests its shareholders’ money in a relatively narrow market sector, e.g., technology, energy, the Internet, or banking. Securities A fancy name for shares of stock, bonds, or any kind of financial asset that can be traded. Spread The difference between the bid and ask price, i.e., the highest price offered and the lowest priced asked for a security.

Time Value Of Money (TVM)

The basic principle that money can earn interest, and so something that is worth Rs. 1 today will be worth more in the future if invested. This is also referred to as future value Total Return The rate of return on an investment, including reinvestment of distributions. Tracking Error A divergence between the price behavior of a position or portfolio and the price behavior of a benchmark. Trustee An individual who holds or manages assets for the benefit of another.


A brokerage firm that helps a company come public in an initial public offering. The firm underwrites (vouches for) the stock. When a company has been brought public, the shares have been underwritten. V Volatility The degree of movement in the price of a stock or other security.


Yield Interest : or market earnings on a bond or a fixed-income instrument.

Yield Curve

A line plotted on a graph that depicts the yields of bonds of varying maturities, from short-term to long-term. The line, or “curve,” shows the relationship between short- and long-term interest rates.

Zero-Coupon Bond

These bonds are so named because the coupon rate (the amount of interest paid) is zero. Rather than paying interest on a periodic basis, these bonds are issued at a fraction of their par value and increase in value as they approach maturity (e.g., U.S. savings bonds). Also known as an accrual bond.

Mutual Funds Glossary.

1. Abnormal Return: The return earned on a financial asset in excess of that required to compensate for the risk of the asset.

2. Account Executive (alternatively, Registered Representative): A representative of a brokerage firm whose primary responsibility is servicing the accounts of individual investors.

3. Accounting Beta: A relative measure of the sensitivity of a firm’s accounting earnings of the market portfolio.

4. Accounting Earnings (alternatively, Reported Earnings): A firm’s revenue less its expenses. Equivalently, the change in the firm’s book value of the equity plus dividends paid to shareholders.

5. Accrued Interest: Interest earned but not yet paid.

6. Active Efficient Set: The combination of securities that offer investors both maximum expected active return for varying levels of active risk and minimum active for varying level of expected active return.

7. Active Management: A form of investment management that involves buying and selling financial assets with the objective of earning positive abnormal returns.

8. Active Position: The difference between the percentage of an investor’s portfolio invested in a particular financial asset and the percentage of a benchmark portfolio invested in the same asset.

9. Actual Margin: The equity in an investor’s margin account expressed as a percentage of the account’s total market value (for margin purchases) or total debt (for short sales).

10. Adjusted Beta: An estimate of a security’s future beta, derived initially from historical data, but modified by the assumption that the security’s “true” beta has a tendency over time to move towards the market average of 1.0

11. Adverse Selection: A problem in pricing insurance in that persons with above average risk are more likely to purchase insurance than are those with below average risk.

12. Aggressive Stocks: Stocks that have betas greater than 1.

13. Allocationally Efficient Market: A market for securities in which those firms with the most promising investment opportunities have access to the needed funds.

14. Alpha: The difference between the security’s expected return and its benchmark return.

15. American Depository Receipts (ADRs): Financial assets issued by U.S. banks that represent indirect ownership of a certain number of shares of a specific foreign firm. These shares are held on deposit in a bank in the firm’s home country.

16. American Option: An option that can be exercised at any time until and including its expiration date.

17. Annual Percentage Rate (APR): With respect to a loan, the APR is yield-to-maturity of the loan, computed using the most frequent time between payments as the compounding interval.

18. Anomaly: An empirical regularity that is not predicted by by any known asset pricing model.

19. Approved List: A list of securities than an investment organization deems worthy of accumulation in a given portfolio. In an organization that uses an approved list, typically, any security on the list may be purchased by the organization’s portfolio managers without additional authorization.

20. Arbitrage: The simultaneous purchase and sale of the same, or essentially similar, security in two different markets for advantageously different prices.

21. Arbitrage Portfolio: A portfolio that requires no investment, has no sensitivity to any factor and has a positive expected return. More strictly, a portfolio that provides inflows in some circumstances and requires no outflows under any circumstances.

22. Arbitrage Pricing Theory: An equilibrium model of asset pricing that states that the expected return on a security is a linear function of the security’s sensitivity to various common factors.

23. Arbitrageur: A person who engages in arbitrage.

24. Asked or Ask Price (alternatively, Offer Price): The person at which a market-maker is willing to sell a specified quantity of a particular security.

25. Asset Allocation: The process of determining the optimal division of an investor’s portfolio among available asset classes.

26. Asset Class: A broadly defined generic group of financial assets, such as stocks or bonds.

27. Asymmetric Information: A situation in which one party has more information than another party.

28. At the Money: An option whose exercise price is roughly equal to the market price of its underlying assets.

29. Automated Bond System (ABS): A computer system established by the New York Stock Exchange to facilitate the trading of funds.

30. Average Tax Rate: The amount of taxes paid expressed as a percentage of the total income subject to tax.


31. Bank Discount Basis: A method of calculating the interest rate on a pure discount fixed income security that uses the principal of the security as the security’s cost.

32. Bankers’ Acceptance: A type of money market instrument, It is promissory note issued by business debtor, with a stated maturity date, arising out of business transaction. A bank, by endorsing the note, assumes the obligation. If this obligation becomes actively traded, it is referred to as bankers’ acceptance

33. Basis: The difference between the spot price of an asset and the future price of the same asset.

34. Basis Point: 1/100 or 1%.

35. Basis Risk: The risk to a futures investor that the basis will widen or narrow.

36. Bearer Bond: A bond that has attached coupons representing the rights to receive interest payments. The owner submits each coupon on its specified date to receive payment. Ownership is transferred simply by the seller’s endorsing the bond over the buyer.

37. Benchmark Portfolio: A portfolio against which the investment performance of an investor can be compared for the purpose of determining investment skill. A benchmark portfolio represents a relevant and feasible alternative to the investor’s actual portfolio and, in particular, is similar in terms of risk exposure.

38. Best-Effort Basis: A security underwriting in which the members of the investment banking group serve as agents instead of dealers, agreeing only to obtain for the issuer the best price that the market will a pay for the security.

39. Beta (alternatively, Beta Coefficient or Market Beta): A relative measure of the sensitivity of an asset’s return to changes in the return on the market portfolio. Mathematically, the beta coefficient of the security’s covariance with the market portfolio divided by the variance of the market portfolio.

