Remember the Date: 1st August 2009.

Action: AMFI abolishes Entry loads on all mutual funds

Purpose: to reduce costs of transacting in MF’s.

Well the move was intended to do benefit to the common investor but lacked proper implementation and detailed thought process. Earlier there were lakhs of brokers, banks, I.F.A.’s, etc, who were making distribution commission by selling mutual funds. Now the entire money invested would get designated Units without any amount being deducted as entry load.

Do we all remember, AMFI sometime back had also allowed people going directly to the fund house to be waived off the Entry load. So what was the need of totally abolishing the entry load when it was the bread & butter for the millions of independent advisers, banks, etc. The answer is only available with AMFI. The ideology is to weaken the MF’s and strengthen the Insurance Industry, which still runs on high costs which are going unnoticed and people have become more aggressive in selling insurance products to make up for the income loss in MF sales. Although one needs to understand that Insurance is a long term commitment which is cheaper in the long run but we all know how is it sold as a 3 year FD or at best as a 5 year investment.

Most of the banks are pressurizing their employees to sell more insurance products and the burden is therefore back onto the client. The banks have also adapted to new modes of charging for mutual fund transactions from the clients. Different banks have different cost structures and in some cases the transactions are more expensive than what they were earlier.

It is a total defeat of the objective of AMFI and fails to address the real problem. i believe each step of AMFI should be aimed at strengthening the MF industry and also to benefit the customer, which is not the real scenario out there. A variable costing structure would have helped to curtail the mis-selling in the MF industry. Today Banks / brokers have the liberty of charging anything and there are zillions of investors who dont even know what is right or wrong for them.

In the coming days i believe there will be changes to the rule as otherwise a lot of GENUINE ADVISERS will leave this profession for the lack of Earnings and future growth. Banks can still sell other products like Insurance, Mortgages, cards, etc and survive but what about people who were only flourishing on Investment sales??

i will continue this again on the basis of feedback or queries that i receive.

Warm Regards

Anil Budhraja

SEBI has recently come out with the latest ruling regarding the Entry Loads charged in the mutual funds.

From August 1, 2009 there will be no entry loads on mutual fund investments and the distributor will now charge an ADVISORY FEE for his advice.

What does this mean………………….???

People will buy advice and not products anymore. People who sell products will find it tough going forward until the one they are selling suits the client needs and is the best on certain parameters. I will again repeat the combination that will drive investment advisory: “Noble Intent” + “Proficiency”.

Any investment can be suitable to one and unsuitable to the other. Every person has different needs so the advice has be tailored accordingly. For some it mean to optimally utilize the crores he has made and to others it might be a journey to make that 1st crore.

Coming times are going to be challenging for some Advisory companies and brokers but certainly it would be better for the INVESTOR………..after all CUSTOMER IS THE KING NOW!!!

Please do drop in a line as your feedback and thoughts………………………..

Anil Budhraja

anilbudhraja@yahoo.com

Every body’s life is filled with various experiences, and it is some of these experiences that makes us more mature in our thought process.

I love my profession of financial advisory & it gives me a great satisfaction after seeing that my advice has benefited my client. This is not only because i want to be the best but because every return in my client’s portfolio gives me an opportunity to proceed further with my client. Sadly, most of us judge our adviser’s only by the amount of returns that they make and i am a firm believer that an adviser is hired to make gains and not losses. At the same time an investor needs to verify that have these returns been made because of the adviser’s “PROFICIENCY” & “NOBLE INTENTIONS” or just by “LUCK”

The reason i am writing today is to give a perspective about what is a right advice and what is a wrong one, because sometimes it does happen that a wrong advice gives more return that the RIGHT ONE. I would hereby also request to all the people who are reading this post to respond with their views.

In the month of March 2009, i met a client of mine who had some liquid surplus to be parked for a period of 6 -12 months. The points that played over my mind were the elections were round the corner, economic data was not good, sentiments were low and even if i ignore all this, EQUITY is not meant for one year and hence i suggested this client a short term income fund and an Arbitrage Fund.

