Sunday, February 27, 2011

Unit Trust and OEIC

A unit trust is a trust formed by a manager and a trustee under a trust deed, and they have been in existence since the 1930s. It’s a trust in the legal sense and is therefore subject to trust law rather than company law. They are based on the simple idea of dividing professionally managed funds into a number of equity units.

There is a very wide range of authorized unit trusts offering different investment objectives to suit the needs of different types of investors. Broadly speaking authorized unit trusts fall into one of the following categories:

General (or balanced funds) aim for long-term capital growth together with a reasonable level of income. They provide a good spread of risk by investing in a well-diversified portfolio of domestic equities.

Capital Growth Funds concentrate on capital appreciation rather than income. Although investment is primarily in domestic equities, a proportion of assets may be held overseas. Some funds specialize in smaller companies, recovery situations or special situations.

Equity Income Funds aim to provide a high and rising level of income by investing mainly in high-yielding equities.

Preference Income Funds aim to provide high, secure income by investing mainly in preference shares.

Gilt Funds invest in gilts and fixed-interest securities. They normally aim for high income although some concentrate on capital appreciation.

International Funds invest on a worldwide basis normally with particular emphasis on the UK, US and Japan. They concentrate on capital appreciation.

Specialist Overseas Funds invest in a particular geographical region such as Japan in Asia, Australia or Europe. Again, the main emphasis is on capital appreciation rather than income.

Specialist Sector Funds invest in a specific industry such as oil and energy or investment trusts.

Unit trusts have proved incredibly popular because your money is invested in a broad spread of shares and your risk is reduced. But they are gradually being replaced by their modern equivalent, the Oeic pronounced as 'oiks'.

Unit trusts and open ended investment companies (Oeic) both are forms of shared investments, or funds (open ended) that allow you to pool your money with thousands of other people and invest in world stock markets.

Different ways of buying a unit trusts are

1. Direct from Fund Provider
2. Discount Broker
3. Fund Supermarket - FundsNetwork

Oeics are often set up as umbrella funds, which mean having a single company with a number of underlying funds, or sub funds as they are sometimes known, such as UK Equity and European Equity. Each sub fund has its own separate pool of assets and shareholders.

When investing in unit trusts, you buy units at the offer price and sell at the lower bid price. The difference in the two prices is known as the spread. To make a return on your investment the bid price must rise above the offer before you sell the units.

An Oeic fund has a single price, directly linked to the value of the fund's underlying investments. All shares are bought and sold at this single price, so there is no need to calculate the spread. The Oeic has been described as a 'what you see is what you get product'. When they were originally set up, single pricing was compulsory for Oeics, but, as with unit trusts, they now have a choice of single or dual pricing. Oeics have always been able to have share classes, and in fact this was one of the early benefits in launching an Oeic as opposed to a unit trust.

Choosing which type of fund to buy depends not only on where you live, but what your attitude to risk and your aims and objectives are. It is worth seeking professional advice to ensure you make the right choice. Many UK advisers prefer to stick to OEICs or unit trusts for their greater familiarity.

A number of fund managers run more than one type of collective investment scheme. Jupiter, for example, offers investment companies and unit trusts to UK investors and also offers a Sicav to international fund buyers.

Saturday, October 23, 2010

What are Gold ETF Funds?

An ETF is an Exchange Traded Fund, meaning it is traded on the major stock exchanges similar to stocks.
They enable investors to gain broad exposure to indices or defined underlying asset (commodity) with relative case, on a real-time basis, and at a lower cost than any other forms of investing.
Gold ETFs provides investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold, and to buy and sell that participation through the trading of a security on stock exchanges.

Gold ETF would be a passive investment; so, when gold prices move up, the ETF appreciates and when gold prices move down, the ETF loses its value. It tracks the performance of Gold Bullion.
Some of the gold ETFs available in India:
1. Gold Benchmark ETF (GOLDBEES.NS)
2. Kotak Gold ETF (KOTAKGOLD.NS)
3. Quantum Gold ETF (QGOLDHALF.NS)
4. Reliance Gold ETF (RELGOLD.NS)
5. SBI Gold ETF (SBIGETS.NS)
6. UTI Gold ETF (GOLDSHARE.NS)

Sunday, October 17, 2010

Factors Affecting Crude Oil Prices

Worldwide Oil production is controlled by OPEC (Organization of the Petroleum Exporting Countries). Over period, OPEC controls the price of the crude oil and tries to keep it at $30/barrel. However, due to a number of factors oil price has gone beyond $50 per barrel.