40. Bid-Ask Spread: The difference between the price that the market-maker is willing to pay for a security and the price at which the market-maker is willing to sell the same security.

41. Bidder: In the context of corporate takeover, a firm making a tender offer to the target firm.

42. Bid Price: The price at which a market-maker is willing to purchase a specified quantity of a particular security.

43. Block: A large order (usually 10,000 shares or more) to buy or sell security.

44. Block House: A brokerage firm with the financial capacity and the trading expertise to deal in block trades.

45. Bond Rating: An indicator of the creditworthiness of specific bond issues. These ratings are often interpreted as an indication of the relative likelihood of default on the part of the respective bond issuer.

46. Bond Swapping: A form of active bond management that entails the replacement of bonds in a portfolio with other bonds so as to enhance the return of the portfolio.

47. Book Value of the Equity: The sum of the retained / earnings and other balance sheet entries classified under shareholders’ equity, such as common stock and capital contributed in excess of par value.

48. Book Value per Share: A corporation’s book value of the equity divided by the number of its common shares outstanding.

49. Bottom-Up Forecasting: A sequential approach to security analysis that entails first making forecasts for individual companies, then for industries, and finally for the economy. Each level of forecasts is conditional on the previous level of forecasts made.

50. Broker: An agent, or “middleman”, who facilitates the buying and selling of securities for investors.


51. Call Market: A security market in which trading is allowed only at a certain specified times. At those times, persons interested in trading a particular security are physically brought together and a market clearing price is established.

52. Call Money Rate: The interest rate paid by brokerage firms to banks on loans used to finance margin purchases by the brokerage firm’s customers.

53. Call Option: A contract that gives the buyer the right to buy a specific number of shares of a company from the option writer at a specific purchase price during a specific time period.

54. Call Premium: The difference between the call price of the bond and the par value of the bond.

55. Call Price: The price that an issuer must pay bondholders when an issue is retired before its stated maturity date.

56. Call Provision: A provision in some bond indentures that permits an issuer to retire some or all of the bonds in a particular bond issue before the bonds’ stated maturity date.

57. Capital Asset Pricing Model (CAPM): An equilibrium model of asset pricing that states that the expected return on a security is a positive linear function of the security’s sensitivity to changes in the market portfolio’s return.

58. Capital Gain (or Loss): The difference between the current market value of an asset and the original cost of the asset, with the cost adjusted for any improvement or depreciation in the asset.

59. Capitalization of Income Method of Valuation: An approach to valuing financial assets. It is based on the concept that the “true” or intrinsic value of a financial asset is equal to the discounted value of future cash flows generated by that asset.

60. Capital Market Line: The set of portfolios obtainable by combining the market portfolio with risk free borrowing or lending. Assuming homogeneous expectations and perfect markets, the capital market line represents the efficient set.

61. Capital Markets: Financial markets in which financial assets with a term to maturity of typically more than one year are traded.

62. Cash Account: An account maintained by an investor with a brokerage firm in which deposits (cash and proceeds from security sales) must fully cover withdrawals (cash and the cost of security purchases)

63. Cash Matching: A form of immunization that involves the purchase of bonds that generate the stream of cash inflows identical in amount and timing to a set of expected cash out-flows over a given period of time.

64. Certainty Equivalent Return: For a particularly risky investment, the return on a risk free investment that makes the investor indifferent between the risky and risk free investments.

65. Certificate of Deposit: A form of time deposit issued by banks and other financial institutions.

66. Characteristic Line: A simple linear regression model expressing the relationship between the excess return on a security and the excess return on the market portfolio.

67. Charter (alternatively, Certificate of Incorporation): A document issued by a state to a corporation that specifies the rights and obligations of the corporation’s stockholders.

68. Chartist: A technical analyst who relies primarily on stock price and volume charts when evaluating securities.

69. Circuitbreakers: Established by the New York Stock Exchange, a set of upper and lower limits on the market price movements as measured by the Dow Jones Industrial Average. Depending on the magnitude of the price change, breaking through those limits, particularly on the downside, results initially in restrictions on program trading and ultimately in closing the exchange.

70. Clearinghouse: A cooperative venture among banks, brokerage firms and other financial intermediaries that maintain records of transactions made by member firms during a trading day. At the end of the trading day, the clearing house calculates net amounts of securities and cash to be delivered among the members, permitting each member to settle once with the clearing house.

71. Closed-End Investment Company: A managed investment company, with an unlimited life, that does not stand ready to purchase its own shares from its owners and rarely issues new shares beyond its initial offering.

72. Closing Price (alternatively, Close): The price at which the last trade of the day took place in a particular security.

73. Closing Purchase: The purchase of an option contract by an investor that is designed to offset, and thereby cancel, the previous sale of the same option contract by the investor.

74. Closing Sale: The sale of an option contract by an investor that is designed to offset, and thereby cancel, the previous purchase of the same option contract by the investor.

75. Coefficient of Determination (alternatively, R-Squared): In the context of the linear regression, the proportion of the variation in the dependent variable that is related to (that is, “is explained by”) variation in the independent variables.

76. Coefficient of Nondetermination: In the context of linear regression, the proportion of the variation in the dependent variable that is not related to (that is, “is not explained by”) variation in the independent variables. Equivalently, one minus the coefficient of determination.

77. Coincident Indicators: Economic variables that have been found to change at the same time that the economy is changing.

78. Collateral Trust Bond: A bond that is backed by other financial assets.

79. Commercial Paper: A type of money market instrument It represents unsecured promissory notes of large, financially sound corporations.

80. Commission: The fee an investor pays to a brokerage firm for services rendered in the trading of securities.

81. Commission Broker: A member of an organized security exchange who takes orders that the public has placed with brokerage firms and see that these orders are executed on the exchange.

82. Commodity Fund: An investment company that speculates in futures.

83. Commodity Futures Trading Commission (CFTC): A federal agency established by the Commodity Futures Trading Commission Act of 1974 that approves (or disapproves) the creation of new futures contracts and regulates the trading of existing futures contracts.

84. Common Factor: A factor that affects the return on virtually all securities to a certain extent.

85. Common Stock: Legal representation of an equity (or ownership) position in a corporation.

86. Comparative Performance Attribution: Comparing the performance of a portfolio with that of one or more other portfolios (or market indices) in order to determine the sources of their differences in their returns.

87. Competitive Bidding: With respect to selecting an underwriter, the process of an issuer soliciting bids on the underwriting and choosing the underwriter offering the best overall terms.

88. Complete Market: A market in which there are enough unique securities so that for any given contingency an investor can construct a portfolio that will produce a payoff if that contingency occurs.