The client did not invest with me and instead went with the advice of another  by putting his money in Reliance Growth Fund. Now just to let you know “Reliance Growth Fund” is primarily a Mid cap fund.

Now i met this client last week and he told me that if he would have followed my advice he would not have made any substantial returns and by following the other adviser, he made 52% gains in just 3 months.

I was really shattered on hearing his lines and was recollecting “An Advisers Job is to identify the best opportunity for his client keeping in mind the following:-

1. Risk appetite
2. Time Horizon
3. Market scenario
4. Future market expectation
5. Asset class characteristics

The only things i used were my “Noble Intention” and the “Proficiency” which i have built up with the support i got from my organization.  Now i believed that Equity investment in Indian markets in March 2009, for a period of 6 – 12 months was not the right choice.

I am counting on each one and would humbly request to respond whether i was WRONG or RIGHT because if was wrong then i need to change my beliefs about “ADVISING WITH NOBLE INTENTION”.

Also for everybody’s sake, if he had chosen to invest in my advised places he would have made a return pf 1.85 % in the Arbitrage and almost 0.45 % in Short term income fund.

PLEASE COMMENT SINCERELY !!!!!!!!!!

Anil Budhraja

anilbudhraja@yahoo.com

9811078787

Many of us would not have really put our money on such a clear Majority for any of the parties. I believe that we have voted for STABILITY and we have got it. No later than 3.00pm on the Election results day, we started hearing comments on the stock markets and everybody is expecting markets to rocket up. I have always been writing in favour of Equity Investments (read my earlier posts) but at the same we all need be cautious not to repeat the mistakes we had made earlier.

Our decisions on investments should be based on accomplishing our FINANCIAL GOALS and not on the short term market movements. We are going to certainly witness INDIA as the preferred Investment Destination but at the same time we should be careful that some people again would want to take advantage of the expected Good times for the market. We should not again get trapped in stupid investment options which although look lucrative when the markets are rising but prove to be pain in adverse market conditions. Right example to quote here are the NFO’s (New Fund Offers)…..BEWARE!!!

Now what’s the right way to go forward?….The answer is PLANNING. Discuss with people you term as your investment advisers and decide over total Asset allocation to be kept. After the allocation has been arrived then decide which funds to invest into based on the fund house track record, cost, past performance and objectives. DON’T BUY PRODUCTS ……………… BUY SOLUTIONS.

For any discussions or clarifications I be contacted at anilbudhraja@yahoo.com or +919811078787.

Lets try and Understand what really happened in the last few years. Stock Markets /Real Estate / Gold / Commodities …………all went berserk.Average Returns became things of the past. Greed started to set in quickly and fiercely. There was no money for safety and everything went in for returns.

Then in 2008 beginning the NEWTON LAW started playing in……..”WHAT GOES UP……COMES DOWN” and so it did. It fell and fell fiercely than the rise. So what did some of us conclude………..”EQUITY IS THE WORST ASSET CLASS”. The Money started going back to safety because of “FEAR”. Today Real Estate is too in a bad shape but people still think that real estate will rise quickly and is still the “BEST OPTION”.

So what do we do now?……………..Sit back and wait or invest everything into real estate or keep buying Gold. The problem with most of us is that we get carried away with emotions.

This lull in the markets also gives each of us time to understand our Current Financial Situation and PLAN WELL.

When we were buying at 21000 levels it makes more sense to buy today at 8500 levels provided we have the time period for Equity Investment. Now the question is whats the time period for equity investing. The answer is a question……How much time does a business cycle take to give returns?

I believe that a 5-7 year Horizon is a decent time Horizon to invest in EQUITY Mutual Funds. In MF’s the risk is dispersed amongst various stocks and therefore you are not running a single Stock Risk.

