Exchange Traded Funds and Gold ETFS

An exchange-traded fund (ETF) is a type of fund whose investment objective is to achieve the same return as a particular market index. An ETF is similar to an index fund in the sense that it will primarily invest in the securities of companies that are included in a selected market index.
ETF Asset Classes
ETFs can be of the following underlying asset classes
1. Equity: ETFs investing in Equity Indices e.g. Nifty BeEs
2. Bonds : ETFs that invest in Debt e.g. Liquid BeEs
3. Commodities: ETFs that invest in Commodities e.g. Gold ETFs
Features of ETFs
• Immediate exposure to an entire or specific market.
• Correlation to the benchmark close to 1.
• Very low total expense ratio: 0.45% on average.
• No subscription/redemption fee.
• No maturity date.
• Equally accessible both to institutional and retail investors.
• Broad range of asset classes.
Advantages of ETFs
• Allows you to implement asset allocation or portfolio investment decision as Single Investment which is,
• Easier to track.
• Small Investment amount.
• Asset Classes are much simpler to track than individual stocks since you do not have to worry about,
• Quality of management.
• Accounting frauds.
• Off Balance sheet derivative losses.
• Individual Credit Quality.
• High quality and well diversified portfolio.
• Generates income from frozen account.
Gold Exchange Traded Funds-ETFs
• Open-ended MF schemes backed by units of physical gold.
• Follow a passive investment strategy.
• Buys & holds gold on behalf of investors without actively managing it.
• Aims to give returns as close as possible, post-expenses, to that given for gold as a commodity.
• Investor can buy & sell quickly at market price, making them highly liquid assets.
• Intra-day trading is possible with an ETF, but not with open-ended mutual funds.
Current Scenario - Diversification with Gold
• Hedge against inflation.
• Hedge against a declining dollar: Strong Negative Correlation.
• Safe haven in times of geopolitical and financial market instability.
• Commodity based on gold's supply and demand fundamentals.
• Store of value.
• Portfolio diversifier; gold can act as portfolio insurance.
• Due to rise in demand of gold, gold prices have increased thus causing a rally in stocks of gold mining companies.
• Due to lower inflation & deflation the input costs have come down thereby providing operating cash flows.
• Share prices of gold mining companies appreciate at twice the gold price.
• Since there is a negative correlation between the equity markets and gold it can act as hedge against the down fall in equity markets.
Advantages Gold ETFs
• ETFs allow investment in gold in small denominations, which makes it easier for the retail investor to participate.
• Quick and convenient dealing through demat account.
• No storage and security issue for investors.
• Taxation of Mutual Fund.
• Can be traded on stock exchange like buying / selling a stock.

If you want to buy shares then open demat account in india

Invest in Index Funds for Diversifying your Portfolio

Index Funds
• An Index fund follows a passive investing strategy called indexing.
• It usually holds stock in the same proportion as that in the represented index.
• It doesn't aim to outperform the index but tries to replicate the performance of the benchmarked index.
Advantages of Index Funds

Low Risk
Index funds track a broad index, which is less volatile than specific stocks or sectors, thereby lessening the risk for investors.
Low Costs
Lower transaction costs and fewer expenses make index funds cheaper than the actively managed funds. Generally the expense ratio of index funds ranges from 0.5% to 1.5% compared with up to 2.5% in diversified funds.
Simplicity
The investment objectives of index funds are easy to understand. Once an investor knows the target index of an index fund, what securities the index fund will hold can be determined directly.

No change in investment style
Actively managed funds may drift from the style of investing described by them, which may increase the risk. With index funds this drift is not possible and accurate diversification of a portfolio is maintained.

Indexing is considered as Passive investment strategy, as it involves replicating the investment pattern and returns of a broad market index.

Index Funds-Passive Management style
Passive Management: A fund manager simply invests in the stocks constituted in an index, in the same proportion as they are present in the index. His goal is to ensure that the fund mirrors the performance of the index.
Active Management: A fund manager uses his knowledge and expertise to select a portfolio of stocks in lines with the investment objective of the scheme to get higher returns than the benchmark. He then regularly tracks the portfolio and churns stocks, if necessary.

