When You Should bid your mutual fund goodbye

Advice on when you must invest in a mutual fund is available dime a dozen. But it takes a certain degree of expertise and proficiency to redeem your mutual fund investment at the right time. Since this is the dilemma that many investors grapple with, we have outlined the five most critical reasons for redeeming your mutual fund investment.

At the outset, it is important to note that the 'right time to redeem' does not mean that there is a timing element involved over here. Rather the right time to redeem means when the time is up on your mutual fund investment and it is no longer prudent to hold on to it.

While there may be several occasions to redeem your mutual fund investment, we have narrowed it down to the five most pervasive reasons.

1. When you have achieved your investment objective

A mutual fund investment is made with the intent of achieving a specific investment objective. Some of these investment objectives include, among others, planning for child's education, planning for retirement, saving for a house/car. If you haven't achieved your investment goal, there is no reason to redeem your mutual fund (assuming, of course, that it is performing on expected lines). When you have achieved or are close to achieving your investment objective, you should stagger your mutual fund redemptions so that you are completely liquid (i.e. in cash) when it is time to realise the investment objective (i.e. pay your child's college fees or buy the house).

2. When your mutual fund revises its mandate

Mutual funds have an investment mandate. The mandate sets the 'guidelines' for fund managers about how they should manage their funds. Since the mandate is formally stated, investors know about this beforehand and invest in the fund if they believe that it will enable them to achieve their investment goals. Mutual funds are known to revise their mandates if they believe that the existing mandate does not serve the mutual fund's interests anymore. For instance, in the recent past a leading private sector fund house converted its index fund into an actively managed fund.

From your perspective, you will have to evaluate whether the mutual fund with a revised mandate merits a place in your portfolio. If it doesn't, then its time to redeem it. In the event of a revision in the mandate, regulations require that investors be given the option to redeem the mutual fund without an exit load, so you can redeem the investment without worrying about the exit load (if any).

3. When the star fund manager quits

A category of investors track the fund managers more than they track the fund house and its schemes. These investors invest in a mutual fund relying mainly on the star fund manager's investment prowess and skills. While the domestic mutual fund industry does not have many star fund managers, the few who can be considered stars have a committed fan base. At Personalfn, we discourage investors from falling prey to this trend; investing in process-driven fund houses is a more reliable way of investing than betting on star fund managers. Nonetheless, if you have invested in a fund based on the star fund manager appeal, then your investment decisions should correspond with the fund manager's migration (across fund houses). If he quits the present fund house, then there is a case for you to redeem your investments because it is unlikely that the rest of the fund management team will be able to replicate the performance in the star fund manager's absence.

4. When your mutual fund is not performing

At Personalfn, we often hear of investors complaining about the below par performance of their mutual fund investments. Our advice to them is to be patient and evaluate their investments over an appropriate time frame and with the right perspective. For instance, equity funds should ideally be evaluated over the long-term (at least 3 years). Taking a decision in haste without understanding the investment proposition of the mutual fund could prove counterproductive and expensive (if there is an exit load). However, all points considered, if you and your financial planner are convinced that your mutual fund is a dud, then its best that you redeem it.

5. When you have invested in a thematic fund

Although at Personalfn we recommend that investors avoid thematic funds, the reality is that thematic funds are a feature in the portfolios of many investors. Some of these investors are well-informed and have a view on the underlying theme/sector. However, for a vast majority of investors, thematic funds are an unknown entity simply because they do not have the necessary skills and resources to track the underlying sector/theme. They only got invested in them either because everyone they knew was investing in them or their agent made a compelling marketing pitch for the fund. Either ways they are invested in the fund and want to know when they can redeem. If you are one of them, then the right time to redeem your thematic fund is when the stock markets give you the opportunity. Since a rising tide lifts all boats, it is likely that the performance of the underlying theme/sector will improve in a stock market rally. That is an opportunity for you to sell that thematic/sector fund that you always wanted to redeem but could not because of unsuitable market conditions.

Another mutual fund investment that you can redeem in a stock market rally is the dud that you invested based on a 'hot tip' and have regretted ever since. These funds are like deadwood in your portfolio, which you should never have invested in, in the first place. But having invested in them, make the most of a stock market rally to either redeem at a profit or to minimise losses.

 

Mixed Signals For Fertilizer Companies

Key Points:

* Urea prices fell by more than $70 in late September
* A strike is helping to support potash prices
* Some analysts are raising 2009 earnings forecasts
* Highlighted stocks include AGU, CF, MOS, POT and TRA
Fears that fertilizer companies could be losing pricing power sent their shares tumbling late last week.

The primary cause was a sharp drop in urea prices. A report published last Thursday on Farm Futures revealed a $70 decline in Black Sea prices over the previous 2 weeks. (Ammonia prices were weaker as well.)

