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Old 8th March 2017, 14:01   #1381
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Default Re: The Mutual Funds Thread

Low NAV doesn't mean cheaper fund
The net asset value of a fund makes no difference to its returns. Consider a fund for its performance, not its NAV

If there is one myth that fund distributors love to propagate, it is that a fund with a low net asset value (NAV) is cheaper. 'The NAV is just Rs10,' is their sales pitch. As a result, investors flock to new fund offerings (NFOs) to exploit this so-called cost advantage.

In actuality, the NAV is totally irrelevant and should not even be considered when making an investment. Not convinced? Let's say that two funds have identical portfolios. One has been around for a while and the other is a newly-launched fund. As the value of their (identical) holdings increase, the NAV will rise by the same percentage. So investors in both will benefit equally.

To put it numerically, let's say the NAV of the two funds are R10 and Rs50 and they rise to R11 and Rs55, respectively. So it might appear that one has just risen by a rupee while the other by Rs5, but in reality, they have both shown a 10 per cent rise.

Of course, the number of units held would differ. A low NAV would imply a higher number of units and a high NAV would indicate a lower number of units. So let's say you invest Rs5,000. It would get you 500 units with an NAV of R10 but only 100 units if the NAV is Rs50 (assuming no entry load). Yet, in both cases, the value of the investment is identical. So Rs5,000 invested in each would show the same gain. The 500 units (for which you paid Rs10/unit) would rise to Rs5,500 at Rs11 per unit. The 100 units (for which you paid Rs50/unit) would rise to Rs5,500 at Rs55 per unit.

The 'cost' of a scheme in terms of its NAV has nothing to do with returns. What you want to buy in a scheme is its performance, not its NAV.


https://www.valueresearchonline.com/...lc=1&str=10287


Quote:
Originally Posted by srikanthns View Post
I was nastily surprised by the NAV difference between Regular and direct plans of MF schemes. Even in a slightly low value NAV's, difference of 20%.
Reliance Growth-Dividend-Regular scheme is Rs68.69 whereas Reliance Growth-Dividend-Direct is Rs 81.88 .Lay investors are never told about such a wide gap! This is 20%. I checked other fund houses, the difference is not this much. This amounts to shady dealing by MF house, isn't it? I had reliance growth which I completely redeemed!

Last edited by pradkumar : 8th March 2017 at 14:04.
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Old 8th March 2017, 14:37   #1382
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Default Re: The Mutual Funds Thread

Quote:
Originally Posted by srikanthns View Post
I was nastily surprised by the NAV difference between Regular and direct plans of MF schemes. Even in a slightly low value NAV's, difference of 20%.
Reliance Growth-Dividend-Regular scheme is Rs68.69 whereas Reliance Growth-Dividend-Direct is Rs 81.88 .Lay investors are never told about such a wide gap! This is 20%. I checked other fund houses, the difference is not this much. This amounts to shady dealing by MF house, isn't it? I had reliance growth which I completely redeemed!
Nothing shady. Direct plans and regular plans start will equal NAVs. The difference comes down the years because of the lower expense ratios of direct plans- the commission paid to distributors. There is no commission passed on to distributors in direct plans hence the 'benefit' is passed on to the subscribers. This creates a difference in NAVs of the two after a time period.
In regular plans, the ultimate cost of commission and other expenses is paid by the investor, hence gains are eaten by these expenses. Doesn't mean that one should venture wij direct plans only. Do it, if you are well versed with the market and don't need any advise.

Regards,
Saket.
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Old 8th March 2017, 15:36   #1383
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With the information I got from a Bank Manager this morning we may need to relook at out investment strategies. So far the PPF is being touted as the first option before anything else. Now what seems to be on the cards:

1. Cut in ppf interest rates (a given imho with inflation in the 4% regime).

2. PPF may lose some of its tax advantages. The reason is quite sensible. It was touted as an option to the PF for the unorganized / self employed sector. The bulk of the users are the salaried class. So there is talk about doing away with some of the benefits in the form of zero tax, etc.