89. Composite Stock Price Table: Price information provided on all stocks traded on the national exchanges, the regional stock exchanges, the Nasdaq system, and the Instinet system.

90. Compounding: The payment of interest on interest

91. Computer-Assisted Trading System (CATS): A computer system for trading stocks on the Toronto Stock Exchange that involves a computer file containing a publicly accessible limit order book.

92. Consolidated Quotations System: A system that lists current bid and asked prices of specialists on the national and regional stock exchanges, the Nasdaq system and the Instinet system.

93. Consolidated Tape: A system that reports trades that occur on the National Stock Exchanges, the regional stock exchanges, the Nasdaq system and the Instinet system.

94. Constant-Growth Model: A type of dividend discount model in which dividends are assumed to exhibit a constant growth rate.

95. Consumer Price Index: A cost-of-living index that is representative of the goods and purchased by U.S. consumers.

96. Contingent Deferred Sales Charge: A fee charged by a mutual fund to its shareholders if they sell their shares within a specified time after initially purchasing them.

97. Contingent Immunization: A form of bond management that entails both passive and active elements. Under contingent immunization, as long as favorable results are obtained, the bond portfolio is actively managed. However, if unfavorable results occur, then the portfolio is immediately immunized.

98. Continuous Market: A security market in which trades may occur at any time during business hours.

99. Contrarian: An investor who has opinions opposite those of most other investors, leading to action such as buying recent losers and selling recent winners.

100. Convertible Bond: A bond that may, at the holder’s option, be exchanged for other securities, often common stock.

101. Convexity: The tendency for bond prices to change asymmetrically relative to yield changes. Typically, for the given yield change, a bond will rise in price more if the yield change is negative than it will fall in price if the yield change is positive.

102. Corner Portfolio: An efficient portfolio possessing the property that, if it is combined with any adjacent corner portfolio, the combination will produce another efficient portfolio.

103. Correlation Coefficient: A statistical measure similar to covariance, in that it measures the degree of mutual variation between two random variables. The correlation coefficient rescales covariance to facilitate comparison among pairs of random variables. The correlation coefficient is bounded by the values +1 and -1.

104. Cost of Carry: The differential between the futures and spot prices of a particular asset. It equals the interest forgone less the benefits plus the cost of ownership.

105. Cost-of-Living Index: A collection of goods and services, and their associated prices, designed to reflect changes over time in the cost of making normal consumption expenditures.

106. Counter party Risk: The risk posed by the possibility that the person or organization with which an investor has entered into a financial arrangement may fail to make required payments.

107. Coupon Payments: The periodic payment of interest on a bond.

108. Coupon Rate: The annual dollar amount of coupon payments made by a bond expressed as a percentage of the bond’s par value.

109. Coupon Stripping: The process of separating and selling the individual cash flows of Treasury notes or bonds.

110. Covariance: A statistical measure of the relationship between two random variables. It measures the extent of mutual variation between two random variables.

111. Covered Call Writing: The process of writing a call option on an asset owned by the option writer.

112. Cross-Deductibility: The arrangement among federal and state tax authorities that permits state taxes to be deductible expenses for federal tax purposes and federal taxes to be deductible expenses for state tax purposes.

113. Crown Jewel Defense: A strategy used by corporations to ward off hostile takeovers. The strategy entails the target company’s selling off its most attractive assets to make itself less attractive to the acquiring firm.

114. Cumulative Dividends: A common feature of preferred stock that requires that the issuing corporation pay all previously unpaid preferred stock dividends before any common stock dividends may be paid.

115. Cumulative Voting System: In the context of a corporation, a method of voting in which a stockholder is permitted to give any one candidate for the board of directors a maximum number of votes equal to the number of shares owned by that shareholder times the number of directors being elected.

116. Current Yield: The annual dollar amount of coupon payments made by a bond expressed as a percentage of the bond’s current market price.


117. Date of Record: The date, established quarterly by a corporation’s board of directors, on which the stockholders of record are determined for the purpose of paying a cash or stock dividend.

118. Day Order: A trading order for which the broker will attempt to fill the order only during the day on which it was entered.

119. Day-of-the-Week-Effect: (alternatively, Weekend Effect): An empirical regularity whereby stocks returns appear to be lower on Mondays than on other days of the week.

120. Dealer (alternatively, Market-Maker): A person who facilitates the trading of financial assets by maintaining an inventory in particular securities. The dealer buys for and sells from this inventory, profiting from the difference in the buying and selling prices.

121. Dealer’s Spread: The bid-ask spread quoted by a security leader.

122. Debenture: A bond that is not secured by specific property.

123. Debit Balance: The dollar amount borrowed from a broker as a result of the margin purchase.

124. Debt Refunding: The issuance of new debt for the purpose of paying off currently maturing debt.

125. Dedicated Portfolio: A portfolio of bonds that provides its owner with cash inflows that are matched against a specific stream of cash outflows.

126. Default Premium: The difference between the promised and expected yield-to-maturity on a bond arising from the possibility that the bond issuer might default on the bond.

127. Defensive Stocks: Stocks that have betas less than 1.

128. Delist: The process of removing a security’s eligibility for trading on an organized security exchange.

129. Demand-to-Buy-Schedule: A description of the quantities of the security that an investor is prepared to purchase at alternative prices.

130. Demand Deposit: A checking account at a financial institution.

131. Depository Trust Company: A central computerized depository for securities registered in the names of member firms. Member’s security certificates are immobilized and computerized records of ownership are maintained. This arrangement permits electronic transfer of the securities from one member to the another as trades are conducted between the members’ clients.

132. Discount Broker: An organization that offers a limited range of brokerage services and charges fee substantially below those of brokerage firms that provide a full range of services.

133. Discount Factor: The present value of $1 to be received in a specified number of years.

134. Discounting: The process of calculating the present value of a given stream of cash flows.

135. Discount Rate: The interest rate used in calculating the present value of future cash flows. The discount rate reflects not only the time value of money but also the riskiness of the cash flows.

135. Discretionary Order: A trading order that permits the broker to set the specifications for the order.

136. Disintermediation: A pattern of funds flow whereby investors withdraw funds from financial intermediaries, such as bank and savings and loans, because market interest rates exceed the maximum interest rates that these organizations are permitted to pay. The investors reinvest their funds in financial assets that pay interest rates not subject to ceilings.

137. Distribution (12b-1) Fee: An annual fee charged by a mutual fund to its shareholders to pay for advertising, promoting and selling of the fund to new investors.