We all talk about real estate being the best asset class………………lets understand the cycle here. The real estate demand comes basically from 3 sectors today:-

1. Retail Investors
   
2. Corporates
3. Foreign Investors

Reasons:

• Population Blast: More people more space
  
• Increase in salaries: Affordability
  
• change in family style (nuclear): Compulsion
  
• rise in business: more factories/ more warehouse / more showroom space

therefore the demand for more homes and offices and commercial places. Now if we analyze the root cause is the GROWTH OF BUSINESSES due to which salaries increase, affordability rises, demands for goods rises and thus demand for sale space has gone up. If the root cause is businesses then how can we miss not investing in these BUSINESSES. Therefore no portfolio is complete without EQUITY, REAL ESTATE, GOLD and DEBT. All of these combined together for a purpose in mind help making a sound Investment Plan. The variants could be different but the objective is to prepare the RIGHT MIX according to the risk taking capacity and requirements of each and every individual.

TIME TO THINK, ANALYZE & PLAN.…………………………………….

21000 to 8500 ……….. the saga of Indian Stock Markets.

recently i spoke to one of my clients who was disappointed on investing in equity markets and now stands on portfolio with a NOTIONAL LOSS of 50 %. It made me somewhat guilty and had me thinking on whether i am in the right profession or not.

after long hours of reading and thinking i finally had some answers to my questions. I think the profession of making money for others is as noble as that of a doctor or a lawyer. The difference is whether you want to play 20-20 or a test match. i would always prefer the latter although the temptation to make easy money is more in the former choice but is that true?…. i guess no.

Financial Advisory is a great profession and for me it has two pillars….Noble intention and proficiency. Either of them missing………..no client can create wealth. Noble intention to make your client earn out of his investments is the foundation of any advisory and proficiency to understand the risk associated with the decisions you take for the client is a pre-requisite.

The recent fall has shaken beliefs of lot many people regarding the strength of equity investment. people think stocks wont rise again and have called it dooms-day. I think we ourselves need to find answers.

The other day i was traveling in DELHI METRO from C.P. to Chawri Bazaar. The train was cramped for space and it was difficult even to stand. when i got down i spoke to one of the officials who told me that soon they will have more trains for same route and by the end of 2009 further new routes will be started. This would take the revenues up 3 times by 2010 and remember there are advertisements on the train and as well on the METRO stations. The revenue keeps piling and i really am waiting that DELHI METRO lists on the BSE SENSEX someday so that i too can enjoy the profits.

Another example……somebody told me that VOLTAS has got contracts for the new airports been built in India for Air Conditioning. Voltas managed 11 out of 13 contracts. Can you believe that the company will shut the doors or fail to grow from here? …………think about GMR Infrastructure Ltd. who is building these airports…….the kind of manpower and capital required. If businesses grow they will need capital and people who provide this either in the form of loans (by banks) or by equity (when we buy them) will also stand to benefit. There could some businesses that will fade or collapse but thats life and therefore Mutual Funds are still the answer as they would diversify the risk of being exposed to a single business or company.

Necessity is the mother of all inventions and all inventions require INVESTMENTS. India is in growing need of INVESTMENTS to support the much needed Infrastructure growth. The money will come from various avenues…..Banks, FDI’s, Government, etc. Indian Growth story is not gonna be stopped by a Global Financial Crisis. We are taking a pause and gearing up for the next LAP. We might see more tough times but i see this as an opportunity for people who kept thinking in 2002, 2004 and 2005 that “LET IT DROP BEFORE WE ENTER THE MARKETS”……………baabu ye gaadi kisi ke liye nahi rukegi………jhatkey maregi aur bhagegi.

The current pause in the markets is an opportunity for you and me to re look our strategy again so that we don’t land up again in a CATCH 22 situation…………lets just do it right the next time.

DON’T DISCARD EQUITY…………DON’T OVER EXPOSE………..ENJOY THE GROWTH RIDE !!!

Anil Budhraja (anilbudhraja@yahoo.com)

“It’s all Over !!”

.

“Nobody can make money from markets”

.

These are some of the Lines we are hearing these days. People are cursing the markets and withdrawing / redeeming money from possibly stocks or mutual funds. Financial Institutions on the other hand are bringing more complex products at these difficult times.