Now what finally happens we do not know, but it is worth a thought.
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Old 8th March 2017, 20:18   #1384
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Quote:
Originally Posted by sgiitk View Post
1. Cut in ppf interest rates (a given imho with inflation in the 4% regime).
2. PPF may lose some of its tax advantages. The reason is quite sensible. It was touted as an option to the PF for the unorganized / self employed sector.
If they try to fiddle with PPF / PF in anyway, it will be disastrous for sure. While i agree that they have their eyes set on PPF / PF for long time but it is also equally true that every salaried class person see these 2 instruments as sacrosanct.

Unless govt wants to commit suicide, I suspect they will touch these 2 instruments.

On a separate topic, looking for some feedback on Mirae tax saver fund. if anybody has subscribed to it .
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Old 8th March 2017, 20:51   #1385
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Quote:
Originally Posted by saket77 View Post
In regular plans, the ultimate cost of commission and other expenses is paid by the investor, hence gains are eaten by these expenses. Doesn't mean that one should venture wij direct plans only. Do it, if you are well versed with the market and don't need any advise.

Regards,
Saket.
@pradkumar @saket77, the original point of my post was not about cost of NAV and such other things, but , in my view, the unreasonable difference in Regular & Direct plans of Reliance Growth scheme - dividend option. In dividend option, in none of the other fund houses, you will see such 13 rs difference in NAV between the direct & regular scheme. That is what I wanted to point out.
I am aware that the value of NAV does not indicate the quality of the scheme or its performance. I happen to be a regular investor from 1994 though guilty of not monitoring the portfolio properly in the last 2,3 years
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Old 8th March 2017, 21:01   #1386
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Default Re: The Mutual Funds Thread

Quote:
Originally Posted by sgiitk View Post
With the information I got from a Bank Manager this morning we may need to relook at out investment strategies. So far the PPF is being touted as the first option before anything else. Now what seems to be on the cards:

1. Cut in ppf interest rates (a given imho with inflation in the 4% regime).

2. PPF may lose some of its tax advantages. The reason is quite sensible. It was touted as an option to the PF for the unorganized / self employed sector. The bulk of the users are the salaried class. So there is talk about doing away with some of the benefits in the form of zero tax, etc.

Now what finally happens we do not know, but it is worth a thought.
Is there any way to come out from PPF? My wife and son have been contributing a lakh each for the past 5 years, but it doesn't look easy to withdraw from the scheme, as it is locked for 15 years. I do know there was a way of withdrawing some amount in the 7th year, but the amount was measly. Last year the rules were amended to make withdrawal easy, but only for medical emergencies or higher studies (with documentary proof).

Any thoughts on this, anyone?
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Old 8th March 2017, 21:26   #1387
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Quote:
Originally Posted by srikanthns View Post
@pradkumar @saket77, the original point of my post was not about cost of NAV and such other things, but , in my view, the unreasonable difference in Regular & Direct plans of Reliance Growth scheme - dividend option. In dividend option, in none of the other fund houses, you will see such 13 rs difference in NAV between the direct & regular scheme. That is what I wanted to point out.
I am aware that the value of NAV does not indicate the quality of the scheme or its performance. I happen to be a regular investor from 1994 though guilty of not monitoring the portfolio properly in the last 2,3 years
You seem to miss my entire post. I never said that NAV points to quality of fund.
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Old 8th March 2017, 22:17   #1388
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Quote:
Originally Posted by saket77 View Post
You seem to miss my entire post. I never said that NAV points to quality of fund.
No, that point was for pradkumar's post . But nobody is getting my point, is such wide disparity Ok? I do not think so!
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Old 8th March 2017, 23:02   #1389
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Quote:
Originally Posted by srikanthns View Post
But nobody is getting my point, is such wide disparity Ok? I do not think so!
Look at the returns for 2014, 2015 and 2016 on valueresearchonline for Reliance Growth Fund (Dividend option) -

For Regular Plan:

2014: 54.87%
2015: 6.35%
2016: 3.51%

For Direct Plan:

2014: 55.98%
2015: 7.05%
2016: 4.37%

Regular plan is offering just about 0.9% per year LOWER returns than direct plan, which is probably the average incentive paid out to brokers by Reliance MF.

