 MF investment strategies post ML, AIG turmoilPublished on Wed, Sep 17, 2008 at 13:43 | Source : CNBC-TV18 Updated at Thu, Sep 18, 2008 at 13:51 Like this story, share it with millions of investors on M3
There is a fear ruling the Indian financial markets right now. Thanks to the Lehman and the Merrill Lynch crisis, there is a fear of losing contracts, losing jobs and above all, losing money. That's exactly the sentiment ruling the investing community right now. Investors who have put in their money in funds like DSP ML Equity Fund, DSP ML Top 100 Fund are worried whether they should stick to these funds.
What if you have invested in DSP Merril Lynch Mutual Fund? There is a basic concern about news one is getting about Merrill Lynch. Investors are concerned whether their money is safe in fund companies owned by the companies, which are in news for the wrong reason. Domestic mutual fund investors should not worry about anything. If anything happens to AIG, it will lead to change in ownership, configuration of the ownership but is not going to have any meaning. A lot of investors have the fear of their money at risk because of companies collapsing in the One should be watchful, there could be a change in ownership in some situation but situation right now is too fluid to anticipate anything. It is not a time to get out and investors should not be concerned about the safety of their money lying in these funds. There could be a change in name of the AMC. DSP Merrill Lynch was supposed to become a DSP BlackRock because Merrill Lynch Asset Management business was re-branding and moved to another company. So, that will happen anyway and it was about to happen on a schedule. The key concern of Indian investor is whether their money is safe or is at risk? Indian investors in these mutual fund companies have nothing to worry about, their money is safe and there is no reason to pull money out. One should just be little watchful as there could be a change in ownership. I will be more concerned if there is continuity of the management of the domestic operations. Then the question of a significant concern would be; will my money still be managed by the same fund manager who was managing now? If that continues then I really don't care who makes money out of my money management business, whether it is Merrill Lynch or BlackRock or anybody else. I don't care till my money is managed by the same team. That was the reason why anybody would have invested.
Role of Securities and Exchange Board of AMFI has no role in this. SEBI does not guarantee any protection of capital. When one invests in a mutual fund, one is exposed to all the market risks of the underlying investment. So, there is no capital protection because mutual fund as an instrument does not provide for capital protection except for the capital protection funds. Regulatory framework ensures that all the securities bought on your behalf are lying with the custodian and nobody can walk away with that money. This is the fiduciary role in which the asset management company manages their fund; they don't own funds.
Future prospects of Tata AIG Life and General Insurance, AIG Mutual Fund post fund takeover: It is too early to say what is going to be the future of the fund. Tata AIG Mutual Fund and Tata AIG Life Insurance are two different entities. There is nothing called Tata AIG Mutual Fund, there is an AIG Mutual Fund. It is a wholly owned subsidiary, it is too early to say that what is going to be the fate of this company but money is safe there. There is nothing to worry about. If there is change in ownership or the management continues then the investor should take a call whether there is any reason to worry about the future owners of the AMC. Investors should not panic right now; money is lying in a framework where it is safe. Tata AIG, the insurance company might have something to worry about because investor's money is pooled and investors should be concerned but Tata name is big enough for anybody. The Tata AIG ownership insurance regulations do not permit a foreign company to own more than 26%, which will be the case here. There is no issue about the solvency of this firm today and Tata owning 74% of this business is a big comforting reason why one should not panic.
There have been some changes in AIG and there could be uncertainty about the ownership of the AMC business or its future direction because there has been a change of management and the ownership of AIG. Domestic investors in these funds should not worry and one should keep an eye on the AIG fund and there is no big significant reason for you to act. Just be watchful about it and if there is any significant change then one should take a decision but this does not warrant any action from investors. My charter, my mandate to the fund manager is to manage my money by what is written in the prospectus and till they are following that I don't see a change. These kinds of changes can happen even without an ownership or a management change. For example if the fund manager of a fund changes the style of the fund, that is a good enough reason for me to evaluate the fund rather than a change in ownership.
Who should invest in tax-saving funds? If there is any gap available and if provident fund deduction is not Rs 1 lakh a year, then first objective should be to put as much as money possible in tax-saving funds so that the total becomes Rs 1 lakh and from the remaining money one should consider a good diversified equity fund. One should choose two funds and invest regularly in those. Purpose of tax-saving funds: If one has to invest in equity fund then there is no reason why you should be investing in a tax saving fund because it comes in a lock-in period of three years. But if one is not investing Rs 1 lakh and can get that much tax benefit, then that should be the first choice. Once you are through with Rs 1 lakh investment in a year in tax-saving investments after that it makes no sense to be getting locked into a fund.
For salaried employees, there will be a Provident Fund (PF) deduction. If the PF deduction in all is not Rs 1 lakh, then one should try to invest as much assuming that his PF deduction is Rs 60,000. Off Rs 70,000, one should invest Rs 40,000 in tax saving funds to get full advantage of Section 88, and the remaining money should be invested in an equity diversified fund.
What is the correct mix? Long-term investor should be considering equity, diversified equity funds. If one has Rs 1 lakh, spread it over the next six months because a first time investor invests and faces a decline of 15% value of his capital. So choose one or two good funds, spread your investments and do regular investing over the next six months, don't invest all your money tomorrow.
If one's time horizon is 8-10 years, a first time investors should get started with a balance fund if he has to invest Rs 1 lakh at one go. But if he can spread his investments over the next six-eight months, if his time horizon is over five years then equity will be fine.
Having a systematic transfer plan executed in equity diversified funds to get a better interest rate from a liquid fund compared with a bank deposit is surely a good idea. Investing Rs 1 lakh into a cash fund can be an option. Investors find it very complex to comprehend while getting started. Therefore, one should have the ability to brief it to his agent and make it happen; if he is unable to do this complex transaction then he has to spread his investment from his bank account over the next six months. If one is able to do it then invest Rs 1 lakh into a cash fund of the equity fund he wants to invest in and spread his investment over the next six-eight months.
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Dhirendra Kumar
