A Mutual Fund Just for You

Life is just too hectic and complicated, isn't it? You probably have enough to do, what with your demanding job, your busy family, and your personal interests, like having fun. With all that going on, who really wants to spend time studying investments and moving money from here to there and from there to here? And even if you had some time, do you really have the interest and the expertise? For many of us, the answers are no, no, and no.
Fortunately, there's a relatively new development in the financial world that can make your retirement savings a lot simpler: Meet your new friend, the target-date mutual fund.
What it is
A target-date mutual fund is designed around a particular year. Think about when you want to retire. If you're 45 years old now, perhaps you're planning to retire at age 60 or 65. That would be in 2022 or 2027.
You probably know that while most of us should have most of our money in the stock market, as we approach and enter retirement, we should consider shifting some of that moola into bonds and other less-volatile asset classes. But that can be a headache, and something we neglect or put off (partly because we're not so confident about our skills at it) doing so.
What you can now do, though, is invest a good chunk of your money into a target-date fund that matches your needs -- perhaps, in this case, in a "2025" fund. Those funds are designed for folks planning to retire in 2025, which would be when you're 63.
How it works
These funds are typically offered by big fund families, and each one is invested in a handful of other funds from the same fund family. Three well-respected companies with such offerings are Fidelity, T. Rowe Price, and Vanguard.
Let's look at the Vanguard target-date funds. Most of them are invested in a mix of the same handful of Vanguard funds, just in different proportions. Below you can see some the percentages invested in six Vanguard funds by its target funds dated 2010, 2015, 2025, 2035, and 2045:
2010
(VTENX) 2015
(VTXVX) 2025
(VTTVX) 2035
(VTTHX) 2045
(VTIVX)
Vanguard Total Stock Market (VTSMX) 44% 51% 63% 72% 72%
Vanguard Total Bond Market (VBMFX) 41% 36% 21% 10% 11%
Vanguard European Stock Index (VEURX) 6% 7% 9% 10% 10%
Vanguard Pacific Stock Index (VPACX) 3% 3% 4% 5% 5%
Vanguard Emerging Markets
Stock Index (VEIEX) 2% 2% 3% 3% 3%
Numbers may not add up to 100% because of rounding or additional holdings.
If you look at the table, you can see how the funds are adjusted to hold different proportions of stocks and bonds according to how close investors are to retirement.
To give you an idea of what these various funds invest in, know that the Vanguard Total Stock Market fund holds almost every U.S.-traded stock, from Citigroup (NYSE: C) and McDonald's (NYSE: MCD) to LifeCell and Peet'sCoffee & Tea. The European index includes companies such as HSBC Holdings (NYSE: HBC) and GlaxoSmithKline (NYSE: GSK). The Pacific fund contains the likes of Toyota (NYSE: TM) and Canon (NYSE: CAJ). And the emerging markets fund holds companies such as Samsung Electronics, Lukoil, and Posco (NYSE: PKX).
Learn much more about target-date funds in Zoe Van Schyndel's "Retirement Planning the Easy Way?"
What to do
So, should you run and snap up shares of funds like these? Not necessarily. Remember that we're all different -- even those of us who might be hoping to retire in 2025. For some of us, it might make sense to have 90% or more of our assets in stocks, instead of the 80% favored by the Vanguard 2025 fund. Others might want to have 10% of assets in emerging markets, not 3%.
Your best bet is to read up on how to best prepare for your retirement and consider a wider range of mutual funds and stocks. I've found a host of very exciting mutual funds among Shannon Zimmerman's recommendations in our Motley Fool Champion Funds newsletter, and I've invested in several of them. His picks are beating their benchmarks by an impressive 12 percentage points on average. So whether you're looking for top-notch small-cap funds, large-cap funds, value funds, growth funds, bond funds, international funds, or something else, he's got some great suggestions for you.
You can try the service free for a month with no obligation to subscribe, or you may want to learn more about mutual funds in these articles:
• Double Your Money With Funds
• Funds That Never Go Down
• The Market's 10 Best Funds
Longtime contributor Selena Maranjian owns shares of McDonald's. GlaxoSmithKline and Posco are Income Investor recommendations. The Motley Fool is Fools writing for Fools.

The advantages of investing in a Mutual Fund are:
• Diversification: The best mutual funds design their portfolios so individual investments will react differently to the same economic conditions. For example, economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. Other securities in the portfolio will respond to the same economic conditions by increasing in value. When a portfolio is balanced in this way, the value of the overall portfolio should gradually increase over time, even if some securities lose value.
• Professional Management:Most mutual funds pay topflight professionals to manage their investments. These managers decide what securities the fund will buy and sell.
• Regulatory oversight: Mutual funds are subject to many government regulations that protect investors from fraud.
• Liquidity: It's easy to get your money out of a mutual fund. Write a check, make a call, and you've got the cash.
• Convenience: You can usually buy mutual fund shares by mail, phone, or over the Internet.
• Low cost: Mutual fund expenses are often no more than 1.5 percent of your investment. Expenses for Index Funds are less than that, because index funds are not actively managed. Instead, they automatically buy stock in companies that are listed on a specific index
• Transparency
• Flexibility
• Choice of schemes
• Tax benefits
• Future of Mutual Funds in India
By December 2004, Indian mutual fund industry reached Rs 1,50,537 crore. It is estimated that by 2010 March-end, the total assets of all scheduled commercial banks should be Rs 40,90,000 crore.

