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March 16, 2011

Author : iFAST

 HDFC Mutual Fund: Mid And Small Cap Sector Valuations Look Reasonable

Most Indians are unaware of the bitter fact that their money in the savings account which earns just 4.0% is being eroded by inflation (Wholesale Price Index = 9.04% as at May 2011, source: D&B). Having said this, many people also want some low risk alternatives to their savings deposits. The market today, offers the option of good alternatives through mutual funds; which however, entail higher risks than savings deposits.

source: iFAST Compilations

The results on the chart are striking. The amount of INR 10,000 placed into DWS Ultra Short Term Fund (DWS UST) seven years ago, the value would now be worth INR 15,855; the same amount in the Birla SunLife Ultra Short Term Fund (BSL UST) would now be worth INR 15,903. Meanwhile, the INR 10,000 in savings accounts would only be worth INR 12,823. In fact, the return from Birla Sun Life Ultra Short Term (Rs. 5903) is more than double the return gained from savings account (Rs. 2823) over a period of time.

Below, we list down two mutual fund products with a risk rating of 1 i.e., lower risk funds. Unlike savings, you may not receive guaranteed interest income on these products, but the probability of downside for the lower risk products is not too high, and we believe the risk-reward ratio to be good.

Table 1: Recommended Funds

Scheme Name Fund Type Net Yield (%) Risk Rating [0 - lowest, 10 -highest] One Year Return % (as at 15 June 2011)
Birla Sun Life Ultra Short Term Fund# Ultra Short Term Fund 9.56%* 1 7.29
DWS Ultra Short Term Fund Ultra Short Term Fund 9.44^ 1 7.01
* YTM as at May 2011, ^Net YTM as at 17 June 2011 (source: DWS Investments, Accord & Factsheets)

# The exit load of Birla Ultra Short Term Fund for redemption/switch-out <= 15 days from the date of allotment: 0.25% of applicable NAV

And there are mutual fund products which can earn even higher returns provided one is willing to move up the risk ladder even more.

In conclusion, investors should review the money they hold in savings accounts The investor today, should have second thoughts before going forward to deposit his money in fixed deposits and savings account as there are alternatives out there which may entail slightly higher risk, but promise better returns.


Disclaimer: iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website. Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the Scheme or that the Scheme’s objectives will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets. Past performance of the Sponsor/the AMC/the Mutual Fund does not indicate the future performance of the Scheme. The name of the Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns. Please read the Statement of Additional Information and Scheme Information Document carefully before investing.

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