138. Diversification: The process of adding securities to a portfolio in order to reduce the portfolio’s unique risk, and thereby, the portfolio’s total risk.

139. Dividend Decision: The process of determining the amount of dividends that a corporation will pay its shareholders.

140. Dividend Discount Model: The term used for the capitalization of income method of valuation as applied to common stocks. All variants of dividend discount model assume that the intrinsic value of a share of common stock is equal to the discounted value of the dividend forecast to be paid on the stock.

141. Dividends: Cash payments made to stockholders by the corporation.

142. Dividend Yield: The current annualized dividend paid on a share of common stock, expressed a percentage of the current market price of the corporation’s common stock.

143. Dollar-Weighted Return: A method of measuring the performance of a portfolio over a particular period of time. It is a discount rate that makes the present value of cash flows into and out of the portfolio, as well as the portfolio’s ending value, equal to the portfolio’s beginning value.

144. Domestic Return: The return on an investment in a foreign financial asset, excluding the impact of exchange rate changes.

145. Double Auction: Bidding among both buyers and sellers for a security that may occur when the specialist’s bid-ask spread is large enough to permit sales at one or more prices within the spread.

146. Duration: A measure of the average maturity of the stream of the payments generated by a financial asset. Mathematically, duration is the weighted average of the lengths of time until the asset’s remaining payments are made. The weights in this calculation are the proportion of the asset’s total present value represented by the present value of the respective cash flows.


147. Earnings per Share: A corporation’s accounting earnings divided by the number of its common shares outstanding.

148. Earnings-Price Ratio: The reciprocal of the price-earnings ratio.

149. Econometric Model: A statistical model designed to explain and forecast certain economic phenomena.

150. Economic Earnings: The change in the economic value of the firm plus dividends paid to shareholders.

151. Economic Value of the Firm: The aggregate market value of all securities issued by the firm.

152. Effective Duration: A measure of a bond’s duration that accounts for the ability of either the bond’s issuer or the bondholders to cause the actual stream of cash payments to differ from that which would be received if the bond were paid off as promised over its entire life.

153. Efficient Diversification: The process of creating diversification in a portfolio by selecting securities in a manner that explicitly considers the standard deviation and correlation of the securities.

154. Efficient Market: A market for securities in which every security’s price equals its investment value at all times, implying that a specified set of information if fully and immediately reflected in market prices.

155. Efficient Portfolio: A portfolio within the feasible set that offers investors both maximum expected return for varying levels of risk and minimum risk for varying levels of expected return.

156. Efficient Set (Frontier): The set of efficient portfolios.

157. Efficient Set Theorem: The proposition that investors will choose their portfolios only from the set of efficient portfolios.

158. Emerging Markets: Financial markets in countries that have a relatively low level of per capita gross domestic product, improving political and economic stability, a currency that is convertible into Western countries’ currencies and securities available for investment by foreigners.

159. Empirical Regularities: Differences in return on securities that occur with regularity from period to period.

160. Endogenous Variable: In the context of an econometric model, an economic variable that represents the economic phenomena explained by the model.

161. Equal-Weighted Market Index: A market index in which all the component securities contribute equally to the value of the index, regardless of the various attributes of those securities.

162. Equilibrium Expected Return: The expected return on a security assuming that the security is correctly priced by the market. This “fair” return is determined by an appropriate asset pricing model.

163. Equipment Obligation (alternatively, Equipment Trust Certificate): A bond that is backed by specific pieces of equipment that, if necessary, can be readily sold and delivered to a new owner.

164. Equity Premium: The difference between the expected rate of return on common stock and the risk free return.

165. Equity Swap: A contract between two counter parties wherein one pays the other a fixed stream of cash flows and in return receives a varying stream whose cash flows are regularly reset on the basis of the performance of a given stock or a given stock market index.

166. Equivalent Yield: The annualized yield-to-maturity on a fixed-income security sold on a discount basis.

167. Eurobond: A bond that is offered outside of the country of the borrower and usually outside of the country in whose currency the security is denominated.

168. Eurodollar Certificate of Deposit: A certificate of deposit denominated by U.S. dollars and issued by banks domiciled outside of the United States.

169. European Option: An option that can be exercised only on its expiration date.

170. Excess Return: The difference between the return on a security and the return on the risk-free asset.

171. Exchange Distribution or Acquisition: A trade involving a large block of stock on an unorganized security exchange whereby a brokerage firms attempts to execute the order by finding enough offsetting orders from its customers.

172. Exchange Risk (alternatively, Currency Risk): The uncertainty in the return on a foreign financial asset owing to unpredictability regarding the rate at which the foreign currency can be exchanged into the investor’s own currency.

173. Ex-distribution Date: The date on which ownership of stock is determined for purposes of paying stock dividends or issuing shares due to stock splits. Owners purchasing shares before the ex-distribution date receive the new shares in question. Owners purchasing shares on or after the ex-distribution date are not entitled to the new shares.

174. Ex-Dividend Date: The date on which ownership of stock is determined for purposes of paying cash dividends. Owners purchasing shares before the ex-distribution date receive the new shares in question. Owners purchasing shares on or after the ex-dividend date are not entitled to the dividend.

175. Exercise Price (alternatively, Striking Price): In the case of a call option, the price at which an option buyer may purchase the underlying asset from the option writer. In the case of a put option, the price at which an option buyer may sell the underlying asset to the option writer.

176. Exogenous Variable: In the context of an econometric model, an economic variable taken as given and used in the model to explain the model’s endogenous variable.

177. Expectations Hypothesis: A hypothesis that the current futures price of an asset equal the expected spot price of the asset on the delivery date of the futures contracts.

178. Expected Rate of Inflation: That portion of inflation experienced over a given period of time that was anticipated by investors.

179. Expected Return: The return on a security (or portfolio) that an investor anticipates receiving over a holding period.

180. Expected Return Vector: A column of numbers that correspond to the expected returns for a set of securities.

181. Expected Yield-to-Maturity: The yield-to-maturity on a bond calculated as a weighted average of all possible yields that the bond might produce under different scenarios of default or late payments, where the weights are the probabilities of each scenario occurring.

182. Expiration Date: The date on which the right to buy or sell a security under an option contract ceases.

183. Ex Post: After the fact; historical.

184. Ex Post Alpha: A portfolio’s alpha calculated on an ex post basis. Mathematically, over an evaluation interval, it is the difference between the average return on the portfolio and the average return on a benchmark portfolio.

