Fintellect

Greetings, We hope you found our previous post on open-ended, fixed maturity funds, both useful and informative. If you haven’t had a chance to read it yet, we’ve put it here so you don’t miss out! While 2020 ushered in a global crisis on a scale that humanity had never seen before, 2021 continues to teach us hard lessons earned over decades of practicing unsustainable economics. Pollution, strip-mining, deforestation, over-fishing, and hunting animals to extinction are just a few examples of the effect our economies have on the environment. As the world tries to move forward from the mistakes of the past, one of the things we’re trying to focus on is sustainability, and not taking more from the environment than we can put back. This focus is being delivered right at the root of our financial ecosystem by changing the way responsible investors invest their money. Measuring sustainability Sustainability today is measured in terms of E, S, and G, which stands for environmental, social, ...

To carry on where we left off with our previous post about money market funds, we’re now going to talk about the one single drawback to debt instruments, as well as the remedy. As we all know, debt instruments like corporate bonds, for example, decrease in value as prevailing interest rates go up. This is because when interest rates go up, people would rather put their money in banks than invest in bond funds at lower interest rates, causing the bonds to decrease in value. The inverse is also true here which means if prevailing interest rates fall, corporate bonds that were isssued before the fall, will increase in value. Maturity roll-down As we mentioned in our previous post on the money market, floating rate funds try to negate this effect by investing in bonds with interest rates that change in accordance with prevailing interest rates in the economy.  However, this is typically accomplished by increasing risk by investing in sub-par bonds and in some cases, debt that is close ...

  As we looked at the different types of debt securities in our previous post titled “Meet the Money Market,” in this post, we’re going to look exclusively at money market funds and how they are a great way to make some extra returns in under a year. As we mentioned earlier, money market funds invest in money market instruments, and since the investment period is only 1 year, the portfolio is strategically diversified in order to maximize returns over that 1 year period. These funds are highly secured since investments are only made in money market instruments issued by organizations with strong credit ratings. Think of it like this, instead of putting your money in a fixed deposit for a year, your lending it to organizations that have an excellent credit history, hence the two main characteristics of money market funds, low-duration, and low-risk.  These instruments include certificates of deposits, commercial papers, treasury bills, repurchase agreements, and more.  Now...

When you think about mutual funds, the first thing that generally comes to mind is equity and the stock market. What a lot of people don’t realize, is that’s only half the story. For the more cautious investors, there are mutual funds that invest exclusively in fixed-income securities, that unlike equity, carry a lot less risk and deliver much better returns when compared with general banking products. Mutual funds that invest in fixed-income securities are called debt funds and investments include corporate bonds, government securities, commercial paper (CP), certificates of deposit (CD), treasury bonds, and money-market instruments. Money-market instruments are funds that finance businesses for short periods of time in order to create a cash buffer to negate the gaps in payment cycles. These are great if you’re looking for a quick turnaround as investment options range from overnight to a year. So the obvious question here would be “why doesn’t everyone invest in debt funds instead o...

 People often associate risk with luck, and while that may be true to an extent, the major difference is that unlike luck, risk can be measured. Now before we get into the ratios that help us measure how much risk is attached to a particular mutual fund, an important concept to understand is volatility. Volatility is basically the measurement of how erratic a particular fund is, so if a particular fund is highly volatile, what this means is it has a tendency to either rise or fall sharply in a relatively short period of time. This is why volatile funds are generally considered high risk. Alpha With an Alpha ratio, instead of comparing a fund's performance to its own average like some other ratios, we’re comparing its risk-adjusted return with a benchmark (example Sensex, Nifty). This is why an alpha ratio can be either negative or positive, with a negative ratio indicating a fund that is underperforming in comparison with its benchmark. For example, an alpha ratio of +3 indicates a...

What a lot of people don’t realize, is that there’s a lot more to mutual funds than the fact that they’re subject to market risk, and offer documents should be read carefully before investing. While people who have a lot of money to invest can afford professional “money-managers” and diversified portfolios, mutual funds give the common man access to such professional money managing services. Think of it as a common fund or pool of money, where the public contributes and the collective amount is then invested by experts, according to the investment objective of the fund. The different types of mutual funds are: Equity funds - funds that invest in stocks  Debt funds - funds that invest in fixed income instruments Money market funds - funds that invest in short-term money market instruments Hybrid funds - funds that divide investments between equity and debt to create a balanced or diversified portfolio. In this post, we’re going to take a closer look at Equity funds, in particular, a...