Urea is a key ingredient used in fertilizer. Traders are concerned that the recent drop is an early signal of slipping demand for fertilizer. Any weakness would call into question fourth-quarter and 2009 profit forecasts for Agrium (AGU), CF Industries (CF), Mosaic (MOS), Potash of Saskatchewan (POT) and Terra Industries (TRA).
It is possible that some farmers are choosing to work through current supplies, rather than pay elevated prices. Certainly, the ongoing credit crunch is affecting spending. However, there is a difference between purchases being delayed and a trend of reduced demand.

Keep in mind that both global economic growth and increased use of ethanol played material roles in higher aggregate demand for agricultural products. People in developing nations continue to eat better, as their incomes enable them to enjoy meals that are beyond a subsistence diet, and ethanol is still being looked at as an alternative fuel source.

Potash Strike

A discernable trend in potash prices would provide more clarity. However, there is an ongoing strike at 3 of POT's mines. The mines account for approximately 30% of the company's potash production.

The strike is providing some artificial support to potash prices.

Adding to the uncertainty is the fact that supplies of potash are abnormally low.

Profit Forecasts

Nearly all of the covering brokerage analysts are keeping their 2008 profit forecasts for fertilizer companies unchanged heading into third-quarter earnings season. (One analyst did cut his forecast on AGU last week, but the consensus earnings estimate of $9.43 is still 7 cents above the average forecast of a month ago.)

Looking ahead to 2009, a couple of brokerage analysts have raised their profit projections over the past few weeks. There is currently no expectation that demand destruction will occur next year.

Brace for Further Volatility

Though nearly all of the fertilizer stocks continue to trade at discounts relative to their projected earnings growth, they are very volatile. Investors should expect more large price swings in the future.

Depending on the resolution to the Potash of Saskatchewan strike, other work stoppages could occur. On the other hand, if the company holds its stance firm, the current strike could continue for an extended period of time. Either occurrence would cause sustained supply disruptions.

On the demand side, farmers are likely to continue maximizing crop yields. This said, farming communities are not immune from the ongoing credit crunch. Furthermore, a global economic slump could adversely impact emerging countries, such as China, which would cause some drop in demand.

However, given the food shortages that occurred earlier this year, it would seem a significant global recession would have to occur for demand to drop significantly.

AGU, POT and TRA are Zacks #1 Rank ("strong buy") stocks. CF is a Zacks #2 Rank ("buy") stock. MOS is a Zacks #3 Rank ("hold") stock. All five are classified in Fertilizers.

Related ETFs

No ETF focuses solely on the fertilizer stocks.

Market Vectors Agribusiness (MOO) may be the best option, since it holds shares in companies such as MOS and POT. The fund, however, also has exposure to farm equipment makers like Deere (DE) and CNH Global (CNH).

Stock Markets to Surge in 2009?

So the US government has bailed out the countries two major mortgage lenders, will this be the catalyst to some new found confidence and stability in these hardened times? The major stock markets from around the world staged a major rally on the news, the London stock exchange even broke down as it could not cope with the demand, so will this become a sustained rise and are these stock markets set for a very good 2009?

Experts are still suggesting that we have not seen the back of this credit crunch. Only yesterday the head of Nationwide, the largest building society in the UK, stated that he believed that house prices would fall another fifteen percent in the UK over the next twelve months. That would leave them twenty-five percent below their peak.

Stocks and shares do however look very cheap when you look at all of the fundamentals. I for one am currently investing on a monthly basis to take advantage of what is called pound cost averaging, this is where you able to purchase additional shares/units when the price falls which in turn will benefit you when the price rises. Whether stock markets will surge in 2009 is another matter and there are many factors that could certainly stop that from happening, a terrorist attack is just one example.

One thing that could be very important to the investment performance of many stocks and shares is how the tough the new President of the United States gets with the finances of the country. He could either breathe new life into the markets or could make some major blunders. The Prime Minister in England, Gordon Brown, could also be a major player. He is seemingly losing his grip on the country and people are already writing him off. I doubt for one second whether he will give up without a fight and may well attempt to start an economic recovery of his own for the people of the UK. Lowering petrol prices and a windfall tax are two obvious starting points.

How Low Will the Stock Markets Go?

With the demise of Lehman Brothers stock markets around the world have taken another major nosedive, it was not quite another Black Monday however it was not far off. The credit crunch is now in over drive with many people asking just how much lower can and will the stock markets go?

Even today as stocks and shares from around the world continue to plummet there are many people talking up the state of the markets. These will be financial advisers, stock brokers, people who are not wanting to lose face. They do not want to be seen to have given any form of bad of advice. In reality it is not their fault that the markets have fallen in this way and it can be quite difficult to second guess which way the markets are going to go. As long as people are being given full advice as to the fact that stocks can fall as well as rise then there should be no problem. In fact people who are investing on a regular basis rather than in lump sums may well actually do very nicely out of the current climate as the lower the stock markets go the more units or shares your money will buy. This becomes of benefit to you when the stock markets start to rise again.