185. Ex Post Selection Bias: In the context of constructing a security valuation model, the use of securities that have performed well and the avoidance of securities that have performed poorly, thus making the model appear more effective than it truly is.

186. Ex Rights Date: The date on which ownership of stock is determined for purposes of granting rights to purchase new stock in the right offering. Owners purchasing shares before the ex-rights date receive the rights in question. Owners purchasing shares on or after the ex-rights date are not entitled to the rights.

187. Externally Efficient Market: A market for securities in which information is quickly and widely disseminated, thereby allowing each security’s price to adjust rapidly in an unbiased manner to new information so that the price reflects investment value.


188. Factor (alternatively, Index): An aspect of the investment environment that influences the returns of financial assets. To the extent that a factor influences a significant number of financial assets , it is termed common or pervasive.

189. Factor Beta: A relative measure of the mutual variation of a particular common factor with the return on the market portfolio. Mathematically, a factor beta is the covariance of the factor with the market portfolio, divided by the variance of the market portfolio.

190. Factor Loading (alternatively, Attribute or Sensitivity): A measure of the responsiveness of a security’s returns to a particular common factor.


Below is the link to the ELSS Performance Report Ending Nov 30, detailing various perspectives for comparing equity linked savings schemes.


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James Grant puts it, “Nothing beats a little cash in a bear market and the oldest form of cash is gold.”

When markets are erratic and times are unpredictable, the wise thing to do is to step up exposure to an asset that would infuse a semblance of stability and strength in the portfolio.

The simplest and best way to do this is to invest in a gold exchange traded fund(ETF).

ETFs are essentially index funds listed on the exchange. You can buy and sell them just like you would buy and sell a share. In a gold ETF, the underlying asset is standard gold bullion (99.5% purity).

In other words, a gold ETF is just like any other mutual fund scheme – the only difference being, instead of being invested in equity shares, the monies collected are invested in gold.

Generally, the price of one unit represents approximately one gram of gold. And since these are passively managed funds, the NAV will basically track the price of gold in the open market.

Currently there are three gold ETFs listed in the market —- Gold BeES, Kotak Gold ETF and UTI Gold ETF. Reliance MF has an ongoing NFO, post which, the units would be listed to begin with on the NSE.

Now, in a country where gold worth over Rs 70,000 crore per annum is sold in the form of jewellery, coins, biscuits and bars, the total assets under management (AUM) of these schemes amount to just around Rs 325 crore.

This clearly suggests that investors are either unaware or uncomfortable with buying gold in the electronic form.

A change of mindset is needed and it shouldn’t really be that difficult, given that we already own other equally valuable assets in a similar form.

Think of the money in your bank. Whether you have Rs 10,000 or Rs 10 lakh or over a crore, the physical cash is not lying in your safe — your bank passbook indicates the amount you own.

Similarly, there was a time, not too long ago, when physical share certificates needed to be delivered and stored. Then we shifted to electronic holding and an investor’s life was never more convenient.

Similarly, gold can also be held in the dematerialised, electronic form, which is a safer and more efficient way of owning it.

For starters, there is no doubt on the purity — you can’t get purer gold even if you tried and you don’t even have to depend upon human honesty or scruples. With a gold ETF, impurity risk is non-existent.

Security is, of course, taken care of by the fund, unlike in the case of jewellery or other forms of physical gold, where the threat of theft always looms large.

Coming to denomination, one can literally buy one gram at a time.

Though a traditional SIP, as we understand it, is not possible in the case of gold ETFs, one of my friends has been diligently picking up 10 grams of gold per month from mid-March onwards (when the first ETF was made available) and by now, he is already the proud owner of 70 grams of the highest quality gold.

When it comes to selling back, the making charges of jewellery cannot be recovered. In fact, it is generally bought back at a discounted price. Coins and bars also suffer from similar problems.

Units of gold ETFs, on the other hand, can be sold by either a call to your broker or with a few clicks of your mouse, if you have an online trading account.

The tax benefits round off the manifold advantages of holding gold in the electronic form — it is free of wealth tax and subject to long-term capital gains tax of 10% as against 20% in case of physical gold.

To sum it up Gold prices have spurted by almost 12% in the last two months, leading to a corresponding rise in the NAVs of the gold ETFs.

However, investors shouldn’t look at gold on the basis of returns in a particular period.

This investment is essentially a hedge against inflation and its quality of negative correlation with other asset classes like stocks, fixed income securities and commodities during uncertain times.

Like Karl Marx put it, “Although gold and silver are not by nature money, money is by nature gold and silver.” At the end of the day, bullion is more important than the billion

ULIP vs MF(Part 2)


If an insurance company comes up with a low-cost product, they fear losing out on business.

It’s not easy to choose the best Ulip. When a person needs to advise a client on which mutual fund to invest, he can check websites to know the best-performing schemes over three to five years.

But there is nothing like that available for Ulips.

Also, since the expense structure of each Ulip is different, any comparison between the performances of different Ulips is not possible.

So, why do people invest in Ulips? Last year more than Rs 31,000 crore came into Ulips, which now account for around 56% of the total new premia coming into insurance policies.

The idea of a packaged product that offers both equity returns and insurance it seems seduces investors.

The primary reason why people buy Ulips is because of mis-selling. Agents tell people they have the option of paying a premium for only three years, when the actual term of most Ulips is at least 10 years. It works as a good selling point.

Most Ulips have a cover continuation option, which essentially ensures that even if the individual is not able to continue paying premia anytime after the first three years, the policy continues.

The insurance agents, though, have turned this into a selling point, giving an impression to investors that they have an option to stop paying premia after three years, which is really not the case.

An investor who decides to stop paying premia after three years hardly benefits; after three years, the expenses are less and more of the premium gets invested.


A list of Mutual Fund address are provided for investors reference.

Click on below mentioned link for MF ADDRESSES.

Related Posts Only (manually created not automatically generated)

No Load Funds (In real sense)

SEBI has proposed to do away with the “entry load” fee that investors are charged if they buy mutual fund schemes directly from fund houses.

A Sebi concept paper that was put out today for feedback from the public said investors buying mutual fund products need not pay entry load for applications filed online or through collection centres of asset management companies (AMCs).

Mutual fund houses generally charge a fee from investors as an “entry load” to pay distributors’ commission. If implemented, this proposal would be a severe blow to the distribution business, since it would encourage investors to buy directly from AMCs. Distribution channels play a major role in popularising fund schemes and making them accessible for investors.

Some experts feel the entire discussion is flawed in concept. The load charges in India at about 2.25% are the lowest compared with any part of the world. In overseas markets, it is 6-7%.