This article describes some of the important factors which are affecting the global price of the Crude Oil.

1. Global changes in Supply and Demand. Fundamentally, a commodity price is governed by supply and demand paradigm. If the production rate is constant and demand of the commodity increases then price of the commodity will shoot up. On the other hand, if there is a surplus, price will go down.

2. Global Equity Market. Crude oil prices are dependent on the sentiments of the global equity market. How the stocks are performing is also a major factor in deciding the oil prices.

Dow Jones Industrial Average Index, NASDAQ and NYSE are few which governs the US equity market and hence the oil prices as well. Apart from US, China and European market also controls the oil prices.

3. DX Movement. Movement in Dollar index also changes the oil prices on daily basis. When dollar will go up, oil prices will go down and vice versa.

4. OPEC production report. Team of OPEC decides the production of oil and that is also a deciding factor in oil prices.

5. Fuel demand of US. As US is the biggest consumer of the crude oil, therefore, demand pattern of US also has an impact on the oil prices.

6. EIA report. EIA (Energy Information Administration) provides a weekly report on the crude oil inventory of US. Despite the fact that the report does not reflect very correct figure of oil inventory of US as the reporting methodology used by EIA are very old but still market reacts to that.

7. Labor Deptt Report. US labor deptt also comes out with a unemployment report which tells the unemployment rate in US. If more people will sit at home because of unemployment, then they will not be spending money for buying fuel and therefore, crude oil price will go down.

8. Wars, Recession and Natural Disaster are some other important factors that also greatly affects oil prices.

9. Other report (if there is any coming in US, China or in Europe)

Links:

Thursday, September 9, 2010

Best Equity Mutual Funds

Best Equity Mutual Funds

Here are some good equity mutual funds that you should include in your portfolio.

HDFC Top 200 Growth

  • It’s an open ended equity diversified growth fund.
  • Market capitalization of around 75% asset allocation in large and giant companies and remaining in mid caps.
  • On sector wise, its main allocation is in banking and energy.

ICRA Rating:

Reliance Growth – Growth
  • Open ended equity growth fund with major allocation in mid size and giant industries.
  • Sector wise, financial is the major sector for asset allocation.
ICRA Rating:

Reliance Diversified Power Sector Retail Growth

  • It’s an open ended equity power sector fund.
  • 6 yr old fund with return of 40% since inception.

ICRA Rating:

Birla Sun Life Frontline Equity Fund - Plan A – Growth

  • Open ended equity diversified fund with a return of 31% since launch.
  • Its major allocation is again in giant industries mainly in financial and energy sectors.

ICRA Rating:

DSP Blackrock Top 100 Equity Growth

  • Open ended equity diversified fund with major allocation in giant and large cap.
  • It has strong 35% return since inception (a 7 yr old fund).
  • Major asset allocation is in financial and energy.

ICRA Rating:

DSP Blackrock Equity Growth

  • Open ended equity diversified, return of 26% since launch.
  • Consistency is the virtue of this fund.
  • It’s not a pure large cap holding fund. This fund now has its major portfolio in mid size companies.

ICRA Rating:


Sunday, September 5, 2010

Hedging Funds Strategies

Hedging Strategies

Hedging is a practice followed by investors to safeguard their investment against market fluctuations. The term hedge fund is used to indicate a 'hedge' against investment deterioration.

When we pay an insurance premium for a new house, we hedge against unforeseen negative events. We can't prevent a negative event from its happening but by hedging, we can reduce its impact on our investment.

Hedging aims at maximizing the return on investment with minimal risk.
Hedge fund managers use a wide variety of different investing strategies to achieve this goal and generally these strategies are managed and executed by a portfolio manager.

Hedging is very popular in wide investment instruments like stocks/equities, derivatives and commodities.

Short selling is one such hedging strategy where an investor makes a short position on a falling stock and makes profit out of it. In short selling, investor borrows a contract from a broker and sells it at the market price with the understanding that it must later be bought back (hopefully at a lower price) and return it back to the broker. Difference in the selling and purchase price goes to investor as a profit.

This strategy is very useful in scenarios when a commodity price falls very sharply due to some unforeseen circumstances, e.g., due to natural disaster like cyclone or due to US jobless report came out in the media or could be due to inventory pile up.

Hedging is the practice of offsetting the price risk inherent in any cash market position by taking an equal but opposite position in the future market. A long hedge against the possible risk of rise in stock price refers to buy position in future market when a sell is already made on a similar stock. In the same way, short hedge refers to selling a future contract when a similar contract is already bought and market is showing a downtrend.