Why you should NOT invest in Indian mutual funds, NOW

With the current market scenario in perspective, many financial advisors might recommend that you should take the mutual fund route to avoid losses and possibly maximize returns, when this argument seems so convincing on the face of it; the truth is that you can make much more money in a simpler route.

Before I put up the argument, let me bring out the primary assumptions.

1. Since you want to invest in the market, directly or indirectly you believe that you can make money in the market
2. Even though there is negative mood prevailing in the market now, in the long run Indian economy will perform well and there would be a return of the Bull Run in the long term (1-2 years time horizon).

Now that you are a long term Bull, willing to invest in mutual funds, let’s get some facts clarified

a. Only very, very few funds and investors consistently beat the averages, or the indexes
b. Most of the mutual funds in India are benchmarked against SENSEX or NIFTY (which more or less move together in the long run)

Ok, now let’s get to the model.

Assume that you have 10000 rupees to invest in the market. You go to a mutual fund and inform them that you would like to invest the whole amount in their fund. The value units that you would get for this 10000 would be 10000 * 97.75% because 2.25% is taken away as entry load. You can of course avoid this entry load with direct investments, which will involve some pain but for the moment lets go with the charges.

So invested amount = 9775

Now some expectation numbers about the economy

Lets say Indian economy will grow at 8% for the next three years. The listed space numbers would grow by say 10-12% and the PE remaining same (which is very low now) the prices of shares will grow by 11% every year).

Now I will assume that you chose the best mutual fund and that guy makes 130% of whatever the market will make. So the rate of growth of mutual fund assumed is 14.30%

So the money you will get at the end of 3 years is.

Now in this process we have assumed that the index will grow at 11% which means

I have considered current value of market as the investment and the end of year index value as end of year capital.

Now comes the real complexity (feel like hitting me … take a break)

The 4000 Nifty call option for the expiry of 30 Jun 2011 is selling currently at 760 rupees, what this would mean is, someone in the market is telling you that if market goes above 4000 by the end of 30 Jun 2011, he will reimburse an amount equivalent to the value of the market by that date less 4000. So plugging in the index value in our example that guy would be reimbursing 5333.76 – 4000 = 1333.76 to us.

So your money grows form 760 to 1333.76, factor a brokerage of 2 rupees on either side and still you have a profit of 570 rupees. Using the same amount of 10000 here, your money would have become 10000 / 760 * 1330 = 17500, a net gain of 2904 rupees on an investment of rupees 10000.

Add two more complexities, the tax charged on the gain you make in mutual fund is zero, as there is no tax on long term capital gain, the tax charged on the money you make on options is 33% (business income). So the 7500 you make will become 5000, which is still higher than the money your mutual fund manager will make. Let’s not forget that the Indian markets were at 6300 when it crashed in January and if the rate of growth in the example is increased even by a minor % the figures at the end of the year would be largely different. Some examples are

Slightly Bullish

A Bit More Bullish

Very Optimistic Bull

Disclaimer: This article is based on a numerous assumptions by the author and is only an opinion. This should not be taken as a subsitute to advice from a professional financial advisor.

Creating a Glossy Button in Microsoft Word

From the intro you would know that the final output from Word will still have to be copied to another software and the image has to be saved in a format of your choice. Now let us see the steps to be followed for creating a Glossy Button.

Step 1: Create a Shape - rectangle or a rounded rectange, I will use the rounded rectangle, now your output should look something similar to this

Step 2: Remove the border line to do this, right click on the shape, and click on Format AutoShape and then from the Line Section, Select No- Line like this

Step 3: Once this is done now we are ready to fill the button with colour. Choose a Colour of your choice I will choose Blue, but the trick here is to choose two flavours of the same colour, one a bit light and one darker shade. Now right Click on the shape and choose Fill Effects like this

Step 4: Choose the two colours as the option in the Colours Section and Shading Styles as Horizontal, from the variants available choose the one in which the lighter shade of the colour is in the middle and the darker shade takes both the top and bottom like this

Now your Shape should look like this (in the colour you have chosen)

Step 5: Create a rectangle autoshape with white colour as the background and set the transparency to 78- 82% (this depends on the darkness of the colour you have chosen).

Step 6: Place this white rectangle on top of your existing shape in such a way that the new shape occupies the top 50% of your image, remove the lines from the white rectangle you just inserted and now clear all those selection marks and voila... your glossy button is ready to use.

You can optionally add text and also do shadow effects from the drawing toolbar to this button created above.

So the Button With the shadow is here
Note : To add text, right click on the original coloured autoshape and on click on "Add Text" and then adjust the text position using the Right Click -> Format AutoShape Option in the textbox tab