The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last 5 years we have seen annual growth rate of 9%. According to the current growth rate, by year 2010, mutual fund assets will be double.

Let us discuss with the following table:
Aggregate deposits of Scheduled Com Banks in India (Rs.Crore)
Month/Year --- Mar-98, Mar-00, Mar-01, Mar-02, Mar-03, Mar-04, Sep-04, 4-Dec,
Deposits -- 605410, 851593, 989141, 1131188, 1280853, - 1567251, 1622579,
Change in % over last yr -- 15, 14, 13, 12, - 18, 3,
Source - RBI
Mutual Fund-- AUM’s Growth
Month/Year -- Mar-98, Mar-00, Mar-01,Mar-02, Mar-03, Mar-04, Sep-04, 4-Dec,
MF AUM's -- 68984, 93717, 83131, 94017, 75306, 137626, 151141, 149300,
Change in % over last yr -- 26, 13, 12, 25, 45, 9, 1,
Source - AMFI ---

Some facts for the growth of mutual funds in India
• 100% growth in the last 6 years.
• Number of foreign AMC's are in the que to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide.
• Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required.
• We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion.
• 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities.
• Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products.
• SEBI allowing the MF's to launch commodity mutual funds.
• Emphasis on better corporate governance.
• Trying to curb the late trading practices.
• Introduction of Financial Planners who can provide need based advice.

Should one invest in index funds?


• Grow Your Business Moneywise
• Stocks & MFs

Rainfall in city yesterday was 43 mm, read a newspaper weather report. Rainfall is a representative number. Some parts of city could have received rainfall more than 43 mm. There could be some areas, which would have received less than 43 mm rainfall.

However if in general, rainfall received is around 43 mm, it is suppose to be appropriate representative number. This number also helps in comparing the changes. E.g. rainfall received on same day last year was 47 mm. Therefore this year city received 4 mm less rainfall.

The stock market index is also a representative number. When we say Nifty has moved from 3990 to 4085, the movement is of 2.38%. There could be some stocks, which could have moved more than 2.38%, and some would have had lesser movement.

However as long as majority of stocks have had movement of around 2.38%, representative number is of relevance.

In India, till 1986 there was no stock market index. Imagine, how would investors know the level of stock market without benchmark index? In the year 1986 BSE compiled Sensex with base year 1978-79=100. Today Sensex, which is at 14000 levels, was at 100 in 1978-79.

Once upon a time there used to be a joke about a villager who wanted to invest (buy) not in any company stock but in BSE Sensex, as that kept moving upwards. Today that is possible through index funds.

What is an Index Fund?

Index funds are those equity funds that invest in the constituents of an index and in same proportion as their weightage in index. Sensex consists of 30 stocks (constituents.) An index fund tracking Sensex will invest in those thirty companies, which are constituents of Sensex, and in same proportion as their weightage.

Concept of index funds for common investor was first conceived by John Boggle in 1976. He had earlier studied, as part of his senior thesis in Princeton University that:

* The order of top-performing funds is continuously changing. This means there isn't any mutual fund scheme, which consistently remains in the top-performing category year-on-year. Also, it is only in hindsight that one will know which funds were top performers in the previous year.
* Sales, marketing and other administration expenses are eating away returns generated by fund managers.
* All fund managers are not consistently able to beat market returns (read indices returns).

Therefore he thought it is not worthwhile to pay higher expenses to mutual fund schemes and let fund manager do the stock picking. By controlling expenses and eliminating the research and stock selection investor could generate better returns.

Index funds only invest in constituents of index and hence fund manager and his team does not have to use their skills in research and stock picking. He found a mutual fund company called Vanguard and launched index funds. Concept of indexing is very popular in matured and efficient markets.

What is an efficient / inefficient market?

Efficient market is one where all investors know information about a particular stock and therefore every investor takes informed decision. In an inefficient market only few investors know about the company information and hence they benefit.

Assume there is a classroom where a particular subject is taught. All students in the class get same amount of knowledge as the teacher is imparting it. Next day if there is exam each student will get different marks based on their writing ability, neatness and presentation skills, etc.

However no student will be to produce more knowledge about the subject than rest of the class as teacher has imparted same amount of knowledge. Similarly in efficient market, information about company is available to individual investor is same.

There could be some investors who will make more money than others based on amount funds they invest, time at which they invest etc. but all would be reacting on the same information available.

