Your managed investment fund Information
In the one-year period ending September 23, 2008, you should credit yourself as a good fund manager if you have not lost any money, let alone got some returns. Which coveted mutual funds in India also managed to perform the same feat? Among the mutual fund investment arena in India, debt funds for sure.
Equity mutual funds as an investment? None of you would even hazard a guess. This is understandable considering that during this period, the benchmark index Sensex lost about 20 per cent of its value. But a category of equity funds braved this storm: arbitrage funds.
Only 10 equity funds managed to stay afloat in the one-year period ending 23, September 2008. And within this pack, the first seven positions in the list were taken by arbitrage funds. The rest went to pharma funds. Topping this list is UTI Spread Fund (Growth) with gave a return close to 9 per cent. It was followed by JM Arbitrage Advantage Fund (Growth), which also rose more than 8 per cent.
The other arbitrage funds in the list are ICICI Prudential Blended Plan - Option A (Growth); Kotak Equity Arbitrage Fund – Growth; SBI Arbitrage Opportunities Fund – Growth; HDFC Arbitrage Fund - Plan B (Institutional) – Growth; and HDFC Arbitrage Fund - Plan A (Regular) – Growth.
This category of equity funds try to provide capital appreciation through arbitrage opportunities between the cash and derivative market. Arbitrage funds primarily invest in equity and equity-related securities, and derivatives. The rest is parked in debt securities.
How did these funds manage to sail smoothly in the rough weather? Well, the modus operandi of these funds provided a safety net. Arbitrage funds prey on pricing gap between the cash and future market. For example, a stock X is trading at Rs 100 in the cash segment and Rs 102 in the futures market.
The fund manager enters into a futures contract to sell the stock at Rs 102 and buys at Rs 100 in the cash segment.
Meanwhile, irrespective of the market movement till the futures settlement day or until he squares off the position, the fund manger makes a profit of Rs 2 on a stock. Similarly, the fund manager can also make profit even if the futures are trading at a discount to the spot prices. These funds offer a low-risk way of benefiting from the equity markets. As the risk profile is relatively low, the returns are moderate.
On top of that, arbitrage funds offer the tax advantage as that of equity funds. As arbitrage funds invest mostly in equity or equity-related instruments, they are treated as equity funds. So they attract lower short-term capital gain tax of 10 per cent and are completely tax-free after one year. Though the top-performing debt funds during this period offered higher returns than arbitrage funds, the debt funds don’t offer that tax advantage. For long-term capital gains, debt funds are taxed at 10 per cent without indexetion or 20 per cent with indexation, whichever is lower, plus 10 per cent and 3 per cent cess. This translates to 11.33 per cent without indexation, or 22.66 per cent with indexation. And for short term capital gains, debt funds are taxed at 33.39 per cent vs 10 per cent for equity funds.
Article author: N Profit
In 1949, Alfred Winslow Jones devised and implemented an investment strategy that would forever brand him as "the father of the hedge fund industry." While working for Fortune Magazine and investigating financial strategies, Jones decided to launch his own fund and raised a total of $100,000, $40,000 of which was his own money.
Jones employed two strategies still used heavily by hedge fund managers today: Leverage and short-selling. To avoid requirements set in place by the Investment Act of 1940, Jones limited the number of investors to 99 and set up the fund as a limited partnership.
Even though Jones garnered sizable returns in his first few years heading the fund, his strategy did not come into the mainstream until the late 60’s. When George Soros and Warren Buffet adopted Jones’ strategy and launched their own funds, hedge funds were suddenly being sought after by an elite group of investors.
What caught the attention of the investors was how these hedge funds had little correlation to the market. They were "hedged" against any downtown or slump in the economy. While the S & P was lagging, Jones’ investors continued to make money on a yearly basis. He decided to charge his clients a 20% performance fee, still used today by hedge fund managers. However, while most managers today also charge a management fee (usually 1-2%), Jones did not charge his investors anything unless the fund made a profit.
Hedge funds still enjoy limited regulation and are not required to make periodic reports with the SEC under the Securities and Exchange Act of 1934. Because of this, hedge funds have much more limited transparency than do mutual funds. While there have been recent attempts by the SEC to tighten up hedge fund regulation, they still enjoy the freedom and secrecy that other investment vehicles do not.
The SEC warns, "You should also be aware that, while the SEC may conduct examinations of any hedge fund manager that is registered as an investment adviser under the Investment Advisers Act, the SEC and other securities regulators generally have limited ability to check routinely on hedge fund activities."
The one thing they do have control over, however, is who may invest in these hedge funds. The SEC mandates that only accredited investors or qualified clients may participate in hedge funds, due to the higher risk involved. However, the typical hedge fund investor is thought to be well educated when it comes to funds, and risks are usually communicated by the hedge fund manager.
In addition, in order to keep hedge funds "private" and in compliance with the Securities Act of 1933, soliciting or marketing is strictly limited. While hedge funds may have a website, only approved, qualified investors may access the site after their net worth is confirmed.
Today, there are over 10,000 hedge funds in existence with close to $3 trillion in assets under management. While some of them still use the staple strategy of leverage and short-selling, hedge funds today employ hundreds of different strategies, and not all all of them are "hedged," as Jones’ was. Still, his business model that successfully dodged U.S regulation and his innovative investment strategy were the basis for the hedge fund industry today.
Article author: Redlakemi Syndicate
The most tested wealth creation tool is investing in stocks. Once you have made up your mind to create wealth over a long-term, it is advisable that you detect the areas in your budget where you tend to overspend. Adopt the corrective measures and utilize the money saved from such correction in investments.
Invest in the stock market
For those who are interested in investing, acquiring knowledge about the financial world and its fundamentals, this investment is a must. Keeping a constant watch on the financial market and its daily events gives investors an idea about what investment tools are available in the market currently.
The investors must find out what kind of investments fit their long-term goals and accordingly invest in them. The mantra for success in the stock market is making the right choice and sticking to it for a long time.
Stick to small stocks initially
For many investors, investing in the stock market seems to be very exciting. It is however advisable that they do not get carried away by the excitement and stick to only small investments in the beginning. In this way you will get an idea of the crests and troughs of the stock market without placing yourself at a great risk.
For the beginners it could be a good idea to start investing in the stocks whose prices have constantly increased over a period of time. In case you plan to sell high, it is important that you know what your tolerance level is, in case the stock does not perform as per your expectations.
Understand the market
You must do adequate research before you begin investing in stocks. You must understand the market operation and particularly how the stocks’ (in which you plan to invest) past performance has been. Such research could take some time but is very important and determines your success in the market.
There is professional help available in the market to guide the investors towards wise investment strategies. You can seek help from reputed brokers or brokerage houses to help you select the appropriate investment option, especially if you are just beginning. After you have been in the field for quite sometime, you can choose to make decisions on your own and can afford to buy and sell stocks without any professional help.
Invest in managed futures
Managed futures are investment options and are similar to mutual funds. Managed futures, are however, positioned in government securities and are managed through future contracts or various options on future contracts.
Those who invested in managed futures just few years back have made double the money they originally invested. Analysts are generally very optimistic on the future of managed futures.
Managed futures come across as an attractive investment option because of their potential of reducing portfolio risk. Market studies indicate that when asset classes are combined with alternative investment options like managed futures, risk significantly reduces. This is because such a combination diversifies the portfolio through negative correlation between various asset groups.
William King is the director of
UK Wholesale Suppliers,
Wholesale Suppliers . He has 18 years of experience in the marketing and trading industries and has been helping retailers and startups with their product sourcing, promotion, marketing and supply chain requirements.
Article author: William King