Forget the NAV business.

Last edited by smartcat : 8th March 2017 at 23:06.
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Old 8th March 2017, 23:06   #1390
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Quote:
Originally Posted by srikanthns View Post
No, that point was for pradkumar's post . But nobody is getting my point, is such wide disparity Ok? I do not think so!
Yes, the difference in the NAV for dividend option (direct being significantly higher) is because of lower dividends paid on direct plans as compared to regular plans.

This difference is probably high for funds launched in 2013 when direct plans were introduced.

Regards,
Saket.

Last edited by saket77 : 8th March 2017 at 23:13.
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Old 9th March 2017, 11:20   #1391
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Quote:
Originally Posted by .sushilkumar View Post
If they try to fiddle with PPF / PF in anyway, it will be disastrous for sure. While i agree that they have their eyes set on PPF / PF for long time but it is also equally true that every salaried class person see these 2 instruments as sacrosanct.

Unless govt wants to commit suicide, I suspect they will touch these 2 instruments.
Well they have a simple way out club together the PPF and PF subscriptions, under the 1.5l or whatever limit, ie total contribution into PF and PPF cannot cross the limit, for tax benefits. Stops double deduction game of claiming rebate in both salary and ppf for contributions.

As for suicide they touched their core constituency, the small businessman, with the Demonetization, and have not done too badly.
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Old 17th March 2017, 12:14   #1392
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I had a question about Arbitrage funds.

My interest, only because of the classification as Equity and the taxation.
From what I have read and understood about Arbitrage funds, the fund tries to figure out an Arbitrage opportunity which depends totally on the market situation.
Due to this nature of the fund, there is a probability of having little to no gains at all. But is there a way an arbitrage fund can go negative ?

I was looking for a place to park for a little over a year.
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Old 17th March 2017, 12:21   #1393
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Quote:
Originally Posted by ashokrajagopal View Post
My interest, only because of the classification as Equity and the taxation.
From what I have read and understood about Arbitrage funds, the fund tries to figure out an Arbitrage opportunity which depends totally on the market situation.
Due to this nature of the fund, there is a probability of having little to no gains at all. But is there a way an arbitrage fund can go negative ?
I think the Arbitrage Opportunities are shrinking, and my bank is no longer pushing it. It was being pushed more as an alternative to Fixed Deposits, and with the tax rebate it by and large gave better returns that FDs. As a matter of fact if someone gains in any transaction, someone else loses. So it is ultimately a zero sum game.

Once the year is over I may pull out of the Arbitrage Fund(s) or at least reduce my exposure.
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Old 17th March 2017, 12:34   #1394
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Quote:
Originally Posted by sgiitk View Post
I think the Arbitrage Opportunities are shrinking, and my bank is no longer pushing it. It was being pushed more as an alternative to Fixed Deposits, and with the tax rebate it by and large gave better returns that FDs. As a matter of fact if someone gains in any transaction, someone else loses. So it is ultimately a zero sum game.

Once the year is over I may pull out of the Arbitrage Fund(s) or at least reduce my exposure.
I am sorry sir, I dint quite understand.
While the arbitrage opportunities are shrinking, does it mean the fund can ( by definition) go into negative ? Or next to nothing returns ?
Liquid fund can be used to park money, but the taxation aspect comes into play if I pull out after a year. Capital protection is my prime requirement.
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Old 18th March 2017, 10:11   #1395
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Quote:
Originally Posted by ashokrajagopal View Post
While the arbitrage opportunities are shrinking, does it mean the fund can ( by definition) go into negative ? Or next to nothing returns ?
Liquid fund can be used to park money, but the taxation aspect comes into play if I pull out after a year. Capital protection is my prime requirement.
Well as the economy stabilizes the opportunities for smart arbitrageurs shrink. A fund can definitely go into gegative. I remember a colleague cribbing about a govt. debt fund going negative, and I had to explain to him that the manager may move investments around expecting better returns elsewhere. So yes, returns can go up or down. Also, returns within the same category of funds differ a lot. So keep an eagle eye out.
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