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Volume 1 December 7, 2009 Issue 5 Greetings from FundsIndia! Mutual funds through exchanges? My name is Srikanth; I’m a director at FundsIndia. Thanks for taking the time out to read the fifth issue of our monthly news letter. SEBI recently allowed schemes to be listed in exchanges, and both BSE and NSE have started doing so. At FundsIndia, we have received several enquiries as to what this means and how it affects us. Here are our thoughts about this: 1. We welcome SEBI’s move—enabling stock exchanges to carry funds allows mutual funds to reach investors through another channel, and an additional channel is always a good thing. 2. From the investors’ point of view, however, we think this should be a last resort alternative to access mutual funds. Going through exchanges will mean that investing in funds will in- cur transaction costs—for both buying and selling. This will be on top of any exit loads levied by the fund houses. Investors should not end up paying the entry load that they were paying just in a different form. Also, investors might have to open a Demat account. 3. Services—Platforms that are focused on investment instruments such as mutual funds and deposits can offer unique services tailored to fit the needs of investors who rely on these. Stock trading platforms would provide typical buy/sell propositions and not much more. Also, there are likely to be issues like non-availability of all funds (no liquid funds at all!) and churning advice from . Investors need to be wary of the kind of waters they are getting into when they wade into this channel! But, happily, FundsIndia is there to fulfill your needs while providing all the convenience of ex- changes at a lower cost and more services, so Happy Investing!

Did you know that you can invest in Fixed Deposits through FundsIndia? Yes, FundsIndia enables investors to apply for Corporate Fixed Deposit products through its easy- to-use online platform. Currently, we carry deposit products from six established corporate houses in India: HDFC LIC Housing Finance Unitech Shriram Transport Finance ICICI Home Finance Mahindra & Mahindra

FundsIndia in MoneyControl.com! We are glad to announce that FundsIndia has now started providing content to MoneyControl.com, one of India’s premier financial infor- mation websites. You can find our columns in the ‘Wealth’ section of the site, and frequently, in the home page as well. Please read and let us know your comments. Thanks!

Coming soon to FundsIndia— and Shares! Watch this space for more!

Disclaimer: Mutual Fund Investments are subject to market risks. Please read the offer document carefully before investing.

Featured Fund and Spotlight Scheme

Shinsei Mutual Fund

Shinsei Mutual Fund is one of the latest entrants into the Indian Mutual Fund space and is promoted by Shinsei Bank, Limited, Japan (75%), Mr. Rakesh Jhunjhunwala (15%) and Freedom Private Limited (10%). Shinsei Bank, Limited (“Bank”) is a leading diversified financial services group in Japan with total assets of over USD 135 billion (as of Septem- ber 30, 2009) on a consolidated basis. . The Bank has been recognized as the “Best Retail Bank in Japan” by Euromoney as well as by the Asian Banker on multiple occasions. Within the first six months of its existence, Shinsei Mutual Fund (“Shinsei MF”) has launched 3 products and has gradually started making a mark across the industry.

Products Launched By Shinsei MF

1. Shinsei Industry Leaders Fund – An open ended equity scheme 2. Shinsei Liquid Fund – An open ended liquid scheme 3. Shinsei Treasury Advantage Fund – An open ended income scheme

About Shinsei Industry Leaders Fund (SILF), the flagship equity scheme from Shinsei MF

Investment Objective: To generate income and long-term capital appreciation by investing in a diversified portfo- lio of predominantly equity and equity-related securities of companies identified as industry leaders. How Are Industry Leaders Selected? 1. An Industry leader is a company which, in the opinion of the fund manager, has : 2. Attained a major market share in India and possesses the potential to maintain or increase its market share in one or more products or services within its principal sector**; OR 3. Been among the companies registering the highest growth rates in sales in the sector** over the last three years; OR 4. Been among the most profitable company in the sector** over the last three years. ** as per the industry classification of the Association of Mutual Funds in India.

Investment Options: Growth, Dividend Payout & Dividend Re-investment Minimum Investment: Rs. 5,000/- and in multiples of Re.1/- thereafter, SIP - Rs. 1,000/- and in multiples of Re. 1/- thereafter (Min. 1 year) Load Structure: Entry Load – Not Applicable Exit Load – If the units are redeemed / switched-out within 6 mos from the date of allotment - 1% If the units are redeemed / switched-out after 6 mos but within 1 yr from the date of allotment - 0.5% If the units are redeemed / switched-out after 1 yr from the date of allotment - NIL Date of Inception: September 9, 2009 Fund Manager : Mr. David Pezarkar

All Shinsei mutual fund schemes are available for investment at www.FundsIndia.com

Disclaimer: Mutual Fund Investments are subject to market risks. Please read the offer document carefully before investing.

When to sell a fund

Dhirendra Kumar

The dilemma faced by some mutual fund investors on when to sell off an investment made in a fund often seems greater than the one they face while choosing a fund to in- vest in. The problem is that most — if not all — of us, who are active and involved in- vestors, have a bias for action. We equate being good investors with doing something, often anything. Unfortunately, this translates in practice to not just buying more funds than we need, but also to be ever ready to sell.

