Saturday, July 11, 2009

Budget 2009 and mutual funds

There was nothing much for mutual funds (MF) in this year's budget. One small change though. Customs duty on gold bars increased to Rs 200 per 10 grams, up from Rs 100 per 10 grams, earlier.

Impact: The net asset values (NAV) of gold exchange-traded funds (ETF) will increase (it did so on Tuesday 7 July; a day after the budget was announced) by Rs 10. Since one unit of most Gold ETFs is equivalent to one gram of gold in a majority of gold ETFs, the increase of Rs 100 in customs duty per every 10 grams of gold would translate to an increase of Rs 10 in the NAV of an average gold ETF.

Apart from the marginal rise of the gold ETFs, there’s not much impact. The reasons for holding gold ETFs still remain true. There’s nothing more to it. Since customs duties of such nature are not in the hands of funds managers and are imposed universally on all gold ETFs, it does not alter your gold ETF holdings. The benefits of holding gold ETF in your portfolio still remains. Stay invested.

What about other MFs?

Budget 2009 brings no change to your MF portfolio. If you have a time horizon of atleast three years and upwards, equities is the way to go. Stick to large-cap schemes, such as DSP BlackRock Top 100, Birla Frontline Equity, Benchmark Nifty BeES and so on if you wish low volatility and steady returns. Mid-cap schemes such as IDFC Premier Equity and Birla Mid Cap Fund would do well for risky investors. Beware of a mad rush for infrastructure funds. Because of the mad rush thanks to the potential of the sector for the next five to 10 years atleast, you'll see a lot of new fund offers (NFO) coming up. These are high-risk, high-return funds and only one or, maximum two, of such funds in your portfolio should be more than enough. And from the looks of it, existing ones like DSP BR TIGER, ICICI Prudential Infrastructure, Tata Infrastructure and so on are good enough.

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