I beleive at times of crisis its best to keep things simpler. Nifty linked debentures / Structure products, etc…………. “Do you understand all this ?”

Mutual Funds are the best bet in all market conditions. They are simple to understand and easier to follow.

So the Golden question……..WHY EQUITY?

People have started putting questions on India Growth Story. Had i asked this question 6 months back the typical answer would have been “30000 jayega sensex”.

That was the effect of the strong bull run we had…….. COUNTRY GROWTH = STOCK MARKET ROWTH

Well it is somewhat true but not totally. While the stock market reflects the countries economic picture but there might be some companies which are not listed but are growing. And in these times there might be some listed companies going UP in stock value.

Indian growth story is not a blip but a reality. We never stopped spending money all the time the markets were falling although some might have spent lesser. Consumption and spending is the strength of Indian Economy. We spend and companies earn.

When money comes easy as it did last year, then it does not create wealth but becomes a trading profit. Creating Wealth is a Long term process and Investing in Equity is a Long Term phenomenon.

An interesting example is a Flat of Unitech Nirvana in Gurgaon has risen by 30 % in last 2 – 2.5 years. Just see by how much has the stock price for UNITECH risen.

I strongly beleive that Equity is the best Welath Creator in Indian scenario. If Colgate as a company is growing then you cannot participate in the growth story by buying Toothpaste of Colgate but you need to buy the stock of Colgate. Similalrly you dont need to buy cement to benefit from growth in Infrastructure Sector…………you buy a cement stock or invest in the Infrastructure Fund.

Next time lets talk about real estate……………………..any questions on current post can be put to me directly on anilbudhraja@yahoo.com

Last time i had some comments where i was asked “Which is the best product to invest?”

The question itself tells you the story. People have been only looking to buy products rather than finding a solution. I don’t even blame customers for this attitude. Recently India has seen a spectacular rise in Financial Markets, Real Estate and Globalization. All this has resulted in high incomes which has further led people buying products which might or might not be appropriate to their risk profile, liquidity requirement, asset allocation, etc.

We have never witnessed such a growth earlier and moreover our Indian Population is highly lacking the Financial Education. We are basically followers and most of us are not able to decide “FOR WHAT ARE WE INVESTING?”

I am sure that there is no Perfect Product for investment. Its a combination of Products which form a solution. We also need to classify whether we are traders (in real estate or Stocks) or we are investors. Speculation can give you small spikes of Income but not a concrete solution.

Also with the recent boom our expectation have also reached sky-high. People think that they can double their money in Property or in some stock for which they think have the complete information. Next time i will let you know the Historical returns for some asset classes, which would certainly raise some eyebrows.

I would not be able to give specific advice on this common platform. Anybody wanting specific advice can contact me directly on my email:- anilbudhraja@yahoo.com

Well the important question to ask now is “Where should i invest?”

One has a lot of options to choose from Post Office Savings Scheme, Fixed Deposits, Stocks, etc. There are Plenty of Products which could be classified as:-

1. Equity:- Means Taking share into a business. You can buy Equity through Direct Stocks or Equity Mutual Funds.
2. Debt:- “Debt” means “TO LEND”. Investing in debt means you are lending your money to someone. Examples are:- Fixed Deposits, PPF, Bonds, Post Office Savings Schemes, Debt Mutual Funds.
3. Real Estate: One can either invest in a Piece of Land or a Built up House or Flat.
4. Gold: Gold can be invested by buying gold in physical form/ buying Gold ETF’s (exchange traded funds) or also by investing in Gold Funds (which invest in Gold Mining stocks)
5. Art: Art has also become a important asset class.
6. Alternate Products:- We are currently witnessing emergence of new complicated products such as Structured Notes, Private Equity Funds, etc.

Does this look simple?………One having 100 rupees can divide 20 rupees in each Asset class and works over. I wish that it was that easy.

Lets catch up next time and understand how does one go about choosing the right asset mix.