Suppose in our above class, teacher also gives private tuition to some students. Also there are students who are attending some coaching classes. These students will have more information about the subject than other fellow students and hence in next day exam they will be able to produce more information.

This situation is like inefficient market, where some investors get information about particular stock faster and hence can capitalize on the information better.

In reality there can never be complete efficient or inefficient markets. (In theory there are three forms of market efficiency, weak form of efficiency, semi-strong form of efficiency and strong form of efficiency.)

However as we move from inefficient to efficient market fund mangers will struggle to continuously beat the benchmark index. One of the reasons for this will be that information about stock will be more or less efficiently available to all large and small investors. Under such circumstances index funds will be better bet for investors.

Future of Mutual Funds in India






By December 2004, Indian mutual fund industry reached Rs 1,50,537 crore. It is estimated that by 2010 March-end, the total assets of all scheduled commercial banks should be Rs 40,90,000 crore.

The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last 5 years we have seen annual growth rate of 9%. According to the current growth rate, by year 2010, mutual fund assets will be double.

Let us discuss with the following table:
Aggregate deposits of Scheduled Com Banks in India (Rs.Crore)
Month/Year Mar-98 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Sep-04 4-Dec
Deposits 605410 851593 989141 1131188 1280853 - 1567251 1622579
Change in % over last yr 15 14 13 12 - 18 3
Source - RBI
Mutual Fund AUM’s Growth
Month/Year Mar-98 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Sep-04 4-Dec
MF AUM's 68984 93717 83131 94017 75306 137626 151141 149300
Change in % over last yr 26 13 12 25 45 9 1
Source - AMFI

Some facts for the growth of mutual funds in India
• 100% growth in the last 6 years.
• Number of foreign AMC's are in the que to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide.
• Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required.
• We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion.
• 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities.
• Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products.
• SEBI allowing the MF's to launch commodity mutual funds.
• Emphasis on better corporate governance.
• Trying to curb the late trading practices.
• Introduction of Financial Planners who can provide need based advice.

What is a Mutual Fund?

The idea behind a mutual fund is simple: Many people pool their money in a fund, which invests in various securities. Each investor shares proportionately in the fund's investment returns -- the income (dividends or interest) paid on the securities and any capital gains or losses caused by sales of securities the fund holds.

Every mutual fund has a manager, also called an investment adviser, who directs the fund's investments according to the fund's objective, such as long-term growth, high current income, or stability of principal. Depending on its objective, a fund may invest in stocks, bonds, cash investments, or a combination of these financial assets.

Mutual Funds India





Mutual funds have been a significant source of investment in both government and corporate securities. It has been for decades the monopoly of the state with UTI being the key player, with invested funds exceeding Rs.300 bn. (US$ 10 bn.). The state-owned insurance companies also hold a portfolio of stocks. Presently, numerous mutual funds exist, including private and foreign companies. Banks--- mainly state-owned too have established Mutual Funds (MFs). Foreign participation in mutual funds and asset management companies is permitted on a case by case basis.
UTI, the largest mutual fund in the country was set up by the government in 1964, to encourage small investors in the equity market. UTI has an extensive marketing network of over 35, 000 agents spread over the country. The UTI scrips have performed relatively well in the market, as compared to the Sensex trend. However, the same cannot be said of all mutual funds.
All MFs are allowed to apply for firm allotment in public issues. SEBI regulates the functioning of mutual funds, and it requires that all MFs should be established as trusts under the Indian Trusts Act. The actual fund management activity shall be conducted from a separate asset management company (AMC). The minimum net worth of an AMC or its affiliate must be Rs. 50 million to act as a manager in any other fund. MFs can be penalized for defaults including non-registration and failure to observe rules set by their AMCs. MFs dealing exclusively with money market instruments have to be registered with RBI. All other schemes floated by MFs are required to be registered with SEBI.
In 1995, the RBI permitted private sector institutions to set up Money Market Mutual Funds (MMMFs). They can invest in treasury bills, call and notice money, commercial paper, commercial bills accepted/co-accepted by banks, certificates of deposit and dated government securities having unexpired maturity upto one year.
FROM:-- MUNISH KUMAR BANERJEE
18/113, INDRA NAGAR
( NEAR MAJOR RITESH SHARMA PARK )
LUCKNOW—226016
UTTAR—PRADESH
INDIA

E- MAIL:-- mkb_2700@yahoo.com
-- mkb_2700@rediffmail.com

PHONE --- 91-0522-4004065
MOBILE--- 91 9838650113

I am a registered mutual fund advisor,therefore any one can take advice from me for investment in MUTUAL FUND including those who
want to invest for saving as well as for income tax benefits.
contact me at--
MUNISH BANERJEE
18/113,INDRA NAGAR
LUCKNOW-226016
UTTAR-PRADESH
INDIA

PHONE- 91 0522 4004065
mobile- 09838650113