Others, however, say the move might be designed to promote online transactions.

Many also feel that there is a need for distribution channels and online platforms to co-exist. As Indian Mutual Fund Industry moves towards an environment of paperless transactions, this is a much-needed step.

It is good for those who can take decisions themselves and do not need a financial advisor.

Five pointers to Mutual Fund performance

Five pointers to Mutual Fund performance

More often than not meritocracy of investments is often decided by the returns. Quite simply then a fund generating more returns than the other is considered better than the other.

But this is just half the story.

What most of us would appreciate is the level of risk that a fund has taken to generate this return? So what is really relevant is not just performance or returns. What matters therefore are Risk Adjusted Returns.

The only caveat whilst using any risk-adjusted performance is the fact that their clairvoyance is decided by the past. Each of these measures uses past performance data and to that extent are not accurate indicators of the future.

As an investor you just have to hope that the fund continues to be managed by the same set of principles in the future too.

Standard Deviation

The most basic of all measures- Standard Deviation allows you to evaluate the volatility of the fund. Put differently it allows you to measure the consistency of the returns.
Volatility is often a direct indicator of the risks taken by the fund. The standard deviation of a fund measures this risk by measuring the degree to which the fund fluctuates in relation to its mean return, the average return of a fund over a period of time.
A security that is volatile is also considered higher risk because its performance may change quickly in either direction at any moment.
A fund that has a consistent four-year return of 3%, for example, would have a mean, or average, of 3%. The standard deviation for this fund would then be zero because the fund’s return in any given year does not differ from its four-year mean of 3%. On the other hand, a fund that in each of the last four years returned -5%, 17%, 2% and 30% will have a mean return of 11%. The fund will also exhibit a high standard deviation because each year the return of the fund differs from the mean return. This fund is therefore more risky because it fluctuates widely between negative and positive returns within a short period.


Beta is a fairly commonly used measure of risk. It basically indicates the level of volatility associated with the fund as compared to the benchmark.
So quite naturally the success of Beta is heavily dependent on the correlation between a fund and its benchmark. Thus if the fund’s portfolio doesn’t have a relevant benchmark index then a beta would be grossly inadequate.

A beta that is greater than one means that the fund is more volatile than the benchmark, while a beta of less than one means that the fund is less volatile than the index. A fund with a beta very close to 1 means the fund’s performance closely matches the index or benchmark.
If, for example, a fund has a beta of 1.03 in relation to the BSE Sensex, the fund has been moving 3% more than the index. Therefore, if the BSE Sensex increased 10%, the fund would be expected to increase 10.30%.Investors expecting the market to be bullish may choose funds exhibiting high betas, which increase investors’ chances of beating the market. If an investor expects the market to be bearish in the near future, the funds that have betas less than 1 are a good choice because they would be expected to decline less in value than the index.


The success of Beta is dependent on the correlation of a fund to its benchmark or its index. Thus whilst considering the beta of any security, you should also consider another statistic- R squared that measures the Correlation.

The R-squared of a fund advises investors if the beta of a mutual fund is measured against an appropriate benchmark. Measuring the correlation of a fund’s movements to that of an index, R-squared describes the level of association between the fund’s volatility and market risk, or more specifically, the degree to which a fund’s volatility is a result of the day-to-day fluctuations experienced by the overall market.

R-squared values range between 0 and 1, where 0 represents no correlation and 1 represents full correlation. If a fund’s beta has an R-squared value that is close to 1, the beta of the fund should be trusted. On the other hand, an R-squared value that is less than 0.5 indicates that the beta is not particularly useful because the fund is being compared against an inappropriate benchmark.


Alpha = (Fund return-Risk free return) – Funds beta *(Benchmark return- risk free return).

Alpha is the difference between the returns one would expect from a fund, given its beta, and the return it actually produces. An alpha of -1.0 means the fund produced a return 1% higher than its beta would predict. An alpha of 1.0 means the fund produced a return 1% lower. If a fund returns more than its beta then it has a positive alpha and if it returns less then it has a negative alpha.
Once the beta of a fund is known, alpha compares the fund’s performance to that of the benchmark’s risk-adjusted returns. It allows you to ascertain if the fund’s returns outperformed the market’s, given the same amount of risk.
The higher a funds risk level, the greater the returns it must generate in order to produce a high alpha.

Normally one would like to see a positive alpha for all of the funds you own. But a high alpha does not mean a fund is doing a bad job nor is the vice versa true. Because alpha measures the out performance relative to beta. So the limitations that apply to beta would also apply to alpha.
Alpha can be used to directly measure the value added or subtracted by a fund’s manager.
The accuracy of an alpha rating depends on two factors: 1) the assumption that market risk, as measured by beta, is the only risk measure necessary; 2) the strength of fund’s correlation to a chosen benchmark such as the BSE Sensex or the NIFTY.

Sharpe Ratio

Sharpe Ratio= Fund return in excess of risk free return/ Standard deviation of Fund

So what does one do for funds that have low correlation with indices or benchmarks? Use the Sharpe ratio. Since it uses only the Standard Deviation, which measures the volatility of the returns there is no problem of benchmark correlation.
The higher the Sharpe ratio, the better a funds returns relative to the amount of risk taken.
Sharpe ratios are ideal for comparing funds that have a mixed asset classes. That is balanced funds that have a component of fixed income offerings.

Five easy steps to investing in Mutual Funds

Five easy steps to investing in Mutual Funds:

Where to look for if you want to begin saving in mutual funds

Mutual funds are much like any other product, in that there are manufacturers who provide the product and there are dealers who sell them.
Large banks to organized brokerage houses to Individual Financial agents get empanelled with Mutual Funds to provide advise and assistance to customers who want to buy units. Mutual funds units can now also be bought over the Internet
Contacting an Investment advisor in a bank or a brokerage house or an Independent Financial Advisor is the first step to gathering information.
choosing the right mutual fund for you

Each Mutual fund offers a variety of schemes to suit differing needs of investors. The Bank/ Brokerage house/ Individual Financial Advisor helps you make the choice based on your needs.
As an investor one may
a) for the short term or long term want to invest
b) want regular income or growth
c) want to target lower risk or higher returns
d) be convinced of a particular sector and want to invest in it
Remember, just like a salesman in a gift shop, your investment advisor can help you the most if he knows what you are looking for.