The main players in the financial sector are fully aware that we may not have seen the worst of this credit crunch as yet and that stock markets could well have much further to fall. Just think for a moment, what would happen if AIG were to fall into administration or a bank in the UK such as HBOS? I hope you are not laughing as this could well happen.

I personally think that we have a long way to go before we do reach the bottom of the market. I am however a speculator and am currently investing on a monthly basis into some very dicey waters, that being the Russian, Indian and Chinese stock markets. Am I brave or rather foolish? Well we will have to wait and see. It is all a bit of a gamble at the end of the day.

Avoid Overspending In Malls

With the mall culture creeping into our everyday lives, every now and then we are bitten by the shopping bug to splurge into unnecessary spending when ever we visit these giant mammoth shopping complexes hoping to buy stars and moon at down to earth prices.

The urge to spend is so strong that most of the time we end up buying what we did not plan to because the goods displayed on the shelves create a black magic effect on our minds and lure us into an ever tempting territory of mega deals and discounts where the trespassing is made simple by just swiping our credit card across the counter.

This shopping frenzy lasts for hours and only ends when the body refuses to move any further though the mind still wants you to hop to another counter for some more exciting offers on gadgets and wardrobe, which your family does not needs.

So is there really a way out of this mindless shopping extravaganza, which burns deep holes into our pockets and leaves us high and dry by the end of every month?

After contemplating over the issue for long I found shopping in malls a somewhat difficult phenomenon to resist but certainly one can cut down on bills by not indulging into manic purchasing if we follow these steps.

1. Carry Your Debit Card And Not Credit Card Next Time When You Step Into A Shopping Mall

This exercise will ensure that your eyes do not drool over the fancy stuff lying in the shelves which you do not need for all the practical reasons every time you step into a mall.

Your limitations will be well defined and you would know when to stop unlike with your credit card, which is always waiting to pop out from the wallet like a Jinni waiting to come out of a bottle to grant all your wishes.

2. Carry Your Spouse Every time You Go To A Mall

Shopping alone in a mall is like stepping onto a banana and slipping every time you step out of the house because there is no time to look at the ground realities of extravagant spending something you should always resist. Carrying your spouse along will ensure that he or she doesn't lets you stare at irresistible stuff which is playing havoc with your mind and you just can't wait to jump on to it with your credit card waiting to exhale.

Your partner is sooner or later going to get tired of your running around like a monkey all over the mall wanting to grab everything coming your way because he or she doesn't has the energy to go in circles all over the place and would want you to get out of the horror house at the earliest.

3. Make A Shopping List And Set A Time Line To Exit The Mall Premises

Time management is critical when you decide to shop in a mall, and this can only be achieved by a meticulously planned shopping list which will come in handy the moment you step into a mall as it will act as a deterrent to overspend on stuff which you do not need. It will also ensure that you exit the mall the moment your mission to buy goods listed on the shopping list is achieved.

4. Avoid Eating In Mall Restaurants

Eating out has become a way of life for most of us with disposable incomes touching an all time high and gone are the days when it was only restricted to weekends. With malls coming up in every locality we invariably land up eating in their fancy restaurants every now and then which results in spilling over the beans to other shopping outlets of the mall and at the end of the day you realize that you have actually ended up spending more on buying stuff from the retail outlets then filling your belly with some mouth watering delights. Your old time favorite restaurants are the best bet when it comes to just having a good meal with your family and coming back home.

5. Match Your Lifestyle With Your Monthly Income

Take some time out to look at the cherished possessions you already own and you will loose the desire to own some more because there is not enough place in the house to stack them. How many branded jeans or fancy shoes you are going to wear over a period of year if your workplace demands only formal attire on every working day?

It is a thumb rule that 20% of your income must go into savings and following this rule will automatically keep you within the confines of your spending habits.

6. Don't Let The Word "Mega Sale!!!" Have A Black Magic Effect On Your Mind

No denying the fact the word "sale" displayed on shopping outlets holds the power to stop even the likes of Alexander the Great mid way on his route to conquer India but your determination to conquer your spending demons alone can only put a stop to the unwise expenditures. Discourage yourself from buying stuff on sale unless it is a necessity and focus on quality rather than quantity.

Follow the steps above to assess your own situation and turn these strategies into an opportunity to change your impulsive buying habits altogether.

 

Things to keep in mind when you rent a car in a foreign country

Car rental firms generally charge four types of basic rates: a daily rate with a mileage charge, a daily rate with a limited number of free miles per day; a daily rate with unlimited mileage; and a rate that has free mileage over an extended period. Rates vary according to the size and make of the vehicle, but most firms rent economy, compact, intermediate and deluxe cars. Special promotional rates are often available, especially over weekends, but should be specifically requested in advance.

