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Commentary

LinkFest #2: Keeping it Simple, NFOs, Gold.

The Simple Life
(Dhirendra Kumar,Value Research Online)
Investments are about simplicity; the simpler the concept, the better it is for investors. The author talks you through the simplest investments (“piggy banks”) and tells you why it’s necessary and preferable to keep things as clear as possible. Insurance is therefore, he says, an “unhealthy mix of insurance and investment” – two concepts he advises you to keep separate. I cannot agree more.

Closed Ended Funds Galore! (Economic Times)
Ever since SEBI has disallowed amortisation of initial expenses by open ended mutual funds, AMCs have introduced (largely) only closed ended funds. Initial expenses are chargeable by AMCs upto 6% of assets, now applicable only to closed ended funds. AMCs are taking the opportunity to take this money investors and hide it in smoke and mirrors; amortisation allows you to slowly take money out in a trickle every month, and as an investor you realise only when it’s too late! Luckily SEBI says it’s looking into this.

Case in point: Reliance Equity Opportunity fund had 1700+ crores subscribed in its NFO in March 2005. Current portfolio is 1200 crores. That means 6% initial expenses (105 cr) are now being paid by a smaller asset base, a hit of nearly 9% at this point. No wonder the fund’s not performed as well as it’s peers.

Is “NEW” fashionable? (Personalfn)
The author is perplexed by the attraction to something “new” in one’s portfolio. There are good reasons why one should invest in a new fund, but a low NAV is not one of them – in fact, the unit price should be completely ignored. It reiterates the problem we see today; of too many similar NFOs and irrational exuberance in purchasing them.

Should you buy Gold from your bank? (Personalfn)
Some banks seem to be overcharging for gold, and justifying it saying that they give you a certificate for the purity of gold. But they don’t seem to like their own certificate, for they won’t buy back the gold from you at all. Jewellers, branded and unbranded, will do so and usually charge much lesser charges for the gold itself.

New funds launched: SBI One India Fund, Reliance LT Equity Fund (review), HSBC TaxSaver (review).
Previous Linkfests: 1.