Key Analysis
• An analysis of 5 year returns of various equity oriented schemes shows that, though the returns from actively managed schemes are higher, their downside risk is also high.
• Index funds on the other hand, though has given comparatively lower returns, their returns have been consistent and less volatile.
• Index funds should form a vital part of investor's portfolio. In India, index funds are generally open ended mutual fund schemes that aim to replicate / track the movement of the target index.
The following indices are generally replicated through index funds:
• BSE Sensex
• S&P CNX Nifty
• S&P CNX 500
ICICI Mutual Fund has Launched Nifty Junior Index Fund
• An open-ended index fund.
• Seeking to achieve the returns of the CNX Nifty Junior.
• CNX lNifty Junior is a higher risk, higher return index compared to S&P CNX Nifty.

Diversify your Portfolio with Arbitrage Funds

In current market conditions where investors are worried about the erosion of their portfolio, they need an investment avenue which gives them Market Neutral returns (Returns which are not correlated to the markets). One such avenue is Arbitrage Funds.
Arbitrage is basically buying in one market and simultaneously selling in another, profiting from a temporary price difference.

Why Arbitrage Funds Now?
• There are enough arbitrage opportunities available in the market due to intra-day upswings and downswings in current volatile market.
• The outlook is quite good for these funds in the coming months as markets are expected to remain volatile.
USPs of Arbitrage Funds
• No Entry Load
• Target returns higher than Liquid funds
• Tax efficiency of an equity or debt oriented scheme
• Provides portfolio diversification & market neutral return

DSP BlackRock Balanced Fund - (G)

Scheme Details

Inception: 27th May 1999
Type: Open Ended Balanced Fund
Corpus: Rs. 678.31Crs (30-Apr-10)
Fund Manager: Apoorva Shah
Benchmark: Crisil Balanced Fund Index
Minimum Investment: Rs. 5000
Entry Load: Nil
Exit Load: Max 1.00 %
Latest NAV: Rs. 60.44 (03-June-2010)
52 Week High: Rs. 61.61 (30-Apr-10)
52 Week Low: Rs. 45.71 (13-Jul-09)
Asset Allocation (% of Net Asset)
Equity : 72.66 %
Debt : 20.99 %
Cash & Cash Equivalents: 6.34 %
Key Ratios
Expense Ratio: 2.04 (30-Apr-10)
Standard Deviation: 1.28
Sharpe: 0.0307
Jensen: 0.0393
Average Maturity: 314 Days

Scheme Objective: Seeks to generate long term capital appreciation and current income from a portfolio constituted of equity and equity related securities as well as fixed income securities.

Fund Analysis: Currently the scheme has 72% Equity exposure and 20% in Debt and holds 6.34% in cash & cash equivalents. It has highest exposure to sectors like Petroleum & Gas 10%, Banks 12% and Pharma 6%.Its current exposure to companies is high in SBI, Infosys & LIC Housing. The Scheme has outperformed its benchmark index. Currently fund has 43% exposure to large cap, 27% to midcap and minimal exposure in small cap stocks. On Equity side fund manager has maintained a good mix of Large & Mid stocks and Debt side focused on high credit quality and low to medium maturity papers to balance risk and returns.
• High risk adjusted returns which are indicated from a positive Sharpe Ratio.
• Positive Jensen Ratio shows Superior Stock, Debt and Money market Instruments selection by Fund Manager.
• Investment analysis indicates that the scheme has created wealth for investors.
Ideal for Investors
With volatility in debt market expected and equity market also trading at fair value, exposure to balanced funds is a better option. Balanced funds have more than 65% invested into equities. Hence, they offer tax savings as any capital gain over a one year period becomes tax free.
• Investment Horizon - Long Term
• Risk Appetite - Medium
Key Fund Analysis
• Market Cap Focus: Over the past one year the fund manager has maintained average holding of 42% in large cap, 26% in mid cap and 1.87% in small cap stocks.
• Sector Focus: Over past one year, fund manager has maintained high average exposure to sectors like Petroleum & Gas 12%, Banks 8% and HFC 7.37%
• Company Focus: Fund manager has maintained average exposure to companies like LIC Housing Finance 4.98%, 2.66% in Reliance Industries Ltd and 2.47% in SBI Ltd. over the past one year.
• Debt Focus: It has maintained average debt exposure of around 14.95% in last one year and focused on high credit quality papers with rating of AAA, AA+ and Sovereign.
• Cash & Cash Equivalent: The average exposure over the past one year has been around 13.23%.