•   Most countries will accept your valid state driver's license with another form of photo ID. But some countries may also require an International Driver's Permit.

•   Familiarise yourself with the car rental company's policy on gasoline when you check in. Some companies charge you a flat rate for gas upon renting the car and expect you to return with the gas tank empty. Most, however, will assess a charge based on the firm's gas rates for filling the gas tank when the car is returned, if it is not already full. Since gas prices are less expensive at gas stations, fill the tank before returning the car if you've to return it with a full tank.

 •  Travellers should always receive a voucher or confirmation from their travel agent, before departing. This document should have a confirmation number, the car rental company name, type of car requested, flight information and date. If the car rental firm is located outside the airport, a telephone number for the courtesy car pick-up should be provided.

•  Confirmations also often help the car rental firms locate customers who have not picked up their reserved car. As a result of industry automation, the car rental firm can sometimes enquire to see if a renter's flight is delayed. Usually, a car rental firm will hold a reserved car for several hours before cancelling the order.

•   In some countries, the police will take your license if you are involved in an accident or stopped for a moving violation, and will not return it until you have paid any applicable fine. Get receipts for all payments you make, and report any mistreatment to the Indian embassy or consulate in that country.

•    Some European countries track traffic violations with street cameras that photograph cars at intersections. The police trace the drivers using the license plate number of the car and request payment from the rental car company for the ticket. The rental car company is within its rights to collect the fine from you, even if the company is informed of the violation after you've returned and paid for the car.

 

High net-worth individuals diversify risk

Managing money for high net-worth individuals is a complex task that needs access to various resources, asset classes and constant monitoring.

As wealth increases, the needs evolve; from plain vanilla reactive investment strategies to active oversight and scientific planning.

Historical data indicates clearly that no one asset class tends to perform consistently over a long period of time. Therefore, to curb volatility and achieve targeted returns, an individual must spread his wealth not just across asset classes, but also across management styles.

Unique Requirements

Today, sophisticated investors have access to various asset classes like equity, debt, private equity, real estate, structured products, insurance, commodities etc.

Investments can be done in a variety of styles such as discretionary and non-discretionary equity, concentrated portfolios, diversified portfolios, long only, conservative, hedged, arbitrage, growth, value, etc.

Every individual has unique requirements based on appetite for risk, ability to tolerate volatility and cash flows. Additional needs of asset preservation and handover to the following generations adds a layer of customisation and complexity to the process.

While attempts have been made to broadly classify investors according to their financial planning needs, the market has been evolving constantly.

The growing maturity of the players and evolving regulations are giving birth to newer opportunities. Let us look at some of the newer developments in the product space.

Today a substantial part of the investors' portfolio is on Indian shores. As regulations permit and structures develop, we will increasingly see investors demanding geographical diversification to minimise country risks. This will not only mean geographical access to global markets but also access to more cutting-edge structures that fulfill possible risk-reward gaps in the portfolio.

While a few years back Indians had restricted access to global markets, today regulations permit investors to route large amounts through global access mutual funds and limited amounts directly.

Investment strategy

These products offer investors geographical diversification, access to emerging markets across the world or could also offer asset class diversification for example; a global gold fund. These enable the investor either to reduce volatility or simply attempt to outperform.

Sometimes existing products may or may not be enough to meet every gap in the portfolio.

At such times, the smart manager needs to access sophisticated products that are structured specifically for the individual needs.

 

A structured product is generally a pre-packaged investment strategy, which is based on derivatives, such as a single security, a basket of securities, options, indices, commodities, debt issuances and foreign currencies.

A unique feature of some structured products is a 'principal guarantee' function, which offers protection of the principal, if held to maturity. Structured products can be used as an alternative to direct investments, as part of the asset allocation process is to reduce risk exposure of a portfolio or to capitalise on the current market trend.

For example, today's HNIs have access to structures that outperform the benchmark on the upside and protect capital on the downside.

Private Equity

The last but amongst the most interesting opportunities that HNIs can benefit from is the alternate space, this is predominantly in the form of private equity.

These opportunities may be in broad sector agnostic funds or in targeted verticals such as real estate and infrastructure.

While these alternates hold the promise of larger returns, they come along with their share of risk and long lock-ins ranging from 7 to 12 years.

At the same time, the funds try to achieve higher IRR through structured draw downs and profit bookings that are paid to investors on realisation before the final wrapping up of the fund.

These options are definitely for the larger investors and smaller investors may well be advised to exercise caution. Thus, we see that, as wealth increases, the complexity only increases. Managing money is a fulltime activity that requires trained professionals, who understand both: the high net-worth individual as well as his wealth management need, to achieve a fine balance.

After all it takes all ingredients to make a perfect recipe.