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Saturday, June 5, 2010

IN lONG RUN DIVIDEND PAYING COMPANIES ARE THE BEST ASSET CLASS

Many of our readers have been asking which are the best Mutual funds to subscribe . Whether money invested should be redeemed when market gets into recession? I have not been answering the questions for there were no reliable analysis so far. Recently Jim Cramer (host of Mad Money show), an Alumnus of Harvard reveled his research work that seemed prophetic to me. Investment in equity could be done directly in stock and through mutual funds. There are many Mutual funds which have done very well for some time in India . But on a sustained basis not too many have done very well. A recent study by a National Business Newspaper brought out results which are amazing and to great extent reflect the spirit of Jim Cramer research... The results seem to be reasonably true, when translated to Indian mutual Funds. The analysis supports our views that in longer term Equity provides better return. In most of our articles we have written that investment in equity mutual fund, if kept for ten years would provide decent returns( 15 t0 20%) provided Mutual Fund Schemes are carefully selected. For investors of Northeast we had recommended Mutual Fund route initially rather than direct equity route of Stock.



A lot of investors probably wanted to give up after 2008's market losses. The year before last was the worst 12 months for stocks since the Great Depression. But Dr.Cramer would argue against throwing in the towel. Downturn or not, high-quality dividend-paying equities are still the best-performing asset class over any 20-year period. So the people who bail out would lose out.





An analysis of returns of equity mutual fund schemes, which have been into existence for over 10 years reveals that these schemes have greatly enriched investors to stay put for a longer period. The MF industry today has about 39 diversified equity schemes that are over 10 years old and average returns by these schemes over this 10-year period is about 20.6% CAGR (compounded annual growth rate).



However top ten best performers are as under:



1. SBI Magnum Contra. It has given annualized return of 32.80% for last ten years (2000 to 2010). No other asset class has given higher return than this. This return is despite the fact that during 2008 there was almost 50% erosion of Value. The investment of Rs 10,000 in the year 2000 has become today Rs!,70,857.80.



2.Reliance Growth. It has also given annualized return of 32%.. In last ten years Rs10,000/- has become Rs1,59,990?-



3.Reliance Vision. It has given 29% return despite a very slow return during 2007. Rs 10,000/- has become Rs1,33,674?-



4.Birla Sun Life Basic Fund has given a return of 28.5% clocking Rs1,25667 /- in last ten years from an investment of Rs 10,000 on year 2000



5.HDFC Equity has given a return of 28.3% return. The return of Rs10,000/- brought inRs1,21,044 in ten year’s time.



Beside above five funds other five high performers have been HDFC top 200, Franklin India prima, Templeton India Growth, Franklin India Blue Chip and Franklin India Prima Plus All gave excellent returns of above 24%. However it should be noted that in mutual Fund Industry there is no guarantee that past performance would be always achieved. But Long term sustainability proves that those funds could be relied upon. All the above funds were five star funds from time to time. Some of them fell from the grace occasionally but recovered later. Franklin India blue chip is one such fund that dominated the Mutual fund sector for a long time and eclipsed for a while before returning back to fame.

Beside above funds there are a few funds that are shaping up well. Those are funds which opened their doors recently but remained consistent players like IDFC premier Equity, DSP Black Rock equity fund etc. It would be prudent for investors to check up the list of Value research before starting investment. One thing must be kept in mind that equity investment is not meant for risk adverse person. It is meant for bold and patient person. The speculation is the greatest evil in money market field. Patience is the great virtue if someone wants to make money. Recently Dr. Cramer of Mad Money revealed that market down turn should be faced boldly for it is the recession that provides big money in future.

Our advice to our young readers is to listen to the advice of Dr. Cramer. The risk averse senior citizen can avoid Equity after reaching the age of Seventy years and devote time in Debt instruments. Here is the advice of Dr. Cramer to his beloved investors. Read carefully and follow his ethics of investment.

According to Jim Cramer, a Harvard Alumni ( Popularly known for his Mad Money show in CNBC) “Stocks are an investor’s best shot at upside, and there’s plenty of academic research to prove it. These market corrections – or at times, crashes – though, are a part of the package. If you want to enjoy the profits, then you have to steel yourself to the inevitable losses. After all, there are only two kinds of investors who had lost money, and those who will. So ,you should expect corrections rather than fear them. That’s rule number one if you want to stay in the game. There will come a day when your portfolio’s forward motion will come to a sudden halt. That’s no excuse to quit. If anything, you’ll get the chance to buy great companies at lower prices, setting up the chance for even greater gains when the market turns back up.”, advised Dr. Cramer to young investors. Yes, we feel Dr. Cramer’s advice is prophetic for our investors too.

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1 comment:

Anonymous said...

Dividends are a good indicator of a company’s financial health. Share prices are completely arbitrary, and they tend to fluctuate with the market or with the company’s industry, while dividends fluctuate only when that specific company’s finances change.