After you have decided to save, you may have to decide among the various investment and withdrawal options that any fund offers to its investors.
Most of these schemes also offer various options to customize your operation of the fund to your needs:

Systematic Investment Plan (SIP):
Allows you to save a part of your income regularly. Also used to reduce risk when investing in schemes targeting aggressive growth.
Systematic Withdrawal Plan (SWP):
Allows you to withdraw a part of your investment regularly. Used when you want to withdraw your investment for a specific regular payment, like insurance premium payments of monthly/quarterly frequency.
Automatic debit:
Saves the hassle of writing a cheque when making an investment. Your account is debited automatically for the amount invested.
Automatic credit:
The reverse of Automatic Debit. Saves the hassle of enchasing a cheque when withdrawing an investment. Your account is credited automatically with the amount withdrawn.
Dividend plan:
Allows you to get Tax-free dividends from your investment. (As per current Tax laws).
Growth plan:
Allows the income generated from investment to be ploughed back into the scheme. Used by investor targeting growth in their investment.
Some funds carry an entry load, which is a percentage fee deducted from the amount invested before investment. Thus a 2.5% entry load will mean that if you invest Rs 1 lakh in a Rs. 10 per unit IPO, instead of getting 10,000 units, you will be allotted 9,750 units. Check for presence of such loads and other conditions before investing.
After deciding the choice of mutual fund, investment and withdrawal, you are ready to begin your savings. You need to now fill up an application form and attach a cheque of the value of your investment or mention your account number to have it automatically debited from your account.

Post Purchase Monitoring

Once you have invested in an ongoing fund, expect a period of two to three days before you receive an account statement on the address mentioned by you in your application form.

The Account Statement

Your account statement indicates your current holding in the scheme that you have invested. Please ensure that all your details have been correctly captured in account statement. Please point out any discrepancies to your nearest CAMS investor Service Centre or the Mutual Fund office. You can request an account statement any time by calling up your nearest CAMS/ Mutual fund offices usually mentioned on the back of the account statement.
The transaction slip at the end of the account statement can be used for additional purchases, redemptions or to intimate the mutual fund on any change in bank mandates/address.
The NAVs of all the open-ended schemes are published at the fund’s website, financial newspapers and AMFI (Association of Mutual Funds) web-site http://www.amfiindia.com/.


While you should periodically monitor the performance of your investments, we recommend you do not get swayed by short term considerations in deciding your exit. If you have invested in a long term fund, you can spare yourself undue worries by not monitoring the NAV every day or week. Checking the performance once in a while along with your advisor should be fine.
Most mutual funds will provide you with a toll free number that works from 9 am to 5 am and a website. For specific assistance you can also use your financial advisors help.

Redemption/ Withdrawal

Just submit your completed transaction within the transacted time for the scheme that you are invested in and deposit the same at the nearest CAMS Investor Service Centre or the office of the fund. You can either get a direct credit to your bank account or you can generally collect the cheque at the CAMS Investor Service Centre/ AMC offices. If you fail to do so then the cheque is couriered to the address mentioned in your account statement. Most funds take 1-3 days to credit your account with your redemption proceeds.

In case an exit load is applicable to your withdrawal and you have redeemed a fixed amount, an additional number of units equivalent to the exit load amount will be liquidated from your investment. You can check this amount with the mentioned exit load when you get the account statement using a simple calculator.


Click on the below mentioned link to open spreadsheet to calculate how much an investor ends up paying the AMC as NFO expenses. These amount can assume huge proportions depending upon the size of the NFO.
Any suggestion to this format are welcome.


Ever since SEBI (Securities and Exchange Board of India) made it difficult for AMCs (asset management companies) to launch Open-Ended mutual funds by capping the sales and marketing expenses that can be charged to the fund and ensuring that the new fund is truly “new”, Close-Ended funds have become the order of the day. And even more cumbersome has been this somewhat annoying trend of launching series of the same (Close-Ended) funds.

Since the window for investing in Close-Ended funds is open only for a limited period, investors who have missed the opportunity to invest in them would like another chance at some point in time. At least that is what some AMCs seem to believe. This has given rise to the phenomenon of launching a series of fund offerings under a common ‘brand’. So we have seen ICICIPru Fusion Fund (a 3-Yr close-ended, predominantly mid cap fund) launch two series over the last two years. Both the offerings are exactly the same; the second offering is mainly for those who missed the first one or for existing investors who want to invest further. Also, it is worth noting that the fund house already has an open-ended mid cap fund, so investors who missed the bus have an option over there as well.
Birla Sun Life Mutual Fund is another fund house that has recently launched a series i.e. the Birla Sun Life Long Term Advantage Fund – Series 1. It would be fair to assume that over time, more series under the same brand could be launched.

One point that AMCs with serial offerings probably haven’t considered (or have chosen to consider at a later date) is that when these serial funds turn open-ended (yes, most of these close-ended offerings will turn open-ended on expiry of the stipulated tenure), they will in effect be multiple copies of the same investment style. So 6 years from now, we are likely to see at least two ICICIPru Fusion Funds (or two Birla Sun Life Long Term Advantage Funds 4 years from now) that will pursue the same investment style leaving investors at that point all confused about which fund to choose and which one to ignore.

One option that these AMCs have is to merge these serial funds into a single fund, which again is a little roundabout. Why launch so many series when eventually they will all be merged into one fund? Isn’t it much simpler to promote the existing open-ended fund and build that brand? Why does it have to be an NFO?

While serial funds make imminent sense on the debt side, especially while launching fixed maturity products since it allows the fund manager to lock the yield (which is dynamic), the rationale behind close-ended serial offerings on the equity side is yet to be fully comprehended. Isn’t it much simpler for all concerned (especially the investor) to have a single, open-ended offering that allows all investors to invest in it all the time?

Of course, the close-ended funds allow the fund manager to take long-term investment calls (which is what equity investing should be all about) without worrying about redemptions. However, this can be replicated easily in an open-ended fund as well by imposing a stiff exit loads on premature redemptions. Many AMCs have already implemented this, with one AMC in particular slapping an exit load on its equity fund on redemptions made upto 24 months from the date of investment. Not surprisingly, these AMCs witness a degree of slowdown in their redemptions, which gives the fund manager just the space he needs to make long-term investments.

Serial NFOs serve little purpose other than drawing investors on the ‘NFO’ plank (read the cheaper, Rs 10 NAV). They also serve to pamper unscrupulous mutual fund distributors with obscene commission rates that can go as high 6% of the investment amount (i.e. for every Rs 100 that you invest, your agent will pocket Rs 6). Put everything together, and one has a fairly good idea about why serial NFOs will keep getting launched.