I frequently get questions from trigger-happy investors who are raring to sell a fund. There are generally three types of reasons they give for wanting to do so. One, they’ve made profits; two, they’ve made losses; and three, they’ve made neither profits nor losses. That’s not a joke. At least, it’s not intended to be. Typi- cal statements go something like this: “Now that my investments have gone up, shouldn’t I book profits?”; “This fund has lost a bit of money recently, shouldn’t I get out of it?”; “The fund has neither gained nor lost. Shouldn’t I sell.” Basically, investors who have a bias for continuous action can create logic for taking action out of any kind of situation.

The worst cases are those where investors want to sell a fund because it has done well, but not as well as its own past or its peers. Investors are willing to bail out of a fund that has done well for years on the basis of slight underperformance for a few months. The other day, I had a question from an investor who wanted to redeem a fund which, after six years of outstanding performance had given a ‘mere’ 60 per cent gains over a period when the top performing peers had done 70-90 per cent.

The problem is that investors’ actions while choosing a fund often mirror those while selling it. If you’ve chosen a fund because it was doing well for six months, then you’ll probably feel like selling it if it under- performs for three months and move on to another one, which has done well for six months. This doesn’t work. Investors in equity funds should choose one fund for sustained good performance over several years. As for selling them, the most logical reason for doing so would have more to do with your own fi- nances. Are the financial goals, for which you were saving, fulfilled? Then, by all means, you should sell off and redeem whatever money you need.

You should be a lot more circumspect, as far as getting rid of a fund and switching to another because it has started doing badly. The reason is that unless their management changes, funds that have a long his- tory of good performance don’t suddenly become bad. It takes certain qualities for a fund manager to do well over years and those qualities do not vanish overnight. Everyone can have ups and downs and have bad phases, generally because one or two calls went wrong. In my years of analysing funds, I cannot recall a case in which someone was a good fund manager for years and then permanently became a bad one. And vice versa .

What this means is that, as long as the fund management remains the same, and as long as the fund is a diversified one (not a thematic one whose theme has gone wrong), it is better to be patient than to be trig- ger-happy. — Syndicated from Value Research Online —

Disclaimer: Mutual Fund Investments are subject to market risks. Please read the offer document carefully before investing.

Market Tantra S. Shankar Have your cake and eat it too Wait a minute, how can this be sound advice? In mutual funds this is quite possible via Equity Linked Savings Scheme which helps you save tax. If you invest up to 1 lac in an ELSS fund, you save tax - the government exempts the amount by letting you have the cake under section 80C. You can eat the cake too by reaping rewards through dividends year on year and this dividend is tax free too. So if you invest 1 lac in year one and receive Rs. 10,000 as dividend every year, you are getting 10% tax free returns tax savings of up to Rs. 33,000. In fact these funds can be a significant long term value creators (bigger cake in future as opposed to a small cup cake now) too. The only flip side: you cannot take the money out for three years, but that’s a small price to pay as we shall see.

Let us say you invest Rs. 1 lac, and next year the gods smile and the markets boom, the fund de- clares a dividend of Rs. 10,000, you can invest that and claim tax relief to the extent of Rs. 10,000; or you can simply opt for dividend re-investment and the fund house will do it for you. The most prudent way for an aggressive investor would be to simply invest his entire 80C in an ELSS year on year, and at the end of third year, your first year 1 lac would be free to redeem, you can simply redeem it and buy the same or another ELSS fund and voila, you get another tax break of Rs. 33,000 sounds great!

Let us take example of an old fund Birla Sunlife Tax Relief 96 – this was started in 1996 and was then known as Alliance Tax Relief 96. Since 1996 the fund has paid dividends worth Rs. 216 per unit, i.e. on NAV of Rs 10, the returns by dividend alone has been 21.6 times. Let us say that I’m not that smart an investor, I just bought the fund only once for Rs. 1 lac and forgot all about it – today the capital with dividends reinvested would be about Rs. 29.32 lacs, What started as an ex- ercise to save a small amount as tax has become a true money spinner. Now imagine if every year some amount was invested for that year’s tax savings since 1996, the mind boggles at the returns that investment would have generated.

Now let’s look at some perceived flip-sides of this logic and counter them: 1. Tax rules change - let them change; in the longer term the return on investments as we saw was much higher then the tax saved. 2. The returns for the next 13 years may not be that great, but the point is that even if we assume ¼ of this return over the next 13 years even then it’s a Rs. 7.33 lacs. So you not only can save tax on the way but could get seriously rich too.

4/14 Soundarapandian Street Phone: 044-4344 3100 Ashok Nagar E-mail: [email protected] 600083 W W W . F U N D S I N D I A . C O M , India

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Disclaimer: Mutual Fund Investments are subject to market risks. Please read the offer document carefully before investing.