Meanwhile, avoid serial NFOs on the equity side and instead focus on the well-established funds with a proven track record over the long term. Once the NFOs have established their credentials and have made a case for investing in them, one can take a revised view and consider adding them to their portfolios.

How to invest in Mutual Funds Part – 2 (A guide for Non Resident Indians)

No dividend distribution tax on equity oriented schemes (schemes that have invested more than 50% of their total proceeds into the equity markets).

Dividend Distribution Tax (Levied on Debt Funds)
Mutual fund pays a distribution tax of 14.16% (14.16% + 2.5% surcharge*) directly to the government on dividends from fixed income funds.

Long-Term Capital Gains Tax.
If the investment is held for more than 12 months, the gain is considered to be a Long Term Capital Gain and is taxable at 11.00% (10% + 10% surcharge*) if you do not account for inflation or at 22% (20% + 10% surcharge*) if you adjust your base for inflation.

Short-Term Capital Gains Tax.
If the investment is held for less than 12 months, the gain is considered a Short Term Capital Gain and is taxable at the individual’s appropriate marginal tax rate that is currently capped at 33 % (30% + 10% surcharge*).

Tax will be deducted at the rates prescribed under the relevant finance act by the mutual fund at the time of redemption.

The investor is provided a tax deduction certificate by the mutual fund for the tax deduction.

There is no surcharge if your annual taxable income in India is less than Rs. 8,50,000.

How to invest in Mutual Funds Part – 1( A guide for Non Resident Indians)

Non Resident Indians are required to comply with following guidelines to invest in Indian Mutual Funds.

Non-Resident Indians

If you are investing the money from your bank account outside India, or have a Non Resident External (NRE) account or a Foreign Currency Non Resident (FCNR) account in an Indian bank:

Obtain an offer document and an application form of the scheme you wish to invest in from your investment advisor or contact the AMC’s office.

Fill in the application form and be sure to mark the “NRE” or “FCNR” (as applicable) box in the “Account Type” section within the “Statutory Details” subdivision and to fill in the section “For NRI/FII/OCB” marking the “Repatriable” box, if you want to transfer the money in foreign currency back to your foreign account in the future. Also, please mark the “NRI” box in the “Mode of Holding” section.

Attach an Indian Rupee Draft (INR) if your account resides outside India or a cheque drawn on a NRE account, if you have such an account in India. If you are attaching an Indian rupee draft, please accompany the same with a Foreign Inward Remittance Certificate (FIC) from your bank.

You can switch to another scheme or redeem your investment on any business day, as defined in the offer document of the chosen scheme, by submitting a completed transaction slip, obtained from your investment advisor or AMC’s office, by the stipulated time as indicated in the offer document of the chosen scheme.

You can receive the money in the form of a cheque or have it directly credited to your NRE account within the time limit specified in the offer document of the chosen scheme.

If you are investing the money from your Non Resident Ordinary (NRO) account residing in an Indian bank:

1) Obtain an application form and an offer document of the scheme you wish to invest in from a investment advisor.

2) Fill in the application form and be sure to mark the NRO box in the “Account Type” section within the “Statutory Details” subdivision and to fill in the section “For NRI/FII/OCB” marking the Non-Repatriable box as you may not be permitted to transfer funds from your NRO account to your foreign currency account unless the funds are less than a certain amount per year as stipulated by the Reserve Bank of India.

– Attach a cheque drawn on your NRO account in India for the amount you wish to invest.

– You can switch to another scheme or redeem your investment on any business day, as
defined in the offer document of the chosen scheme, by submitting a completed transaction slip, obtained from your investment advisor or us, by the stipulated time as indicated in the offer document.

– You can receive the money in the form of a cheque or have it directly credited to your NRO account within the time limit specified in the chosen scheme’s offer document.

Non-Resident Indians (NRI) parking their funds in Indian Markets.

Non-Resident Indians (NRI) are increasing parking their money into Indian Markets. The reasons for their parking of funds are widely known. The home country provides a diversification tool to their portfolio as well as provide a much needed relief, in case the foreign country decides, out of the blue to send back all the immigrants. As the case was with NRI Indian Doctors and Nurses. Maybe, their purpose was served and services were no longer required by the host nations. These are the reasons the NRI feeling secure enough to invest in Indian Markets. Also no other market shall give them growth and returns which are consistent and better than their economies.

Islamic Mutual Funds.

Get to know some interesting aspects of Islamic  guidelines. I am not a  subject matter expert, however as  part of continuous education for self, clients, other beneficiaries i shall try and explore the world of this novel way of managing money.

Under the Islamic law a person (Following principles of Islam religion) is basically not allowed to charge interest for the money he lends. The money  which is  given to someone should be for a noble cause. It should comprise of not being used for purposes which are restricted under its laws. Accordingly it should not be invested in business which are in feilds of liquor, gambling and pornography.

Basically many religions across the world prohibit such business and investments in them. In fact many religions in India such as Jainism also prohibit such investments. However what differs is the degree of adherence to such guidelines. Many Jains are involved in the Equity and Bond markets.

More details to follow.Check this place for more on this topic.



Are Equity funds suitable for Elder People?







Slew of Tax Saving Funds ELSS NFO’s in recent months.

As all of us know huge number of AMC’s (Asset Mgmt Companies) are out with Tax Saving Funds (ELSS) NFO’s.
The obvious reasons are that Nov-Dec are the months people think about taxes.
As well that the recent run up in the markets have given them even more reasons to cheer and make money out of gullible retail investors.
DSP Merill Lynch
Lotus India MF etc.

These are some of the AMC who are under the disguise of offering a complete product range have brought these new funds.

As SEBI has now made it mandatory for fund houses to give a clear reason and purpose of the fund before going for a new fund.
Now the fund managers cannot make a fool of gullible investor by launching a similar fund which it already, has under a fancy new name(much like old wine in new bottle).

DSP Merill Lynch recently have shown a better performamce compared to its past for equity schemes.
HSBC has however very few products to offer and is relatively a new fund house. Not all of its schemes are doing a decent job as far as equity schemes are concerned.
Lotus India has struggled the most of above. Its perhaphs does not even know who are its own fund manager and how long will they stay with the fund house. After a high profile launch and a good team to start the operations. Its has lost its way. I wont be surprised if the current manager quits before the fund completes the mop-up from the market.

Moral of the story is stay away from these NFO and put your precious and hard earned money in safe and time tested schemes like HDFC, SBI, PRINCIPAL etc. who have a longer history or a longer base to start of with.

Also a new investor need not pay high NFO fees which will get ammortised over coming years for these NFO.